A Secret Letter From A Contended Germany, What’s Wrong With North Stream 2?

The Navalny case smells of gas and destabilization. Moscow threatens the rupture of relations with the E.U. in the event of new sanctions. Germany responds by calling the ultimatum “bewildering.” Simply put, Navalny and the North Stream 2 project are just the latest products of rising tensions between Russia, overdependence on the supply of hydrocarbons, and the U.S., wanting to sell their liquid gas to Europe at all costs. By connecting Russia and Germany directly, North Stream 2 would also cut off Poland and Ukraine, countries that are paramount to Washington’s intention to build an upgraded Gas Curtain in Eastern Europe. Symbolically and pragmatically, control over energy supply chains across these countries would act as a disincentive for any eventual bold move from the Russian side.

The U.S. administration has already proved successful in hitting Moscow’s vital interests, namely the export of energy, in retaliation for the annexation of Crimea in 2014. Likewise, the newly appointed Secretary of State Antony Blinken has already been trying to threaten Germany with sanctions for the completion of North Stream 2. Allegedly, this is the driver pushing the Deputy Chancellor and Finance Minister Olaf Scholz to offer up to one billion euros to his American counterpart Steven Mnuchin to boost imports of U.S. shale gas to Germany. Agreed behind closed doors, this offer was made to balance dependency between the two superpowers, facilitating the infiltration of Washington’s capital in the German energy industry as a means to counter-influence Russia’s monopoly of supplies.

Published by the German environmental association Umwelthlife, the letter has been criticized due to its environmental incompatibility with the goals of the Recovery Fund. The Greens have been calling for the immediate blocking of the agreement, with their leader, Annalena Baerbock, saying, “this enterprise is wrong from beginning to end.” The Liberals have asked for a moratorium and public apology. But there is also growing resistance within Merkel’s own party, the CDU, with Norbert Roettgen, chairman of the Foreign Affairs Committee, as one the most well-known opponents to the project. This is exemplary of a country that is fatiguingly carving out its space with the aim of establishing contemporary Germany as a truly independent power while being pulled here and there in opposing directions, both externally and internally.

In this context, Martina Fietz, the Chancellor’s Deputy Prime Minister, replied to critiques with a laconic “our position does not change.” But Scholz’s letter reports differently: without satisfying their requests fully, Berlin is basically paying the Americans in exchange for ending sanctions on North Stream 2. At the same time, Berlin is reticent about implementing the automatic block system wanted by the U.S. on North Stream 2. Washington would like Germany to have a mechanism to block the pipeline as a means to blackmail the Kremlin into giving up on Ukraine and Poland – if ever Russia moves to attack them. Instead, Berlin would rather choose a case-by-case scenario, so as not to give control over its economic stability to the unforeseeable consequences and dynamics of foreign powers. The fear is that it may as well be Ukraine – that is the U.S. – to trigger an open confrontation with Russia.

The latter has shown to be a reliable supplier for Germany and the E.U. throughout the years, with Gazprom accounting for around 40% of all gas supplied to the member states in 2018 and 2019. However, with 60% of its GDP directly connected to the export of raw materials and the price of gas indexed to that of oil, Moscow has become ever more vulnerable to sudden changes in global prices. This has been punctually underlined by the pandemic, which saw Gazprom’s profit margins seriously affected. Having to deal with decreasing volumes and falling prices for the export of pipeline gas, its revenues decreased to 1.1 billion U.S. dollars in the period May-June 2020, 2.4 times less than in the same period in 2019.

In the face of negative data, Gazprom has reacted by putting itself on the defensive. The budget and planned investments for 2020 have been revised at a minus 16%. This is also due to the efforts of some countries, such as Bulgaria, to diversify their supply by importing Azerbaijani gas through the southern corridors, formed by the TANAP and TAP pipelines connecting Baku to Brindisi. If the whole EU moves in the same direction, Gazprom may see its competitivity sharply reduced and its once-strong monopoly weakened substantially. This would have a devasting effect on the highly polarized socio-economic structure of Russia, where turmoil is conveniently silenced, at least for the moment, by the national narrative envisioning the country as a Besieged Fortress. As shown by the combination of the Navalny, Belorussian and North Stream 2 cases, Moscow has so many dossiers in its hands that just a small error could result in an amplification effect for the local protest movements, fatally compromising the regime’s credibility. This is the reason why the Kremlin cannot lose the German enemy-ally: if it loosens its grip on the most important European market to the benefit of the U.S., this time Putin might find it more difficult to sedate revolts, compensate the oligarchs and avoid systemic stagnation.

Luca Giulini

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