Somewhat incongruously, Germany has ended up at the forefront of the new wave of sanctions against Vladimir Putin’s regime. On 22 February, in response to Russia’s recognition of the Donetsk and Luhansk’s Republics and their claim to the entire Donbas region of eastern Ukraine, Olaf Scholz, the German chancellor, announced that he had halted the formal certification of Nord Stream 2. Laid under the waters of the Baltic, the recently completed gas pipeline has the capacity to carry 55 billion cubic meters of gas per year to western Europe.
The situation is incongruous because hitherto Berlin had been less forthright in its pronouncements over Ukraine than other countries. Until recently the German government’s official position was that Nord Stream 2 was a “commercial project”, a line echoed by Moscow. That stance provoked outrage from those asking for a more confrontational attitude towards Putin. For Nord Stream 2 to be put on hold sends a signal that Germany will not stand in the way of aggressive sanctions on the part of Europe as a whole. It also relieves pressure on Berlin. The pipeline was on track to be certified for operations in the second half of 2022. Scholz’s intervention avoids the glaring incongruity of opening a new connection to Russia as Putin’s tanks occupy tracts of Ukraine.
Nord Stream 2 may have become an embarrassment, but it is no aberration. In its current form, Germany’s dependence on Russian energy dates to the Cold War. In the 1970s, as West Germany sought a better modus vivendi with the Soviet Union and thus some prospect of eventual reunification with East Germany, it entered into increasingly ambitious oil and gas deals. By 2020 Germany was getting more than half of its imported gas from Russia. Russian gas powered German electricity generation and heated German homes. As well as gas, 34 per cent of Germany’s crude oil imports came from Russia in 2021, as did 53 per cent of the hard coal burned by German power stations and blast furnaces. The rest of the EU is not far behind Germany in terms of dependence on Russian energy.
Trade on this scale draws in serious commercial interests. German corporate champions such as Siemens and BASF have a major stake in the Russia trade. The closest analogue in the UK is not the easy-come, easy-go oligarch real estate investment in London, but the giant arms deals that secure business for BAE Systems in the Gulf. That kind of money generates political buy-in.
Every German chancellor since the 1970s has pursued amicable relations with Russia. Angela Merkel was highly protective of Germany’s commercial relations with its eastern neighbour. And co-operation pays. Pity poor Tony Blair who had to make do after leaving office with consulting deals with Kazakhstan and Uzbekistan. Gerhard Schroeder, the last Social Democrat to serve as chancellor before Scholz, sits on the board of Gazprom, Russia’s state-owned gas giant.
The original plan to build a network of new gas pipelines in the Baltic dates back to the 1990s. Nord Stream 1 involved a consortium of interests from across Europe including Rolls Royce, which supplied compressors, and engineering firms from Italy. The opening in November 2011 was attended not only by Angela Merkel and Dmitry Medvedev, the Russian president at the time, but the prime minister of France and the Netherlands, François Fillon and Mark Rutte.
Once the first Nord Stream pipeline was completed, planning for Nord Stream 2 began almost immediately and proceeded despite the imposition of sanctions following the first Ukraine crisis in 2014. The Nord Stream 2 consortium was led by Royal Dutch Shell, as well as German, Austrian and French energy groups.
It was controversial from the start. In opposition the German Green party consistently opposed it. If Germany is decarbonising it needs less, not more, fossil fuel infrastructure. Poland denounced the new pipeline in hyperbolic terms, calling it a second Hitler-Stalin pact — the deal that sealed Poland’s occupation in 1939. The European Commission suspects that Nord Stream 2 will entrench Gazprom’s monopoly position and demands that ownership of the pipes must be in different hands. Pre-emptively, in October 2020 Poland’s competition authority slapped a €6.5 billion fine on Gazprom for violation of competition law.
Hawks in the American Congress led by Ted Cruz, a Republican senator, have tried repeatedly to stop Nord Stream 2. When Biden took office his secretary of state, Antony Blinken, took the same stand. But driven forward by Russian and Western business interests, construction work continued and, over the summer of 2021, the fortunes of Nord Stream 2 suddenly looked up.
Under pressure from Berlin, the Biden administration abandoned its opposition. As tension in Ukraine escalated and Germany and the US did their best to present a united front, Nord Stream was missing from the communiqués. On his visit to Washington this month (February) Scholz side-stepped questions and Biden did not press him. Meanwhile, the Biden team have been demanding that Opec and Russia increase oil supply to global markets and have accused Moscow of deliberately strangling European gas consumers.
It is Russia’s headlong aggression that has forced Berlin to pivot. Medvedev, in his latest role as deputy chairman of Russia’s Security Council, may bluster about a “brave new world” in which consumers in Europe will pay “€2,000 for 1,000 cubic metres of natural gas” but the last thing that Germany or the rest of Europe can be accused of is having wished for this situation.
Whatever happens in the next few months, the Nord Stream 2 saga is not over. $11 billion have been sunk into the project. You would be brave to bet against Nord Stream 2 eventually carrying Russian gas to the West. It may not yet be a stranded asset. But talk of the gas pipeline as a purely commercial project, or a bridge between East and West, must now be consigned to the scrap heap of history.