Navalny and Nord Stream 2

Allegations surrounding the possible poisoning of Alexei Navalny, a well-known Russian opposition figure, at the hands of Russian authorities have triggered an avalanche of criticism against Russia and its president, Vladimir Putin, as the US and Europe struggle to come up with an appropriate response. Caught in the cross fire is the nearly completed Nord Stream 2 natural gas pipeline under the Baltic Sea, with the German government of Angela Merkel coming under pressure both at home and abroad to terminate the project. While the current perception outside of Russia is that Navalny was attacked in order to eliminate a political rival, the incident on its own is not enough to push Merkel into making a decision that would permanently alter both the German and European relationship with Russia. While the political ramifications of such a move are alone enough to give pause to an impulsive response, the economic reality of disrupting Europe’s primary supplier of natural gas should ultimately be the deciding factor in Merkel refusing to part ways with Nord Stream 2.

Regardless of the exact how or why of the incident in which Navalny abruptly fell extremely ill aboard a domestic Russian flight on Aug. 20 and was later moved to Berlin for medical care, the ensuing flurry of blame and denial has brought Russian relations with Germany, Europe and the US to a new low.

While Germany announced that toxicology tests conducted by its armed forces found “unequivocal evidence” that Navalny had been poisoned with Novichok — a Soviet-era nerve agent used in the 2018 attack on Sergei Skripal, a former Russian double agent, and his daughter in the UK — none of this evidence has been made public or shared with Russian authorities, who have jurisdiction over the incident. Merkel has condemned the incident as an attempt to silence a critic, which raises difficult questions that the Russian government must explain. Faced with a volatile political climate, she has tried to walk a fine line, arguing both that she preferred that Nord Stream, as a commercial venture, be kept separate from the politics of the Navalny incident, but that it cannot be excluded entirely at this time.

Norbert Roettgen, the chairman of the German parliament’s Foreign Affairs Committee, has called for a strong response to Russia for what he has characterized as the Navalny assassination attempt. Among the options favored by Roettgen is the suspension of the Nord Stream 2 gas pipeline. Roettgen is a longtime opponent of the Nord Stream 2 project, a twin set of 1,230 kilometer gas pipelines with the capacity to carry 55 billion cubic meters of gas per year that doubles the capacity of the original Nord Stream system completed in 2012. The $11 billion project is owned by Russian state-run Gazprom and involves financing from a number of European energy companies. Construction is currently 94% complete, with only a short stretch through Danish waters remaining.

In addition to challenges mounted by Roettgen and other German and European opponents to the project, Nord Stream 2 has found itself in the crosshairs of prominent US politicians, such as Senator Ted Cruz, who have lobbied the US Congress to pass sanctions targeting any company found to be helping in the construction of the pipeline. For his part, President Donald Trump, a vocal critic of the Nord Stream 2 project, indicated that he would support any decision by Germany to withdraw from the project, but then cryptically observed that Germany was “too weak” economically to follow through with that threat. Trump also said there is ‘”no proof’” Navalny was poisoned, despite a statement to the contrary from US Secretary of State Mike Pompeo earlier.

President Trump’s statements provide useful clues as to the political and economic forces surrounding the Navalny incident and Nord Stream 2. First and foremost, the economic consequences of a German withdrawal from Nord Stream 2 would be a huge blow to the private European companies involved: Germany’s Wintershall Dea and Uniper, Royal Dutch Shell, France’s Engie and Austria’s OMV as well as other firms. The economies of Germany and Europe, would also be forced to rely on alternative sources of gas, primarily LNG, that could be more costly and less reliable than a dedicated pipeline.

At a time when the German and European economies are already struggling under the strain of a global economic contraction due to the coronavirus pandemic, the immediate impact of the loss of new Nord Stream 2 supplies would be minimal. European gas markets and global LNG trade are both seriously oversupplied at the moment due to the collapse in demand. But the longer-term picture is less certain. Russian gas from Nord Stream 2 remains central to Germany’s long-term plan to move away from coal and nuclear power as it builds up renewable energy supplies. Moreover, Germany would be called upon to compensate the economic losses incurred by any precipitous, and probably illegal, termination of the Nord Stream 2 pipeline. This would mean that the German taxpayer would ultimately shoulder the cost, leaving German politicians to pay for the price of this decision at election time.

Geopolitical Fallout

The biggest issue confronting Germany and Europe, however, would be the geopolitical fallout from any decision to shut down Nord Stream 2. Russia has been assiduous over the years in building a reputation for being a reliable supplier of energy. This reputation is critical in offsetting the concerns of the many critics of Nord Stream 2 that the completion of the pipeline will only make Europe that much more vulnerable to the so-called “Russian energy weapon.” For example, rather than exploiting its leverage to impose its terms in the myriad of pricing and contractual disputes that have arisen over the years, Russia has allowed these disputes to play out in European courts, despite the fact that the decisions often go against Russian interests.

If, however, Germany were to politicize the Russian-European energy relationship by closing Nord Stream 2 over the Navalny crisis, then all bets would be off. Russia might choose to impose heavy economic costs that could be socially and politically damaging for Germany and other European countries. The threat of this kind of retaliation seems to have dampened Merkel’s enthusiasm for including the closure of Nord Stream 2 in a list of possible German, European and Nato responses. While Merkel has stated that she would consider imposing additional sanctions on Russia because of the Navalny incident, her economic minister, Peter Altmaier, noted that in instances such as this, keeping lines of communication open was often more effective than sanctions. “I don’t know of any case where a country like Russia, or a similar country,” Altmaier said, “has been moved by sanctions to change its behavior.”

In keeping with this line of reasoning, Merkel has softened her stance on sanctions by saying they would be considered if Russia failed to thoroughly investigate the Navalny poisoning allegations. So far, Russia has rejected such an investigation. A Russian government spokesman, Dmitry Peskov, said that Russia saw no grounds to open a criminal case into the illness of Navalny, noting that Russia has not seen any solid evidence of his alleged poisoning and, furthermore, that Russia had not received any medical data from Germany, including the findings of the German armed forces regarding the identification of Novichok as the substance involved in the attack. While there is still plenty of opportunity for political maneuvering regarding the Navalny incident, it is very unlikely to entail shutting down Nord Stream 2.

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