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Business Last Updated: Dec 13, 2017 - 9:57:28 AM


Congress Weighs Threat of Moscow Wielding the Energy Weapon
By Keith Johnson, Robbie Gramer, FP, December 12, 2017
Dec 13, 2017 - 9:55:47 AM

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The “mere threat of a cutoff gives Russia political leverage” over Europe.

The Donald Trump administration has taken a soft line on Russia in many areas of contention, except when it comes to Moscow’s use of energy exports as a geopolitical cudgel.

Top administration officials, including Secretary of State Rex Tillerson, are sounding the alarm about the threat posed by Russia’s use of the energy weapon, especially a controversial $11 billion gas pipeline project led by largely state-owned Gazprom that they fear will tear Europe apart and leave Ukraine in the cold.

On Tuesday, the Senate Foreign Relations Committee will hear testimony from a pair of senior State Department officials on “coercive Russian diplomacy” and the threat it poses to the United States.

Europeans and Americans have fretted for years about Moscow’s tendency to use its energy exports as a weapon to cow neighbors in Europe; several times, Russia has cut off supplies of natural gas to punish wayward states, especially in Central and Eastern Europe. But those worries have been given fresh urgency with Russia’s plan to build a new pipeline alongside an existing gas pipeline across the Baltic Sea to Germany, known as Nord Stream 2.

“Even if Gazprom takes no actions to exert political power through energy trade, the fact that it has the means to do so, the mere threat of a cutoff, gives Russia political leverage,” said Meghan O’Sullivan, a former George W. Bush administration official who is now director of the Geopolitics of Energy project at Harvard University’s Kennedy School.

Russia says the project is purely commercial and is meant to provide more cheap gas to Europe as it seeks cleaner-burning fuels to replace coal.

Tillerson specifically called out Russia’s use of the “energy weapon” in a speech in late November, warning that the new pipeline would be “unwise” and leave Europe more reliant on a single supplier.

U.S. officials have become increasingly vocal about Nord Stream 2 because, if it is built as planned, the increased capacity would mean Russian gas would no longer need to cross Ukraine to get to Europe. That would take away a huge source of revenue for cash-strapped Kiev just as the war-torn country is trying to get its economy back on track. And losing that valuable transit business would make it harder for Ukraine to clean up and privatize parts of its energy sector, where corruption has been rife.

If that reform stalls, Ukrainian officials warn, the country will slip back closer to Moscow’s orbit.

“The anti-corruption fight is the key thing to achieve for our country,” said Andriy Kobolyev, the chief executive of Ukraine’s state-owned Naftogaz, in an interview. Corruption, he said, is a bigger threat to Ukraine’s future than Russian tanks.

Naftogaz, which makes up 16 percent of Ukraine’s total budget revenue according to Kobolyev, had an anti-corruption showdown when members of its independent supervisory board resigned in September, citing government obstruction and political meddling in its reform efforts.

Kobolyev described Nord Stream 2 as a geopolitical wedge meant to sow divisions between Western and Eastern Europe, part of broader Russian efforts to undermine European unity.

The consortium of five European energy firms and Gazprom building Nord Stream 2 says that the project will not cut out Ukraine and is badly needed to meet future gas demand in Europe. Additionally, the consortium says, gas sent to Europe by pipeline would be cheaper than liquefied natural gas (LNG) from the United States sent on tankers, making the pipeline beneficial to Europe’s economy.

“The notion that Nord Stream 2 will directly harm Ukraine or result in the termination of Ukrainian gas supply routes is false,” said Jens Müller, a spokesperson for Nord Stream 2.

“Neither LNG nor gas transited through Ukraine alone are sufficient to secure Europe’s energy needs,” he added. Another pipeline across the Baltic is “imperative for the future of the EU energy supply.”

Many policymakers in Germany, where there is plenty of support for the project, would agree. German Social Democrats, who could be part of a grand political coalition, are particularly supportive.

And to the pipeline’s supporters in Berlin, U.S. opposition to it smacks of economic self-interest.

“In Germany, there are certainly people that think this administration’s opposition to Nord Stream 2 is an obvious example of Trump using foreign policy to promote U.S. economic interests,” said Ellen Scholl of the Atlantic Council.

U.S. administration officials acknowledge as much. While the United States during the Barack Obama administration was a vocal critic of Russia’s pipeline plans, including Nord Stream 2, and another project in Turkey, the Trump administration has ratcheted up the criticism. The energy boom in recent years, fueled by the fracking revolution and especially the first U.S. exports of natural gas to Europe this year, have made U.S. officials even more willing to use energy as a diplomatic tool to counter Moscow’s influence.

“The bottom line is that the strength of the U.S. energy sector impacts how we approach foreign affairs,” said John McCarrick, the No. 2 energy official at the State Department, in a November speech.

The first cargoes of U.S. natural gas arrived in Lithuania and Poland this summer, and Poland has signed a five-year deal to get more U.S. gas. Increasingly, U.S. natural gas is heading to Europe, where it can compete directly with Russian energy. Those new import terminals have allowed countries like Poland and Lithuania, long almost wholly reliant on Russia for energy, to “partially wean themselves” from Moscow, McCarrick said.

Gas exports offer triple benefits for the Trump administration, he added, helping to open markets, increasing U.S. exports, and bolstering American allies.

In the meantime, Nord Stream 2 is plunging ahead, and the consortium has just finalized all the contracts it needs to start construction next year. The risks it now faces are political.

The European Union wants to apply internal market regulations to the offshore pipeline, which could scupper the project. Russian Prime Minister Dmitry Medvedev said the expansive EU approach seems like an effort to get Moscow to abandon the project. Meanwhile, Denmark could upset the pipeline’s construction by forcing it to take a new route across the Baltic, adding time and expense.

But the biggest risk to Russia’s pipeline plans comes from the U.S. Congress. Legislation passed in July expands the range of economic sanctions that could be levied on Russian energy firms — even on projects outside of Russia. That has put Nord Stream 2 in the crosshairs. If the sanctions are ever enacted by the president, it could be enough to derail the project if EU red tape doesn’t first.

“It would not be too difficult for the United States to throw a spanner into Nord Stream 2 by making the project risky and the financing therefore too expensive,” O’Sullivan said. But she cautioned that a political sledgehammer, such as fresh sanctions, would probably be less effective than letting the invisible hand work, by making it even easier to export U.S. energy to countries that want it.

“If the United States wants to curb Russian influence, it can probably do few things more effective than just letting energy markets work,” she said.

Still, the prospect of additional U.S. sanctions is already a headache for Nord Stream 2. The pipeline consortium is “meeting every month to see if sanctions are there or not,” said Kobolyev.

The only question the project’s European backers are weighing, he said, is “how much is the U.S. against this project?”


Source:Ocnus.net 2017

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