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Why Gazprom’s Nord Stream 2 Divides The West.

London, Wednesday, 26 January 2022

As Western nations try to prevent Russia from invading Ukraine, Nord Stream 2, a long-promised energy infrastructure project that has already strained relations between Germany and the US, might become a significant bargaining tool.

The $11 billion gas pipeline, operated by Russia's state-owned energy giant Gazprom, goes from western Siberia to Germany, tripling the capacity of the Nord Stream 1 pipeline, which is already in use.

While Germany has insisted that Nord Stream 2 is merely a business project, it also has geostrategic implications, bypassing Ukraine and potentially depriving it of the $2 billion in transit fees that Russia presently pays to deliver gas via its territory.

The pipeline, which was completed in September, has the potential to heat 26 million German households at a low cost.

German officials, on the other hand, have yet to provide Gazprom the final legal license it requires to commence operations.

The pipeline has been considered by the US as a strategic tool for Russia to damage energy and national security while also strengthening Moscow's clout over Europe, where gas prices are surging.

Ukraine and Poland have spoken out against the pipeline, putting Washington in a tough position with some of its European allies. It has also prompted political squabbling within Germany's new coalition government, as well as a split in the West about how to respond to the issue.

Last week, German Chancellor Olaf Scholz, who had previously declined to speak out publicly about the potential of the pipeline being shut down if Russia attacked Ukraine, gave his strongest hint that this was still a possibility.

"It is obvious that there will be a huge cost, and all of this will have to be discussed if there is a military action against Ukraine," Scholz said during a press conference with NATO Secretary General Jens Stoltenberg.

The US Senate failed on January 13 to pass a bill offered by Republican Senator Ted Cruz that would have imposed sanctions on Nord Stream 2.

President Joe Biden's administration had pressured Republican senators against the bill, fearful of its impact on US-German relations and the potential of further antagonizing Russia in the midst of the Ukraine crisis.

President Volodymyr Zelenskyy of Ukraine had asked the Senate to accept the Nord Stream 2 penalties, despite Germany's request that the US Congress not support sanctions.

As part of a deal with Germany, Biden lifted sanctions on Nord Stream 2 AG, the Russian-owned Swiss corporation in charge of the pipeline project.

However, the US's approach has not had the desired impact in Germany, and Russia has ratcheted up the pressure, claiming that restrictions on the pipeline will result in reduced energy supplies and higher gas prices in Europe, according to the state-run Tass news agency.

"The more the US talks about punishing or criticizing the idea, the more popular it becomes in German society," Stefan Meister, a Russia and Eastern Europe researcher at the German Council on Foreign Relations, explained.

"The pipeline is supported by the majority of Germans; only the elite and the media are opposed to it."

A lack of gas flows from Russia has been largely blamed for a gas supply deficit in Europe. It has disproportionately impacted Germany's low-wage employees, on whom Scholz's Social Democrats (SPD) rely for support.

Hundreds of thousands of Russian troops have been stationed near Ukraine's borders, raising fears that Moscow could attack at any time.

The United States and the United Kingdom have began removing some of its embassy personnel from Kyiv, but the European Union has declined to follow suit, citing a top diplomat's statement that they did not want to "dramatise" the situation any further.

Although the US has vowed to increase security aid to Ukraine, recent discussions between the West and Russia have failed to reach an agreement, with several of Moscow's demands being dismissed as non-starters.

Ukraine should never join NATO, and NATO's military activities should be limited to member states, including Poland.

However, a following round of negotiations between US Secretary of State Antony Blinken and Russian Foreign Minister Sergey Lavrov in Geneva last week appeared to have eased tensions, at least briefly.

The situation appears unlikely to be resolved fast - few people desire a conflict, but one may be accidently ignited by a political blunder.

More conversations between Lavrov and his British colleague, Ben Wallace, have been agreed to by Russia.

Ukraine, a former Soviet country bordering the EU and Russia, has strong social and cultural ties with Russia, with Russian being widely spoken. Despite winning independence in 1991, Russia continues to regard Ukraine as a vital territory and has long opposed its accession to European institutions.

Two months after the Nord Stream 2 certification process was halted, it has emerged as one of the most powerful remaining levers for the West to sway Russian military decisions in Ukraine.

The pipeline is significant for Russia because it eliminates the dangers of transferring gas through transit countries, allowing Gazprom to ship gas directly to Germany, its most important European customer.

The pipeline might save them roughly $1 billion per year in operating costs, as transit via Ukraine is particularly costly.

"Germany has resisted US pressure because it requires reliable gas supplies from Russia, and despite the fact that it is now one of the world's top exporters of liquefied natural gas, the US cannot replace Russia as Germany's primary gas supplier," said Ronald Smith, senior oil and gas analyst at BCS Global Markets.

"Transit fees, which are what makes NS2 a cheaper choice for shipment — a vital source of hard currency income for Ukraine – stand to lose several billion dollars every year."

Bypassing Ukraine, the country's leverage with Russia was significantly reduced, as was its income. However, Europe and Germany rely on Russian gas, and the present crisis has exposed vulnerabilities, so Nord Stream 2 has become a deterrent to war in Ukraine as well as a punishment option if one occurs.

(Research and editing by: The Decision Maker)


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