Putin’s Folly

By Chris Miller, Assistant Professor of International History at The Fletcher School of Law and Diplomacy at Tufts University

Pompeo may be in an uproar over Russia’s Nord Stream 2 pipeline, but it is hardly the geopolitical masterstroke he imagines.

“Get out now, or risk the consequences,” U.S. Secretary of State Mike Pompeo declared last week to companies facilitating the construction of the Nord Stream 2 gas pipeline. The project to build a second set of pipes under the Baltic Sea from Russia directly to Germany has been delayed by U.S. sanctions, but it is on track to be finished in the coming months. Now, the United States is threatening new sanctions in a last-ditch effort to impede the pipeline’s construction. “Companies aiding and abetting Russia’s malign-influence projects,” Pompeo insisted, “will not be tolerated.”

As the United States deepens its pressure campaign against Nord Stream 2, friction with Germany, which would receive much of the pipeline’s gas, will intensify. Washington is far from alone in criticizing Nord Stream 2, of course. Many countries in Central and Eastern Europe see the pipeline as a glaring example of German hypocrisy, as Berlin lectures them about carbon neutrality and human rights while guzzling fossil fuels from one of the most authoritarian country on the continent. But German Chancellor Angela Merkel is dead set on finishing the pipeline to appease her country’s powerful corporate lobbies. Germany has pushed the European Union to declare U.S. sanctions on Nord Stream 2 “unacceptable” and “contrary to international law.” In turn, Pompeo’s promise of yet more sanctions will exacerbate Washington’s already strained relations with the EU’s leading member state.

It is worth asking, therefore, whether those in the Trump administration advocating sanctions on Nord Stream 2 are right that the project will substantially enhance Russia’s influence in Europe. U.S. Sen. Ted Cruz is clearly correct in calling the project “Putin’s pipeline.” Although some of the pipeline’s backers continue to insist that the pipeline is purely “commercial,” even Merkel has admitted that there are “political considerations” behind the gas project.

Among the “political considerations” that must be considered in assessing the pipeline is the corruption of Germany’s own political elite. The fact that Merkel’s predecessor Gerhard Schröder chairs the board of Nord Stream AG—51 percent owned by Russia’s state-owned gas firm, Gazprom—is evidence that something may be rotten in the political system that prides itself on being Europe’s and the world’s moral conscience. (Just imagine if former U.S. President Barack Obama was chairing the board of an Iranian pipeline company!) Schröder has been a reliable parrot of Kremlin talking points, describing Russia as a victim of “encirclement” and arguing that Russian President Vladimir Putin’s time as a KGB agent spying in Germany “made it easier to work with him.”

But for all the dirty money sloshing around, Russia has fewer friends in Germany than it used to. It was only a decade ago that Germany was talking about its “modernization partnership” with Russia, but today the thesis that trading with Russia will push the Kremlin to reform is heard only on the margins of German politics. Even with a former German chancellor on the payroll of Nord Stream, German policy today is as tough on Russia as at any point since the Cold War. For six years, Berlin has led efforts within the EU to impose economic sanctions on Russia, which are now so widely accepted that they are renewed every six months as if on autopilot. Even if Russia succeeds in buying a few more German friends with its new pipeline, this won’t be enough to convince Berlin to reassess its support for sanctions or its opposition to Russia’s war on Ukraine.

The more important question is what effect Nord Stream 2 will have on Ukraine. It is no secret that the Kremlin wants Ukraine’s government to fail, or that energy has been one of the many tools it has used to pressure Kyiv. In the medium term, the impact of Nord Stream 2 on Ukraine could be substantial, allowing Russia to ship more gas directly to Germany and other European customers, and thus to send less gas via existing pipelines that run through Ukraine.

In turn, Ukraine will make less money charging fees for gas transit, although Kyiv could find other sources of revenue if need be. At the same time, Nord Stream 2 may enhance Russia’s ability to threaten to cut gas supplies to Ukraine. So long as Russian gas sold to Europe transits Ukraine, Russia cannot cut off gas to the country without Europe suffering, too. This is what happened when in winter 2009 Russia cut gas deliveries to Ukraine, intending to punish Kyiv, but causing shortages across Europe. Facing many angry customers, Russia was forced to back down. Once the Kremlin can supply more to Europe via Nord Stream 2, cutting off gas to Ukraine would have a smaller impact on other customers. Kyiv could be left facing Moscow alone.

But much has changed since Russia’s gas cutoffs of 2009. European gas markets look radically different today. Ten years ago, most countries in Central and Eastern Europe relied heavily, and often exclusively, on Gazprom, which pressured them into signing expensive long-term contracts. Today, Russia remains the continent’s biggest supplier, but Gazprom’s monopolistic grip has been broken. In 2012, the European Commission brought an antitrust case against Gazprom that forced it to adopt competitive market practices. New infrastructure built across Europe makes it easier to move gas around the continent, guaranteeing that countries can buy from multiple sources. The rise of liquified natural gas allows countries such as Poland and Lithuania to buy gas from Norway, Qatar, or the United States.

Even Ukraine finds itself in a far stronger negotiating position than many of Nord Stream’s critics admit. The country can now import all the gas it needs from Europe, so it is far less vulnerable to a Russian cutoff. Gazprom has already agreed to keep shipping some gas to Europe via Ukraine through at least 2024, providing Ukraine with transit revenue. Nord Stream isn’t a good thing for Ukraine, but its effects will be easily manageable. For Germany, the pipeline will bring more costs than benefits, sullying Berlin’s reputation with its neighbors in exchange for gas that could have been acquired in far less controversial ways.

Even for Russia, “Putin’s pipeline” is far from the geopolitical masterstroke some U.S. leaders imagine. Europe is awash with cheap and plentiful gas, much of it already purchased from Russia. But Gazprom’s pricing power in Europe has collapsed in the face of new competition. So is the Kremlin’s newest pipeline does a tool of malign influence? Malign, perhaps. But influential? Probably not. Whenever it finally comes online, Nord Stream 2 will change little.

This piece was republished from Foreign Policy.