Energy As A Weapon: A Cause And Consequence Of Nord Stream 2

Last month’s U.S.-German agreement to allow for the completion of Nord Stream 2 involved a German pledge of national and E.U.-level sanctions against Russia if the state deploys the natural gas pipeline to “use energy as a weapon or launch further aggressive acts against Ukraine.” Published on July 21st, the deal also commits to support EU law, specifically its energy laws, which potentially introduce new legal obstacles to the pipeline’s operation.

Under the Gas Directive 2009 (and its 2019 amendment), the Kremlin-linked owner of Nord Stream 2 — Gazprom — must comply with ownership unbundling rules (it cannot both supply the gas and own the pipeline), third party access (competitors must be allowed access), and tariff transparency. Moreover, the Court of Justice of the European Union ruled on 15 July that when the German regulator considers under Article 11 of the Gas Directive whether the pipeline’s owner is a supply security risk to the E.U. or its member states, it must consider the interests of each member state at each stage of the certification process. Poland has notably objected to the project because it would increase “Russia’s potential to destabilize the security situation in Europe.”

Legal battles inevitably lie ahead, and if the process so far is any indication, Gazprom will seek to manipulate the European gas market and pressure regulators to decide in their favour. Natural gas prices are currently at their highest level in 13 years, and Gazprom is fulfilling its long-term supply contracts by selling already-stockpiled natural gas from storage facilities in Austria and Germany. As of 19 July, these facilities were only 33 and 47 percent full, respectively. This raises fears of gas cut-offs in winter. The implicit threat of withholding gas exports will become increasingly pertinent as the legal swamp thickens.

Gazprom’s decision to meet European demand by depleting stockpiles, rather than purchasing gas transit through Ukraine, has been viewed as an attempt to create an artificial deficit and a deceptive need for Nord Stream 2. Anastasia Sinista, a security expert at the Ukrainian energy think-tank DiXi Group, believes that “if Gazprom built its strategy for economic feasibility, then the company would try to sell its product profitably to European customers.” Instead, it is foregoing profit for geostrategic ends. Indeed, Elena Burmistrova, head of Gazprom’s exporting division, seemed to implicitly confirm this when she said in May that the company would be “able to cover additional demand with the commissioning of Nord Stream 2.”

Looking forward, Alan Riley, Senior Fellow at the Institute for Statecraft in London, sees the coming legal battles as no longer about energy security or Ukrainian independence — as referred to in the U.S.-German agreement — but as an “existential battle for the uniform application of the rule of law, and particularly EU law, across Union territory.” If Gazprom continues to play its crude games of weaponizing its near-monopoly in pursuit of geostrategic ends, it will take an irrevocable step towards confronting the E.U. as a legal and constitutional entity, not merely an economic one.

As Europe, particularly Western Europe, becomes increasingly dependent on Russian gas, the capacity for such implicit and even explicit threats will increase. Gazprom currently supplies 81% of all gas imported by Western European countries and nearly 40% of Europe’s gas overall. This has come at the expense of domestic production, which fell by 11% in 2019 according to Eurostat, and Ukrainian gas transportation which will become superfluous with the operation of Nord Stream 2.

Although the recent agreement between Merkel and Biden was presented as a conclusion to the long-running saga which would ensure a future for Nord Stream 2 while preventing its strategic misuse, the reality is quite different. Gazprom has seen success in its implicit threats of winter gas cutoffs, and now facing ever-greater legal challenges, it seems likely to further exploit its increasingly dominant position as Europe’s primary gas supplier. Although its obstacles are now legal rather than political, the fusion of the two at the E.U. level — the opposition will be led by member states — means that the tactics may well continue to work. Certainly, “energy as a weapon” is not resigned to the past: it is a cause and a consequence of Nord Stream 2.

Isaac Evans