Western Reluctance on Nord Stream II Gas Pipeline, SWIFT Emboldens Russia

As the possibility of a Russian invasion of Ukraine grows ever more likely, Berlin’s hesitancy to impose sanctions on Nord Stream 2 and other pressure points, such as SWIFT bank transfer system, erodes deterrence, and may invite Russian aggression. Germany is in fact going one step further, blocking the transfer of lethal aid to Ukraine from NATO allies.

Adding fuel to the fire, President Biden’s remarks on January 19^th differentiating between a full-scale invasion of Ukraine and a “minor incursion” sowed confusion and did nothing for American credibility. Unsurprisingly, these comments were met with ire by Ukrainian officials.

A number of sanctions have been discussed and threatened by the United States, Germany, and its allies in NATO in preparation for Russian military action against Ukraine. Some of the measures outlined by the Biden Administration include sanctions on aerospace and arms technology and a ban on exports of all American consumer goods to Russia.

Washington has also committed to sanctioning top Russian government officials, including President Vladimir Putin. However, in May, the Biden Administration has reversed the earlier policy, vacating the earlier commitment to sanctioning the recently built 55 billion cubic meters-capable Nord Stream II gas pipeline from Russia to Germany. 

Today it is waiting for regulatory approval from Berlin to start operating. The controversial project would entirely circumvent Ukraine, which presently benefits from billions of dollars in transit revenue. Washington reached a deal with the then-Chancellor Angela Merkel coalition in May promising that Berlin would impose sanctions on Nord Stream 2 in the event of Russia misbehavior on the continent. 

However, the new governing coalition led by Olaf Scholz of the center-left SPD has been reluctant to continue this policy, despite early overtures that pipeline sanctions would be in play. Scholz has frequently reiterated his preference for a peaceful and diplomatic solution to the tensions regarding Russia and Ukraine. Concerning economic consequences, the new chancellor has been weak and vague. 

The messaging coming from Washington increasingly appears to be one of hesitancy and reluctance. On January 13^th, the Senate rejected a bill proposed by Senator Ted Cruz (R-TX) designed to impose sanctions on Nord Stream 2. The legislation would have applied sanctions no later than 15 days after being enacted, and any move to lift them on Nord Stream 2 would have to undergo a congressional vote.

Curiously, officials from the Biden administration were behind the lobbying campaign to reject the bill, despite weeks of rhetoric advocating for devastating economic consequences in the event of a Russian invasion. The administration argues that imposing sanctions on Nord Stream II would not deter Russia from invading Ukraine. It would promote disharmony between Washington and Berlin in a moment where unity is more necessary than ever between the two allies. For now, we see neither allied harmony, as President Biden’s blurted remarks testify, nor deterrence of Russian truculence. The lack of clarity undermines German energy security by furthering its dependence on the Kremlin and weakens the U.S., NATO, and the EU’s options for deterring a Russian invasion of Ukraine.

The ever-opportunistic Putin is likely delighted to see so much indecision coming from the United States and Germany. The core tenets of deterrence are credibility and severity of action – making clear to an adversary that the cost of aggression would outweigh the benefits. American and European inaction, particularly vis-à-vis NS2 and SWIFT only invites more aggressive Russian policies.  

History teaches us a good lesson: weak sanctions in the past failed to deter Russian aggression in Ukraine. President Barack Obama’s punitive actions against Russia included sanctions on select banks, energy companies, and arms manufacturers. These proved insufficient to prevent Putin’s illegal annexation of Crimea and partial de-facto occupation of Donbass.

The leadership in Washington and Berlin rethink economic and military consequences for Moscow. With the United States recently becoming the world’s leading exporter of natural gas, Germany could import liquefied natural gas from American exporters such as Tellurian, and Chenier, as I’ve posted before. Indeed, the United States is projected to overtake Australia and Qatar by 2022 as the world’s leading liquified natural gas (LNG) exporter.

Germany is Gazprom’s largest foreign customer. Last year, approximately 50 to 75 percent of its gas imports came from Russia. German officials see the controversial pipeline as an important energy corridor because the country is shuttering nuclear power plants and stopping coal use as part of its ambitious Energiewende program of transition to renewables. Proponents maintain that Nord Stream 2 would enhance energy sustainability by increasing the capacity of affordable natural gas for energy-hungry European industry.  

Of course, affordability is only one side of the energy security coin. The other is reliability. Efforts to reduce reliance on Russian gas can only enhance European energy security. Russia has already proven to be an unreliable partner. On January 13^th, EU Competition Commissioner Margrethe Vestager strongly suggested that Russia manipulated gas prices this winter. This isn’t a new phenomenon. In 2009, Moscow stopped supplying gas to EU countries over ongoing negotiations with Ukraine. As I’ve argued before, relying on Russia to fill the European energy supply gap was a worrying proposition then, and hindsight has confirmed those worries to be even more valid now. 

The crisis with Russia is certainly dynamic, with Putin playing with his cards close to his chest, keeping his next moves and intentions secret, but the reported evacuation of Russian diplomats from Kyiv and L’viv, and reports of giant train convoys with military equipment, including field hospitals heading for the Ukrainian border point to a forthcoming invasion.

Suppose the West fails to prepare and deter adequately. In that case, the long-term consequences will go beyond energy to the major shift in the European balance of power and deterioration of America’s global stance vis-à-vis Russia and China.

With assistance from Marco Rodriguez