The Politics of Energy

The day before the G7 meeting where world leaders are scheduled to meet in Cornwall, President Putin announced that Nord Stream 2 pipeline had completed the first of the two lines. Furthermore, it should reach final completion within the next two months. Once complete, the pipeline would see Russia export an additional 110bcm of gas per annum to Europe.

One of President Putin’s favourite foreign policy tactics is to simply toy with the Americans. For many years, Americans have been vehemently against the construction of a gas pipeline directly from Russia to Germany, bypassing Ukraine and making Europe more intertwined with Russia. It has a strong resemblance of a cold war story: Europe having to decide to side with either the Russians or the Americans. In this case, Russia has won. 

The reality is, Europe needs gas. More so this summer due to a double winter, and to replenish its gas reserves which are at historic lows. The other demand for gas comes from the decarbonisation of the grid with the removal of coal fired power plants to be replaced with gas fired ones. In an ideal storm, the US shale gas revolution and the US government’s approval to export gas has seen a rise in LNG exports from the US to Europe. The US would hope this continues, but the blockage is of a new Russian pipeline of gas, which is cheaper for Europeans to buy in comparison to shipping gas across the Atlantic. 

Political relations with the US and Russia have always been frosty, more so with accusations of Russian meddling in US elections. Over 50 US senators disapproved of the Biden administration removing sanctions on companies involved in the construction of the pipeline. However many Europeans leaders felt that the US had no right to interfere in a European decision. The US has maintained the pipeline as a ‘bad deal’ for Europe, but has never offered an alternative. 

President Putin stated, “I think it should be completed especially given that the new U.S. administration speaks of its intention to build up good relations with its key partners in Europe,” Putin told a forum in St Petersburg. “How can you build good relations with your partners and neglect their interests? This is a nonsense.” It comes as President Trump left European/US relations in tatters, accusing them of a lack of support rather than helping them. 

The timing of the announcement by Putin was impeccable and almost humorous. And it’s an insult to the Americans, just before seeing them in person at the G7 meeting. It highlights how Putin knows exactly what he is doing. The timing of the announcement clears up months, if not years of planning. It highlights that where America will drop the ball, others will be prepared to pick up the baton, coming to Europe’s rescue.