Critics say Kremlin will use gas project to undermine Ukraine and increase its leverage over energy supplies


Henry Foy, Roman Olearchyk and James Shotter  

July 22, 2021



A bilateral deal between Washington and Berlin over the Nord Stream 2 gas pipeline from Russia to Germany, struck in the aftermath of German chancellor Angela Merkel’s visit to the White House last week, has failed to bridge deep-seated divides in Europe over the pipeline or placate critics who say it is a geopolitical weapon that the Kremlin will use to undermine Ukraine and increase its leverage over EU energy supplies.  Set to begin operations later this year, Nord Stream 2 will pump 55bn cubic meters of gas under the Baltic Sea, allowing Kremlin-controlled gas exporter Gazprom to reach customers in Germany and elsewhere in Europe without using pipelines running through Ukraine.

A divisive project

Since Gazprom first applied for permits to start construction of Nord Stream 2 in 2015 — a year after Russia annexed Ukraine’s Crimea peninsula — Ukraine, Poland and other eastern EU countries fearful of Moscow’s influence over Europe’s energy supplies have condemned the project. 

They say it will be used by Russian president Vladimir Putin to both deprive Kyiv of up to $2bn in annual fees it earns pumping Russian gas to Europe through its Soviet-era pipelines, and increase Moscow’s share of European gas imports, which the Kremlin could use as a bargaining chip in geopolitical negotiations.  In 2019 the US passed legislation imposing sanctions on European companies that were working on construction of the pipeline, angering Germany and the EU commission, which saw the move as an unprecedented extraterritorial intervention into European energy policy, and souring bilateral ties between Berlin and Washington.

Security promises and cash

While Joe Biden’s administration has maintained US opposition to Nord Stream 2, the president has made rebuilding relations with Nato partners such as Germany a priority. Under the deal, announced just days after Merkel’s final visit to Washington as chancellor, the US will withdraw its sanctions against the pipeline in exchange for promises from Berlin to protect Ukraine and Europe from potential Russian threats.  Specifically, Berlin has pledged to impose measures including limiting Russian energy imports if the Kremlin attempts “to use energy as a weapon or commit further aggressive acts against Ukraine”.

The deal also means Germany will appoint a special envoy to help force Moscow to extend by 10 years a gas supply deal through Ukraine that expires in 2024, and make an initial $175m donation to Kyiv as part of a $1bn fund to accelerate Ukraine’s shift from coal to renewable energy projects. Berlin will also provide $70m to improve the security of Ukraine’s energy infrastructure.

‘Superficial and insufficient’

But longstanding critics of the project were unmoved by those promises from Berlin. The foreign ministers of Ukraine and Poland said in a joint statement the proposals were “superficial and cannot be considered sufficient to effectively limit the threats created by Nord Stream 2”.  “We call on the United States and Germany to adequately address the security crisis in our region, of which Russia is the sole beneficiary,” they said, adding that Kyiv and Warsaw would continue to work with allies to oppose the pipeline.

Slawomir Debski, head of the Polish Institute of International Affairs, a state-backed think-tank, said the agreement would “create a huge security gap on Nato’s eastern flank, and particularly in Ukraine”.  Wednesday’s deal, Debski added, was the latest example of an inability “to convince Germany that maintaining peace on Nato’s eastern flank was more valuable than its relations with Putin’s Russia”.

Ukrainian officials said they did not support swapping US sanctions for theoretical German responses to potential Russian actions. “First and foremost, Ukraine’s national sovereignty and security concerns require specific guarantees and concrete implementation mechanisms,” said Yuriy Vitrenko, chief executive of Ukraine’s state gas company Naftogaz. “The US sanctions regime in place today remains the main deterrent against ongoing Russian aggression in Ukraine.”

Selling ‘a bad deal’

Despite the agreement with Germany, the US state department has said it still believes Nord Stream 2 is “a bad deal” for Europe. One US official described it as “making the best of a bad hand”.  But despite that, Washington and Berlin must now convince Kyiv, Warsaw and other opponents of Nord Stream 2 that the agreement is the right way forward for Europe and Ukraine.

Speaking on Thursday, Merkel rejected the idea that the deal was a sign that Ukraine and Poland were a lower priority for Berlin than Russia. She said it was not meant to erase the differences between Berlin, Washington and others, but rather to provide a way to manage ongoing differences. She said Germany would be willing to impose sanctions on Russia if necessary and said “we are not without any tools to do something”, adding it was important that Germany always had talks with Russia.

Much will depend on talks over the next month ahead of Ukrainian president Volodymyr Zelensky’s meetings with Biden in the White House on August 30, and Berlin’s ability to persuade critics that it can be trusted to defend Ukrainian and European interests.

In a call between Merkel and Putin on Wednesday evening, the two leaders “touched upon the possibility” of extending the Ukrainian gas transit agreement beyond 2024, the Kremlin said in a statement.  But Ukraine and its supporters will want more than just words from both Berlin and Moscow to drop their concerns over Nord Stream 2’s impact.  “There is a fundamental problem. It’s related to the fact that we still do not understand whether Russia is ready to uphold its obligations and it’s part relating to the security of Ukraine,” Ukraine’s foreign minister Dmytro Kuleba said on Thursday in televised comments.  “America and Germany agreed on something. But we all understand that the main benefactor of this crisis created by [Nord Stream 2] is the Russian Federation.” he added. “And this is the main problem about which more work is needed.”