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Nord Stream 2: why Biden concede in the confrontation between Germany and the United States

Photo: nord-stream2.com

Photo: nord-stream2.com

The completion and launch of the Nord Stream 2 gas pipeline construction not only improves the geopolitical and socio-economic position of the Russian Federation, but also gives the Kremlin new opportunities for "hybrid actions" in the international arena and interference in the internal political affairs of other states.

Construction is already at its final stage. In particular, work in waters of Germany has already resumed this weekend. And last week, the Joe Biden administration lifted sanctions for the operator Nord Stream 2 AG, along with the managing director. At the same time, the operator was recommended for sanctions by the Department of State as a company conducting sanctioned activities, but the Americans decided not to upset relations with the Russian Federation, Germany and European partners.

Of course, Ukraine was outraged. Meanwhile, NS 2 is very likely to be completed in 2021. How will this affect Kyiv and could, if approved, American sanctions delay the launch?

"Today the subject of the gas pipeline is under discussion not only along the German-US line, and not only in the EU, but also within Germany itself. In September this year, elections will be held, and, according to various opinion polls, any configuration of the future government will include the Green Party, and it will be against Nord Stream 2. That is why, I think, Russia will rush in every possible way to complete the gas pipeline construction before the parliamentary elections, since the current government supports the Nord Stream-2 project."

Olesya Yakhno

Olesya Yakhno

Political scientist

The gas pipeline is still being lobbied by the current German government and the business community that have been dragging their feet with negotiations with Washington. And apparently, the United States has surrendered. According to the Minister of Economic Affairs and Energy of Germany Peter Altmaier, FRG will need natural gas in the short and medium term, since Germany is moving away from nuclear energy and coal plants.

"Among the main reasons for the construction progress by Germany are:

- unwillingness to upset relations with Moscow, given the existing cooling of relations between Berlin and Washington;

- the presence of the already built Eugal gas pipeline that serves as an onshore extension to the Nord Stream-2;

- the use of German economic and financial resources in the stream construction;

- improving the capabilities of the German gas transmission system in the event of the Nord Stream 2 commissioning.

Another factor is the interest of certain German officials in the project implementation and guarantees of uninterrupted gas supplies to Germany and the EU in any military-political environment in Central and Eastern Europe."

Anton Tverdovsky

Anton Tverdovsky

Chief consultant on reintegration and de-occupation of the Autonomous Republic of Crimea of the Representative Office of the President of Ukraine to the Autonomous Republic of Crimea

What are the benefits?

If the gas pipeline construction is completed, Germany will de facto become a pan-European hub for gas distribution. The new gas pipeline will allow it to become a monopoly on the European gas market and set prices for it. This will further strengthen the country's influence on the situation in the EU in political, energy and economic terms.

After the gas pipeline is put into operation, Russian gas supplies to Europe will increase. Since the design capacity of Nord Stream 2 is 55 billion cubic meters of gas per year, it is possible that Russia will be able to increase its share in the European gas market to 40%.

The share of the USA in the European market will decrease significantly. Therefore, experts believe that Germany will not agree to a halt in construction. And as the results of the meeting between US Secretary of State Antony Blinken and Minister of Foreign Affairs of Germany Heiko Maas testify, it was even ready to upset relations with the United States.

"Despite the billions of euros that have already been invested in the project, its "freezing" will bring unacceptable losses to the shareholders of the companies that have invested in it. These losses cannot be dismissed as force majeure. German business is against any monopoly on its energy market, and that means unwillingness to give the final advantage to "Russian natural" or "American liquefied gas".

Andriy Martynov

Andriy Martynov

Leading research associate, Institute of History of Ukraine of National Academy of Sciences of Ukraine

Sanctions and protests

Fearing the growing influence of Russia in the European energy market, the United States threatened with sanctions companies that decide to participate in the project construction. At least 18 European companies withdrew from the project or were in the process of withdrawing from it due to the threat of US sanctions.

But so far we see that the administration of President Joe Biden has interrupted the sequence of political, diplomatic and sanctions pressure on the participants of Nord Stream 2.

«The imposition by the United States of a new sanctions package on Nord Stream 2 would make it problematic to complete the gas pipeline construction. Supporters of radical measures within the United States believe that the Joseph Biden administration is in no hurry to implement the agreed sanctions measures, apparently counting on finding a solution with Germany during negotiations. Although on April 7, the White House began preparations for the appointment of Amos Hochstein as a special envoy for Nord Stream 2—with the goal, according to Politico, to stop the project. And the Russian government sees in this candidacy Joseph Biden's commitment to move on to a hard line. In addition, Senator Ted Cruz said that the Senate Committee on Foreign Relations sent a single bipartisan message to all companies associated with Nord Stream 2: if they do not withdraw from the project, they will be subject to new sanctions.»

Olesya Yakhno

Olesya Yakhno

Political scientist

It is worth noting that Russia has already managed to circumvent the sanctions. For example, in 2019, Allseas withdrew the vessels laying the gas pipeline. However, Russia continued gas pipeline construction with its vessels Fortuna and Akademik Cherskiy. Also, due to the sanctions, foreign partners stopped financing the construction. However, Russia finances it at its own expense. Therefore, in the case of the sanctions resumption, it is not excluded that the gas pipeline operator will be simply re-registered in another jurisdiction, and that will allow the construction to be completed.

Obviously, new US sanctions against Nord Stream 2 should have been even stricter. For instance, they could potentially be applied not only to the direct construction company, but also to companies that must be involved in the insurance and certification of the gas pipeline, or to potential buyers of gas. Taken together, this would significantly delay the completion of this Russian energy infrastructure project. After all, after completion, the facility still needs to be commissioned, certified, integrated into the gas transportation system of Germany and the EU, and the like.

«Most likely, Nord Stream 2 will be transferred to the jurisdiction of the European Energy Charter prohibiting the monopoly status of a gas supplier and distributor. This fact adds to the federal government’s arguments to defend its position on the political cover of the further construction. Direct gas supply from various sources—Russia, Norway, Algeria, Qatar, and the United States—protects the German energy sector from any political surprises.»


Andriy Martynov

Andriy Martynov

Leading research associate, Institute of History of Ukraine of National Academy of Sciences of Ukraine

Further developments options

Germany is considering four options for further developments related to the gas pipeline. This is to use it as a "locking mechanism", that is, to stop gas supplies via Nord Stream 2 if Russia reduces the volume of gas transported through Ukraine. The second option provides for a temporary halt in construction while negotiations with the United States continue. The third one is a significant increase in investments in the energy sector of Ukraine and enhanced cooperation in the field of energy. The fourth one is that the construction must be completed, despite the threats and criticism of the project.

"For Germany, Nord Stream 2 is of strategic importance. Whereas the fate of Ukraine is not too important for it. Therefore, in no case will it stop the operation of the gas pipeline due to the drop in the transit of Russian gas to Ukraine. The increase in German investments in the energy sector of Ukraine also looks unrealistic. Investments are made by private companies, and for them the motive is only profit earning. If the level of profitability of investments in Ukraine does not suit them, and the risks are too high, then no one will force them to invest. Therefore, despite the sanctions, construction is likely to be completed, although long delays are possible."

Oleksandr Khmelevsky

Oleksandr Khmelevsky

Ph.D. in Economics, independent expert

Experts believe that after the completion of the Nord Stream 2 construction, Ukraine will not only lose revenues from gas transit (from 2 to 3 billion dollars per year), but also the Ukrainian GTS will have to be partially mothballed or dismantled. After all, now it is taking Russian gas from the pipe, and the reverse exists only on paper. It will be extremely difficult to get a real reverse up and running. To do this, it will be necessary to change the direction of gas supplies in the systems of Poland, Slovakia, and Hungary. Therefore, Ukraine can expect an energy crisis, and the price of gas will increase significantly.

Conclusions

The further developments related to the Nord Stream 2 gas pipeline depends on a large number of factors and the political and socio-economic environment: the ability of European and American politicians to come to a common denominator in resolving the issue to ensure security, peace and stability in Europe. As well as the search for a balance between the interests of the economy and business, on the one hand, and global security, on the other; the degree of aggressiveness of the Kremlin's behavior in the foreign policy dimension.

If Nord Stream 2 is put into operation, Russia is likely to look for options to circumvent European energy packages and the EU's energy policy. In order to obtain as much capacity as possible for the use of the gas pipeline, in particular, through creating buffer shell companies and the like.

In the Russian Federation, there is a practice of imposing so-called "safety zones" in the sea areas, closed for unimpeded navigation, under the pretext of the need to take "security measures" at critical infrastructure facilities. It is now being used by the Russian Federation against Ukraine in the Azov-Black Sea region. And after the Nord Stream 2 completion, it may also turn into a new reality for the Baltic region (let’s not forget about the deployment of the Baltic Fleet of the RF in the Kaliningrad and Leningrad regions of the RF).

"The main risk of the Nord Stream 2 project completion may be the letting off the leash of the RF military-political leadership to conduct large-scale strategic offensive operations against Ukraine, and that is no longer a regional but a global threat. In addition, in the tactical dimension, delaying the Nord Stream 2 completion is a kind of instrument of restraining Russia from the next aggressive actions, in particular in the East of Ukraine, Syria, and Libya."

Anton Tverdovsky

Anton Tverdovsky

Chief consultant on reintegration and de-occupation of the Autonomous Republic of Crimea of the Representative Office of the President of Ukraine to the Autonomous Republic of Crimea


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