How the Ukraine Conflict Looms as a Turning Point in Russia’s Uneasy Energy Relationship with the European Union

Even in the long history of world leaders using energy as a foreign policy weapon, President Joe Biden’s threat last week was unusual for both its reach and its display of confidence.

“If Russia invades—that means tanks or troops crossing the border of Ukraine again—then there will no longer be a Nord Stream 2,” Biden said Monday. “We will bring an end to it.”

Policy experts have little doubt that the United States, perhaps uniquely among nations, has the economic clout to follow through on Biden’s pledge to reach across the Atlantic and kill Russia’s new $11 billion natural gas pipeline to Europe. They are less certain that the prospect of losing the ability to sell gas through the Nord Stream 2, which now lies dormant beneath the Baltic Sea, will be sufficient to deter Russian President Vladimir Putin from invading the former Soviet state. Last week, Putin’s forces began major military drills in Belarus, Russia’s ally on Ukraine’s northern border, in an escalation of the troop build-up that has been underway for weeks.

But whatever happens in the weeks ahead—a cooling of the tension, or the worst military conflict in Europe since World War II—experts believe the clash already has become a turning point for the uneasy energy relationship between Russia and Europe. 

For the European Union, dependence on Russia for natural gas has long been a vulnerability and a contradiction for an economic bloc that sees itself as a global leader in the transition to clean energy. Putin’s threats to Ukraine have increased pressure within the EU to break free of Russian gas, and Nord Stream 2 may be the first example of how this resolve plays out. A pivotal question, from the standpoint of climate, is whether the EU will replace Russian gas imports with renewable energy, or just more natural gas from other sources—including the United States.

Europe’s greens, by themselves, were unable to block construction of the pipeline, which they opposed as antithetical to the continent’s climate goals. But now, the national security imperative provides a new chance to stop Nord Stream 2, if Europe acts in concert with the U.S., as experts anticipate in the case of a Russian invasion.

“My expectation is that if Russia invades Ukraine, Nord Stream 2 will be killed by the Europeans themselves,” said Cedric Ryngaert, a professor of public international law at Utrecht University in the Netherlands. “It will speed up a change in energy policy in Europe, because you don’t want to be so dependent on Russia, which already has partly limited the flow of gas over the last few months. You want a reliable partner, and Russia is not a reliable partner.”

US Weapon: ‘Capital’ Punishment

Energy has been a tool in the foreign policy arsenal of nations at least as long as there has been international trade in fossil fuel. The Arab oil embargo of the early 1970s, in which the United States was targeted for its support of Israel, may be the best known example.

But the U.S. also has wielded the energy weapon, sometimes changing the course of history, as with the de facto oil embargo it imposed on Japan in the months before Pearl Harbor. Other  examples are only dimly remembered—like President Ronald Reagan’s short-lived sanctions against the Soviet Union’s giant Yamal-Europe natural gas pipeline project in retaliation for its role in the 1981 political crackdown in Poland.

In the case of Yamal, Reagan had clout because U.S. companies like General Electric were providing technology for the pipeline project. Four decades later, even though no U.S. firms are directly involved in Nord Stream 2, observers say Biden’s ability to follow through on threats to kill the pipeline comes directly from the power of the U.S. dollar.

Gazprom’s Nord Stream 2 is fully built, but its operation would involve a wide array of European firms in certification, insurance, maintenance and gas sales. The companies that financed Nord Stream 2 include the energy giant Shell and the German energy generator Uniper, which has a large, Chicago-based North American commodities trading business. All of these companies rely on the ability to do business in the United States, which Biden could restrict through the imposition of what are known as “secondary sanctions,” or penalties against third parties. 

“These sanctions basically consist of access restrictions,” said Ryngaert. “It is ‘You’re with us, or you’re against us. If you’re with the Russians, then you cannot have access to our lucrative economic and financial markets.’ And that is sometimes seen as capital punishment.”

The United States arguably could have exercised such leverage more effectively before Nord Stream 2 was built, and indeed Congress approved progressively more stringent sanctions legislation that could have been used in 2017, 2019 and 2020. But President Donald Trump’s first Secretary of State, former Exxon Mobil CEO Rex Tillerson, exempted Nord Stream 2 from the Congressional measures early on. His successor, Mike Pompeo, later withdrew that policy and Trump himself professed to oppose the pipeline. But Trump, while often chiding Europe over its energy reliance on Russia, in fact did little to counter Putin or the pipeline. Only on Jan. 19, 2021, the day before he reluctantly left office, did Trump impose sanctions on firms that by then were laying the final stretch of Nord Stream 2.

But the Trump administration showed the power of secondary sanctions in other cases. It used them to pressure Chinese banks and financial intermediaries not to conduct transactions with North Korea as Kim Jong-Il’s regime continued developing its nuclear capabilities. And Iran fell into recession after Trump imposed broad economic sanctions over its nuclear program in 2018. The oil exports that fueled the Middle Eastern country’s economy plummeted, and European businesses withdrew from Iran, with the French energy giant Total quitting a multi-billion dollar natural gas development project, Germany’s Daimler abandoning plans to build Mercedes Benz trucks there and Siemens ending a technology-transfer agreement.

Many in Europe have balked at the U.S. imposition of its economic power in this manner. The European Union has attempted to use World Trade Organization appeals and a “Blocking Statute” to protect European companies from the effects of some sanctions adopted by the United States. Former U.S. diplomat Richard Haass has warned that such sanctions, though effective, have the backlash effect of increasing anti-American sentiment abroad.

The Biden administration has taken steps to head off such a backlash over Nord Stream 2, and make sure European allies are on the same page as the United States over how to respond to a Russian incursion into Ukraine.

Diplomacy and Texas Gas

Although the Biden administration has had missteps in its dealings with Europe—most notably over its rapid withdrawal from Afghanistan last year—it has worked hard to build a united front within NATO in opposition to Russia’s moves on the Ukraine border. The New York Times reported that Biden’s team conducted at least 180 senior-level meetings or contacts with European officials between mid-November and the end of January—more than twice daily.

The most tangible display of the Biden administration’s support for its EU allies is an informal flotilla of ships carrying liquefied natural gas (LNG) across the Atlantic from the U.S. Gulf Coast. Europe’s gas supply is running short and prices are at all-time highs, in part because of a slow-down in flows from Russia. In recent years, Russia has been the source of 35 percent of Europe’s natural gas, with Germany—the end point for Nord Stream 2—particularly dependent on the Russian supply. To protect Europe from a Russian cutoff, either intentional or incidental to an invasion of Ukraine, the Biden administration has pledged to secure gas from gas-producing countries and companies to shore up Europe’s supplies.

By January, LNG imports had surged to 34 percent of Europe’s supply, while Russian gas dwindled to 17 percent, according to the energy consulting firm IHS Markit. LNG imports from the United States rose to a new record, accounting for the largest share by far. “Our industry is doing what it can to help,” the Natural Gas Council, a coalition including the American Petroleum Institute and other major U.S. energy industry groups, said in a letter to Biden on Friday.

Experts say that Biden also laid the groundwork for cooperation with Europe by showing he was sensitive to the continent’s concerns about strategic autonomy last year. After four months in office, Biden waived the sanctions on Nord Stream 2 that had been belatedly imposed by Trump, allowing the pipeline to be completed.

“I think that reflected a calculation by the Biden administration that after the four years of the Trump administration, it was important to try to rebuild the relationship with Berlin,” said Steven Pifer, the former U.S. ambassador to Ukraine, who is now a fellow at Stanford University’s Center for International Security and Cooperation. But he said that Biden’s assertive statement on Nord Stream 2 last week shows that the calculations have changed due to Russia’s actions. “At this point, if there’s a major Russian military assault on Ukraine, I think the Germans are going to be told, you can end it yourself, or we’re going to end it, because we think this is part of the price that the Russians have to pay,” said Pifer.

There already was substantial opposition to Nord Stream 2 throughout Europe, especially from environmentalists, who argued it would lock in hundreds of millions of tons of new carbon emissions annually. But in Germany, there is still support for the project, especially among the business community and in East Germany. Gerhard Schröder, who was German chancellor for seven years, took a seat on Nord Stream’s board soon after leaving office in 2005, and within the past month was nominated to sit on the board of the parent company Gazprom.

Germany’s new chancellor Olaf Scholz, the first Social Democrat elected to lead the nation since Schröder, distanced himself from the former chancellor last week and signaled increasing openness to consider sanctions against Nord Stream 2. While not mentioning the pipeline specifically, Scholz pledged that NATO allies would be united in their response to a Russian invasion. The two other members of Scholz’ three-party ruling coalition, the Greens and the Free Democrats, have long opposed Nord Stream 2.

“I think Berlin has come to see that this is just really a losing issue,” said Pifer.

The Europeans could act in concert with the United States in blocking Nord Stream 2 simply by slow-walking the approvals that the project is still awaiting from German regulators and the European Union.

What Next for European Energy?

If Nord Stream 2 were to be delayed or killed, it would have little immediate impact on the European energy picture, since it would only add to the excess capacity Russia already has to deliver natural gas to the West. But the long-term energy picture in Europe may be changing due to the tension wrought by Russia’s military troop build-up on the Ukraine border. 

Putin has characterized his move as a defensive response against the threat of NATO expansion. But in Europe, it has undercut the belief that increased trade with Russia would increase mutual security, a notion rooted in ideas dating back to 18th century German philosopher Immanual Kant’s writings on an “ethos of universal hospitality” as a key to peace.

“It’s the idea that you will make Russia more liberal and democratic because exchanging goods also leads to exchanging thoughts and freedoms,” said Ryngaert. “Suddenly, we now realize this is not how it works.”

For Germany, which already gets 40 percent of its electricity from renewable sources, the tension with Russia means that the Greens are no longer the only ones talking about the need to accelerate the nation’s drive to its goal of 80 percent renewables by 2030. “Germany will go out of the use of gas and oil and coal within 25 years, so we will not depend on the import of fossil fuels to Germany anymore,” Scholz said in an interview last Monday with CNN.

It’s not a given, though, that Europe will replace Russian gas with renewable energy. French President Emmanuel Macron, for example, on Thursday announced plans for a major build-out of nuclear energy—including up to 14 new generation reactors—to reduce its reliance on energy imports.

Meanwhile, the Dutch government recently announced that in response to energy shortages it would permit a Shell and Exxon joint venture to double production this year from its Groningen natural gas field. Groningen once had been the largest gas field in Europe, but the Netherlands previously had been winding down production—and was going to close it entirely this year—due to concerns about a proliferation of earthquakes associated with drilling and production there. 

The U.S. natural gas industry, which long has hoped to expand its presence in the European market, is using the opportunity of the Russia-Ukraine crisis to urge the Biden administration to adopt policies—including on infrastructure permitting and emissions—that ensure gas’s role in the national and global energy future. “The United States is not immune to future challenges—like those now facing Europe—if we are unable to continue growing and modernizing our natural gas system,” the Natural Gas Council said in its letter to Biden last week. “Europe has discouraged natural gas development in recent years and the consequences are now clear.”

The gas industry maintains it is part of the climate solution, because natural gas can generate electricity with half the emissions of coal. But gases’ place in a zero-emissions future depends on technologies that are not yet commercially viable, like carbon capture, as well as control of the super-greenhouse gas methane from its operations, which scientists have found is an underreported source of gas that is warming the planet. 

For now, Baltic nations like Estonia and Latvia, which have been highly critical of Nord Stream 2 and Russia’s energy reach in Europe, are weighing several new LNG import projects, which would allow them to serve as an expanded gateway for natural gas from the United States and elsewhere.

So while pressure is certainly building throughout Europe to end energy dependence on its fossil fuel-rich neighbor, the most immediate responses to the Russia-spawned crisis have been more drilling, more imports and talk of even more imports. It’s not yet clear whether a European energy break from Russia would mean more alternative energy or more alternative sources of natural gas.