Photo by Chris LeBoutillier from Pexels
By Shawn Rostker
The Russian Federation has a history of using energy policy as a coercive tool of foreign policy. This practice dates back to the late 1980’s before the collapse of the Soviet Union. It continued through the early years of the newly formed Russian state as it sought to rebuild from economic ruin. Moscow, in its contemporary form, continues to exercise this practice as it seeks to capitalize on its natural abundance of oil and natural gas reserves. Currently, Russia boasts the world’s largest proven reserves of natural gas with roughly 48 trillion cubic meters. According to the Central Intelligence Agency’s most recent figures it is also the world’s number one annual exporter of natural gas at over 210 billion cubic meters. While the playbook may not be new, the Russian state is not the same player that the Soviet Union was. The Soviet Union struggled to implement these tactics effectively due to an incompetent central planning system, disjointed leadership structures, and their failure to adequately maintain technological progress due to a lack of incentive schemes. Over the course of the last twenty years, however, Russia has consolidated its energy industries under state purview, established a vertically-oriented ladder of leadership, provided incentive and opportunity for innovation, and strengthened its economic might through integration into global markets. These characteristics enable Russia to behave more subversively within bilateral partnerships.
Russia’s venture into the European energy market in recent years has drawn concern for this very reason. In 2011 the liquified natural gas pipeline, Nord Stream, went online and began transporting natural gas from Russia to Germany via the Baltic Sea. The project seemingly fulfilled the needs of all parties involved. For Russia, it secured a stable source of export revenue meaning reliable long-term liquidity, while meeting the growing European demand for natural gas. It also assists Germany in its ambitious transition towards carbon-neutrality, a process already well underway as it pivots away from its nuclear-based energy supplies. Given the project’s immediate success, Russia and Germany sought to cement a long-term partnership by expanding the project to include a second pipeline. Completion of the sister link, Nord Stream 2, would double the amount of natural gas being supplied to Europe to 110 billion cubic meters annually, and turn Germany into Europe’s primary natural gas distributor.
Although construction on the Nord Stream 2 broke ground in 2018 and proceeded at a break-neck pace, it had been halted since 2019 when parties involved in the pipeline’s construction suspended operations due to the threat of impending U.S. sanctions. However, Russia was able to circumvent these penalties through various loopholes that allowed construction to continue through entities not meeting the congressionally defined parameters constituting potentially liable enterprises. Pipe-laying continued sporadically throughout the year despite uncertainties surrounding the commitment of Germany, who has been under increasing international pressure to renege from the project after the recent state-sanctioned assassination attempt by Russia of opposition activist Alexei Navalny. Although German politics were internally frayed over how to handle the situation, with calls for termination of their Nord Stream 2 partnership, Chancellor Angela Merkel has continued to reiterate that Germany views the two issues as being divorced, and does not believe that Navalny’s poisoning and subsequent arrest upon his return to Russia, while detestable, should dictate their Nord Stream 2 policy.
On January 19, the departing Trump administration imposed sanctions on KVT-RUS, a Russian LLC and owner of Fortuna, a pipe-laying barge that Russia was able to enlist to try and finish the project. The United States Department of the Treasury issued the sanctions under the Countering America’s Adversaries Through Sanctions Act (CAATSA), which was signed into law by President Donald Trump in August 2017. The legislation made the act of leasing, selling, or providing goods, services, technology, information or support to Russia for the purpose of construction of energy export pipelines punishable through direct sanctions. It was also announced that further actions could be taken under the Protecting European Energy Security Act (PEESA), which allows for the sanctioning of entities that provide insurance, certification, or underwriting support for pipe-laying vessels involved in the Nord Stream 2 project. Since this announcement, the majority of commercial entities involved in the project have withdrawn their assistance, but pipe-laying operations on the unfinished section within the Danish Exclusive Economic Zone have continued in defiance, with Fortuna performing the work. The pipeline is over 95% complete. In addition, the remaining portion lies within Danish waters and has been granted all necessary approvals and permissions for completion.
The prospects of a long-term Euro-Russo energy partnership directly challenge United States’ interests. By securing reliable natural gas imports from Russia, Europe will no longer need to rely on U.S. natural gas imports. This will sever a considerable source of export revenue for the United States, and leave it in an untenable position with no certainty of securing a portfolio capable of offsetting such losses. Perhaps more concerningly, the Nord Stream 2 will further entangle European security with an actor that has consistently demonstrated malicious intent towards European and transatlantic institutions. It is likely that the Nord Stream projects are part of a broader two-pronged Russian strategy. First, to further tether European economic health and dependence to the Russian energy market, giving Russia an enormously powerful instrument of leverage over the direction of Eurasian policy. Second, to diminish the role of the traditional energy-broker Ukraine, isolating it further from European integration and amplifying its reliance on Russia, increasingly dashing the sovereign nation’s aspirations of escaping Russia’ sphere of influence and control. By bypassing the Ukraninan gas corridor, Ukraine would be cut off from essential transit revenues that it uses to keep its economy buoyant. Russia would potentially be choking the Ukrainian economy into submission, leaving it vulnerable to Russian influence operations and susceptible to future military campaigns akin to Crimea’s annexation in 2014.
This should alarm U.S. policymakers as Ukraine’s democratization arc represents an enormous strategic shift in the balance of power across central and eastern Europe. If Ukraine is able to withstand Russian pressure and escape the gravitational pull of Russia’s re-Sovietization efforts, it has a legitimate chance at acceding to NATO and integrating itself into the European Union. This would bring NATO to Russia’s doorstep and signal to the rest of the near-abroad that western alignment, with all its economic and security benefits, is a tangible possibility. The United States has an opportunity to ensure that despite the Nord Stream 2’s inevitable completion, Ukraine is not left at the mercy of Russia. Current Russian-Ukranian natural gas transit contracts expire in 2024. The U.S. should move to secure a commitment from Russia to extend these contracts to at least 2030, without significant wind-down of transit quantities. This would ensure that Ukraine has a reliable source of revenue while it pursues disengagement efforts. The U.S. should also seek to secure non-aggression commitments from Russia, prohibiting any offensive maneuvers into the near-abroad, with independent security watchdogs monitoring for hostile actions masquerading as defensive gestures. A Russia that is actively seeking to expand its control and regulation of resources across the Eurasian continent poses a direct threat to crucial Euro-Atlantic security and trade alliances. The Biden administration has inherited a precarious relationship with an increasingly contentious Russia, and concerns over creating an amenable dynamic are natural and necessary. However, such concerns should not dissuade officials from utilizing a confrontational tone when and where requisite. While credible, apprehensions over inviting further Russian antagonism should not drive policy discussion in this realm. Cooperation will be difficult across a broad range of issues, some of which the United States is unlikely to be able to secure clear and concise strategic victories. Unfortunately, Nord Stream 2 represents one of those issues. The project is all but completed, and current sanctions, though considerable, will not be able to prevent the escalating flow of gas out of Russia. Germany has committed to the pipeline as a central integrant of its economic and environmental trajectory, and opposing central and eastern European states lack the clout and economic power to derail Euro-Russo convergence. However, the United States can still achieve meaningful and crucial outcomes as they pertain to both Ukraine’s sovereignty and independence, and Eurasian security as a whole. Future Euro-Atlantic relations and U.S. influence over global security will be damaged by Nord Stream 2, but the United States has a number of tools at its disposal to ensure that it remains a steadfast presence in Eurasia and a firm challenger to Russian aggression, and should be a top priority of the new Department of State.
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