Geopolitical Weapon or Commercial Venture? Politics and Economics of Nord Stream 2

Our previous review of Nord Stream 2, a highly controversial natural gas pipeline project set to deliver Russian gas to Europe while bypassing Ukraine, posed an important question: can Germany, the leading EU nation and chief advocate of the project, and Russia maintain a strictly economic deal or will Moscow’s politics, often at odds with the West’s, influence Berlin’s attitude towards Nord Stream 2? This question appears even more relevant today.

While all construction work ended in September, the pipeline has not yet been brought into operation and is likely to remain inactive at least until January of 2022, following Berlin’s decision to delay its opening.

On Tuesday, November 16, the German regulator announced that the pipeline could not be certified as Nord Stream 2 AG, the Gazprom-controlled company in charge of the pipeline, is registered in Switzerland instead of Germany: “…it would only be possible to certify an operator of the Nord Stream 2 pipeline if that operator was organized in a legal form under German law,” the regulator concluded. Once this requirement is fulfilled, the regulator will have four months to decide whether or not to approve the pipeline.

The news caused Gazprom’s share price to drop by 2 percent, while the UK and EU wholesale gas prices experienced a 17 percent increase. The Kremlin, which has previously called Nord Stream 2 a “purely commercial venture”, responded to the announcement by suggesting that “any delays in the pipeline certification, all the more so on the eve of winter, is not in the interests of the European Union.” Indeed, experts estimate that Europe might face “rolling blackouts” in winter due to an existing discrepancy between increased gas consumption and tight gas supplies.

Even though it may seem that Berlin’s decision to suspend approval for Nord Stream 2 has a strictly legal basis, it should also be noted that the German leadership has faced both domestic and international pressure stemming from the country’s embrace of the pipeline project. Domestically, Berlin has met resistance from environmentalist groups, whose members argue that Nord Stream 2 is incompatible with Germany’s goals to reduce emissions to fight climate change. Internationally, the pipeline has been criticized by the UK Prime Minister Boris Johnson and the US Secretary of State Antony Blinken, both warning Berlin that Nord Stream 2 is “a Russian geopolitical project intended to divide Europe and weaken European energy security.”

Perhaps the most vocal opponent of the pipeline, however, remains to be Ukraine. The project intends to bypass the latter, thus reducing Moscow’s dependency on Kyiv as a gas transit country. This, coupled with the recent Russian military build-up to the north, east, and south of Ukraine and President Volodymyr Zelenskiy’s claims that the Kremlin plans to overthrow his government in the coming weeks result in a harsh Ukrainian resistance to Nord Stream 2. President Zelenskiy has repeatedly referred to the project as “a dangerous geopolitical weapon,” while the Ukraine-based energy firm Naftogaz has welcomed the German regulator’s decision to put brakes on the pipeline certification process.

Internal and external political tensions notwithstanding, the government of Germany estimates that natural gas will continue to play a key role in Germany’s mix of energy sources in the coming decades. Meanwhile the Kremlin, which the Western powers have also accused of igniting the most recent standoff over migrants between Belarus and the EU, has declared its readiness to ease Europe’s natural gas crisis once Germany finally gives the green light for Russian gas to start flowing through the new pipeline.

Whether geopolitical weapon or commercial venture, or the combination of the two, it is now up to the German leadership to carefully consider all possible pros and cons of Nord Stream 2. While the German regulator’s announcement has indeed bought additional time for Berlin to mull over, the question remains the same: will Germany and Russia be able to maintain a strictly economic deal, or will Moscow’s politics influence Berlin’s final decision vis-à-vis Nord Stream 2?

Prepared by Tina Dolbaia, November 29, 2021

References

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Eckert, V. (2021, November 16). German regulator puts brake on Nord Stream 2 in fresh blow to gas pipeline. REUTERS. Retrieved from: https://www.reuters.com/business/energy/german-energy-regulator-suspends-nord-stream-2-certification-makes-demands-2021-11-16/

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Ukraine-Russia conflict: Zelensky alleges coup plan involving Russians (2021, November 27). BBC. Retrieved on November 29, 2021, from: https://www.bbc.com/news/world-europe-59428712Zagorodnyuk, A. & Khara, A. (2021, November 27). Vladimir Putin’s Ukraine obsession could spark a major European war. Atlantic Council. Retrieved from: https://www.atlanticcouncil.org/blogs/ukrainealert/vladimir-putins-ukraine-obsession-could-spark-a-major-european-war/