Beyond Nord Stream 2

The United States and Germany have reached an agreement on the Nord Stream 2 pipeline. The deal is sound, even if it is unlikely to satisfy Congress, Ukraine, or others in Europe. The point of the compromise is to address real vulnerabilities in Ukraine’s energy system, rather than to preserve a role for Ukraine that the market will render obsolete anyway—and that makes it highly attractive. And the agreement is a chance to close—and maybe learn from—an unfortunate chapter in transatlantic history.

The objective of the agreement is to commit Germany to support Ukraine. Germany will put $175 million into a Green Fund for Ukraine, aiming to mobilize $1 billion for renewable energy, energy efficiency, and the diversification of Ukraine’s energy system. Germany will also provide $70 million for bilateral projects, and it will set up a program to increase Ukraine’s resilience to physical and cyber disruptions. And, finally, Germany will engage with the Three Seas Initiative, which aims to raise connectivity in Central and Europe. These measures will complement existing initiatives like the Projects of Common Interest. This is, in short, a big package that will boost Ukraine’s energy security—far more than merely canceling Nord Stream 2.

The two sides had discussed but ultimately abandoned various ideas. The United States and Germany both support the transit of gas through Ukraine, but the United States was content with an agreement that set no volume target for how much Russian gas should cross Ukraine. Given the problems caused by contracts caused in the past, such a shift marks a positive development.

The two parties also agreed that Germany will seek to punish Russia if Russia takes aggressive action against Ukraine—but without committing to specific countermeasures. In doing so, they dismissed an idea that had been floating around: that Germany should commit to stop imports through Nord Stream 2 if Russia attacked Ukraine. In practice, such a commitment was impractical and made little sense given the realities of how gas flows in Europe. It is good news that the idea was scrapped.

The agreement also refrained from any references to other countries. There is a commitment to “Central and Eastern Europe” but no specifics. This too is good news. The actual impacts of Nord Stream 2 on the gas market in Europe are trivial. The energy security concerns, to the extent they exist at all, are mostly restricted to Ukraine. The deal rightly acknowledges this fact.

Congress is unlikely to support this deal, so this is hardly the end. Further sanctions might come just as the White House looks to loosen them. And there are still regulatory hurdles before the project can start flowing gas. Even so, this lull is an ending of sorts. And it is an opportunity to draw lessons from a multi-year affair that has so damaged the transatlantic alliance—in the hope that studying the past can help us avoid its mistakes.

One lesson is compartmentalization. For years, Nord Stream 2 has managed to derail whatever discussion that took place among Americans and Europeans on energy and climate. As the transatlantic partnership confronts new challenges—like Europe’s carbon border adjustment mechanism—it is important not to repeat the mistake of Nord Stream 2. One disagreement should not poison such an important bilateral relationship.

Second, U.S. policy became increasingly disconnected from facts on the ground. Washington kept returning to a few talking points—that Russia uses energy as a weapon, that Nord Stream 2 will allow Russia to blackmail Ukraine, that Nord Stream 2 is a political project, and so on. These statements have little meaning and are often outdated. Yet updating these priors has been difficult. Given how quickly energy markets change, it is vital for mental models to adjust more rapidly.

The final lesson is about geoeconomics. The United States and Europe have quarreled over Europe’s energy relationship with Russia for 60 years. At the center of the dispute are two distinct views on how to deal economically with rivals. A similar disagreement is now evident on how Europe deals with China. There will be many more experiences like Nord Stream 2, absent a more honest conversation between the two sides and more appreciation for the distinct approaches that each side is taking. That would be bad news for the transatlantic alliance and the world.

Nikos Tsafos is interim director and senior fellow with the Energy Security and Climate Change Program at the Center for Strategic and International Studies in Washington, D.C.

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