The transit oil and gas pipeline and the role of bargaining: A non-technical discussion

Transit oil and gas pipelines are growing in relevance, and face a number of topical problems. One of such issues is the problem of potential disruption from a number of sources, notably post-construction behaviour of the transit country. Present and future pipelines face the risk of continuous conflict over legal, economic and political issues. Once the pipeline is built and in operation, the threat of disruption of the pipeline by the transit country over disputed transit terms exists. This is due to two key problems: first, a shift in bargaining powers to the transit country upon construction and operation of the pipeline and, second, changes in the value of the throughput imply price changes that can affect the behaviour of the transit country. This paper discusses the role of basic bargaining principles in cross-border oil and gas pipelines involving transit through one or more countries. It finds that the motive behind the pipeline plays a key role in the prevention of potential disruptions to the pipeline due to rent squeezing. Also, although the potential of such disruptions does exist, there are a number of factors that could serve to mute the consequences of shifts in bargaining power to the transit countries.