As the risk of Russia’s invasion of Ukraine persists, the threat of another kind of war—a gas war—is just as worrisome to many, especially in Europe and the United States (US). The Russian state-owned giant Gazprom’s new gas pipeline to Germany, Nord Stream 2, is reshaping geopolitics as much as, and at the same time as, the 135,000 Russian troops stationed on the borders of Ukraine. The pipeline will play a multifaceted role not only in Moscow’s decisions around its possible kinetic war but also in how European countries and the US will respond. The European Union (EU) relies on Russia for about half of its natural gas imports, though Europe has become much more resilient when it comes to weathering these kinds of storms.
Nord Stream 2 was built to bypass Ukraine and deliver natural gas directly from Russia to its largest European market—Germany—through a pipeline under the Baltic Sea. Since the Cold War era, the primary route of Soviet and then Russian gas to European markets has been through the Ukrainian pipeline system. However, after Ukraine’s turn Westward with the Euromaidan movement in 2014, the Russian government has consistently reduced gas transit volumes through the country—evidence that Ukraine was to be cut out of the gas transit trade sooner or later.
To eliminate Ukraine’s role, however, new infrastructure was needed. The completion of Nord Stream 2 in 2021 brought that possibility one step closer, though the pipeline is not operational because it has not been certified (Germany says it plans to do it in late 2022). Many European countries and the US have called for the project to be canceled because it undermines Europe’s Energy Security Strategy, which calls for a diversification of sources, suppliers, and routes. Nord Stream 2 would in fact concentrate the bulk of Europe’s imports via a single route through the Baltic Sea—Nord Stream 1 and Nord Stream 2. The Nord Stream consortium and its proponents in Germany have defended the pipeline as a purely commercial endeavor.
However, energy is rarely if ever just business; it goes hand in hand with politics, geopolitics, and security. Access to energy resources impacts the daily life of citizens, especially in Europe where natural gas is used for heating in winter and as a popular transportation fuel. It also impacts industry, with rising energy costs raising the price of production. This winter, during a gas crunch, a number of factories in central, southern, and eastern Europe had to limit their operations, thus hurting local economies.
These impacts on society and industry have a direct bearing on domestic politics. The threat of higher gas prices, especially in winter, sows domestic political discord and puts governments on the defensive. In countries where Gazprom had a monopoly over the market—which until recently was much of southeastern and central eastern Europe—negotiations over long-term gas contracts between importing countries and Gazprom have long been colored by political demands. These run along the lines of “if you want to sign this gas contract and want lower gas prices, then be ready to pursue a cooperative foreign policy with Moscow.” Many governments have a tough time negotiating when their citizens need gas for heating.
The new Nord Stream 2 has several geopolitical implications for Europe. First, and most immediately, it frees Russia’s hand in military action in Ukraine. While war in eastern Ukraine has been ongoing since 2014, it has not spread deeper into Ukrainian territory. An expanding conflict could have damaged the Ukrainian pipeline system and would have jeopardized Russia’s gas exports before the Nord Stream 2 pipeline was completed. Thus, many assumed the Ukrainian pipeline system served as a mitigating factor in Russia’s military adventurism. Today, however, with the Ukrainian pipeline system less strategically important to Russia, a full-scale war is feasible.
Second, if Russia chooses to no longer use the Ukrainian pipeline system or if it gets damaged in case of war, there will be several consequences. Ukraine will lose revenue from the gas transit business which runs in the billions of dollars annually—a tangible loss to the Ukrainian economy. Moreover, Ukraine could be cut off from its traditional source of gas. Both of these factors would destabilize Ukraine economically and politically. However, with the build-up of pipeline interconnectors across Europe, Ukraine also could access gas in “reverse flow” from neighboring countries such as Poland and Romania. Most of the time, it would likely be the same Gazprom gas but arriving via a different route.
The third key implication of Nord Stream 2 is that it divides European countries not only on the pipeline itself but also relations with Russia. Nord Stream 2 would help Russia export influence, vested interest groups, and arguably corruption to Europe.
The Russian-German rapprochement over Nord Stream 2 leaves as a question to what extent Germany, as Europe’s key power, would be willing to take a harder line in the case of Russian military action in Ukraine. Already, the German government has been hesitant to send military weapons to Ukraine. Germany also refused to issue permits for German-made weapons to be sent to Estonia, which was planning to send the weapons on to Ukraine.
There is still one “ace” in the European card deck. Liquefied natural gas (LNG) has altered the equation for European gas security. Unlike in the 2000s and 2010s, when Europe feared gas cut offs from Russia during the Moscow-Kyiv’s tensions, Europe now is much more energy secure. With the growth of the LNG trade and more countries with LNG import terminals, countries like Poland or Lithuania, which until the 2010s were fully dependent on Russian piped gas, can now tap into the global gas markets. In addition to LNG, the EU has also increased pipeline interconnectivity, gained access to Caspian gas via the Southern Gas Corridor, and increased gas reserve requirements for member states.
The emergence of the US as the world’s top gas producer and leading LNG exporter also gives Europe more options when it comes to gas. American LNG has become even more relevant this winter as, amid a global gas shortage, Gazprom decreased gas transit to Europe and raised prices, causing many EU countries to draw down their gas reserves. As a result, about half of the American LNG exports in December 2021 went to Europe.
While Europe today is much more diversified in terms of energy imports than a decade ago it is still highly dependent on Russian gas and vulnerable to any Gazprom-led market shocks. The confluence of Russia’s flexing of its muscle on the military field and in the gas markets leaves European states and Washington, DC concerned. As its troops accumulate on Ukrainian borders, the Russian government will be able to threaten Ukraine and other European states not only in the field but also in the gas markets.
Dr. Agnia Grigas is a senior fellow at Atlantic Council. Her three recent books include: The New Geopolitics of Natural Gas, and Beyond Crimea: The New Russian Empire.
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