Twelve years ago this month millions of Europeans huddled in their heat-less homes in the midst of a frigid winter after Russia shut off natural gas transmission supplies.
While the 2009 cut-off stemmed from a pipeline pricing dispute between Ukraine and Russia, which the EU was trying to arbitrate, it underscored just how far Russian President Vladimir Putin was willing to use the nation’s natural gas exports as a political weapon.
The anniversary of that bleak crisis is particularly salient as EU countries and companies struggle for a policy response in the face of U.S. extra-territorial sanctions adopted in 2019 and enhanced in 2020 against any company that participates in the Nord Stream 2 pipeline. The $11 billion, 3,100-kilometer project, a private venture led by Russian-state-owed gas monopoly Gazprom that will transport Russian gas under the Baltic Sea to Germany, will be an alternative to Russia gas exports to the EU that currently transit Ukraine.
With nearly 80 percent of the pipeline finished, leading European oil, logistic and insurance companies including the Dutch-based Shell, French utility Engie, Germany’s Wintershall, Austria’s OMV and others face hundreds of millions of euros in losses if the work is not completed. And by all accounts the U.S. sanctions, which include asset confiscation and access loss to U.S. financial markets if they continue to participate in the project, has put the pipeline work on hold.
As a result, many EU countries led by Germany have high hopes new U.S. President Joe Biden will reverse the U.S. Nord Stream 2 sanctions proposed by the Trump Administration and approved by the U.S. Congress. After all Biden has made it clear that restoring the transatlantic alliance will be an immediate task.
EU leaders have targeted a spring summit when Biden will travel to Brussels for a European Council meeting as a ceremonial relaunch of an alliance that has played a crucial role in bolstering global economic growth and democratic values over the last 75 years. .
But those expecting for Biden to reverse Nord Stream 2 sanctions in the same way he will rollback other Trump policies, including those on climate change, Iran and various trade disputes, should think twice.
To appreciate how the Biden Administration will deal with the Nord Stream 2 sanctions is it is important to recall the last time a U.S. president attended a European Council. That event took place in 2014 when Barack Obama visited the Justus Lipsius building and spent his day being questioned about when the U.S. would boost gas exports – much of it from fracking – to the EU in order to help to shield against Gazprom’s market price manipulations and Putin’s ever-present threat of another supply cut-off.
The EU compounded the pressure on the Obama-Biden Administration to share its prosperity of bountiful fracked fossil fuel in the Transatlantic Trade and Investment Partnership (TTIP) negotiations. It insisted that any TTIP deal must include the U.S. repealing legislation that restricted oil exports..
Fast forward to 2019 and the EU pleas for U.S. gas exports seem forgotten. Instead European politicians and the Russian government insist the U.S. Nord Stream 2 sanctions is strong-arm tactic to force Europe to import the same U.S. gas they were pleading for six years ago.
While few would doubt Trump would crudely use foreign policy and trade sanctions to benefit U.S. companies, especially climate-change deniers such as those in the oil and gas sector, in the case of the Nord Stream 2 sanctions it is all about European defense spending. Or, more to the point, the lack of it. A pipeline that makes Europe ever-more energy dependent on Russia undermines European national security, which still relies on a U.S. defense umbrella via NATO.
There are few issues these days that do not divide Republican and Democratic parties in the U.S. but the failure of some European countries to meet their NATO defense spending requirements is not one of them. It is a concern that dates back to the Obama-Biden Administration and beyond. U.S. defense secretaries under Obama and Biden, including Robert Gates and Leon Panetta, consistently raised the issue with their European counterparts.
Part and parcel with concerns about European countries not meeting their NATO defense spending targets is Putin’s ramped up efforts to undermine democracy both in the U.S. as well as in Europe and in other parts of the world. Two recent examples: U.S. Intelligence services determined Russia paid bounties to kill U.S. soldiers in Afghanistan and have concluded Russian domestic intelligence services hacked U.S. federal government computers in 2020 – the extent of which is still be uncovered and quite likely ongoing. With those in mind clearly Biden will not be in a position to do anything that will be seen as appeasing Putin.
And then there is the issue of Ukraine and other EU central and European countries, including Poland. Will the Nord Stream 2 pipeline bolster Russia’s ability to use gas as a cudgel in the simmering war in Eastern Ukraine? Or as a political weapon against Poland?
Aside from the security issues there are also important climate change considerations that factor into the Nord Stream 2 decision. These concern the EU just as much if not more than the U.S. It was only six weeks ago that EU leaders agreed to accelerate plans to reach carbon free emissions by 2050 with new, ambitious targets for 2030. Environmentalists insist Nord Stream 2 not only undermines those carbon reduction goals but flies in the face of the EU’s world-leading sustainable finance legislation now being implemented.
To underscore how serious the Biden Administration takes climate change issues not only did the new U.S. president commit to rejoin the Paris Climate agreement on his first day of office but he announced the cancellation of the $9 billion Keystone XL pipeline designed to transport oil from western Canada to ports and refineries in the southern U.S.
In the coming months as European company financial losses triggered by Nord Stream 2 sanctions mount questions and controversy on the issue will intensify. For the European Commission, it must decide whether to pursue counter trade measures similar to those it pursued nearly two decades against U.S. extra-territorial sanctions imposed on European companies investing in Cuba. In Germany, where elections are scheduled for September, will German Chancellor Angela Merkel insist Biden and the U.S withdraw extra-territorial sanctions? If so, will that be the end of a Biden-EU honeymoon?
Or will Putin’s behavior, including the poisoning and subsequent arrest of Alexei Navalany, make it politically impossible for the European Commission as well as Germany – no matter who succeeds Merkel – to confront the U.S. and let the pipeline be completed.
Similarly will Gazprom be allowed to carry through on its promise to finish Nord Stream 2 if all European companies pull out?
And if Nord Stream 2 is ever completed, will it become the multi-billion euro fossil fuel dinosaur that most environmental campaigners predict as the EU follows through on the Green Deal and its carbon neutral goals?
Considering all of the above if Biden refuses to move on the sanctions and they prove Nord Stream’s death knell, the U.S. president will probably be doing the EU and Germany a favor for not canceling a project that should never have been green-lighted in the first place.