U.S., Germany strike a deal to allow completion of controversial Russian Nord Stream 2 pipeline

PoliticsU.S., Germany strike a deal to allow completion of controversial Russian Nord Stream 2 pipelinePublished Wed, Jul 21 20212:54 PM EDTUpdated An Hour AgoAmanda Macias@amanda_m_maciasShareShare Article via FacebookShare Article via TwitterShare Article via LinkedInShare Article via EmailKey Points

  • The United States and Germany reached an agreement to allow completion of the $11 billion Nord Stream 2 pipeline, a thorny, long-standing point of contention between the otherwise stalwart allies.
  • The agreement reached between Washington and Berlin, which was announced Wednesday, aims to invest more than 200 million euros in energy security in Ukraine as well as sustainable energy across Europe.

Workers during the production process of pipes at the Nord Stream 2 facility at Mukran on Ruegen Islandon in Sassnitz, Germany.Carsten Koall | Getty Images

WASHINGTON – The United States and Germany reached an agreement to allow completion of the $11 billion Nord Stream 2 pipeline, a thorny, long-standing point of contention between the otherwise stalwart allies.

The agreement reached between Washington and Berlin, which was announced Wednesday, aims to invest more than 200 million euros in energy security in Ukraine as well as sustainable energy across Europe.

"Should Russia attempt to use energy as a weapon or commit further aggressive acts against Ukraine, Germany will take action at the national level and press for effective measures at the European level, including sanctions to limit Russian export capabilities to Europe in the energy sector," a senior State Department official said on a call with reporters on Wednesday.

The senior State Department official, who requested anonymity in order to discuss the agreement candidly, added the U.S. will also retain the prerogative of levying sanctions in case Russia uses energy as a tool of coercion.

The official said the United States and Germany are "resolutely committed to the sovereignty and territorial integrity" of Ukraine and therefore, consulted closely with Kyiv on this matter.

The unease surrounding the nearly complete Nord Stream 2 project, a sprawling undersea pipeline that will pump Russian gas directly into Germany, stems from Moscow's history of using the energy sector to gain leverage over Russia's neighbors, namely Ukraine.

When completed, the undersea pipeline will span 764 miles from Russia to Germany, making it one of the longest offshore gas pipelines in the world. Last month, the Kremlin said that only 62 miles of Nord Stream 2 were left to build.

In May, the United States waived sanctions on the Swiss-based company Nord Stream 2 AG, which is running the pipeline project, and its German chief executive. The waiver gave Berlin and Washington three more months to reach an agreement on Nord Stream 2.

The agreement comes on the back of German Chancellor Angela Merkel's visit to the White House, the first by a European leader since Biden took office and likely her last trip to Washington after nearly 16 years at the helm of Europe's largest economy.

Merkel, the first woman to lead Germany, has previously said she will step down after the September national elections.

During a joint press conference at the White House, Merkel pledged to take a tough stance against Russia if Moscow misused the energy sector for political gains.

On Wednesday, the White House announced that Biden will host Ukrainian President Volodymyr Zelensky next month.

Ahead of the July 15 meeting, Biden administration officials and representatives from Germany told CNBC that the leaders of the world's largest and fourth-largest economies were anxious to rebuild a frayed transatlantic relationship.

A handout photo provided by the German Government Press Office of German Chancellor Angela Merkel and U.S. President Joe Biden stand in the White House with a view of the Washington Monument on July 15, 2021 in Washington, DC.Guido Bergmann | Handout | Getty Images News | Getty Images

"Obviously, over the past years, we had a number of fits and starts in the bilateral relationship," said a senior German government official, who requested anonymity in order to speak candidly about Merkel's agenda.

"The entire focus was on issues where we disagreed," the official said, adding that sometimes "allies were seen as foes."

Throughout his administration, former President Donald Trump frequently dressed down allies and often singled out Merkel's Germany for being "delinquent in their payments" to NATO.

Last year, Trump approved a plan that would remove 9,500 U.S. troops stationed in Germany to other countries, another blow to the transatlantic relationship.

"The U.S.-German relationship was heavily negatively impacted during the Trump administration. So, there was no question that the relationship had to be renewed rebuilt, etcetera," explained Jenik Radon, adjunct professor at Columbia University's School of Public and International Affairs.

Radon, a legal scholar who has worked in more than 70 countries on energy issues, spoke to the complex nature of global energy deals.

The Nord Stream 2 pipeline aims to double the volume of natural gas exported directly to Germany via a network beneath the Baltic Sea, bypassing an existing route through Ukraine.

"Once you try to deliver gas or oil through a pipeline through transit countries, you always put yourself in a predicament because you have a third party that is also involved," Randon said.

"It's not just the seller, it's not just the buyer, there's also the transit one, but you have no absolute control over that third country," he said, adding that "doing transit deals are among the most difficult."

Workers are seen at the construction site of the Nord Stream 2 gas pipeline, near the town of Kingisepp, Leningrad region, Russia, June 5, 2019.Anton Vaganov | Reuters

Experts on the region see the undersea pipeline as a form of Russian aggression toward Ukraine.

"By eliminating Ukraine as a transit country, Russia can deny it the benefits that come from having gas delivered across its territory," explained Stephen Sestanovich, senior fellow for Russian and Eurasian studies at the Council on Foreign Relations.

There are two elements to the issue that people often mix up, he added, pointing to Russia's ability to use natural gas as a political weapon against Ukraine as well as its ability to hurt Ukraine's economy.

"That's why the Biden administration has focused on trying to limit or compensate for any economic hit — and it wants a firm German buy-in on that goal," he said.

However, Russia's grip over American allies has weakened somewhat due to shifts in energy markets, according to Sestanovich.

"In the years that Nord Stream 2 has been discussed and now all but finished, energy markets have changed, and it's become much harder for Russia to hold European countries hostage — there are just too many alternative sources of energy," he said. "The image we have of Russia with a political stranglehold on our allies is becoming outdated."

VIDEO9:2209:22Nord Stream 2: Putin's pipeline with a problemCNBC Reports

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