France and Germany Face Off Over Russian Pipeline

The United States has spent years trying to derail a controversial Russian gas pipeline in Europe. France may have just found a way to kill it—and possibly strangle Paris’s newfound rapprochement with Berlin at the same time.

This Friday in Brussels, the Council of the European Union will vote on a seemingly arcane directive meant to apply European Union market rules to energy projects that start in a third country—like the Nord Stream 2 pipeline from Russia. In a surprising about-face, first reported in the German press, France has now decided to back the directive. That risks angering Germany—which really wanted to build the pipeline with Russia—and potentially dooming the $11 billion energy project, a priority for Russian President Vladimir Putin.

The rules change, which has been under discussion in different forms for over a year, could have an impact on far more than just this one project. By ensuring that third countries have to play by EU rules in the energy business, Brussels appears to be taking square aim at one of Moscow’s favorite weapons: its use of energy exports to pressure smaller neighbors, especially in Central and Eastern Europe.

“If this goes through, Russia couldn’t play geopolitical games with pipeline projects,” said Alan Riley of the Atlantic Council.

The Nord Stream 2 pipeline has been hugely controversial since Russia’s Gazprom and a handful of Western companies announced it in 2015.

Moscow likes the idea of having a second direct route to its biggest European customer—especially a route that bypasses Ukraine, which it sees as a pesky neighbor and unreliable partner in shipping gas. Germany likes the project, because it would double the amount of cheap Russian gas piped straight to Europe’s biggest economy—one that needs more natural gas as it weans off coal and nuclear power. (Though early last year, Germany started to think about the broader geopolitical, and not just commercial, aspects of the project.)

But many countries in Central and Eastern Europe—not to mention the United States—have hated it since day one, fearing that it would only redouble Europe’s reliance on Russia for energy supplies at a time of rising tensions between Moscow and the West.

Ukraine, in particular, sees Nord Stream as an existential threat, one that would literally cut it out of the path of Russian exports, potentially leaving it without supplies and depriving it of billions of dollars in much-needed transit fees. Other Eastern European countries also fear that Nord Stream would give Russia even more ability to tamper with gas supplies to Europe, as it has done repeatedly in the last few decades.

“Poland views the Nord Stream 2 as a significant threat to the peace and security on the European continent from the point of view of deepening European countries’ dependence on Russian energy and the prospects for an escalation of Russian aggression against Ukraine,” Polish Foreign Minister Jacek Czaputowicz said late last month.

And since the Obama administration, Washington has been opposed to the project. That opposition has only grown after President Donald Trump took office, pushed by a U.S. Congress increasingly inclined to punish Russia for invading Ukraine and meddling in the 2016 U.S. election.

Congress passed a tough new sanctions law in 2017 that for the first time put Russian energy projects at risk of U.S. economic reprisals, a significant threat to a country that relies on exports of oil and natural gas for the bulk of its government revenue. Ever since, U.S. officials have repeatedly warned the Western energy firms working with Gazprom on the pipeline that they face the risk of sanctions; in January, U.S. Ambassador to Germany Richard Grenell reportedly warned German companies they risked incurring sanctions if they went ahead with the project.

But despite all the U.S. bluster and European opposition, the pipeline is still going ahead. Construction on the pipeline, which is meant to carry natural gas from Siberia across the Baltic Sea to Germany, began last summer, and the company says it expects it to be completed later this year.

That’s why France’s apparent about-face—from siding with Germany and several smaller countries to oppose the new EU rules, to backing them in a decisive fashion—is potentially vital. (France did say it is working with Germany on revisions to the language in the new directive, so there could be a last-minute compromise or shift in the French position.)

The directive would apply to the part of the pipeline that lands in Germany, not to the entire project, but the new rules would be enough to create a cloud of uncertainty over the pipeline, said Katja Yafimava of the Oxford Institute of Energy Studies.

Trying to comply with EU market rules that require pipeline operators to open up their infrastructure to other suppliers wouldn’t make any sense for Nord Stream 2—there’s no other gas that could be pumped into the pipe than what Gazprom has in western Siberia. Russia could seek an exemption to the new rules, but Brussels would always have the final say or could try to cap the amount of gas Russia could sell. At the same time, Yafimava said, applying a newly drafted directive to a project that started construction last year would ensure a bitter legal fight.

The new EU directive has come in for criticism of its own. Many see it as unduly politicizing Brussels’s regulatory role, since the new rules seem to be aimed almost exclusively at the Russian project, while exempting existing pipelines to Europe from North Africa.

“This is a very clear sign of politicization of EU regulation” which can undermine investor confidence, Yafimava said. Consulting firm Arthur D. Little says the latest version of the new directive only “adds bureaucracy, uncertainty and cost” and ends up concentrating too much power in Brussels, at the expense of national governments.

Energy experts are torn over whether Nord Stream 2 is necessary to ensure affordable energy for Europe, or whether it is a geopolitical boondoggle meant to increase Russian leverage. Germany’s need for gas is rising, especially as it phases out coal and nuclear power.

U.S. officials have repeatedly urged Germany and other European countries to buy U.S. natural gas rather than increase their reliance on Moscow. But most U.S. natural gas exports via tankers go to Asia, not Europe. And gas shipped by tanker costs a lot more than piped gas, plus not all countries have access to coastal gas terminals. Other sources of alternative gas are either smaller and far-off, such as gas from the Caucasus, or yet to be really developed, such as natural gas finds in the Eastern Mediterranean.

One reason many see Nord Stream as vital: Europe’s own production of natural gas is declining sharply, and it simply needs more gas. Russian gas is close by, plentiful, and cheap.

“In my view, Nord Stream 2 is actually necessary for European (not just for German) gas security,” Yafimava said. “In trying to artificially limit import capacity for Russian gas,” she said, “the EU is shooting itself in the foot.”

France’s decision to back the new rules, described in breathless terms by media across Europe, will likely have impacts beyond the energy sphere. Just weeks ago, France and Germany cemented what seemed to be a renewed partnership to play a leading role together in Europe, announcing the “Treaty of Aachen” to deepen bilateral cooperation on a range of issues including foreign policy, defense, and trade.

Throwing its weight behind Central and Eastern European opponents of Nord Stream might well win Paris more influence in those parts of Europe but will almost certainly increase strains with Germany, which have already been tested due to differences over trade.

Indeed, those tensions may already have begun. German media reported Thursday, just hours after France’s about-face, that French President Emmanuel Macron has canceled his scheduled appearance at this month’s Munich Security Conference, where he was slated to give a joint address with German Chancellor Angela Merkel.