Robert Rand, BURN Editor

In Sochi, Russia, on a warm summer evening in August, 2005, Vladimir Putin, the Kremlin leader, stood on a pier overlooking the Black Sea with his friend, Silvio Berlusconi, the Italian Prime Minister. Their wives were with them, and the group had just enjoyed a sunset walk along the beach. The previous day, according to The Moscow Times newspaper, Putin had shown Berlusconi his new pony, which the Italian, casually dressed in rolled up sleeves and a sweater tossed over his shoulders, leaned over and petted as a smiling Putin stood nearby.

The two men liked each other, and their relationship reflected a longstanding bond between Italy and Russia. In the 15th century, Moscow claimed the title “Third Rome” after the fall of Constantinople. Peter the Great built St. Petersburg with the help of Italian architects. Myriad Russian writers found inspiration on the banks of the rivers Tiber and Arno. During a visit to Rome in 2000, Putin dedicated a monument to Alexander Pushkin, the great Russian poet.  “The level of our relations, including personal ones, is such that interstate problems just don’t exist,” Putin told Berlusconi, the Moscow Times reports.

south stream pipeline

The South Stream pipeline on its way through Bulgaria. (Photo: Gazprom)

Putin invited his friend to Sochi to talk about energy, in particular natural gas. The Russian presided over a resource rich country and wanted to increase his reach into European markets. The Italian wanted a reliable source of gas and contracts for energy companies back home. Negotiations ensued. Four years later, in 2009, Berlusconi returned to Sochi. Putin, seated behind the wheel of a black limo, picked Berlusconi up at the airport. Russia’s Channel One says Putin whisked him to a meeting where Italy joined a consortium of countries building a pipeline to the West that now runs more than 300 miles under the Black Sea.

Dubbed the “South Stream”, the pipeline, which is slated to start up next year, will bring Russian natural gas directly to Italy and elsewhere in southern and central Europe. It bypasses Ukraine, the transit state for a different Russian pipeline that currently provides the EU with much of its natural gas. Pricing disputes between Moscow and Kiev in 2006 and 2009 led Gazprom, the Russian state energy giant, to shut down that line, causing serious energy shortfalls in Europe.

If Putin was in the driver’s seat in Sochi in 2009, his control over EU gas exports looms even larger now in the wake of the crisis in Ukraine. The concern is that Moscow might manipulate EU and Ukrainian access to Russian gas if the West punishes Putin for his move into Crimea. The New York Times reported today that to offset Putin the U.S. wants to reduce Russia’s energy grip by exporting American shale gas to Europe, which would decrease EU dependence on Russian supplies. However, the New York Times says implementation is several years down the road since U.S. export terminals are still under construction.

The Russians charge EU countries a lot of money for natural gas. European gas prices are three times higher than in America, where, in contrast to Europe, there is a natural gas bounty thanks to fracking.  Fracking, or hydraulic fracturing, is the technology that injects a highly pressurized cocktail of fluids and substances into the ground to extract gas from shale formations.

Poland is set to become the first European country to start commercial shale gas production, according to Bloomberg. Britain, Romania and Ukraine are also interested, as is Italy. But environmental concerns have slowed the move towards fracking in Europe. Opponents, and there are many, say fracking’s mix of water and chemicals is toxic. France and Bulgaria have banned the technology, and Germany has a moratorium in place.

The Ukraine problem has made the debate over shale gas extraction more urgent. Europe must either “embrace shale gas or embrace Russia,” warned Paolo Scaroni, CEO of Eni, the Italian energy conglomerate that has partnered with Gazprom in the South Stream pipeline project.

Eni is collaborating with a Ukrainian company to explore and develop natural gas formations in Ukraine, which is thought to have some of Europe’s most promising shale deposits. Ousted Ukrainian President Viktor Yanukovych supported fracking, but some politicians in the movement that deposed him think differently, citing environmental concerns and corruption.

A few months before Yanukovych’s fall from power Berlusconi suffered his own high stakes drama. Last November, he was forced off the central stage of Italian politics when the Italian senate expelled him following a conviction for tax fraud.

Nicknamed Il Cavaliere (“The Knight”), Berlusconi left public service with a reputation for sexual indiscretion, corruption and wily political governance. Berlusconi’s sleight of hand allegedly involved the Kremlin. In December, 2010, Wikileaks published a cable from the U.S. embassy in Rome citing allegations by Italian politicians that “Berlusconi and his cronies are profiting personally and handsomely from many of the energy deals between Italy and Russia.”

Berlusconi denied these allegations, stating the U.S. clearly knows “that I have absolutely no interest in any other country; that there are absolutely no personal interests, and that I only look after the interests of the Italians and my country.”

In the weeks following Berlusconi’s ouster, The Times of London said Italian media reported that Putin thought about making his old friend the Russian Ambassador to the Vatican, a move that would have allowed Berlusconi to keep a diplomatic passport.

Interestingly, the crisis in Ukraine has boosted Berlusconi’s profile in Italy. In a move that generated publicity, the leader of Berlusconi’s political party, as well as the party’s newspaper, said that the current Italian government should dispatch Berlusconi to negotiate with Putin to defuse the Ukraine crisis. And Italian press reports said the U.S. Ambassador to Italy, John Phillips, lunched with Berlusconi earlier this week.