NIAS Europe Monitor

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NIAS Europe Monitor
Nord Stream 2 is Russia’s geopolitical victory

  Sarthak Jain

The pipeline overcame challenges, but its operation in the European Union are yet to face additional obstacles.

The highly debated gas pipeline project, Nord Stream 2 is set to meet the demands of the EU’s energy sector. Numerous attempts were made to stop the project through different channels. However, both Russia and Germany stood firm and completed the project.

The Opposition and Sanctions
The initial opposition came from the eight Eastern European countries. Following their concerns, in December 2019, Allseas, a Swiss company suspended pipe-laying works over US sanctions and recalled its ships. The work resumed in December 2020. The temporary suspension of the project resulted in Gazprom suffering heavy losses. Gazprom was fined USD 7.67 million by Poland’s competition regulator UOKiK, for failing to secure permission for constructing the pipeline. It also imposed penalties close to USD 6.5 million to the co-financing companies, which include Germany’s Wintershall and Uniper groups, the Dutch-British giant Shell, France’s Engie, and Austria’s OMV as partners. 

Navalny’s arrest sparked the EU to overwhelmingly vote to halt the project. Having proceeded with the project, Angela Merkel faced criticism for being unable to take action against Russia. The Companies providing for services in insurance, certification, security, civil engineering, and other equipment were subject to sanctions by the US State Department. These 18 companies hailing mostly from the West, were threatened with asset freezes and visa restrictions of their employees.

Russia’s economic compulsions
The Russian economy is dependent on oil and natural gas export. In early 2020, The Russian Federal State Statistics Service’s (Rosstat) data showed that the country’s dependence on oil and gas has increased in the last eight years despite the government’s will to diversify the trade. Traditionally, Russia has depended on the demand emanating from the European energy market. Gazprom generates 70 per cent of its revenue from the EU market. It contributes close to four per cent to Russia’s GDP. The project also reduces the transit fees and its dependency on other countries. Russia is unlikely to renew a 10-year contract with Ukrainian Naftogaz. If the transit line ends its operations, Kyiv will suffer a massive loss of transit fees. It was critically important to keep Ukraine away from the equation of trade for geopolitical reasons. 

According to Anders Åslund, a resident senior fellow in the Eurasia Center at the Atlantic Council, Russia’s larger aim is to create a rift in the European Union. An alliance with Germany, Austria, Netherlands and Belgium, will give Russia a much-needed edge in the continent.  In October 2015, Putin met Germany’s the then Minister of Economy and Energy Sigmar Gabriel. He was quoted saying, “This is in our interests…What’s most important as far as legal issues are concerned is that we strive to ensure that all this remains under the competence of the German authorities, if possible. So, if we can do this, then opportunities for external meddling will be limited. And we are in a good negotiating position on this matter.” The remarks hint at the geopolitical importance of the project, and the competition now marks Russian success. 

What next?
The project will initiate its operations soon, but the problem for Nord Stream 2 has not ended. The threat ranges from changing governments to a hike in competition. In Germany, the full-fledged support for the project comes from the extreme right, the Alternative for Germany, and the extreme left, Die Linke. In contrast, Germany’s Greens have plans to abolish Nord Stream 2. The Free Democrats are also predominantly negative. A major setback for the project was the exit of DNV GL, a company that provides for the safety of the pipeline and technical verification services. This move robbed the project of having an international safety standard. Leading to this, several European regulators might face difficulty to allow gas distributions. 

US LNG exports are progressing in the EU market. The US sales of LNG were estimated to be 36 per cent of its total export. In 2020, the US energy information administration shows that the sales increased three per cent as compared to last year. There are chances that EU members could look for new domestic energy sources. Feasible options are shale gas and renewable energy, given the already existing investments in clean energy. 

To conclude, the US plans to expand its area of trade in LNG, and it is targeting the European market. Needless to say, the huge project of 9.5 billion Euros faced a barrage of sanctions from the US in view to take down its competitor. The pipeline was widely discussed and criticized by the EU collectively, sighting geopolitical leverage that Russia will have. Governments also challenged its legality and pushed for halting construction. However, Kremlin and Berlin were determined to push all adversaries away, and they succeeded. 

Russians have enjoyed a position of being the single most influential energy provider to Europe. As the project becomes operational, Russia has placed itself strongly in the European market. Nord Stream 2 removes Ukraine from the transit route, which opens an option for military actions against it and assures the EU’s dependency on Gazprom for LNG.  Even though the Kremlin hinted about the inclusion of Ukraine, it will only happen when a pro-Russian government comes in power. It is also crucial to note that the pipeline is not certified as per international standards. This has compelled countries to amend regulations and provisions to avoid legal questioning within the country.

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