GIF Comment: Nord Stream 2 ties together US and Germany’s economic and political agendas

LONDON (ICIS)–The new US administration’s desire to mend fences with historical EU allies has led some to believe Washington and Berlin can reach a compromise on the world’s most controversial pipeline.

Economically and politically, both have a lot at stake.

The rhetoric of the US State Department condemning Nord Stream 2 indicate there may be no change in position, but there could be a shift in its strategy.

“The difficulty with Nord Stream 2 is that, from a US perspective, it is a “knot” linking different problems: the ambiguous US-Russia relationship started under [former president] Trump, the future of shale oil and gas, commercial tensions with Europe, NATO, the mixed efficiency of sanctions policy against US adversaries etc.,” said Jonathan Lagarde, risk manager at a UK-based energy company.

Some experts say Washington sees Germany as a critical ally on everything from confronting China and negotiating with Iran to climate change. Solving their Nord Stream 2 problem would allow the two countries to focus on their shared agenda.

Germany is the main EU27 economy and the European Commission is headed by one of its citizens – Ursula von der Leyen, meaning Germany is driving the EU response to coronavirus and the financial rescue packages.

The pressure on Berlin is growing and its continuous support for Nord Stream 2 may be affected by how much political capital the country’s government needs to spend on more pressing issues, such as EU27 unity, vaccinations and financial packages.

But it still has the support of the bloc’s second largest economy. French president Emmanuel Macron expressed his “total solidarity” with German Chancellor Angela Merkel on Nord Stream 2, in February following the French-German defence and security council .

Yet the French and German stance could change if greener or more pro-US leaders were elected in German elections in September and in France next year.

Ultimately, Germany’s strongest political capital is its economic strength.

However, in the wider context of Brexit, the rule of law debate in the EU and von der Leyen’s widely criticized handling of the vaccine rollout, Germany may have run out of steam needed to push through Nord Stream 2 against the opposition of CEE member states and Ukraine, as noted by solicitors at central European-based international dispute resolution firm Queritius Daniel Dozsa and Marcin Menkes.

On a separate note, some kind of a political deal might limit US LNG exporters’ ability to achieve maximum profit on the global market by using arbitrage opportunities between continents. US exporters used Europe as a last-resort market in 2019-2020 and favoured Asia where net-backs were generally higher.

In addition, Lagarde pointed out that given the competitiveness of Russian LNG for delivery in Europe, any increase in EU regasification capacity triggered by US policy would also benefit Russia.

Those who believe Germany will use its weight to see Nord Stream 2 through base their arguments on economic foundations. In Germany, the project makes sense economically and politically. “Trade and diplomatic relations between the EU and Russia have dipped very low. Nord Stream 2 could be some leverage in times of crisis,” said a German industry source.

In Washington, the four-months-old administration must deal with a long list of issues left by the previous government. The absence of new sanctions since Joe Biden took office confirms that Nord Stream 2 is not a priority.