Who Benefits?*

*Editor’s note: On March 4, Russia enacted a law that criminalizes public opposition to, or independent news reporting about, the war in Ukraine. The law makes it a crime to call the war a “war” rather than a “special military operation” on social media or in a news article or broadcast. The law is understood to penalize any language that “discredits” Russia’s use of its military in Ukraine, calls for sanctions or protests Russia’s invasion of Ukraine. It punishes anyone found to spread “false information about the invasion with up to 15 years in prison.

Analyst Sergey Korneevskiy discusses how the sabotage of the Nord Stream 1 and 2 pipelines closes off Europe’s way out of the energy crisis.

Explosions at the bottom of the Baltic Sea have resulted in four gas leaks across the Nord Stream 1 and 2 pipelines. German intelligence believes the pipelines have been destroyed forever because the salt water may trigger their corrosion. The Russian Foreign Ministry stated that the incident at Nord Stream occurred in an area monitored by U.S. intelligence. Earlier, U.S. Secretary of State Antony Blinken said that, according to the available information, deliberate attacks caused the leaks.

Of course, Blinken also added that the sabotage is not in anyone’s interest. However, it is highly doubtful that two simultaneous explosions at such a depth are an accident. It is also unlikely that design errors could simultaneously destroy the pipelines built 10 years apart. Instead, it seems like an attack by unmanned underwater vehicles armed with explosive devices. The opinion circulating in Europe is that Russia could have operated such vehicles.

However, logic teaches us not to increase the number of entities but to choose the most obvious explanation and look for beneficiaries. Despite Blinken’s words, a few parties are interested in a permanent cutoff of gas supplies from Russia to Europe via the Baltic Sea. There is no need to go far: The U.S., the “Anglo-Saxon bloc” and Ukraine are at the top of the list. At the beginning of February, U.S. President Joe Biden, at the meeting in Washington with German Chancellor Olaf Scholz, promised to “bring an end” to Nord Stream 2. Now his threats are taking on an entirely different meaning.

From the very beginning, the construction of a second gas pipeline from Russia to Germany through the Baltic Sea was met with fierce resistance from the U.S. The Americans have stressed that the EU’s dependence on Russian gas is dangerous and that another pipeline would give the Kremlin serious leverage to influence the policy of a united Europe. A much better plan for Europe, Washington claimed, would be to switch to American liquefied natural gas, carrying “molecules of freedom.” At the same time, Moscow has repeatedly stated that the construction of Nord Stream 2 does not have political undertones. In fact, it is solely a mutually beneficial business project between Europe and Russia. In other words, another reliable channel for supplying energy resources to the region.

That must be how Washington looked at Nord Stream 2 and the energy partnership between Russia and the EU. The Americans understood that this partnership was to Europe’s advantage, strengthening its industrial potential and increasing its influence on international politics and the economy. By breaking the EU-Russia energy ties, the U.S. is making the EU a poor, energy-deficient region. Barack Obama once said that Western sanctions have left the Russian economy “in tatters.” However, it now seems that this statement will soon apply to the European economy.

Europe was getting 155 billion cubic meters of gas per year from Russia, accounting for just under a quarter of its total gas consumption. It was evident that cutting off such crucial supplies so abruptly would lead to a crisis. But that’s precisely what the European authorities did — a reckless move. According to estimates by Bloomberg Economics, the European gross domestic product in the event of a harsh winter will fall by 5%, as it did during the global financial crisis in 2009. Analysts stress that the shutdown of Nord Stream 1 and 2 has exacerbated Europe’s economic problems. Hence, EU countries are spending hundreds of billions of euros to reduce the negative impact on the economy due to high gas prices. These funds would have been invested in development in peacetime.

Germany, Europe’s first economy to receive up to half of its gas supplies from Russia, is one of the main victims of the sanctions war. The country’s industry is forced to reduce its gas consumption by 20% compared to the previous year. As such, according to the principle of economies of scale, the production decreases while the cost per unit increases. Hence, the German industry loses out to competitors from countries where energy costs are lower. For instance, German blue chips have already lost about 30% of their value. The German chemical industry is by far the worst hit, as it uses gas as both an energy source and a raw material. For example, the stock price of the industrial engineering conglomerate Thyssenkrupp has fallen by half since the start of January. Meanwhile, another industry giant, BASF, has been systematically reducing its production for months.

Germany’s attempts to find alternatives to Russian gas have been unsuccessful. The country needs tens of billions of cubic meters of gas. On Sept. 25, Scholz agreed to a largely symbolic supply of 137,000 cubic meters from the United Arab Emirates. No tangible results were achieved through negotiations with other gas exporters either, even though both the German authorities and top European officials have been actively working on this. The German government had initially counted on the supplies of about 13 billion cubic meters of liquefied natural gas transported by sea in the first half of 2023. However, not even major liquefied natural gas producers such as Australia, Qatar and the U.S. are currently able to increase their gas production. Moreover, Europe’s reliance on liquefied natural gas implies constant competition with premium markets in Asia, which will lead to higher prices and unstable supplies.

In addition, the EU has an underdeveloped network of pipelines between countries. These interconnectors could be used to deliver gas from offshore terminals. However, even if they could be built, the EU does not have a unified energy policy within which gas could be fairly redistributed. And it is also essential to consider that even when adding up all the gas purchased by some European countries and then dividing it among all the EU members, it would still not be enough for everyone. First, the EU is a net importer of energy resources; it has almost no energy resources of its own. For example, Groningen, Europe’s largest gas field, is depleted and is being decommissioned. Second, Europe used to get more than 40% of its gas from Russia. Now, with the loss of these supplies due to Russia-EU tensions, it is impossible to imagine a new, stable supplier of gas that would replace Russia overnight.

Meanwhile, any restrictions on Russian gas will lead to an unequal playing field in the EU’s single market. As a result, the economies that are traditionally less dependent on Russian energy resources will win. Interestingly, we are talking about countries that have the closest relations with the U.S. — Poland, the Baltic states and the U.K.

For example, almost simultaneously with the sabotage of Nord Stream 1 and 2, the Baltic Pipe, supplying 10 billion cubic meters of gas per year from Norway, was unveiled in Poland. Poland will replace Russian gas with liquefied natural gas from a terminal in Swinoujscie and a fairly developed coal industry. Incidentally, after the decline in supplies from Russia, Norway has become the leading gas supplier to the EU — another motive for sabotage. Furthermore, the share of Russian gas in the U.K.’s energy supply is less than 4%. The country produces more than half of the gas it needs and buys some from Norway, the Netherlands and Belgium. The U.K. also receives 25% of its gas imports through liquefied natural gas.

At the same time, replacing Russian gas will be difficult for the countries of Central and Eastern Europe, which are critically dependent on Russian energy. These countries, therefore, tried to delay the sanctions on Russian energy resources. Suppose the socioeconomic situation deteriorated further. In that case, these countries and Germany could have requested to restart supplies through Nord Stream 1 and 2. At least, they used to have such an option.

However, this option has been ruled out after the explosions at the bottom of the Baltic Sea. Thus, Europe has been left with no room for compromise with Russia. Besides, a strike on strategic infrastructure is an extraordinary incident, a new episode of hybrid warfare, which risks further escalation of the conflict. And here, it is important to understand that both the economic and the military risks are increasing for all of Europe, including for pro-American countries. But for the U.S. itself, securely sheltered across the Atlantic, the situation promises significant gains.

The author’s opinion may not necessarily reflect the views of Izvestia’s editorial board.

About this publication

About Nikita Gubankov 100 Articles
Originally from St. Petersburg, Russia, I've recently graduated from University College London, UK, with an MSc in Translation and Technology. My interests include history, current affairs and languages. I'm currently working full-time as an account executive in a translation and localization agency, but I'm also a keen translator from English into Russian and vice-versa, as well as Spanish into English.

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