The pipeline from Bulgaria's Black Sea port of Burgas will transport crude to the port of Alexandroupolis. The project will improve networks in southeastern Europe that transport oil and gas from the Caspian Sea region to the European Union.
Russian President Vladimir Putin had threatened to scrap the deal unless economic disputes were quickly resolved.
Russia already provides other parts of Europe with a third of its oil and 40 percent of its natural gas, and the pipeline deal is likely to deepen that dependence on energy from Moscow, whose reliance as a supplier has been questioned.
Leaders in western Europe have talked of diversifying the continent's energy sources after several disruptions in supplies from Russia that resulted from price disputes between Moscow and former Soviet republics that serve as transit routes.
First conceived in 1993, the $1.2 billion Burgas-Alexandroupolis pipeline will link the Black Sea to the Mediterranean, avoiding Turkey's crowded Bosphorus strait.
Crude supplies, possibly also from Kazakhstan, will still be shipped from the Russian port of Novorossiysk to Burgas, and again out from Alexandroupolis to world markets.
Russian firms will control a 51 percent stake in the venture, including infrastructure like pumping stations, storage facilities and loading docks, leaving EU members Bulgaria and Greece with 24.5 percent each. The project will compete with other pipelines including Baku-Ceyhan, which skirts Russian soil.
The Russian consortium is made up of state oil company OAO Rosneft, pipeline monopoly Transneft, and a subsidiary of state-controlled gas giant OAO Gazprom. U.S. oil giant Chevron has indicated it may invest in the pipeline and in liquid natural gas facilities in Burgas.
The pipeline will channel 700,000 barrels of oil a day to Greece, with potential daily capacity of 1 million barrels. Construction should begin in 2008 and take 18 months.
Joining Putin at Thursday's signing ceremony were Prime Ministers Costas Karamanlis of Greece and Sergei Stanishev of Bulgaria.
Putin traveled to Greece from Italy, where he endorsed several bilateral energy agreements.
"This pipeline demonstrates how all countries can benefit, not just in the Balkans but in Europe," Putin said. "Our work was in a spirit of cooperation friendship and partnership between the three countries.
"The faster we set to work, the better things will turn out to be," he added.
Karamanlis said the deal "will benefit all three countries, and it puts Greece and Bulgaria on the world energy map."
"It will also help international markets with improved access to oil at a time when energy is a fundamental global concern," he said.
Some analysts, however, caution that pipeline deals increase dependence on a single source of energy.
Claudia Kemfert, an analyst at the German Institute for Economic Research, cautioned that such pipeline deals increase dependence on a single source of energy.
"You get a strengthening of supply, but it can create higher dependency and other problems," Kemfert said, speaking by telephone from Berlin. "You always have a trade-off. ... To avoid this we need more diversification on the supply side, and to be less dependent on Russian energy."
"We need to look more to the global market ... but pipelines are not that flexible," he said.
On Monday, Matthew Bryza, U.S. deputy assistant secretary of state for European and Eurasian affairs, visited Athens and expressed support for the pipeline.
But he added: "Where we are focusing most urgently now is diversification of gas supply ... away from its one primary supplier, Gazprom."
U.S. officials want Greece to prioritize gas from Azerbaijan in a natural gas network being built from Central Asia to Greece through Turkey, the TGI Interconnector, that is due to continue onto Italy after 2011.
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