When business meets politics, the result may be quite contentious. When international business meets international politics, it can result in geopolitical disarray. Such is the case of Nord Stream 2, a natural-gas pipeline running from Russia to Germany that is owned and operated by Nord Stream AG. According to both Angela Merkel and Vladimir Putin, Nord Stream 2 is a purely economic initiative. Yet, the business of two great powers — Germany and Russia — has the potential to profoundly impact the Central European geopolitical scene, challenging the security of many European countries and deepening economic inequality among them.
Nord Stream 2 is not a new operation. The 1,224-kilometer pipeline is planned to be built mostly in parallel with its predecessor, Nord Stream 1, which already connects Russian Vyborg with German Greifswald through the Baltic Sea. Nord Stream 2’s objective is to increase the annual capacity of Nord Stream from its current 55 to 110 billion cubic meters, effective beginning in late 2019. As a continuation of the existing pipeline link, Nord Stream 2 may not seem like a substantial change in the European energy infrastructure. Chancellor Merkel claims that the project does not pose a threat to gas diversification in Europe or to Ukraine’s role in gas transit traffic. However, her assurances are not compelling to other states in the region, especially considering Germany’s economic interest in the project.
A Win-Lose Project
Germany, the biggest natural gas consumer in Europe, has strong business and economic motivations for supporting the project. It will be a step toward realizing the country’s Energiewende decarbonization policy, and also presents an opportunity to become an energy hub for Western Europe. Nord Stream 2 is undoubtedly a promising opportunity for cheaper and more secure gas supply for Western consumers, as a direct connection from Russia will mean more independence from the complicated economic and political situation among Germany’s eastern neighbors.
The project is lucrative for both German energy providers and German politicians. For the latter, the initiative not only serves as an undertaking to impress voters, but also as an investment for their future careers. For instance, former German Chancellor Gerhard Schroeder has found a new position as the chairman of Rosneft, a Kremlin-owned oil-producing giant, despite it being under sanctions. He also chairs the Nord Stream 2 Shareholders Committee. In an interview with the HPR, Germany’s Federal Foreign Office emphasized that “since the Nord Stream consortium is a private stock company, Germany is not a member of this consortium and does not generate any turnover. The role of German authorities is limited to issuing the construction permits for the parts within German territory.” The spokesperson also added that the imports of Russian energy are not a new phenomenon, as they started in 1973 during the Cold War. While German officials have not necessarily acknowledged the financial benefits of Nord Stream 2, the implicit economic benefits are still transparent.
However, the project does not make economic or strategic sense from the perspective of the European Union. In particular, the bypassing of transit countries in Eastern Europe has both economic and political implications. It may alter the flow of currently existing pipelines in Europe, such as the Yamal-Europe pipeline, whose route through Russia, Belarus, and Poland connects Western Siberia with Germany. It may also change the economics of the proposed Baltic Pipe, which would transfer natural gas from Norway to Denmark and Poland. As a result, the differences between prices for German and for other Central European consumers may deepen, a possibility arising from Gazprom’s ability to discriminate between countries in the region. These concerns have become a source of disagreement between German and Polish authorities, and have prompted a multiparty group of German members of Parliament to appeal for European solidarity in an open letter to the German government.
Not Only Economics
The venture also offers more than just economic benefits for Western European countries. While Nord Stream 2 is a joint venture between several international conglomerates — Russian Gazprom, German Wintershall and Uniper, French ENIGIE, Austrian OMV, and British-Dutch Royal Dutch Shell — Gazprom is the sole shareholder of Nord Stream 2 AG, the company that will operate the pipeline. This provokes questions about the intentions behind the project; in Russia, the line between private business interests and state policy is not always clearly drawn.
Central-Eastern European and Baltic countries are naturally concerned about growing Russian influence, which may threaten the region’s security, political stability, and economy. They also do not want to see Western Europe dependent on Russia, or let Germany and Russia expand their power as two regional hegemons that act bilaterally in strategic geopolitical decisions affecting Europe. Denmark and Sweden have expressed similar concerns, and also drawn attention to the pipeline’s environmental implications.
Despite these reservations, Sweden has given Nord Stream 2 the necessary permits, leaving Denmark as the last country to grant approval. However, Danish consent may not be absolutely necessary for Nord Stream 2’s success, as Russia is already seeking new routes to avoid Denmark’s territorial waters. In any case, as the Polish Ministry of Foreign Affairs informed the HPR, “the project has far-reaching consequences for Europe’s energy security and competitiveness of the gas market in the EU,” and the promoters of the gas pipeline “are trying to avoid common market and legal rules.” The Ministry also noted that the European Commission, the European Parliament, and many other EU Member States share the Polish standpoint on the political dimension of this project.
Ukraine Forlorn
Currently, Russia provides Europe with about 30 percent of its natural gas needs, with 40 to 50 percent of that supply transited through Ukraine. Now that Nord Stream 2 will cover Western Europe’s demand for gas independently, Ukraine’s role in gas transport will be marginalized. Therefore, the country will not only lose its revenue from transit fees and pay higher prices for natural gas — about half of Ukraine’s natural gas is supplied by Gazprom. It may also receive less support from Western European countries in the event of territorial aggression by Russia against Ukraine, as Western European countries reliant on Russian gas may submit to the Kremlin’s pressure. Such countries will be reluctant to take resolute decisions, which challenges European solidarity.
The Kremlin-owned Gazprom has served as a tool to pursue political goals in the past. Thanks to its control over the gas supply to Ukraine, Russia was able to exert pressure on its western neighbor even before the annexation of Crimea. The tensions between Kiev and Moscow have also resulted in other gas crises necessitating the involvement of the European Union. Dr. Marek Jan Chodakiewicz, a Polish-American professor of history currently at the Institute of World Politics, told the HPR in an interview that the reason Germany does not seem concerned about the potential destabilization is that “Kiev has not much to offer to Berlin.” He continued, “the Ukrainian people can afford Germany’s sophisticated products even less than the Greeks,” as opposed to Russia, “a vast market for German goods.”
Now that Russia is close to becoming a regional monopolist, it will gain even higher revenues from providing gas, which, according to the Polish foreign affairs ministry, “will strengthen Russia’s ability to pursue an aggressive policy.” Furthermore, as the ministry emphasized, Nord Stream 2 “can be used to expand Russia’s ability to increase military presence and activities in the Baltic Sea region, which in turn may affect the freedom of NATO’s operations there.”
Chodakiewicz explained that Germany forfeits its commitment to NATO “because recreating a Bismarckian Berlin-Moscow axis is geopolitically more advantageous for Germany,” which wants to “push the United States out” as the “last occupier of Germany after World War II.” The United States, in turn, “has no strategy to speak of; but it does have the tools: its own energy.” Using its power, as Chodakiewicz argues, the United States could potentially support the “Intermarium project,” a proposed geopolitical alliance among Central and Eastern European countries that would promote their political, economic, and cultural integration. Therefore, the pipeline may become a stimulus for a profound change in geopolitical arrangements in the region in the near future.
Think Twice
Ukraine’s energy crisis earlier this year offers a preview of what may become the new norm. This March, Russia’s Energy Ministry announced termination of contract with Ukraine’s Naftogaz, a decision that would not pose a threat to the European Union. As Russia announced the decision, Ukraine found itself in what Petro Poroshenko, the current Prime Minister of Ukraine, called a critical situation. While the country was ultimately supported by the gas supply from Hungary, Poland, and Slovakia, this incident put into question Gazprom’s reliability, which is particularly relevant if Gazprom becomes the major gas supplier to Western Europe.
Consequently, both Eastern and Western Europe have reasons to fear potential challenges to peace and stability from Russian domination in the energy sector. The issue also raises concerns in the United States; President Donald Trump criticized Nord Stream 2 at the U.N. General Assembly as a potential threat to the energy security of Europe and the economic prosperity in Ukraine. Currently, Ukraine’s poor economic performance has led hundreds of thousands of its citizens to emigrate from the country to seek labor opportunities in Poland. They could potentially supply with cheap workforce also Germany, if the latter opens its labor market to them. The short-term benefits of Nord Stream 2 for Germany and Russia are undoubted, but the cost borne by their neighbors may start a domino effect on the geopolitics of Central and Eastern Europe.
Image credit: Unsplash/Zbynek Burival