Nord Stream 2: The Last Rubicon for the Liberal Order

_ Nora Topor Kalinskij, analyst, Russia Institute, King’s College. London, 24 December 2018.

The European Parliament passed a resolution last Wednesday calling for the Nord Stream 2 gas pipeline project to be cancelled. This statement came a day after the US House of Representatives passed a resolution in favour of sanctions against the pipeline project. Yet at this stage, only a force majeure could stop the completion of Nord Stream 2.

As North Sea gas supplies decline in coming years, Europe will need to increase its gas imports to meet domestic demand. The Nord Stream 2 pipeline is set to increase Russia’s delivery capacity to Europe, in order to meet its energy needs. The United States, and certain EU members like Poland, Lithuania and Latvia condemn the Nord Stream 2 pipeline as a geopolitical move from Russia to lock Europe into energy dependence and deprive Ukraine of a major source of revenue.

What German industry, and more broadly European industry is dependent on is not Russian gas itself. Rather, it is addicted to cheap gas. The current price of Russian gas is one by which European industry remains internationally competitive. The so-called dependence of the EU on Russian gas supplies holds only so long as Gazprom offers cheaper gas than other sources, including US LNG. Europe has the option of replacing its imports of Russian natural gas with gas from other sources. Doing so at the expense of the international competitiveness of European industrial production is just not a price that German and other European industrial producers, and their governments, are willing to put up with.

The European Parliament’s resolution calling for the cancellation of Nord Stream 2 is not binding. Its advice will be ignored by the executive at EU level, and in the countries involved in the Nord Stream 2 project. The only way that Brussels could threaten the pipeline’s completion would be by adding it to the sanctions on Russia adopted in response to the Ukrainian crisis.

This will not happen because the adoption of new sanctions requires unanimity among member states. Sanctions blocking Nord Stream 2 would be first and foremost be opposed by Germany. Germany, Sweden and Finland have already granted permits for the construction of the pipeline. Revoking these permits is not on the table: it would undermine the credibility of the three states and their companies in future business transactions. Hence, the construction of Nord Stream 2 will continue undisturbed.

This is true despite US threats to impose sanctions on the Nord Stream 2 project. The Trump administration is lobbying for Europeans to meet their growing need to import gas by turning to US liquefied natural gas (LNG), rather than to Russian pipeline gas. If this were to happen, the US would kill three birds with one stone: first, it would open a market for its emerging shale gas industry. Second, it would win back a share the markets currently taken up by European industrial products whose prices would rise as a result of more expensive energy input. Third, it would reduce Gazprom’s revenue from its primary market, and in turn the Russian government’s revenue from the energy sector on which it heavily relies.

So far, the US’s strategy to thwart Nord Stream 2 has been to convince Europeans to abandon the project themselves by threatening them. The non-binding resolution calling for sanctions on Nord Stream 2 as part of the Countering America’s Adversaries Through Sanctions Act is in line with this strategy. The problem for the US is that they cannot act on these threats, because the cost would be too high. 49 percent of shares in the Nord Stream AG is held by European shareholders. Sanctioning Nord Stream 2 would essentially mean directly targeting supposed US allies on the continent. This would amount to a declaration that the liberal order of free trade and global integration that the US has promoted for decades is obsolete. US elites that support this order are still too strong to accept such a move. In effect, this strengthens the position of Germany as a geopolitical actor.

Neither Brussels nor Washington can stop the completion of Nord Stream 2 with diplomatic or economic means. The European states involved remain committed to the project. At this stage, the only thing that could halt the project and dramatically alter Russia’s share in the European gas market is a force majeure – for instance, full-blow inter-state war in Ukraine.

Source: valdaiclub.com/

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