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Europe in Anticipation of the Results of a “Harmful Deal”

2021 / 06 / 22

Davit Shatakishvili, MPA, Tbilisi State University and German University of Administrative Sciences Speyer
 

Since 2015, the United States, Russian Federation and European Union have been experiencing more discord between them than usual due to the natural gas pipeline Nord Stream 2, with the united Europe principle being overshadowed by the differing political and financial interests of individual member states. Given its strategic and economic importance, the project attracted international attention from the outset, and has been a basis of sanctions, criticism and confrontation between various actors on the world stage. Each country assesses the results of the project differently to this day. For Russia, apart from economic importance, this project also has political significance. For some in Europe, it is leverage for strengthening Moscow’s influence in Europe, while other European states talk about its economic benefits and the diversification of energy markets. The United States in this case is a third power, which is searching for strategic connections in Europe; however, we cannot at the same time ignore its determination to supply the world with its own liquid natural gas. The positions of various states have changed or been re-assessed multiple times during the implementation of the project. It is interesting to know at what stage these processes are today, and what the most recent positions of the international actors are, given the fact that the project is expected to be concluded in September 2021 and its component objects will be starting to work in a testing regime from next week.
 

A “give-up” justified by constructiveness, or a strategic step?

When working as a Vice President in the Barack Obama Administration, the current President of the United States of America, Joe Biden, actively opposed the Nord Stream 2 project, underlining Russia’s growing influence and threats to the energy independence of Europe. Under the Trump Administration, the issue of the gas pipeline turned into an apple of discord between Berlin and Washington, with Germany accusing the then-president of stubborn, unpredictable behavior and a desire for revenge.

After the 2020 Presidential elections, those involved in the project eagerly awaited the position of the President-elect. At the beginning of this year, Joe Biden was actively considering the issue of sanctions; however, it seems that for him the sanctions have lost their point. In his latest statement, despite the fact that he opposed the very idea of this project from the outset, he said he sees no point in imposing sanctions on participating parties in a project where 95% of the work has already been completed.  In addition, he saw the risk of worsening relations with Europe and assessed hindering the project to be counterproductive. The President was heavily criticized for this position even by his own party. Biden’s position coincided with his first European tour, undertaken in June. During the visit, the President held meetings with the leaders of the European Union, as well as the Queen and the Prime Minister of the UK, representatives of NATO, and Vladimir Putin. Biden is probably aiming to normalize the relations with Europe that suffered markedly under the previous administration. After Biden’s final position was revealed, the President of Russia did not waste a moment to state that given the US’ desire to improve relations with major partners in Europe, imposing sanctions will put it in a non-beneficial position. He further expressed hope that the project will be completed without additional trouble.
 

US Energy Interests in Europe

Apart from the political aspirations that the United States has towards Europe, one other fundamental topic is important: the US has solid reserves of liquid natural gas, which it sells to the countries of both Latin America (Brazil, Chile, Mexico, Argentina and others) and Asia (including Japan, South Korea, China and India). Its desire to significantly boost exports to Europe unfortunately coincided with the Nord Stream 2 project, in which Washington saw direct risks. In 2019, at the request of President Trump, the Energy Secretary of the United States, Rick Perry, visited Europe in order to convince them of the advantageousness of US liquid natural gas. He even called Russian gas low quality, compering the product produced by the US to German cars – expensive, yet high quality. In the same period, the House of Representatives of the US Congress passed a law on opposing Russian Energy Interests in Europe, which was supposed to happen through increasing US investments.

Despite a number of hindrances, the United States has been successful in diversifying energy markets and has made significant steps towards exports to Europe in the past six years. According to the Report of the European Commission, the exports of US liquid natural gas to Europe has increased by 760% over the past six years. It is probable that Washington sees the risk of having to concede precisely these positions with the implementation of Nord Stream 2; however, they may have other strategies for dealing with this challenge, and Biden’s “concession” may be a precondition to that.

Chart 1. Exports of US liquid natural gas by country (2019-2020)

Source: US Energy Information Administration (EIA)
 

Conflict of extreme interests

From the very announcement of the idea of the project, European states had differing positions. Germany was the project’s biggest lobbyist, trying to prove the economic profitability of the project to the allies this entire time. The allies tried to stop Germany or change its mind several times, taking various “approaches.” however, they failed to produce results in all instances. There were talks about the strengthening of Russian influences in Europe, the usage of energy resources as a geopolitical weapon by Russia, the incompatibility of the project with Europe’s climate policy, and so on. In addition, lately, they even used the poisoning of Alexey Navalny in order to stop the project and give response to Russian actions in this way. European states also accused Germany of undermining the idea of united European solidarity; however, the German position with regard to this project of unprecedented scale turned out to be unshakeable.

The results of the implementation of the project will primarily be felt by Ukraine, which will lose the status of the main energy transit country. In addition, it loses one of its important leverages over Russia. Apart from political influence, Ukraine loses about USD 3 billion of transit income per year, which will be a huge loss for it. At the beginning of last week, a bi-partisan delegation from the United States visited Ukraine. The Senators promised their Ukrainian colleagues that they will once again attempt to oppose the construction of Nord Stream 2; however, whether it is realistic to stop a USD 11 billion project, 95% of which is already concluded, is difficult to say.
 

Europe in expectation of the consequences

It is beyond doubt that concrete results will appear once the project is concluded, becoming clearer and clearer as time passes. First, both the Ukrainian and the Polish-Belarussian gas pipeline will find themselves out of the game, which enables Russia to continue its military aggression in Ukraine and Belarus, creating additional risks for Europe’s national security. Apart from this, it will be interesting to see to what extent Russia’s policy in Europe will change, as it finally finds itself in full control of a valuable energy resource. It is probable that there will be attempts to gain both political and financial dividends to their maximum.

Following the latest stated position of the United States, we should expect an alteration in its political agenda towards Europe. On the one hand, it will try to find reliable footholds in Europe, normalize relations, and strengthen its influences, and on the other hand, it will definitely take steps to maintain channels for selling its liquid natural gas, and starting to formulate new strategies in order to enter new markets. In the medium-term, we should expect a revision of NATO’s policies in Europe and attempts to maximally curb Russia’s influences there, which would bring the risks of its manipulative actions to a minimum. Apart from political results, the financial situation will also be different. Ukraine will suffer substantial losses, while Germany gets transit income for transporting natural gas to Southern and Eastern Europe. In addition, the European states will have to review their energy policies and take strategic decisions. The results of the project will become more obvious with time, which will push the countries to make proactive decisions. It is on these decisions that their sustainability and stability with regard to the environment and potential threats will depend.

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