Trump Forbids Russian Pipeline. Europe Pushes Back

(Bloomberg Opinion) -- Nord Stream 2, the planned Russian natural gas pipeline to Germany across the floor of the Baltic Sea, is the latest front in the growing conflict between Europe and the U.S.

The Wall Street Journal reported Thursday that President Donald Trump is demanding that Germany drop Nord Stream 2 as one of the conditions of a trade deal with Europe that wouldn’t include high tariffs on steel and aluminum.

The U.S. has long been opposed to the pipeline, citing Europe’s energy independence and the needs of Ukraine, whose role in gas transit from Russia would be undermined by the new route. This week, a U.S. official raised the possibility that the pipeline would allow Russia to install listening and monitoring technology in the Baltic Sea. That claim is a stretch as Nord Stream 2 is designed to run parallel to an existing Russian pipeline, Nord Stream 1, which Russia could easily use for espionage.

Europeans have long suggested, however, that the U.S. government’s motives might not be altruistic. The 2017 Countering America’s Adversaries Through Sanctions Act lays out the U.S.’s opposition to Nord Stream 2 right next to a clause requiring the administration to “prioritize the export of United States energy resources in order to create American jobs, help United States allies and partners, and strengthen United States foreign policy.” To German officials, U.S. attempts to halt Nord Stream 2 are part of an effort to boost U.S. liquefied natural gas exports, which accounted for 5 percent of Europe’s LNG imports in 2017.

U.S. exports are so tiny because because transportation costs make American LNG more expensive than energy from the Middle East. It’s also at least 20 percent more costly than pipeline gas from the Russian producer Gazprom. And even if the price differential were eliminated, Germany needs all the gas it can get from any source as it phases out nuclear and coal power plants. 

Chancellor Angela Merkel realizes that Nord Stream 2 is politically problematic. As an offshore project, it’s not covered by European Union energy legislation, and that bothers officials in Brussels. Some Eastern Europeans, especially Poles, are dead set against the pipeline because they see it as a way for Russia to increase its influence. Also, their experience with Gazprom has been largely negative. But Merkel has focused on the Ukraine aspect as the morally trickiest: The impoverished nation stands to lose at least $2 billion a year in transit fees if Gazprom bypasses it and only uses the Nord Stream and Turkish Stream pipelines, as it has threatened to do.

German Economy Minister Peter Altmaier has traveled to Kiev and Moscow in recent weeks to try to hammer out a deal that would allow both Nord Stream 2 and the Ukrainian gas transit system to function. There have been no leaks from his talks, but they must have been successful enough, as Merkel traveled to the Black Sea resort of Sochi on Friday to meet with President Vladimir Putin, where Putin promised to continue the transit of gas through Ukraine “if it’s economically viable.” This departure from previous Russian rhetoric opens a path to a deal.

That makes U.S. interference all the more unwelcome and likely counterproductive: It irritates German and European officials without making them more pliable.

“It’s especially important to me that we don’t get into a wholly unplanned and unstructured contest on three, four, five fronts around higher tariffs, higher sanctions and mutual mistrust,” Altmaier told ARD TV on Friday. “When the U.S. says ‘America first, we’ll put our economic interests in the foreground,’ we should also consider that Europeans must also define our economic interests.”

The EU has already taken a tough stance on Trump’s tariffs. “We will not negotiate with the sword of Damocles hanging over our heads,” European Commission President Jean-Claude Juncker said on Thursday. At a summit in Sofia, EU national leaders agreed on a similarly intractable position on preserving the nuclear deal with Iran that the U.S. is exiting. The EU is activating a so-called blocking statute to protect European companies from exterritorial U.S. sanctions for doing business with Iran.

In addition to these conflicts, the U.S. has threatened sanctions on European companies involved with Nord Stream 2, including powerful multinationals such as Royal Dutch Shell, Austria’s OMV, France’s Engie and Germany’s Uniper and Wintershall. Now, even EU officials and national leaders who have no particular love for Nord Stream 2 are on the side of Germany. Meanwhile, the German government shows no fear of U.S. sanctions, just growing aggravation. “This is a further burden for the trans-Atlantic relationship,” Peter Beyer, the Foreign Ministry official is in charge of coordinating that relationship, said on Friday.

If the U.S. really cares about Ukraine and European energy security, it should let Germany and its EU partners hammer out a deal with Russia and Ukraine. The Europeans are grown-up enough not to hurt themselves, and they are perfectly capable of dealing with Gazprom, which derives 62 percent of its revenue from Europe. And European countries are even more interested in a stable Ukraine than the U.S. is: The country is on the EU’s border, and its citizens enjoy visa-free travel to Europe. 

The Trump administration, however, seems happy to multiply disputes with European allies, expecting them to cave on all contentious issues. But even though the EU has often appeared weak and ineffectual, it can also be stubborn, and the more pressure Trump brings to bear, the more it will push back.

©2018 Bloomberg L.P.

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