The Nord Stream 2 dispute and the transatlantic alliance

Europe and the United States are stuck in the debate on Nord Stream 2. The disagreement over the Russian-German pipeline is more complex than many arguments made by various parties would suggest. It is not a clear-cut energy security issue, as it is sometimes presented: Nord Stream 2 would not inevitably increase the amount of Russian gas in Europe or Europe’s dependence on it, nor would it need to limit individual countries’ access to gas. Instead, the issue is a thorny one because it combines a multitude of considerations – from supply diversification to different countries’ business interests; from legal commitments to historical distrust and sanctions against allies’ projects – and spices them up with the political passions of the day.

This makes Nord Stream 2, above all, a relationship-management problem. It would be bad for Europe if American pressure forced the cancellation of the pipeline and left Germany and other member states whose companies participate in its construction bitter and beaten. It would also be bad for Europe if the pipeline ended up bulldozing Poland’s misgivings and portraying Germany as a selfish actor that did not care about its partners. Either of these outcomes would also weaken the transatlantic alliance and, more or less directly, benefit Moscow.

It would be better if the US and Germany sought a compromise that took into account Europe’s and America’s strategic constraints, as well as the future of the gas trade in the light of the accelerating green transition. Such an approach could bring the transatlantic community together on a shared position.

Germany’s problem

For Germany – a country with strong legal culture – it would be highly uncomfortable to abandon Nord Stream 2 and thereby violate agreements that predate Europe’s third energy package. But when it insists on completing the pipeline, Germany is dividing the EU. It is not just risking the trust and faith in German leadership of eastern Europeans – who already had their doubts about how Berlin balances its commitment to their security with its desire to do business with Russia – but also of some southern Europeans. For instance, Italians saw the South Stream project scrapped, while Nord Stream has gone ahead. In combination, such grievances could start to erode Germany’s capacity to build a consensus on the European Union’s Russia policy. Given that no country could easily replace Germany in the latter role, the EU could experience growing disunity in its overall approach to Russia.

On top of this, a stubborn emphasis on Nord Stream 2 comes with the increasing risk of a (not really fair) perception that Germany’s foreign policy is driven purely by economic interests. Berlin’s partners could more forcefully demand that it prove that it will put economic interests aside on a different issue – one of greater economic importance to Berlin than Nord Stream 2. Somewhat counterintuitively, such insistence would diminish Berlin’s and Europe’s leverage over Russia. So long as the Kremlin believes that, eventually, economic interests will trump normative views and play a decisive role in the relationship, it will lack incentives to modify its stance on Donbas, despite all the effort Germany and France may have invested in the negotiations in the Normandy format. If Moscow stopped expecting economics to sort things out for it, its calculus might change.

When Berlin has to protect bigger economic interests than Nord Stream 2 – be it on China, Russia, or other difficult partners – a reputation for reluctance to counter human rights abuses and systemic rivals will not help. Furthermore, in the case of Russia, this would also be unfair. Germany has proven in its Russia policy that it is committed to values and can act forcefully: Chancellor Angela Merkel and President Frank-Walter Steinmeier rallied Europe around sectoral sanctions on Russia over the annexation of parts of Ukraine – something that the Kremlin might have never expected. These sanctions are still in place with strong German backing. A blindly uncompromising insistence on Nord Stream 2 would erode much of the political capital this work has achieved.

The United States’s problem

Several years ago, the US assured investors and European companies that it would not use sanctions to cancel Nord Stream 2. Before the Trump administration reversed course, the US stated unequivocally that it would not apply the Countering America’s Adversaries Through Sanctions Act to Russian energy export pipelines initiated before 2 August 2017. But even Democrats have changed their minds on the issue. As US ambassador Daniel Fried argued, sanctioning a German-Russian project is possible, but would be too costly. Doing so would not be in line with what President Joe Biden and Secretary of State Antony Blinken have declared to be a guiding principle of US foreign policy: America may have the power to take a certain action, but it sometimes needs to be humble and not do so – and it needs to privilege cooperation with allies where it really matters, on issues such as China.

For many Europeans – regardless of whether they like the pipeline – the Nord Stream 2 case shows that the US Congress and even Democrats are willing to use the threat of sanctions and the damage they can inflict on European projects. After Donald Trump left office, the US abandoned many policies that worried Europeans – but it looks as though the country will, at times, continue to use economic weapons that directly hurt Europe’s interests. Even businesses in eastern Europe are opposed to economic pressure to alter their commercial relations or those of their European partners.

Furthermore, if unilateral US action killed off Nord Stream 2, this would threaten efforts to renew transatlantic relations. Instead of a united and proactive partner, the US would be working with the split and wounded EU – not unlike the one it faced in 2003, following the invasion of Iraq. Germans would feel bitter, and the French would be reminded of the ways in which unilateral US action had hit them. And while citizens of eastern European countries might applaud the move, their leaders would feel increased strain. These countries need the US for their security, but there is much more at stake in their relationships with France and Germany than there was in 2003 – now that they are full members of the EU and the United Kingdom has left it.

Russia’s problem

In the ongoing transatlantic dispute, Russia is largely a bystander – it lacks a say over Washington’s or Berlin’s actions. But the outcome will affect Russia’s views of, and leverage over, the West. In Russia’s eyes, Nord Stream 2 is a test case for how seriously it should take Europe: if Washington halts the project, Moscow will find another reason to dismiss Europe as a policy actor that lacks credibility. Of course, this should not mean that Europe needs to save Nord Stream 2 just to impress Russia. The EU’s reasoning should have deeper roots than that.

At the same time, if Europe thinks that killing the pipeline will punish Russia and drive the EU’s dissatisfaction home to Moscow, it is wrong to do so. For one thing, scrapping Nord Stream 2 would not be the same as scaling back gas purchases from Russia: Europe would still be buying the same amount of Russian gas via the Ukrainian pipeline. Starving Moscow of gas export revenues is not on the cards right now, one way or the other. And it would be unrealistic to assume that Europe or the West could decrease energy purchases to the extent that it would pose an existential threat to the Putin regime. In the case of Russia, Iran- or Iraq-style sanctions are impossible. If it perceived such a threat, Moscow would escalate in ways that Europe – and even the US – would not be prepared to respond to.

As political scientist Steven Pifer points out, either outcome that does not involve a transatlantic compromise, would make Moscow a winner of sorts. The pipeline going ahead without addressing the wider security context and other relevant concerns would hand Moscow what it wanted. And if Washington unilaterally kills the pipeline, that would provide Moscow with ample opportunities to exploit the newly widened transatlantic and intra-European divisions.

The transatlantic problem

All sides pay too little attention to the respective strategic situations of Biden and especially Merkel.

There are many good reasons why Nord Stream 2 was not a great idea (given that its rationale is to circumvent Ukraine, it is at odds with the third energy package, it splits Europe, and was not really needed given the amount of gas Europe consumes). Merkel, known as an Atlanticist and not exactly pipeline’s biggest fan, is in a tricky situation. But the chancellor who was ready to follow America into the Iraq war – in contrast to most Germans – cannot just back down on Nord Stream 2.

In the new geo-economic great power competition where trade is a key weapon and trading nations are particularly vulnerable, Germany worries about its economy and wealth more broadly. The country and the EU as a whole have a vital interest in remaining the most globally interconnected market – more than 40 per cent of the bloc’s GDP comes from trade with various parts of the world, compared to just 26 per cent share of trade in GDP for the US.  

During the cold war, the superpowers faced off against each other in Germany, which lived under the constant threat of nuclear annihilation from a potential conflict between them. While today’s great power competition is very different, it could still see Germans caught in the middle – and could inflict tremendous damage on them. To be sure, economic harm pales in comparison to nuclear war. And Germany is far from taking a position of equidistance between the US and its rivals. But US policymakers need to better understand the strategic situation Germany and Europe find themselves in – regardless of whether one agrees with how Germans view their situation.

In this situation, US sanctions make Nord Stream 2 a sovereignty issue for Germans and other Europeans – and would set a precedent well beyond the pipeline if Berlin just gave in to economic blackmail. Trump’s economic coercion against Europeans foreshadowed this scenario – exploiting their dependencies on trade and an international rules-based order, while threatening to punish them economically if they did not change their policy positions on a whole range of issues, from tax to energy, to their trade partners. For many Europeans, US sanctions on Nord Stream 2 seem like a continuation of such practices at a time when Germans and other Europeans expected the Biden administration to abandon this approach. In 1982 British Prime Minister Margaret Thatcher – who was far from anti-American – opposed US President Ronald Reagan’s sanctions on the trans-Siberian pipeline, together with her German and French colleagues. And Blinken said sanctions on allies are a mistake in a 1987 book about that period.

If Thatcher had no choice but to oppose Reagan on pipeline sanctions amid the US-Soviet rivalry, Merkel can hardly cave in to economic blackmail today. This would set a dangerous precedent given that other powers, particularly China, are closely watching how Germans and Europeans react to economic pressure.

The Biden administration is in a tricky domestic situation, too: Trumpism is still strong and Biden cannot afford to look weak on Russia, especially when Democrats in Congress are pushing him to take a tough line. Biden cannot just stop coercive policies against the pipeline, even if he takes much greater account of Germany’s strategic situation. His administration’s current approach to the dilemma seems to be to focus on sanctioning Russian entities involved in Nord Stream 2, not Europeans.

However, there are some reasons to hope that, despite the political pressure on both sides, Europe and America can walk the thin line leading to a compromise. Biden’s first prominent package of Russia sanctions – announced on 15 April and related not to Nord Stream 2 but to Russia’s other “harmful foreign activities” – reflects a healthy view of US national interests and skilful diplomatic messaging. It makes clear Washington’s position, signals its displeasure to Moscow in no uncertain terms, and also offers a chance to talk. It is tough without giving in to emotion by shutting doors or, critically, hurting allies – preferring to closely coordinate with them.

At this critical point in time, the big strategic challenge for both Europeans and Americans is not Nord Stream 2. It is in rebuilding the transatlantic relationship in a way that accommodates both American and European perspectives, and preparing to deal with a China that will be economically stronger than any other country. Russia poses a strategic challenge, too, but not one that hinges on the pipeline.

The transatlantic partners would be best advised to find a compromise on Nord Stream 2, and to put the issue aside. This compromise should stem from a comprehensive approach that takes account of all relevant aspects of the issue: the strategic constraints on both sides; what sanctions mean for both Merkel and Biden; the nature of Russia’s regime; the leverage (or lack thereof) the gas trade seems to have over the regime and Russia’s international behaviour; climate change and the green agenda; and, in light of that agenda, the future of the overall European and American energy trade with Russia.

With this in mind, there are ways for Europe and the US to work out the specifics. Coordination and dialogue on the strategic challenge of economic coercion would be important, and allies could discuss a transatlantic approach towards energy trade with Russia that would take into account the broader picture. Tying a certain amount of energy imports to clear red lines or conditions related to Russia, as proposed by Wolfgang Ischinger, could be one way of achieving compromise. But such solutions will only work if it is clear that they were not the direct result of economic blackmail and if Biden continued to look tough on Russia.