President Putin tightened Russia’s grip on European energy markets yesterday by striking a $1.25 billion (£645 million) deal to build an oil pipeline across Bulgaria and Greece.

The trans-Balkan pipeline will pump oil from the Bulgarian port of Burgas to the Greek city of Alexandroupolis on the Aegean, easing shipping congestion in the Bosporus Strait and giving Russia direct access to the Mediterranean.

The agreement, signed in Athens by Mr Putin and the Prime Ministers of Greece and Bulgaria, Costas Karamanlis and Sergei Stanishev, ends 13 years of negotiations over a project first conceived in 1994.

The 279km (173mile) pipeline will carry 35 million tonnes of oil a year when it opens in 2009, with the potential to rise to 50 million tonnes. Russian oil delivered by tankers in the Black Sea will be pumped to the Mediterranean for sale to Europe, the US and Asia.

Tanker delays in Turkey’s Bosporus Strait cost oil companies about $1 billion annually, with ships frequently held up for ten days or more. Russia will control the new pipeline, owning a 51 per cent stake through the state companies Rosneft, Gazprom and Trans-neft, with Greece and Bulgaria sharing 49 per cent.

Russia provides the EU with one third of its oil and 40 per cent of its natural gas. The pipeline deal will entrench its market dominance, but Mr Putin insisted that all countries would benefit from a strengthened supply network.

Greece and Bulgaria will earn tens of millions of dollars in transit fees from the pipeline, while improving energy security through the construction of storage facilities.

“The entire global energy market is interested in this project,” said Mr Putin. “The sooner we begin, the better.”

Greece views the trans-Balkan pipeline as being key to its ambition to become a regional energy hub. A Turkish-Greek-Italian pipeline delivering natural gas to Europe from the Caspian and the Middle East begins operation next year.

Mr Putin indicated that the project would boost links with US companies and others developing oil reserves in the Caspian. The US hopes that the pipeline will provide opportunities to expand the route operated by the Chevron-led Caspian Pipeline Consortium, which delivers oil from the Caspian to the Black Sea.

Russia also plans a new pipeline to bypass its neighbour Belarus and prevent a repeat of January’s interruption of oil supplies to the EU. Gazprom’s reputation was dented when it closed the Druzhba pipeline through Belarus in a dispute over customs duties.

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