Online Commentary

March 03, 2021

Caught in Domestic Politics

German-US Talks on a Nord Stream 2-Deal

Nord Stream 2 has put a strain on US-German relations since 2015. Washington and Berlin are now trying to put these differences aside for the sake of transatlantic relations. Introducing a pipeline shut-down mechanism and support for Ukraine’s renewable energy industries could help Germany to align domestic constraints and international imperatives. But the window for a deal is closing.

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Photo of pipeline pipes for transporting natural gas stored in the seaport of Sassnitz-Mukran
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Nord Stream 2, the pipeline project delivering Russian gas to Germany, is a sore point for US-German relations. This was true for the Obama and Trump administrations and is just as true for the Biden administration. Despite US sanctions, the pipeline is nearly finished – only 75km of the double tube remain to be laid. But the completion of the project will not settle matters: The Biden administration may decide to extend sanctions, thus deepening the transatlantic rift. For Germany, Nord Stream 2 has become an impediment for its foreign policy. The pipeline is causing such a rift within the transatlantic relationship that the United States has even imposed sanctions; it endangers EU cohesion due to Germany’s one-sided pursuit of its national interests; it strains relations with Poland and the Baltics but especially with Ukraine; and it hampers the stringency of Germany’s policy toward Russia.

But the German government also cannot stop the construction – this is simply no longer feasible due to the compensations the German state would have to pay to participating companies such as Wintershall and Uniper. Furthermore, domestic support for the pipeline has fallen but is still at 52 percent, highlighting the fact that most Germans desire the pipeline to be finished. So, despite the Biden administration’s deep misgivings, both the United States and Germany realize that they need to reach a deal on Nord Stream 2, and preferably before the project has been completed. A balanced deal would not only strengthen US-German relations but also address at least some of the problems posed by the pipeline to Europe and its energy security.

United States and Germany Are Ready to Talk

On February 19, 2021, the contradictory impulses created by the pipeline became vividly clear. That was the day the Biden administration signaled its openness to talks on Nord Stream 2, unleashing a charm offensive toward the German government. In his Munich Security Conference speech, President Joe Biden strongly emphasized transatlantic relations and their significance to US foreign policy, in particular against the backdrop of increased competition with China and the consequences of the Corona pandemic. That same day, the United States enacted new sanctions against Nord Stream 2. These target the pipe-laying vessel Fortuna and its Russian owner KVT-RUS under the Protecting Europe’s Energy Security Act (PEESA). A bipartisan majority in Congress had introduced PEESCA as recently as December 2020 with Nord Stream in mind.

However, analysis suggests that these latest sanctions were symbolic only; both entities were in fact already facing similar sanctions. Trump had targeted them under the Countering Americas Adversaries Through Sanctions Act (CAATSA) of January 2021. Biden did not meaningfully tighten these measures, although the Fortuna resumed pipe-laying on February 6. And if Biden’s soft line was intended to open the way to a deal, key figures in Germany’s governing parties appear receptive. They include Jürgen Hardt, spokesperson on foreign policy of the CDU/CSU parliamentary group, the SPD’s Niels Annen, minister of state at the Federal Foreign Office, and Nils Schmid, spokesperson on foreign policy of the SPD parliamentary group.

Biden Administration Under Pressure as Honeymoon Ends

The trouble is that both the US and German governments are facing strong domestic opposition to their policies on Nord Stream 2, which drastically reduces their room for maneuver. In both countries, there are political parties as well as interest groups which oppose compromise. Republican members of Congress have heavily criticized the recent sanctions as too weak, calling them a “gift to the Russians.” They have demanded broader sanctions against not only Russian entities like Fortuna but also European and German companies – sanctions sufficient to halt construction. And they accuse the Biden administration of being too soft on Russia, so adopting a line of attack which Democrats had used against Trump and turning it upon the new President.

But the dividing line does not only lie between Republicans and Democrats, but also between Congress and the administration. Opposition to Nord Stream is bipartisan. Republicans as well as some Democrats in Congress reject a deal for two reasons. First, they view the pipeline as a key risk to Ukraine’s independence and stability – one that cannot be mitigated by any US-German deal. Second, they suspect Berlin’s overture toward negotiations to be little more than a ruse, a tactic to gain time until the pipeline is finished.

The Biden administration in fact shares the concerns of US Congress. Biden strongly supports Ukraine as it strives for stability. He sees clearly that Ukraine’s ability to push back at Moscow is closely linked to Russia’s dependency on the Ukrainian gas transit infrastructure. Nevertheless, the Biden administration believes these concerns are thrown into perspective by the prospect of strengthening transatlantic relations. It sees, too, that the window of opportunity for any deal with Germany will soon close as the US Congress is putting on the pressure. The new administration needs to seal the deal before Nord Stream 2 is completed so as to build in measures supportive to Ukraine.

German Government Under Pressure as Elections Loom

The timeline for Germany is different because of the upcoming federal elections in September 2021. A deal between Germany and the United States before the elections will be used by parties and interest groups to attack the governing parties during the campaign, particularly as the government’s support for Nord Stream 2 is being challenged from various angles. One group, comprising the far-right AfD and the left wing Die Linke, questions the need to make a deal with the United States. This group views US involvement as meddling in German sovereign decisions and supports stronger ties with Russia. At the same time, business and regional prime ministers such as SPD’s Manuela Schwesig of Mecklenburg-Western Pomerania support Nord Stream 2 for economic reasons.

A second group, mainly comprising the Green party and environmental NGOs, criticizes Nord Stream 2 as an impediment to Germany’s energy transition. True, this group might countenance a deal with the United States, but only if it was in line with its own green agenda. After the recent leak of an offer of a deal, environmental NGOs showed their muscles. German Finance Minister Olaf Scholz had reached out to the United States by offering subsidies for two terminals to import LNG from America in exchange for an end to the sanctions. Washington rejected the deal citing the pipeline’s impact on European and in particular Ukrainian energy security. But the offer was also heavily criticized within Germany on the grounds that the government was buying support for one environmentally destructive project by financing another.

A third group, comprised of CDU politicians like Norbert Röttgen, influential head of the parliament’s foreign affairs committee, as well as members of the CSU and the Greens, rejects Nord Stream 2 on the grounds that it ties Germany to an increasingly authoritarian Russia. Of course, this would seem to align with the need for a transatlantic grand bargain. And indeed, this group would countenance a deal if it included levers against Russia and – to a lesser degree – support for Ukraine. However, it is remarkable that the crucial question of Ukraine’s stability and security has never been prominent in German public debate on Nord Stream 2.

A Carefully Calibrated Deal

The Biden administration is under growing pressure to move now, before opposition in Congress hardens. The German government would be most comfortable if it could postpone the issue indefinitely or at least until after the elections. And yet, there are ways for the German government to align its domestic constraints and international imperatives. The deal could be designed to:

  • include support for green hydrogen industries and infrastructure in Ukraine. This would strengthen Ukraine’s energy independence and offer revenues to compensate for lost gas transit fees. Additionally, it would fit Germany’s plans to strengthen international cooperation on hydrogen production and trade according to its National Hydrogen Strategy.
  • boost support for Ukraine’s security by including a shut-down mechanism for the pipeline operations that can be triggered in case Russia increases pressure on Ukraine. This would be non-automatic, meaning that a stop of energy deliveries would remain a political decision by the German government. But it would be based on clear criteria – the escalation of fighting in Donbass or a move by Russia to reduce energy supplies to Ukraine.
  • placate the Biden administration and US Congress (especially a Congress skeptical about a non-automatic shut-down mechanism) by agreeing a pause instead of a lift of US sanctions. This would allow the United States to revoke the deal if Germany does not fulfill its obligations.

This package would enable completion of the pipeline and offer Germany a face-saving way out of its Nord Stream 2 dilemma. It would meet both German and US concerns regarding the energy security of Ukraine. It would also include green measures that would support the German energy transition, thereby softening German domestic opposition from environmental interest groups. Given the German government’s determination to see Nord Stream 2 completed, such a deal could address both international and domestic concerns.