The Right (and Wrong) Way to Deal With Nord Stream 2

(The Bloomberg View) -- The construction of Nord Stream 2 — a pipeline for delivering natural gas from Russia to Germany — could hardly have come at a worse time. The United States and Europe are already feuding over trade, defense spending and Iran. Now, U.S. opposition to the pipeline sets the scene for another falling out. 

To be clear, the U.S. is right to object to the pipeline, a project conceived to serve Russia’s geopolitical goals rather than Europe’s energy needs. Earlier this month, Washington’s ambassador to the European Union told an audience in Brussels that the U.S. is considering steps that “could significantly undermine if not outright stop the project.” But imposing sanctions on EU companies involved in the project, as the U.S. Congress has threatened to do, would further weaken a fraying alliance and thus prove self-defeating. The U.S. should press its objections without resorting to punitive measures, and the EU should think again.

Due to be completed in 2019, the pipeline will double the amount of gas Russia transports directly to Germany across the Baltic Sea. Nord Stream 1, completed in 2011, supplies 55 billion cubic meters a year to Germany; the second pipeline would allow Gazprom, Russia’s state-owned gas company, to funnel an additional 55 billion cubic meters over the same route. By this means, Gazprom aims to reduce and eventually eliminate the movement of Russian gas to the EU through Ukraine.

This would deprive Ukraine of up to $2 billion a year in transit fees, roughly 1.5 percent of the country’s gross domestic product. It would also make Ukraine more vulnerable to Russian gas cutoffs — which the Kremlin could use to exact territorial concessions from Kiev. 

Gas that gets to western Europe from Russia also passes through countries such as Poland, Slovakia and Hungary, all NATO members. They, too, are at risk of being denied supplies and transit revenues once Nord Stream 2 comes online. Poland’s government has called the pipeline a “hybrid weapon” created by Moscow to divide the EU and NATO.

That’s true — and it’s working. Despite the concerns of Germany’s neighbors, Chancellor Angela Merkel’s coalition government refuses to halt work on the pipeline. Last summer, President Trump blasted Merkel for the policy and accused Germany of being “totally controlled” by Russia, but then appeared to acquiesce to the project during his July summit with Vladimir Putin. Congress brought forward bills authorizing the administration to levy sanctions against a consortium of five European energy companies that have partnered with Gazprom; at least one bill, sponsored by Republican Senator John Barrasso, would make them mandatory.

The incoming Democratic-controlled House will seek to repair some of the damage done to the U.S.’s relationship with European allies. But it may also be tempted to use the threat of sanctions on Nord Stream 2 as a cudgel against Trump’s desire for closer ties with Putin.

This approach isn’t smart. Reducing Europe’s dependence on Russian gas is in the U.S.’s interest. But penalties against the companies financing Nord Stream 2 would arouse public resentment in Germany and strengthen the project’s supporters. The current political instability in Berlin might get worse. And the U.S. risks alienating Europeans who oppose the pipeline but object to Washington interfering in their energy policies.

The Trump administration should focus on convincing Europeans that Nord Stream 2 is a mistake. The U.S. can support European political parties and interest groups lobbying Merkel to abandon the project. It should encourage Denmark to delay issuing permits for construction of the pipeline in Danish waters. It should urge the European Commission to examine whether the pipeline makes member states vulnerable to Russian aggression and undermines EU goals for energy diversification. And it should promote alternatives to Russian gas, including increased imports of liquefied natural gas from the U.S.

Opponents of the pipeline are right — but the situation calls for persuasion, not punishment.

Editorials are written by the Bloomberg View editorial board.

©2018 Bloomberg L.P.

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