Geopolitical shifts: Russia, Nord Stream 2 and Georgia

Geopolitical shifts: Russia, Nord Stream 2 and Georgia

The unrest in Belarus and Putin’s  poison attack on Navalny have not yet resulted in any major sanctions. Trump and the USA still seemed busy in the election campaign and so far they have been holding back astonishingly. If US sanctions are called for, this is likely to be directed against Nord Stream 2 and Merkel and the German government might then be more in the focus than Putin-Russia. In the following article the Gazprom advisor for the EU and Germany, Dr. Alexander Rahr thinks that. Russia realizes that if it came to an oath, Germany, including politics and business, would prefer the US market to the limited energy project. The German-European-American quarrels about Nord Stream 2 is less interesting than the assessment that this will be Russia’s last major gas and energy project with Europe and that Russia is now turning to Asia and China. Rahr then tries to find out other areas of cooperation that might still counteract Russia’s drift towards China.

„Nord Stream 2

Blackmail and its consequences

The attempt by some US senators to prevent the completion of the Nord Stream 2 pipeline by all means reveals the weakness of German and European foreign policy. And it forces you to think about strategic alternatives

Alexander Rahr

There has never been an incident like this in the last 75 years of German-American relations. Three US senators wrote a long threatening letter to the management of the small ferry port Sassnitz on Rügen. From there, logistical support for the pipeline-laying vessels involved in the construction of Nord Stream 2 will be provided. One quote from the letter catches the eye: „If you continued to provide goods, services and support to the Nord Stream II project, you would destroy the future survival of your company.“

Such cheeky writing needs a peppery answer. For two years now, the US – Congress and Trump administration – have been threatening European companies participating in the Nord Stream 2 project with extra-territorial sanctions. The US is thus interfering uninvited in the energy security of its European allies. Even more: Washington treats the Europeans like underage vassals. The EU cannot and does not want to accept this without hesitation. But it does not have the tools to stand up to the superpower USA.

The weakness of the Europeans
If European companies are actually faced with the choice of either sticking to the Russian project, but instead losing the American market forever, they will inevitably opt for the much more profitable US market and against cooperation with Russia. The federal government and the EU cannot protect their own companies against the economic and financial superiority of the USA on a global level. At most, Berlin and Brussels can shut out American liquefied natural gas from the EU market, as the chairman of the economic committee in the Bundestag demands. The consequence, however, would be a trade war with the US, which Europe wants to avoid.

Only in the case of the energy conflict with the US does the EU understand how dependent it really is on the US. In order to change this situation, to free itself from external control and to achieve full sovereignty, the EU would have to emancipate itself more from the USA. But can the EU do this without calling into question the security partnership with the US within NATO? Nobody in the West can seriously imagine that the EU will exchange the USA as a protecting power for the Russian one.
In view of the increasing conflicts in the German-Russian relationship (hacker attacks on the Bundestag, annexation of Crimea, murder attacks on Russian opposition members, human rights violations in Russia), the resumption of strategic partnership relations between the two countries initially appears to be an illusion.

The other problem facing the EU is that it does not speak with one voice. It is true that 24 of the 27 EU states criticized the American sanctions plan against European companies in a joint note to the State Department. But it is also a fact that if there were to be an oath, the East Central European EU states would apparently opt for an America-controlled Europe. The leadership from Washington is more important to them than the German-French-led European axis.

Nord Stream dispute

No energetic infrastructure project has ever generated as much resentment as Nord Stream 2. The Baltic Sea pipeline Nord Stream 1 has been in existence since 2011 and can transport 55 billion cubic meters of natural gas from Western Siberia to Germany every year. Nord Stream 2 will in future provide the same amount for customers in the European Union. So far, 150 billion cubic meters of natural gas have been pumped through the natural gas pipeline, which has existed for 50 years, via Ukraine to Europe. The Ukrainian pipeline would be obsolete in the future.

Russia argues like this: Ukraine is an unsafe transit country. The Nord Stream alternative is helping to undo the Ukrainian transit monopoly. In the USA and parts of the EU, the argument is exactly the other way around: Ukraine should be retained as the central transit country for Russian natural gas to Europe, otherwise Moscow could one day turn off the gas tap in Eastern Central Europe. The US accuses Moscow of wanting to ruin Ukraine financially with the transit stop. Ukraine earns 2 billion euros a year from the transit of Russian natural gas to Europe. It is the largest item in the state budget of Ukraine. Without this income, the West would have to subsidize Ukraine with loans.

Germany successfully acted as a mediator in this conflict and got Russia to continue to sell its natural gas to the west through Ukraine, but to diversify its gas exports across the Baltic Sea.
Another American argument against the pipeline is that the EU is too dependent on Russia. But that’s not true. Russia’s gas deliveries only make up 40 percent of total gas imports into the EU. In the overall energy mix, natural gas is far behind coal and oil. In addition, the Europeans have long since successfully diversified their gas market, an unexpected bottleneck from Russia could be made up immediately by other suppliers.

US interests

The real reason for America’s rejection of the Nord Stream pipeline is not Ukraine. The US wants to sell its own liquefied natural gas (LNG) on the lucrative European market. However, Russia has been the market leader in the European energy market for 50 years. So it is important to cut off Russian natural gas, which is transported to Europe via pipelines, from the EU consumer market. The transparency of the US strategy of eliminating its main competitor in this way is striking. The EU is therefore resolutely distancing itself from such cowboy methods.

The USA and many Central Eastern European countries see the Russian-German energy partnership as a false strategic economic anchoring of Russia in Europe – which they reject and fight. They want to prevent Russia from acquiring funds in the western market through natural gas exports that Moscow could invest in its arms industry.

In the past few decades, however, Germany has had positive experience in gas trading, first with the Soviet Union and later with Russia. Many German companies have been present in Russia since the famous natural gas pipe business at the beginning of the 1970s. They want to remain active in Russia and are putting pressure on the German government to maintain economic relations with Russia.

If the EU were to give up Russian natural gas under American pressure, it would become dependent on America. Then it would be the US that could use energy as a „weapon“ for its own interests. The US could be tempted to blackmail the EU on other issues, such as technology trade with China.

The attitude of Berlin

Nord Stream 2 will ultimately be completed. For Germany this has become a question of decency. Of course, the federal government has made compromises in order to appease the USA and not to endanger Germany’s leading role in Europe. It has opened the doors to American liquefied gas so that it can compete with Russian pipeline gas in Europe in the future. Yet Germany is not willing to give in to America in everything.

Nord Stream 2 would never have come about without the support of the federal government. But why did Berlin advocate the controversial project so much and risk a serious break with the USA and other EU countries? First of all, the federal government understood how important the natural gas industry is for the future of Europe.

Germany is a pioneer in the energy transition, which aims to replace nuclear energy and fossil fuels such as oil and coal with alternative energy sources in the shortest possible time. However, relying solely on renewable energies does not work. It is all the more important to use natural gas as a bridge fuel on the way to a new era. In addition, there is the fact that natural gas resources are running out in Europe. In five to ten years Europe will largely have to do without its own natural gas production – and import more gas from non-EU countries. Only Russia, Norway, the Arab countries and the United States come into question as suppliers.

With all due respect for climate protection and environmentally friendly economic concepts – the age of fossil fuels is not over yet. While the EU wants to create a green economy by 2050, the rest of the world is struggling with completely different economic and social challenges than the Europeans – and will not be without traditional energy sources for a long time. Russia, on the other hand, is doing everything it can to benefit from the growth region Asia. Nord Stream 2 is the last major Russian infrastructure project in Europe. Russia will turn to the Eurasian economic area, in which China’s hunger for energy plays an important role.

Strategic Perspectives

Europe appears to many as an economic giant, but as a political dwarf. The dispute with the Americans over Nord Stream 2 could usher in a necessary historic turning point in US-Europe relations. In geopolitical terms, the USA looks more to Asia than to Europe. And Europe cannot avoid its responsibility to define itself as an independent actor in the new polycentric world order.
While for the USA the real challenge of its national security lies in the superpower rivalry with China, for the EU the main dangers lie in the Near and Middle East as well as in Africa. Poverty, extreme climate change and wars will lead to the dangers of mass migration from the south in the next few years. Russia will be a more important partner for the EU than the US in preventing this challenge.”

Another important article by the former US SACEUR Ben Hodges is about the situation in Georgia, which was under the Bush jr. Government was still a hopeful aspirant for the EU and NATO. After this did not work, especially since the Ukraine became a disaster for the West, Hodges now sees developments in Georgia that the country is increasingly isolating itself like Belarus, no longer wants to know anything about freedom and democracy, western investments and in the worst case could even run into danger to become part of the Eurasian Economic Union or the Chinese New Silk Road, if the USA and the EU had no „look“ at it. But it sounds more like the hangover mood of a liberal-globalist expansionist who laments the failure of the Saakashvili project as in Ukraine.

 In November 2003, Shevardnadze was ousted from power by the Rose Revolution. In January 2004, Michael Saakashvili was elected the new president with 96 percent of the vote. Zurab Schwania became prime minister, and successful Georgians abroad were brought into the country as ministers for important areas of reform. The government chose to reduce bureaucracy (and thus the disempowerment of old elites and networks) and economic liberalization as its primary political goals. Due to the drastic tightening of the state administration, the financing of the state apparatus could be put on a stable basis. The systematic rise in salaries and social security made possible by this made civil service attractive for young and qualified workers, which led to a strengthening of state institutions. The privatization of the state sector was driven by a counter-elite, who returned from the diaspora and had contacts to important foreign investors, but who also enriched themselves extremely through these projects. National debt fell for the first time in 2004.

Corruption and crime were vigorously pursued, although many measures were directed against representatives of the opposition and radical measures were taken. Hodge’s article on Georgia reads like the hangover after the great NATO and EU expansion boom, which has now completely failed, especially since Trump has so far been too also holds back with Belarus and Navalny and should push Biden in this case and put Trump under pressure because of its closeness to Russia, Trump will perhaps focus on sanctions against Nord Steam 2 in particular. But Hodges just wants to take “a look” at Georgia, but does not describe a counter-strategy, nor can he name forces that could reverse the trend in Georgia. The young generation and the people are mentioned, but he also does not call for a new color revolution. Apparently this has no supporters in the USA and perhaps he hopes to be able to persuade the current government by diplomatic channels to readjust their policy if a new US administration would stand up for Georgia again.

The curtain could fall on Belarus, but Georgia may take its place

Belarus and Georgia are dangerous reminders of what happens when you create a security vacuum and open the door to Russian interference. The United States and European Union should keep a watchful eye on Georgia. Despite a desire to join the EU and NATO’s popularity among the general public, the governments aren’t going in the right direction for membership of either country.

In recent years, Georgia seems to have a determination to cut itself off at the knees. According to the National Statistics Office of Georgia, the amount of foreign direct investment (FDI) has fallen some 40 percent since 2017, and the government only has itself to blame.

The Georgian government has been on an unexplainable quest to run foreign investors out of town. There are two prime examples of this. The first was the country’s proposed first deep-water port in Anaklia. Costing $2.5 billion and boasting a planned depth of 16 meters, it would be able to dock any ship in the world and was meant to play a huge part of the country’s roadmap to reinvent itself into a hub for intercontinental trade between Asia and Europe.

It would have attracted logistics and transportation investment from across Western Europe — encouraging nations such as Germany and the Netherlands, among others, to take an interest in security and stability in Georgia. Ultimately, this would have drawn a lot more attention to Russia’s continued illegal occupation of Abkhazia and south Ossetia.  

The Port of Anaklia would also make Romania, at the other end of the Black Sea — with its large but underutilized seaport of Constanta, at the mouth of the Danube River — a much more important economic player in the greater Black Sea region. This would, in turn, add impetus to improving the usefulness of the Danube for large-scale commerce and improving the frail transportation network of Romania.

But the Kremlin does not want this. Drawing more attention to its illegal occupation of 20 percent of Georgia or improving the economy of Romania are not in Russia’s interests, which is why the Kremlin worked so hard to undermine the Anaklia project.  

So the Georgian government torpedoed the deal by refusing to underwrite loans from investors and international development organizations, forcing investors to enter arbitration last month. Further FDI will be hard to come by until the case is solved.

The second incident is far more worrying from the standpoint of security, democracy and rule of law. Last year, an Azeri company that is building a digital corridor of fiber optic cable from Asia to Europe paid $61 million to acquire a 49 percent share of the Georgian company Caucasus Online, in order to secure the Georgian part of the pipeline. Representatives of the owners had many meetings with senior government officials and the Georgian National Communications Commission (GNCC), the national regulator, to keep them fully informed.

This should have been a deal that Georgia, the U.S. and Europe would be heavily in favor of, because it would increase the country’s digital independence from Russia. And after the large-scale cyber attack on Georgia last October, which was blamed on Russia, you would be forgiven for assuming it would be a Georgian priority, especially because alternate routes include Iran and Russia itself.

But now that the deal has gone through, the Georgian government is trying to have it reversed and has gone so far as to push through changes to the telecommunications law via late-night meetings in Parliament. These new laws give the GNCC unprecedented powers over the private sector — unheard of in a modern democracy. 

One of the most concerning aspects of the amendments is the creation of “special government administrators” who have almost unlimited power over telecoms companies. They have been given the power to appoint or dismiss company directors and their supervisory boards; file a lawsuit against contracts made a year before their appointment and demand their annulment; or restrict a company’s right to distribute profits, dividends and bonuses, or to increase their salaries. It’s a playbook for potential corruption and curtailing of free speech that could quickly spread to other industries. Couple this with a lack of foreign investment and there is a tried-and-tested formula for a state to turn its back on democracy and essentially turn into a new Belarus.

Right now, the internet in Belarus has been bid to curb the protests against President Alexander Lukashenko, and the Georgian government may have just given themselves the power to flick the switches. 

Both of these FDI deals would have gone against Russian interests, and both of them are in the process of being shot down by the representatives who should be most in favor.

Private investment is the third leg of a stool, along with defense cooperation and diplomacy, essential to building prosperity, security and stability. If Georgia wants to fulfill its potential as a Western liberal democracy, to further its Western integration and gain the benefits of improved security and quality of life, it must make itself attractive to this investment. Disappointingly, especially for the talented young people of Georgia, the government seems to be going in another direction. 

Retired Lt. Gen. Ben Hodges was the Commanding General, United States Army Europe, and is currently the Pershing Chair in Strategic Studies at the Center for European Policy Analysis in Washington, D.C.

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