Continued From..... Ukraine Crisis ......
Natural Gas Supply from Russia to
Europe
80% of Russia’s natural gas exported to Europe, before 2011, transited through Ukraine. With the commissioning of the Nord Stream 1 under sea pipelines through the Baltic sea in 2011, a large part of the natural gas was being pumped directly from Russia to Germany, such that in 2019 only about 45% of the gas exports to Europe transited through Ukraine. Immediately thereafter, the evaluation of the expansion project (later named as Nord Stream 2) of the undersea pipelines in the Baltic started, which would lead to doubling of the annual capacity of gas being transported, to 110 billion cubic metres. The project was put on hold in 2015, following EU sanctions on Russia on account of its annexation of Crimea. After many hitches, the construction work started in May 2018. Subsequently, the US threatened sanctions against the participating companies, which disrupted/ delayed the work. The German and Polish authorities too had issues with the Nord Stream 2; not meeting their respective anti-competition rules. The US and many countries in Europe, like Britain, Ukraine and Poland strongly oppose the Nord Stream 2 project. In March 2016, eight EU governments signed a joint letter to the European Commission President Jean-Claude Juncker objecting to the Nord Stream-2 project. The signatories were the prime ministers of the Czech Republic, Estonia, Hungary, Latvia, Poland, Slovakia and Romania and the president of Lithuania. The letter spoke of “potentially destabilising geopolitical consequences” of the project, and also that this project “can pose certain risks for energy security in the region of central and eastern Europe”. Ukrainian President Zelensky has called Nord Stream 2 "a dangerous political weapon".
Image Courtesy: Google Images (The Economist)
Russian Gas Supplies and Geo-Politics
There is a history
of Russia cutting off gas supplies to the recipients, in case of dispute. A
pricing dispute, and debt clearance issues, between the natural gas companies
of Russia and Ukraine in the end of 2008 led to Russia cutting off gas supplies
to Ukraine on 01 Jan 2009, leading to acute energy shortages during the thick
of winter. This further escalated
into a crisis when all gas supplies through Ukraine, mostly to South-eastern
Europe and to some other European countries too were stopped for a period of 13
days. The European Union too got involved, but with no success. Gas flows were
restarted only on 20 Jan 2009, and fully restored on 22 Jan, after the
involvement of the Prime Ministers of Russia and Ukraine; a commercial dispute
with geo political implications, as well as economic costs to all affected.
Also, there are thus fears that Russia could do the same in the future too,
based on political, or other reasons.
Transit Revenues – Natural Gas
The over land
gas pipelines traverse across Ukraine & Poland, besides other countries.
These countries receive transit revenue for this service. In 2020, Ukraine received
US$ 2.2 billion in transit revenue. With the commissioning of Nord Stream
2, both Ukraine and Poland would stand to lose a large part of this revenue,
and thus their natural opposition to Nord Stream 2. Angela Merkel of Germany
has tried to push through the Baltic project, in view of Germany’s desire to
switch to green energy, from the traditional nuclear/ coal sources. Incidentally
Germany is the largest user of the Russian natural gas, as well as the largest
trading partner of Russia, in Europe. US have opposed the pipeline since its
inception. US government views the pipeline as an asset that would make “European
nations more reliant on Russia”, increasing its international power and
stature, which is politically unacceptable to the US. It has thus through
various sanctions tried to stall/ sanction the construction of the pipelines. The
Protecting
Europe’s Energy Security Act (PEESA) of 2019, as amended in 2020
establishes sanctions on foreign persons connected with providing undersea
pipeline laying, upgrading or installation services, as also providing
underwriting services or insurance. Sanctions do not apply to non-business
entities of the EU, member states, or a few other non-EU governments.
Germany’s Energy Security Interest
A meeting
between Angela Merkel and Biden led to softening of the US position and the promulgation
of the joint statement on energy security on 21 July 2021. The statement was
criticised by the Ukrainian and Polish governments. The statement is in line
with reality and aims at “mitigating the
potential negative impacts of an operational pipeline.” The statement also
includes a German pledge to counter attempts to “use energy as a weapon,” as
also to offset the impact on countries adversely impacted by the Nord Stream 2
project.
Nord Stream 2 Project
Nord Stream
pipeline took five years to build, is 1225 kms long, and has cost $11 billion,
of which the Russians have spent about half the total sum. Together, Nord
Stream 1 and 2 can deliver 110 BCM of gas to Europe every year. The two
pipelines that are a part of the project were ready in June and September
respectively, but have not started operating yet. German regulators suspended
its approval, as it does comply with German law. This led to a 17% rise in
European natural gas prices. In Dec 2021, Polish PM has called upon the new
German Chancellor to oppose the start-up of Nord Stream 2. He also urged the
Chancellor to not let Nord Stream 2 to be used as an instrument of blackmail
against Ukraine, Poland, and the EU. In addition, it is a fact that reduced
commercial interdependence between Ukraine and Russia would increase Ukraine’s
strategic vulnerability to Russia.
Ukraine’s Insecurity and Balancing Act
Ukraine has
remained wary of Russia since the 2014 invasion, and subsequent annexation, of
Crimea by Russia. It has thus tried to recalibrate its relationships with
Russia and Europe. Nord Stream 2 has the potential to increase its strategic
vulnerability. The US and Germany have tried to reassure Ukraine through their
joint statement, which states that the “United
States and Germany are united in their determination to hold Russia
to account for its aggression and malign activities by imposing costs via
sanctions and other tools. We commit to working together via the newly
established U.S.-EU High Level Dialogue on Russia, and via bilateral channels,
to ensure the United States and the EU remain prepared, including with
appropriate tools and mechanisms, to respond together to Russian aggression and
malign activities, including Russian efforts to use energy as a weapon. Should
Russia attempt to use energy as a weapon or commit further aggressive acts
against Ukraine, Germany will take action at the national level and press for
effective measures at the European level, including sanctions, to limit Russian
export capabilities to Europe in the energy sector, including gas, and/or in
other economically relevant sectors. This commitment is designed to ensure that
Russia will not misuse any pipeline, including Nord Stream 2, to achieve
aggressive political ends by using energy as a weapon.”
German and US Perspectives
As the crisis
escalated through this year, while addressing a joint press conference
along with the German Chancellor Olaf Scholz in Washington on 07 Feb 2022, the
US President warned Russia stating, "If Russia invades... again, then
there will be longer Nord Stream 2. We will bring an end to it." On
subsequent questioning, he categorically stated, "I promise you, we'll be
able to do it." The German Chancellor however has not been so forthcoming
on the subject, as Nord Stream 2 would be critical to meeting Germany’s green
energy requirements. His response, “We will be united. We will act together.
And we will take all the necessary steps.” Understandably so, as even before
the pipeline is commissioned into use, Germany uses Russian gas for 50% of its
needs. It cannot afford to cancel the now nearly completed Nord Stream 2
project. However, all leaders involved, including Putin, Biden and Scholz,
prefer diplomacy as a solution to the Ukraine conflict. Russia is keen on
supplying its abundant natural gas to Europe, increase its linkages and
influence in Europe, while acting as a responsible commercial natural gas
supplier to Europe. It has already spent over $ 5 billion on the Nord Stream 2
project.
Putin With Xi?
As the
Russia/ West relationship hit a new low on account of differing geo-political
and security calculations over Ukraine, it opened the doors for the Xi-Putin
summit at the opening of the winter Olympics in Beijing on 04 Feb 2022. Russia
and China mutual trade was at $146 billion in 2021, up from $103 billion in
2020, and is likely to go up further, in the light of these new developments as
spelt out in the Russo-China joint statement. These developments talk of a “shared
future”, “centuries old traditions of friendship and trust”, as also the deal
to increase Russian natural gas supply to China, from 38 BCM to 48 BCM
annually. As expected, the exhaustive joint statement by the two
countries stated that they “oppose further enlargement of NATO and call on
the North Atlantic Alliance to abandon its ideologized cold war approaches, to
respect the sovereignty, security and interests of other countries, the
diversity of their civilizational, cultural and historical backgrounds, and to
exercise a fair and objective attitude towards the peaceful development of
other States. The sides stand against the formation of closed bloc structures
and opposing camps in the Asia-Pacific region and remain highly vigilant about
the negative impact of the United States' Indo-Pacific strategy on peace and
stability in the region.” The statement further goes on to “reaffirm that the
new inter-State relations between Russia and China are superior to political
and military alliances of the Cold War era. Friendship between the two States
has no limits; there are no forbidden areas of cooperation,” The statement also
describes “Russia and China as world powers,”
Unanswered Questions
It seems that the German Admiral’s personal opinion ( he had to resign following the embarassment that these remarks caused) that we needed Russia against China was quite prescient in keeping with the long term stability in the Indo-Pacific region, a region that was at the centre-stage until a few months ago? With the coming together of Russia and China, have the chances of instability in Europe, as well as in the Indo-Pacific region reduced or increased? What will be the status of NATO, AUKUS, ASEAN, and the QUAD in the coming days? How should India respond to the changing strategic dynamics? These are some of the questions that only time will help answer.
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