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Nord Stream 2: Germany’s Faustian Bargain With Gazprom And Why It Matters For The Baltics – Analysis

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By Matthew Thomas*

(FPRI) — Since the poisoning of Russian opposition leader Alexei Navalny in late August and his subsequent rehabilitation in a Berlin hospital, the controversial and beleaguered gas pipeline project between Russia and Germany has received intensified press attention. Nord Stream 2, Germany’s joint energy project with Russia’s state gas company, Gazprom, would  provide Western Europe additional gas flows directly from Russia, up to 110 billion cubic meters annually, via the Baltic Sea. In this partnership, Germany has poised itself to receive Russian gas at cut-rate prices in return for its cozy relations in the energy sphere, while profiting off selling this gas to Western Europe. In turn, this will continue to deepen Western Europe’s dependence on Russian gas and reinforce the political, economic, and foreign policy divide between Eastern and Western member states in the EU and NATO. Likewise, it will allow Russia to bypass countries like Poland and Ukraine in its near abroad, leaving these states more vulnerable to the use of strong-arm tactics to coerce political submission.

The pipeline has prompted blowback, including US sanctions designed to thwart implementation of the project expected to undermine regional security in Europe. For the Baltics, the intensification of this East-West divide is worrisome, as Western European nations have tended to take a much softer stance on Russia. A Western Europe going in any direction towards greater cooperation and economic integration with Russia could embolden Russia and soften the position of the EU. Without solidarity in the EU, Eastern Europe and the Baltics would be in a weaker position economically and politically. Likewise, this lack of solidarity among Western Europeans for their Eastern allies could weaken the credibility of NATO, as states on the Eastern Flank may be unable to count on a strong response from their Western European allies.

Many observers wondered if Navalny’s brush with death might also be the death knell of Nord Stream 2. Had the Kremlin finally shot themselves in the foot by poisoning Navalny? Indeed, opposition to the project began to foment in Germany as outrage grew over the attack. Yet, politically, this amounted to practically nothing, as Germany’s Green Party found itself practically alonecondemning the on-going pipeline project.

Even opponents in Germany’s Christian Democratic Union (CDU), say the project is near completion and is therefore pointless to fight. Likewise, Foreign Minister Heiko Maas’ statement after it was confirmed that Navalny had been poisoned with the Soviet nerve agent Novichok was remarkably weak, expressing his “hope” that Russia would not “make [Germany] change [its] position on Nord Stream 2.” Effectively, this amounted to punting responsibility for the project and allowed Berlin to bide its time and let this incident blow over. Navalny’s recovery has since proved a blessing not only to him, but to Merkel, as outrage has waned and attention has once again moved elsewhere.

The stall tactics have worked for Berlin: Nord Stream 2 will press on. This, of course, could only be expected: Merkel has the backing of the political establishment in Germany, and as news articles critical of US sanctions on the project from earlier in the year demonstrate, Berlin has the backing of a political establishment in the US and Europe that finds fault not with Germany for pursuing Nord Stream 2, but with the United States for creating problems with its ally. But it is fair to ask who is causing problems for whom. Germany’s recalcitrance on Russia not only has consequences in its relations with the United States — it also serves to weaken the transatlantic alliance. For the Baltic states, this is the most critical aspect of the Nord Stream 2 project: A NATO divided is a NATO less able to take effective defensive action. Worse, a compromised Germany could seriously hamstring any response to Russian aggression in the Baltics or Central and Eastern Europe.

Russia’s Use of Energy as a Tool of Coercion

Russia has a long history of using energy as a tool of diplomatic leverage and coercion. During the Soviet period, the USSR exploited a pipeline infrastructure oriented on an east-west axis through continental Europe, fueling European dependence on Soviet gas and funding the Soviet arms program. This has not changed. The Kremlin uses dependence on this infrastructure to coerce favorable outcomes in European capitals, threatening miserable, cold winters by cutting off the gas supply. This not only affects its direct neighbors, but most of the EU as well. When Russia threatened to cut off Ukraine’s gas supply in 2014, the EU delayed implementation of a free-trade agreement with Kyiv until January 2016 — a major concession to Russia. Since Nord Stream 2 will allow Russia to bypass Ukraine while delivering gas to Western Europe, the risk of cold winters in retribution for policies unfavorable to Russia grows in the east.

Understanding that Western Europe may not come to their aid, many Central and Eastern European states in the EU and NATO have elected to pursue greater energy independence and even develop ties with the United States in liquified natural gas (LNG). Poland and Lithuania both, for example, have constructed LNG terminals at Świnoujście and Klaipėda respectively. Deepening economic ties in the energy sector with Nord Stream 2 could enable Russia to directly coerce favorable outcomes in Western Europe, while also allowing energy blackmail in the east to go unchecked by now unaffected western countries.

To a great extent, avoiding the consequences of being bypassed by Russian gas flows has been the motivation of many Central and Eastern European states to commit to diversification of energy resources as Germany presses ahead with Nord Stream 2. In the Baltics, Gazprom had a monopoly in the gas market, which has now been broken by the construction of new infrastructure and by implementing plans for greater integration with the Nordic and broader European markets. Among the Baltics, this is most evident in Lithuania, where the Klaipėda LNG terminal has the capacity to supply all three countries. Other countries in Central and Eastern Europe are now following the Baltic countries’ lead to ensure stability of supply and avoid being at the mercy of Russia’s (and Germany’s) geopolitical whims. Poland, for example, has significantly reduced its dependence on Gazprom through imports of Norwegian gas by pipeline and American LNG at its Świnoujście terminal. 

The pipeline project falls squarely within Russia’s broader strategy of hybrid warfare. In the energy sector, Russia seeks to leverage its strengths by developing influence among the political and business elite, shaping policy outcomes in target countries. This could eventually lead to the ability to go even as far as controlling decisions made by legislative and executive bodies in the target country. Known as “state capture,” this strategy is most evident in the energy sector, as oil and gas are among Russia’s greatest export commodities. Part and parcel of this strategy is a concept called “Schroederizatsiya” (“Schröderization”). Named for former German Chancellor Gerhard Schröder, the term refers to the corruption of a target country’s political elite. Schröder, considered by the Russian opposition to be “Putin’s masterpiece,” is one of the leading figures of the anti-American and radically pacifist German left wing, and has long been cozy with Russian President Vladimir Putin. He is now the chairman of the board for Nord Stream AG, the Gazprom-owned consortium created for the construction and operation of the original Nord Stream pipeline and Nord Stream 2. Today, Schröder’s Social Democratic Party (SPD), the largest left-wing party in Germany, remains firmly behind Nord Stream 2.

German Motives and Energiewende

Why does Germany continue to push the project forward? Indeed, why did it pursue Nord Stream 2 in the first place? Put simply: economic power and influence over its neighbors in Europe. At its most basic level, Nord Stream 2, which runs parallel to the older Nord Stream pipeline, would deliver gas to help tide Germany over as it pursued its hallmark Energiewende policy. As Germany has phased out coal and nuclear power in favor of wind and solar, prices have skyrocketed and individual households have borne the brunt of these costs. Nord Stream 2 provides the potential to not only defray the short-term costs of switching to a solely renewable energy market, but also to make Germany a transit hub for cheap Russian gas to Western European neighbors.

Indeed, along with the SPD and fringe parties to the left and right (such as Alternative für Deutschland [AfD] and Die Linke), powerful energy giants in Austria, the Netherlands, and Germany itself are powerful supporters of the project and at one time were key financial backers. Meanwhile, Germany’s coalition government explicitly maps out “embedding of the Energiewende in the European context” as a key goal. In so doing, it has campaigned extensively against the use of coal and nuclear power in Europe. Consequently, countries that follow Germany’s lead will find themselves in the same position, reliant on natural gas to temporarily keep prices at acceptable levels. As Germany is already one of the largest gas sellers in Europe, Nord Stream 2 would put Germany in a dominant position to influence energy prices within the EU. In turn, this will deepen German dependence on Russia and European dependence on Germany.

US Sanctions and European Viewpoints

In a perfect world, close business relations with Russia would simply be an opportunity for economic expansion for Germany and Western Europe. But relations with Russia contain inherent security risks. The United States, many EU and NATO members, and even most of Angela Merkel’s own Christian Democrats (CDU) vehemently oppose the project, noting that Nord Stream 2 opens the door for Russian domination of the European gas sector.

Further, it opens the door to state capture in the energy sector in Germany. While Germany styles itself as a bulwark of European unity and solidarity, its self-interested and Faustian brand of realpolitik displayed in making deals with Russia in the energy sector is a betrayal of both EU member states to the east, as well as the transatlantic alliance. In 2016, the leaders of eight Central and Eastern European EU member states signed a letter objecting to the project, stating that it “would generate potentially destabilizing geopolitical consequences,” particularly with regard to the energy security of member states still reliant on Russian gas transit flows through Ukraine. Since then, as Nord Stream 2 has pressed forward, the signatories of this letter (Estonia, Latvia, Lithuania, Czech Republic, Hungary, Poland, Slovakia, and Romania), along with Austria, Croatia, Slovenia, and Bulgaria, have joined in the Three Seas Initiative, which includes several projects aimed at reducing dependence on Russian gas in Central and Eastern Europe to avoid the devastating effects of Russia’s gas wars with Ukraine on their own countries.

Indeed, Lithuania, Latvia and Estonia, along with Poland, have signed yet another joint-letter denouncing Nord Stream 2 as an “instrument of Russian state policy” to be viewed “in the broader context of today’s Russian information and cyber-hostilities and military aggression.” As Brookings points out, the pipeline will weaken the EU’s sanctions regime against Russia, as well as its overall policy toward Russia. Likewise, at full capacity, the pipeline will allow Russia to totally bypass Ukraine, resulting in an over $2 billion loss annually. 

In the United States, Senators Ted Cruz (R-TX) and Jeanne Shaheen (D-NH) have led the charge in the Senate against Nord Stream 2, co-authoring the sanctions packages against the project. These sanctions have targeted financial institutions, insurers, port facilities, and other critical facilitators of the project if they provide their services to any vessels involved in laying the pipeline. They have largely been successful in scaring off potential business partners for Nord Stream 2. For example, the Swiss firm Allseas pulled out of the project immediately after US President Donald Trump signed the sanctions package into law. While this will not stop either Moscow or Berlin from implementing the project themselves, it will force Moscow to eat the majority of the costs and will certainly delay the project’s completion and implementation. Notably, Berlin remains largely silent and maintains a posture of passivity about the project, deflecting attention and seeking to minimize scrutiny. Yet, Merkel has placed pressure behind the scenes on her neighbors, for example, in September, Denmark quietly backed down on stall tactics it had imposed, enabling the project to continue.

Conclusion

What does all of this matter to the Baltic states? They are, after all, along with Poland and the Nordic states, vocal opponents of the project. For the Baltic countries, Nord Stream 2 is less about energy security and more about military security. Having done yeoman’s work to break up Gazprom’s vertical monopoly in their territory and to pursue diversification of their energy supplies, the Baltic states have little to be worried about vis-à-vis gas transit routes and their own gas supply. But Nord Stream 2 does pose the very serious threat of state capture in the German energy sector, which could further serve to neutralize Berlin’s usefulness and solidarity to NATO. Further, the project pits Germany and like-minded countries against Eastern Europe in both the EU and NATO, deepening already existing divisions in both institutions and reducing the chances of effective action in either. A compromised, or “Schröderized,” Germany will serve to weaken solidarity in NATO. It will open the door for greater Russian influence over those allies who have a greater affinity for Berlin than for Washington, and for whom threat perceptions of Russia are not so great as on the Eastern Flank. A weakened NATO is an opportunity for Russia. But for the Baltics, who rely on NATO for their security, it is an existential threat.

*About the author: Matthew Thomas is an analyst at Baltic Security Foundation and has served on independent research projects for Atlantic Council and Jamestown Foundation.

Source: This article was published by FPRI

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