After almost two years of frenzied action started by President Donald Trump’s decision to sanction one of Moscow’s most ambitious energy projects, the Nord Stream 2 natural gas pipeline, the United States, under the newly elected President Joseph Biden, terminated all its attempts to derail the construction works and agreed on a compromise with Germany on the fate of the pipeline. The main plan now is to both allow Russia to sell its hydrocarbons to Europe in growing amounts and to help Ukraine to develop renewable energy capabilities. On top of this, the U.S. and Europe have committed to Russia’s continuing use of Ukraine’s aging gas transportation network and to punish the Kremlin if it uses its new transit opportunities for another military attack on Ukraine.
The recent move provoked a huge outcry on the part of all those who for a long time opposed the project. Ukraine and Poland slammed the deal and continued to withstand the decision to allow the construction of the pipeline, a dozen U.S. Senate Republicans issued a statement threatening the White House with withdrawing their support for the nomination of some Treasury Department designates, and some experts from Europe and the U.S. started to depict the completion of the pipeline as causing irreparable damage to the European balance of power. Since the topic will be debated for a long time, I wish to stress, without covering the whole story, some points about the current situation and the possible main developments in the future.
The United States Suffered Its Third Consecutive Defeat
The first important point is that the United States actually suffered its third (!) consecutive defeat while meddling in Russia-Europe energy deals. In 1970, the German Social-Democratic government walked out of the 1962 COCOM-initiated embargo on supplying the Soviet Union with high-diameter pipes for allowing the first notable Soviet-German gas deal to happen, which resulted in the completion of an additional part of the Druzhba (“Friendship”) pipeline to the Russian Federal Republic that has delivered three billion cubic meters (bcm) of Soviet gas annually since 1973.
Around ten years later, the Reagan administration introduced an embargo on delivering any equipment for oil and natural gas exploration to the USSR. The embargo caused massive disarray at the G7 summit in Versailles on June 4-6, 1982. President Ronald Reagan further announced that there would be sanctions against any European producer that supplies the Soviets with necessary supplies. This was considered an American intrusion into the sovereign policy of European states – and only galvanized the French and German efforts. The embargo was lifted in November 1982, under the very same circumstances as now, as it had become obvious that the pipeline would be completed anyway. In 1984, it was made operational as the “Urengoy-Pomary-Uzhhorod pipeline” with a capacity of 28 bcm per year. It seems policymakers in Washington simply forgot this story, as it has fully repeated itself 37 years later in the current developments.
The second point is that Germany believes – and the Americans just agreed on this – that the Russia-Europe deal cannot be conditional on third-party interests. In 1970, even though the so-called Moscow Treaty on the mutual recognition of the Federal Republic of Germany (FRG) and the German Democratic Republic had already been signed, the West German officials demanded from Moscow that the new pipeline should bypass the East German territory and enter the FRG from Czechoslovakia. The same happened this time as well: Ukraine was informed only on the completion of the German-American deal, while Secretary of State Antony Blinken asked the Ukrainian friends “to stay quiet” on the new agreement. President Biden actually succeeded, before Ukrainian President Volodymyr Zelensky’s official visit to Washington, to not only meet with President Vladimir Putin in Geneva, but also to welcome Belarusian opposition leader Svetlana Tikhanovskaya at the White House. Just as a part of “historical Germany” was excluded from the 1970 deal, a part of “historical Russia” was left aside in 2021 – and it should be taken as a repeating practice and not as an anti-Ukrainian conspiracy (while, of course, the very project was partially fueled by President Putin’s emotional hatred toward Ukraine).
The third point is that, as the result of the deal, Ukraine will most probably lose its status as a principal gas transit country in the post-Soviet space. In 2020, Russia exported 158 bcm of natural gas to the European Union (with its share of the EU market remaining almost flat between 2013 and 2020). Of these, 53.2 bcm went through Nord Stream 1, operational since 2012, 55.8 bcm were pumped via Ukraine, and 32.3 bcm went via Belarus, whose main pipe Gazprom has owned since 2011. Since Nord Stream 2 has a projected capacity of 55 bcm annually, one might expect that it can fully solve the transit issue and Ukraine may be out of the game after the current transit contract expires in 2024. Since by that time both Chancellor Merkel and presumably President Biden will either have ended or be finalizing their terms in office, the post-2024 situation is now hardly predictable. It is most probable, I reiterate, that Ukraine will be sidelined in Russian-European energy deals (it should be remembered that, between 2020 and 2024, Gazprom is due to pump 225 bcm of natural gas via Ukraine, which corresponds perfectly to the 55 billion-cubic-meter-strong capacity of the Nord Stream 2). This may result in a loss of up to $3 billion in transit revenue per year, but even in Kyiv some experts have already voiced their opinions that such a turn might only accelerate Ukraine’s economic modernization and further limit its “dependency on the [Russian] enemy.”
So, the Washington deal of July 15 was almost inevitable, because of both Germany’s appetite for energy deals with Russia and American willingness to repair relations with Europe. But the deal itself raises two crucial questions.
The U.S. Slightly Hurt Its Image By First Imposing Sanctions, And Later Abandoning Them
On the one hand is the question about America’s global stance. Many analysts already voiced a concern that Washington’s “betrayal” of Ukraine will alienate its Central European allies and lead to questions about U.S. global geopolitical dominance (in other words, it seems that experts are now concerned with the United States siding with the “Old Europe” against the “New Europe,” while just 20 years ago almost the same people criticized President George W. Bush’s alliance with the “New Europe” against the “Old” one). However, I would not consider these considerations important. The major geopolitical tensions these days arise instead between the United States and China, and the U.S. global role depends on both its unparalleled dominance in the international financial system and its technological superiority. As we all witnessed 30 years ago, Soviet gas supplies to Europe remained a mere episode in the Cold War, which was profoundly lost by the Soviet Communist regime.
The same applies to the current situation. Geopolitically, Russia is a “second world” nation unable to challenge the United States and the West in general. Its economic and technological weaknesses are now offset by Russian President Vladimir Putin’s boldness, but this cannot last for long. Russia’s expansion into the post-Soviet space just lays down the conditions for its future demise (the illegally seized Crimea may for some time play the same role for Russia that the occupied Baltic states played for the Soviet Union), and the Russian obsession with energy exports may put the country in the position that several Latin American nations were in during the early 1980s. Those countries went bankrupt as the commodity prices fell and the dollar interest rates rose (both of which may well repeat in the 2030s). So, I would argue that the Nord Stream 2 issue was unimportant from its start, and the United States slightly hurt its image by not simply lifting the sanctions but by first imposing, and later abandoning them. Ukraine’s security depends not on its transit status but on its military capabilities and on the willingness of the NATO countries to intervene in case of a new Russian aggression – but both issues have almost no relation to the energy politics. (Personally, I would not agree with those who predict President Putin masterminds a new military operation against the Ukraine – for Russia now it would be suicidal to undertake such an operation).
On the other hand, and this looks much more important, the Nord Stream 2 can be seen as a bilateral “weapon.” Most analysts believe Russia has a tool that allows it to blackmail Europe because of its status as Europe’s largest gas supplier – but very few admit that the opposite point is no less true. In 2020, Russia exported 141 bcm of pipeline gas to the European Union, which made up 43.4 percent of total imports and 35.8 percent of overall EU consumption. I would argue that Europe possesses a viable alternative to these supplies – by the end of 2020, the member countries of the EU operated dozens regasification facilities with a total excess capacity of 130 bcm per year. Putting it another way, Europe can substitute the Russian gas with liquified natural gas (LNG) at any given moment almost without any additional efforts in building new infrastructure (the only significant problem is the absence of some interconnectors leading to landlocked Central European nations, which depend almost entirely on Russian supplies). At the same time, Russia looks much more dependent on Europe as a consumer: In the same 2020, the overall gas exports from the country accounted for 204.1 bcm, of which the pipeline shipments to Europe stood at the already mentioned 141 bcm, supplies to China at a mere 4 bcm, to Turkey at 16.3 bcm, and the rest representing sales to post-Soviet states and LNG shipments. Now the EU accounts for roughly 70 percent of Russian exports – almost double what Russian gas represents in its consumption. What is more crucial is that Russia, unlike the EU, possesses no alternative routes and markets where its resource could be sold. Therefore, the Nord Stream 2 looks like another strain that binds Russia to Europe – with some experts already suggesting it might be used for decades for shipping hydrogen if Europe eventually de-carbonizes and Russia improves its production capacities for producing large amounts of hydrogen. I would argue that the Nord Stream 2 offers the West the best possible lever to influence Russia – and the only thing the Western nations need to pull this lever is the same will that President Putin obviously possesses and that is in very short supply in both Europe and the United States.
To summarize all of the above, it might be said that the completion of the Nord Stream 2 will not change any important geopolitical balances. Should the West transform Ukraine, this may be achieved through a well-curved “New Marshall Plan” for the country, or by a massive program of shifting the European industrial facilities to the East where the skilled workforce is the cheapest on the continent and raw materials and electric power seems abundant. Another extremely effective tool for securing Ukraine’s pro-Western path would be to allow the country to join both NATO and the EU (maybe withholding some European cohesion programs like the Common agricultural policy and regional and infrastructural development subsidies). Under current conditions, all this would not result in Russian aggression – in fact, many are convinced it would result in the opposite. President Putin is nothing more than a coward who has never ventured a bold military attack on another country’s territory (in Georgia and Ukraine Russian intervention was camouflaged either by “humanitarian intervention” [not without reason] or by supporting popular movements or taking a side in a civil war [with no ground at all]). Russia simply cannot move its armored divisions into Ukraine and everybody from Moscow to Washington knows this perfectly well. Like the 30-year “cold peace” that followed the short-lived war in Transnistria in 1992, the Russian-Ukrainian tensions resulted in a stalemate that might last for decades but will not lead to a larger international conflict.
I will conclude with one more remark that seems quite important while addressing the Russia-Western relations at large. Several times in the history of the Cold War, a period of détente followed the most intense showdowns. These periods were marked not only by a renaissance in East-West relations but by a considerable softening of the Soviet regime as such (one can mention the acceptance of the Helsinki treaty by the Soviet Union, not to mention Perestroika).
Today, the Putin regime makes the best possible use of the confrontation with the West for arguing that Russia is a “besieged fortress” and therefore all “excessive” liberties should be cut. The more hysterical the West (and the Russian émigrés in the West) becomes, the more repressions the Russian dissidents inside the country suffer. So, I believe it would be better that both Washington and Berlin (and Brussels) announce some conditions linking another détente to Russia’s domestic policies – the developments that followed the Biden-Putin meeting in Geneva suggest this might be possible.