Is Nord Stream II the US' leverage over Russia preventing an invasion of Ukraine?

The US has threatened to stall Nord Stream II - the multibillion-dollar natural gas pipeline project between Russian and Europe - if the Kremlin invades Ukraine. The development comes as Moscow continues to amass troops along the country's border with Kyiv, escalating concerns of a possible Russian invasion, that the US strongly believes is the Kremlin's intention. 

"I want to be very clear. If Russia invades Ukraine one way or another, Nord Stream 2 will not move forward," US state department spokesman Ned Price had told NPR a few days ago.

It is pertinent to mention here that the Nord Stream II gas pipeline connecting Europe and Russia via the Baltic sea has, in the past few years, strained relations between NATO allies, the US and Germany. Apart from the US' concerns of the pipeline giving Russia leverage over Europe's gas supply, Nord Stream II threatens to put a dent in Ukraine's economy by avoiding the country's gas transit network to transfer natural gas to Europe.

(The Nord Stream 2 pipeline will establish a direct link between Gazprom and European consumers, bypassing Ukraine; Image: Shutterstock) 

Will Nord Stream II starve Ukraine's economy?

On June 2015, four years after the Nord Stream 1 twin pipeline across the Baltic Sea opened between Russia and Germany, leading energy companies, including Royal Dutch Shell and Russia-owned Gazprom agreed to build Nord Stream II--  a move that would strain Germany-US relations apart from threatening major losses to Ukraine in form of transit money. 

Ukraine earns $2.66 on gas transits for 1,000 cubic meters per 100 kms, according to the Oxford Institute for Energy Studies. With present agreements with Russia, which supplies over 35% of Europe's natural gas, Ukraine earns over a billion dollars a year from gas transit fees.

On being functional, the Nord Stream II threatens to starve this much-needed stimulus to Ukraine's economy, which saw an over 4% contraction due to the COVID pandemic in 2020. After the contraction, the country's economy grew only 3.4% in 2021. As per Gazprom, the total capacity of two strings of Nord Stream 2 is 55 billion cubic meters of gas per year. The aggregated design capacity of Nord Stream and Nord Stream 2 is 110 billion cubic meters of gas per year, the company mentioned on its website. 

While the gas pipeline is unlikely to severely damage Ukraine's economy, it will have a significant impact on the country that is struggling to rebuild since Russia's annexation of Crimea from Ukraine in 2014. As per reports, Ukraine's economy shrunk by almost 7% in 2014, and almost 10% the year after. Russia also holds significant leverage over the former Soviet country by being one of its largest export partners.

EU objections to Nord Stream 2            

In March 2016, eight EU countries, including Poland, Romania, the Czech Republic, Estonia, Hungary, Latvia, Slovakia, and Lithuania, raised strong objections to the gas pipeline project stating that it would have "destabilising geopolitical consequences”.

In 2019, under then-President Donald Trump, the USA signed a bill sanctioning firms connected to the Nord Stream project, and those aiding it indirectly. Russia, however, continued and completed construction of the 1,200 km undersea gas pipeline last year. 

(A picture taken in 2018 shows the Nord Stream II pipeline under construction; Image: AP)

However, Russian gas remains an important source of energy for EU countries, which under the European Green Deal, plans to reduce net greenhouse gas emissions by at least 55% by 2030. Presently, 22% of the EU's energy demands are met by natural gas. Over 35% of this is supplied by Russia via Nord Stream 1, and transit lines through Poland, Belarus and Ukraine. 

As the EU in a December 2021 draft listed natural gas under its green energy taxonomy, and as the 27 countries under the bloc work towards shifting to cleaner fuel, the demand for natural gas is expected to rise substantially. Apart from Russia, Norway, Algeria and Qatar make up the major exporters of natural gas to EU countries. 

Is Nord Stream II the US' leverage over Russia preventing an invasion of Ukraine?

As mentioned earlier, an outright ban on the Nord Stream II project will severely impact gas supply to countries in Europe, including the US' NATO allies; but as Russia-owned Gazprom financed 50% of the project, and Europe remains one of Russia's largest natural gas markets, with few other alternatives, sanctions would hurt the Kremlin's economy. 

However, before placing sanctions on the export of natural gas from Russia to Europe, the EU countries would need to look for alternate exporters. Besides, sanctions on Nord Stream II also threatens to negatively impact five major European energy companies that have a major stake in the pipeline, including ENGIE, OMV, Shell, Uniper and Wintershall Dea.

Considering this, US President Joe Biden met his EU counterpart, Ursula von der Leyen, after assuming office in January, last year. The two world leaders informed in a joint statement that they were "collaborating with governments and market operators on supply of additional volumes of natural gas to Europe from diverse sources across the globe."

Among those sources are Norway and Algeria. But, for it to be enough to meet Europe's rising natural gas demands as countries gradually do away with other forms of fossil fuel, it would take significant investments in infrastructure and production capacity. 

Given the present situation, it should be mentioned here that Ukraine has accused the USA of harming its economy by heightening tensions with Russia. Ukraine President Volodymyr Zelenskiy had told reporters on Friday, January 28 that the US's continued rhetoric against Russia was creating panic in the market, thereby harming the financial sector. 

"We are grateful to the US for the support for our independence and territorial integrity. But I am the president of Ukraine, I am here and I know more details and I have deeper knowledge than any other president,” Bloomberg quoted Zelenskiy as saying.