The Nord Stream 2 pipeline was supposed to be a solution to satiate Germany’s vast energy needs.
Instead, the project stoked a years-long diplomatic crisis as Germany’s allies in Europe and the U.S. rallied against the project, fearing its completion would weaken Europe’s security by increasing Germany’s dependence on Russian gas.
The completion of Nord Stream 2 is now a fait accompli. On July 21, the U.S. State Department signed an agreement with Germany allowing the completion of the project.
The project is major victory for Russian President Vladimir Putin and German Chancellor Angela Merkel, who have been seeking the its completion for years. For U.S. President Joe Biden, the agreement was a way to repair relations with Germany after they soured during the Trump years, seeing Germany as a key ally in combatting China’s influence around the world.
Immediately after the deal was announced, Ukrainian and Polish Foreign Ministers, Dmytro Kuleba and Zbigniew Rau, put out a joint statement condemning the deal, writing that it “cannot be considered sufficient to effectively limit the threats caused by Nord Stream 2.”
The agreement includes provisions to assist Ukraine with its energy sector and diplomatic initiatives, but it remains unclear to what extent these concessions will help Ukraine make up for lost gas transit fees from Russia or protect itself from further Russian aggression.
At the time the agreement was signed, Biden made the gesture to officially invite Ukrainian President Volodymyr Zelensky to the White House on Aug. 30. According to officials however, the visit is unrelated to Nord Stream 2.
In giving the green light on the project, Germany and the U.S. have angered allies and put Ukraine’s security at risk. And with Merkel’s departure imminent, Germany’s ability to stand up to a Russia it will be heavily dependent on for gas is less than apparent.
Terrible deal for Ukraine
The terms of the deal do not give Ukraine any serious guarantees of energy or territorial security.
The deal offers a so-called Green Fund, to which Germany has committed $175 million to promote and support investments in green energy. With the fund, Germany hopes to attract $1 billion from third-party backers, including private investors.
But green energy investors in Ukraine are currently owed more than $700 million by the state and complain of being unable to build new projects due to the prohibitive cost of capital caused by erratic policy decisions. Convincing investors to finance further projects in Ukraine will be difficult.
Germany will also provide $70 million of funding to support Ukraine’s energy security.
Germany also promises to send an envoy to “facilitate an extension of up to 10 years” on Ukraine’s current gas transit agreement with Russia, which expires in 2024 is worth a minimum of $7 billion over five years.
This will also be a difficult task, given that the total amount of gas Russia sent through Ukraine in 2020 was 55.8 billion cubic meters (bcm), which is only 800,000bcm more than the capacity of Nord Stream 2.
The deal also promises the launch of a “Ukraine Resilience Package” by Germany with the aim of “shielding Ukraine completely from potential future attempts to cut gas supplies to the country” by increasing German reverse-flow capacity and cyber-proofing its gas pipeline infrastructure.
Timothy Ash, senior strategist at BlueBay Asset Management, expressed his confusion at this proposal in comments to the Kyiv Post. “If Russia is going to cut off gas supplies through Ukraine, where is Germany going to get surplus supplies to help Ukraine?”
In 2019, Germany imported nearly 89bcm of gas, 57bcm of which was from Russia. According to Norwegian energy consultancy firm Rystad Energy, total German imports are set to increase to over 100bcm in 2022, as the remaining six nuclear reactors in Germany are scheduled to go offline that year.
This nearly reaches the 110bcm total capacity of both Nord Stream projects put together. Bearing in mind the current collapse in Dutch gas production, one of Germany’s main alternative sources, finding emergency reverse-flow supplies to Ukraine will be problematic.
Another provision of the deal is that Germany will “take action at the national level and press for effective measures at the European level, including sanctions” if Russia uses energy as a weapon or commits further aggressive acts against Ukraine.
However, as no specific red lines are mentioned in the deal, its vagueness leads many to remember past agreements broken by Ukraine’s international partners.
“If I were the Ukrainians, I would have little faith in U.S., or German, guarantees about anything: the Budapest memorandum comes to mind,” Ash commented, referring to the infamous 1994 agreement between Ukraine, Russia, the United Kingdom and the United States which guaranteed, among other things, Ukraine’s territorial integrity in exchange for the country giving up its nuclear weapons.
The agreement was flagrantly violated by Russia’s 2014 invasion of Crimea and the Donbas, with the U.S. shirking its responsibility and failing to provide any lethal military aid until 2018.
Angering allies, endangering neighbors
The pipeline project had already led to plenty of strong expressions of dismay from Germany’s allies in Europe and across the Atlantic long before the deal was announced.
“This gas pipeline will radically reinforce the common interests of Germany and Russia and will pose a direct threat to peace in Europe,” Rau previously stated on June 11.
“Germany has sacrificed the values and security interests of the free world for cooperation with Russia and its policy of aggression,” he added.
John Herbst, former U.S. ambassador to Ukraine and director of the Eurasia Center at the Atlantic Council, says that Germany’s desire to placate Russia has caused tensions in the Euro-Atlantic alliance.
“Most nations in NATO recognize that Germany has this (appeasement) policy, and they recognize that while (Germany) is not wholly terrible, it has a problem. Nord Stream 2 is the brightest, most woeful example of that policy.”
Jacob Heilbrunn, editor of The National Interest, a leading American foreign policy magazine, believes that the pipeline will have a “prophylactic effect” on Germany’s ability to exert influence over Russia.
“The Germans will pre-emptively curb their instinct to challenge Moscow on some of these foreign policy issues” due to their heavy dependence on Russian gas.
The U.S. attempted to negotiate a kill-switch clause into the deal, which would have created a mechanism for the flow of gas via the pipeline to cease immediately if Russia threatened the security of Ukraine.
However, this provision did not make it into the final agreement.
“Germany refused, and the U.S. caved, so we got nothing from Germany,” said Herbst.
A pipelaying vessel constructs the Nord Stream 2 pipeline in the Baltic Sea near Visby, Sweden on Feb. 27, 2019. As of July 2021, the Nord Stream 2 pipeline is 98% completed and set to be commissioned by the end of the year. (Axel Schmidt)
Biden’s “gift to Putin”
The debate around Nord Stream 2 sanctions has also created internal political waves within the United States.
Sanctions passed by Congress with the support of Donald Trump’s administration in Dec. 2019 and Dec. 2020, which targeted companies involved in the construction of Nord Stream 2, successfully stopped work on the project despite it being 95% complete.
The Biden administration then waived these sanctions in May, lifting sanctions on the Swiss-registered parent company Nord Stream 2 AG, and only targeting Russian firms involved in the project instead.
“The project was dead as long as U.S. sanctions were in play,” Herbst said, adding that the Biden administration “has given a huge gift to Merkel and Putin” by lifting them.
The decision has upset Senators on both sides of the chamber, from Democrat Bob Menendez to Republican Ted Cruz, the latter using procedural rules to delay appointments to the State
Department to put pressure on the Biden administration to reapply the Trump-era sanctions.
Germany claims that it is within its rights to build the pipeline, and that the U.S. was wrong to place sanctions on companies involved in Nord Stream 2 as the two countries are NATO allies.
“The German argument ignores the fact that allies do not pursue geopolitical projects with adversaries,” Herbst said.
But if the pipeline is hurting Germany geopolitically, its completion will have much more serious consequences in Ukraine.
Russia already feels bold enough to threaten to cut off Ukraine’s gas. Losing its status as a gas transit country will also take away one of Ukraine’s few remaining deterrents against further Russian invasions.
War guilt and kleptocracy
For German leaders, the pipeline may be about more than economic pressure to secure a reliable source of gas for Germany’s vast industrial holdings.
German President Frank-Walter Steinmeier made international headlines on Feb. 9 when he said that Germany owed Russia Nord Stream 2 because of the more than 20 million Soviet citizens killed during the Second World War. Steinmeier’s sentiments fail to recognize that out of this total, 7-10 million were Ukrainian.
Such a grand gesture is complicated by the fact that Steinmeier’s former boss, Gerhard Schroder, who served as German Chancellor from 1998 to 2005, sits on the board of both Nord Stream 2 and state-owned Russian oil giant Rosneft.
His influence has long been viewed as a significant factor in the promotion and acceptance of Nord Stream 2 within Germany.
The current deal is therefore “a green light for kleptocracy” in the eyes of Ash.
According to Heilbrunn, Merkel’s own zeal for the pipeline is driven by a combination of war guilt, her East German upbringing, and the desire to build a legacy. “This is Merkel’s monument. She has fought for this tooth and nail,” Heilbrunn said.
The timing of the deal is highly questionable, given that Merkel will step down before the Sep. 26 federal elections in Germany.
Evelyn Farkas, formerly in charge of Ukraine policy at the U.S. Department of Defense, is quoted by Politico as saying that it would have been better for the U.S. to “wait for after the elections” before making a deal with the new German leader.
In any case, the elections are likely to make a bad situation even worse for Ukraine.
Aside from Nord Stream 2, Merkel has at other times demonstrated a strong resolve to maintain EU sanctions on Russia, imposed as a result of Putin’s invasion of Crimea in 2014.
Heilbrunn worries that such a trait may be lacking in her most likely successor, the CDU’s Amin Laschet.
“I don’t think he has a backbone like Merkel.”
