Friendship no more: how Russian gas is a problem for Germany

But a new pipeline that will carry gas direct from Russia under the Baltic Sea to Germany is doing rather less for friendship, driving a wedge between Germany and its allies and giving Chancellor Angela Merkel a headache. For U.S. President Donald Trump, Nord Stream 2 is a “horrific” pipeline that will increase Germany’s dependence on Russian energy. Ukraine, fighting Russian-backed separatists, fears the new pipeline will allow Moscow to cut it out of the lucrative and strategically crucial gas transit business.

It comes at an awkward time for Merkel. With the fraying of the transatlantic alliance and an assertive Russia and China, she has acknowledged that Germany must take more of a political leadership role in Europe. In April she accepted for the first time that there were “political considerations” to Nord Stream 2, a project she had until then described as a commercial venture. Most European countries want Germany to do more to project European influence and protect eastern neighbors that are nervous of Russian encroachment.

But letting Russia sell gas to Germany while avoiding Ukraine does the opposite, depriving Kiev of transit revenues and making it, Poland and the Baltic states more vulnerable to cuts in gas supplies. Many analysts say the business case for Nord Stream 2 is thin. Another pipeline already links Russia and Germany under the Baltic. Nord Stream 2 will double capacity but future demand is uncertain. On the flip side, German industry likes anything that will provide energy more cheaply. Merkel’s Social Democrat coalition partners, the leading voices in Germany calling for a conciliatory approach towards Russia, are also in favor. The issue has divided Berlin’s political class. The parties agreed in their coalition talks earlier this year to make a commitment to the pipeline, but did not put it in writing.

According to Margarita Assenova, an analyst at the Centre for European Policy Analysis who is critical of Nord Stream 2, Russia can double gas exports to Europe via existing Ukrainian pipelines without building the new conduit. The pipeline is one of a network of Kremlin-sponsored projects seemingly designed to circumvent Ukraine, the largest and most troublesome of the countries once ruled from Moscow. They include Turk Stream, which crosses the Black Sea to bypass Ukraine to the south. Germany and the European Union are attempting to broker an agreement between Moscow and Kiev to keep the gas flowing across Ukraine when the current transit contract ends in 2019. Critics say this means European consumers will pay a subsidy to help keep Ukraine afloat. That cooperation goes a long way: last week, Merkel hosted Russia’s Foreign Minister Sergei Lavrov in Berlin. He was accompanied by Russian general staff chief Valery Gerasimov, who has been banned from the EU since Russia annexed Crimea from Ukraine in 2014.