US President Joe Biden appears to be backing down from blocking the Nord Stream 2 gas pipeline, signalling that the White House recognises the construction of the $11-billion project is too advanced to be stopped, and that it risks jeopardising the transatlantic alliance, write Robert Dillon and Martin Jirušek.
Robert Dillon is a senior fellow for energy security at the Rainey Center for Public Policy in Washington, D.C., and former communications director of the US Senate Energy and Natural Resources Committee. Martin Jirušek is an assistant professor on energy security at Masaryk University in Brno, Czech Republic.
Biden’s realpolitik approach makes sense. The geopolitical and economic benefits of rekindling the transatlantic partnership outweigh Congressional concerns over the continent’s dependence on Russian energy – much of which had more to do with being pro-Freedom Gas than authentic concern for Europe’s energy security in the first place.
According to White House Press Secretary Jen Psaki, Biden believes Nord Stream 2 is a “bad deal for Europe” but she noted “sanctions are only one among many important tools to ensure energy security” the administration is pursuing.
Bad deal or not, Biden needs a way out of the stand-off with Germany that doesn’t draw too much fire from conservatives for going soft on Russia, even though sanctions have not forced the Kremlin to heal.
Germany, too, would benefit from de-escalation.
Signs of Biden’s reshuffling of U.S. policy on Nord Stream 2 first appeared last month during his speech to the Munich Security Conference, when he stressed the need for the United States and Europe to present a united front against Russia and China’s economic and military ambitions; but made no mention of the 760-mile Russian pipeline.
A subsequent State Department report listing companies under sanction for their involvement in Nord Stream 2 named a single Russian ship, Fortuna, and its owner, KVT-RUS, but left out more than a dozen European companies involved in the project.
The first sanctions of the Biden administration narrowly targeted Russia for the poisoning and imprisonment of opposition leader Aleksei Navalny but did not include the controversial pipeline.
Nord Stream 2 is owned by Russia’s state-run Gazprom, but roughly half the financing comes from a coalition of five European companies – Engie, OMV, Shell, Uniper and Wintershall.
A dozen smaller companies from Europe have also worked on the subsea pipeline. Under the expanded scope of secondary sanctions under the previous administration, all could be potentially barred from the U.S. financial system.
Dropping secondary sanctions against EU entities while continuing to apply targeted pressure on the Kremlin, in partnership with Brussels and London, allows Biden to reset the transatlantic partnership and focus on jumpstarting the post-pandemic global economy and confronting a brewing Cold War with China.
It also recognizes the reality that the pipeline is mere miles from completion and unlikely to pause without considerable pressure.
Biden could still sanction those third-party entities in a second State Department report due in May, but the prospect remains unlikely despite the Navalny affair and Moscow’s general anti-democratic attitude.
The President appears ready to move past Nord Stream 2 and concentrate on restoring congenial relationships with EU nations, of which Germany remains the dominant player.
Blocking Nord Stream 2 won’t prevent Russia from sending gas south. Germany, which imports over 60% of its total energy supply and more than 90% of its natural gas – all via pipeline, considers the project essential to its energy security.
Chancellor Angela Merkel and her likely successor, Armin Laschet, both of whom prioritize economic considerations over political ones, remain steadfast despite public pressure and intense lobbying from Washington.
If the goal is to hit Russia’s purse, stopping the pipeline is a strategic misfire. The EU buys more than 200 billion cubic meters of gas annually from Gazprom and no matter the pipeline’s future will continue to do. Nord Stream 2 is a symptom of the increasing need for natural gas in Europe, not the cause.
As an energy supplier, it is in the Kremlin’s interest to maintain productive commercial relations with its EU customers and avoid wielding its exports as a political weapon – as it has done with its closer neighbours.
Since Europe’s energy imports constitute nearly half of the Kremlin’s annual budget, endangering the relationship would be costly.
For those, still uneasy with Russia’s prominence in the EU market, a better solution lies in the enforcement of the European Commission’s anti-monopoly rules that take away Gazprom’s ability to dictate prices as the sole producer and transporter of gas in the Nord Stream system.
For over a decade, the liberalization of the regulatory environment governing the transportation and sale of natural gas into the EU’s common market has proven a more effective measure against Russian dominance than western sanctions.
Ensuring Gazprom complies with unbundling and transparency pricing requirements is the best method by which the EU will protect the region’s energy security. Furthermore, the bloc should continue to diversify its supply routes and energy mix as well as strengthen the framework for bilateral agreements to safeguard vulnerable consumers.
Ukraine’s concerns regarding lost revenue could be eased through an agreement with Gazprom to continue to pay Kyiv transit fees for maintaining a portion of gas flow across its territory. Such an agreement would be a win for all sides that is far more transparent and less risky than the current geopolitical tensions or litigation.
Leaving the Nord Stream 2 pipeline unfinished on the floor of the Baltic Sea would be the worst possible outcome for all involved – constituting an environmental and diplomatic disaster. Biden may believe the pipeline is a bad deal for Europe, but he also knows his time in office is finite and list of priorities long.