The Nord Stream 2 project is still an unrealized reality that politically divides the transatlantic alliance – from strong political and economic support from Germany and individual other participating countries in the project to strong opposition from the US and Poland. History repeats itself; 60 years ago, in different circumstances, we already lived through this.
“Today we do not see it, but new projects will enable the Soviet Union (SU) to take over a larger part of political control in a few years with the help of economic dominance,” a statement made by American economist Willard Thorp in 1957, referring to predictions of deepened energy cooperation of individual Western European countries with the Cold War rival behind the Iron Curtain, the realization of which truly began happening a few years later. In October 1960, the Italian company ENI signed a strategic agreement with Moscow, the core of which was the supply of crude oil to Italy in exchange for technological goods and equipment (so-called barter trade) that the SU could not produce.
This greatly ignited passions within the transatlantic alliance and triggered strong public opposition from the US and certain European powers, such as France. The latter went so far that the CIA began monitoring the movements and business of ENI and its prominent representatives, including President Enrico Mattei. Who would have imagined that during the Cold War, Italy, one of the founding members of the EU, would sign a strategic agreement worth over $100 million (at that time) with its communist rival, significantly increasing trade between the two countries in the following years, and providing Moscow with both crude oil exports and technological support for the development of new deposits in Western Siberia.
Italy as a Trojan Horse
Italy, in its relations with the SU and later successor, Russia, has always stood out among all Western European countries and pursued a very pragmatic policy aimed at ensuring the best possible position for its own economy, regardless of any ideological differences or indirect effects that were not to the liking of Western allies. In addition to ENI, another such example is the cooperation between Fiat and the Russian automotive industry, resulting in Avtovaz (established in 1966), the largest domestic automobile manufacturer in Togliatti, a city on the Volga River named after former leader of the Italian Communist Party Palmiro Togliatti. Without the Italians, the SU would have been deprived of a lion’s share of crude oil production and exports, as well as a flagship of its own automotive industry.
But Italy was not the only country that successfully traded with the SU during the Cold War. In the same period, with only a few months’ difference, West Germany also concluded a similar agreement with Moscow. Although the agreement was larger in scope than the Italian one, it received less attention within the transatlantic alliance. In substance, it was practically identical, except that industrial parts for the chemical and mining industries, specialized steel products, including wider diameter pipes, traveled in the opposite direction of the oil. Of course, there was also a shortage of these in the SU, as domestic industry could not produce such technologically advanced products necessary to support increased raw material production. This agreement allowed trade between West Germany and the SU to double in just three years (1959-1962) from less than $200 to $400 million annually.
Impoverished superpower
Such strategic trade agreements during the Cold War would certainly not have been possible without a strong winning calculus for all parties involved, as well as for individuals who were the driving force behind the integration – in the case of Italy, the aforementioned Mattei. Although often overlooked, we now know that such agreements were vital for the SU, which was technologically backward and lacked its own knowledge and production capabilities to support its own oil and gas industry. However paradoxical it may sound for a country that first sent a satellite into space (Sputnik in 1957) and then a man a few years later, energy resources were already the central export item of the Soviet economy at that time and consequently the main source of dollar inflows, also necessary to ensure the most essential goods. And this industry was booming in the SU at that time: in addition to the oil fields in the Caucasus and the Urals discovered before, mass discoveries of so-called mega oil fields in Western Siberia followed in the 1950s and 1960s. In the decade between 1955 and 1965, oil production in the SU more than tripled: from 71 to 243 million tons (for comparison, this is slightly less than half of Russia’s current production).
Not only was it necessary to extract this oil, it also had to be processed and, above all, brought to the most lucrative Western markets. And for a significant part of this production chain, the Soviets did not have the knowledge. However, in exchange for oil, they were ready to provide mainly Italy and West Germany with the missing knowledge, especially. Oil was of course one of the foundations of post-war economic recovery, with very few domestic resources. ENI controlled some fields in the neighborhood (Egypt), but these capacities were nowhere near enough. And Russian oil came in handy. Not only was it readily available, it was also cheap. In return, the Italians supplied industrial goods, thus preserving and stimulating domestic jobs.
Mutual interdependence
The result of this seemingly contradictory and ideologically controversial cooperation was the development of a relationship of mutual interdependence between Western European countries and the SU, which also applies to today’s Russia: stable provision of energy (crude oil and natural gas) is in the strategic interest of both sides, as one side ensures supply security, the other export and economic stability. And this model worked stably both during the Cold War and during the collapse of the Eastern bloc and the literal collapse of the Russian economy in the 1990s. Cracks, which eventually escalated into energy crises and temporary interruptions of supplies, began to appear together with geopolitical changes in Eastern Europe, the beginnings of which can be found in the Orange Revolution in Ukraine (2004/2005).
Sixty years after the first agreement between ENI and the SU, the environment has changed significantly in many respects: the SU no longer exists, it was economically devastated and lost the Cold War; the EU has made significant progress in integration and has formed a monetary union. However, shadows of the Cold War remain, as best seen in the case of Nord Stream 2. The project, which at first glance does not conceal major strategic shifts, is not so. Otherwise, the US would not be so actively involved in it and creating circumstances where even an important part of the European economy becomes a hostage. And it is precisely the EU that, in the given circumstances, along with Russia, of course, is losing.
Nord Stream 2 Presented
The second pipeline (the first started operating in 2012) will double the capacity of natural gas exports along this route – to approximately 110 billion cubic meters per year. This will allow the Russian monopolist Gazprom to fully provide alternative routes to the current export capacities to Europe, which mostly run through Ukraine, Belarus, and Poland (Yamal-Europe pipeline, with annual capacities of 33 billion cubic meters). Therefore, the project remains at the core of the geopolitical and energy confrontation between Russia and part of the transatlantic alliance, the core of which is the US-Poland axis. The latter opposes Nord Stream from day one not because of ecological or environmental reasons (although such statements can be found), but mainly for economic and political reasons. It realizes that due to the implementation of the project and the interests of certain energy multinationals (in addition to Gazprom, primarily Dutch Shell, German E.On, Austrian OMV, and Italian Engie), it will eventually be left without transit revenues and with reduced bargaining power against Gazprom. It is quite clear that in the past, those countries that played an important transit role also had better negotiating positions in Moscow.
Effective American sanctions
The US, on the other hand, strongly opposes the project, both due to its support for Poland and pursuing its own geopolitical and energy goals. In addition to counting on increased exports of its own liquefied natural gas (LNG) to Europe, which outgoing President Trump has repeatedly discussed with European leaders, they also do not want new transit capacities for Russia, which will undoubtedly strengthen the position of Russian energy on the European market. In line with its modus operandi, Trump intervened with a measure that temporarily even halted the laying of the second pipeline, by placing the project on the US sanctions list, he forced the Swiss company Allseas to withdraw from the project, as otherwise the company itself would face negative consequences; and laying pipelines for the transit of natural gas in open seas is not an activity where there is a wide choice of contractors. There are only a few specialized companies. Therefore, Gazprom and its European partners had no choice but to temporarily suspend the project and find another subcontractor that would not be significantly affected by US sanctions.
The German Chancellor has expressed opposition to US policy and strongly advocated for the completion of the project, about which there is not even close to a consensus among European countries. However, 60 years later, history repeats itself – the broader international political context, including the active efforts of the first global superpower, the US, is mostly unfriendly to Russia’s new strategic energy projects. The opposition is strong, both in words and in deeds – not least, the Polish competition watchdog issued a €50 million fine to Gazprom in August for alleged competition restrictions, which is still far from final, but regardless shows that pressure is mounting. Unlike the 1960s, the coalition of Western European countries that relies on pragmatic development (at least) of economic or energy relations with Russia is slightly broader today. This is also why Nord Stream (1 and 2) is not exclusively a German-Russian project, but has significantly broader implications, primarily originating from the energy multinationals involved in the project – of course, with the blessing of the countries from which they originate.
January 20, 2021, when Biden officially takes office in the US, will therefore be interesting from this point of view as well, as the future of Nord Stream 2 will in many ways be a litmus test for predicting future relations in the triangle of the US-EU-Russia.
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The long shadows of the Cold War over the Nord Stream (written December 2020)
The Nord Stream 2 project is still an unrealized reality that politically divides the transatlantic alliance – from strong political and economic support from Germany and individual other participating countries in the project to strong opposition from the US and Poland. History repeats itself; 60 years ago, in different circumstances, we already lived through this.
“Today we do not see it, but new projects will enable the Soviet Union (SU) to take over a larger part of political control in a few years with the help of economic dominance,” a statement made by American economist Willard Thorp in 1957, referring to predictions of deepened energy cooperation of individual Western European countries with the Cold War rival behind the Iron Curtain, the realization of which truly began happening a few years later. In October 1960, the Italian company ENI signed a strategic agreement with Moscow, the core of which was the supply of crude oil to Italy in exchange for technological goods and equipment (so-called barter trade) that the SU could not produce.
This greatly ignited passions within the transatlantic alliance and triggered strong public opposition from the US and certain European powers, such as France. The latter went so far that the CIA began monitoring the movements and business of ENI and its prominent representatives, including President Enrico Mattei. Who would have imagined that during the Cold War, Italy, one of the founding members of the EU, would sign a strategic agreement worth over $100 million (at that time) with its communist rival, significantly increasing trade between the two countries in the following years, and providing Moscow with both crude oil exports and technological support for the development of new deposits in Western Siberia.
Italy as a Trojan Horse
Italy, in its relations with the SU and later successor, Russia, has always stood out among all Western European countries and pursued a very pragmatic policy aimed at ensuring the best possible position for its own economy, regardless of any ideological differences or indirect effects that were not to the liking of Western allies. In addition to ENI, another such example is the cooperation between Fiat and the Russian automotive industry, resulting in Avtovaz (established in 1966), the largest domestic automobile manufacturer in Togliatti, a city on the Volga River named after former leader of the Italian Communist Party Palmiro Togliatti. Without the Italians, the SU would have been deprived of a lion’s share of crude oil production and exports, as well as a flagship of its own automotive industry.
But Italy was not the only country that successfully traded with the SU during the Cold War. In the same period, with only a few months’ difference, West Germany also concluded a similar agreement with Moscow. Although the agreement was larger in scope than the Italian one, it received less attention within the transatlantic alliance. In substance, it was practically identical, except that industrial parts for the chemical and mining industries, specialized steel products, including wider diameter pipes, traveled in the opposite direction of the oil. Of course, there was also a shortage of these in the SU, as domestic industry could not produce such technologically advanced products necessary to support increased raw material production. This agreement allowed trade between West Germany and the SU to double in just three years (1959-1962) from less than $200 to $400 million annually.
Impoverished superpower
Such strategic trade agreements during the Cold War would certainly not have been possible without a strong winning calculus for all parties involved, as well as for individuals who were the driving force behind the integration – in the case of Italy, the aforementioned Mattei. Although often overlooked, we now know that such agreements were vital for the SU, which was technologically backward and lacked its own knowledge and production capabilities to support its own oil and gas industry. However paradoxical it may sound for a country that first sent a satellite into space (Sputnik in 1957) and then a man a few years later, energy resources were already the central export item of the Soviet economy at that time and consequently the main source of dollar inflows, also necessary to ensure the most essential goods. And this industry was booming in the SU at that time: in addition to the oil fields in the Caucasus and the Urals discovered before, mass discoveries of so-called mega oil fields in Western Siberia followed in the 1950s and 1960s. In the decade between 1955 and 1965, oil production in the SU more than tripled: from 71 to 243 million tons (for comparison, this is slightly less than half of Russia’s current production).
Not only was it necessary to extract this oil, it also had to be processed and, above all, brought to the most lucrative Western markets. And for a significant part of this production chain, the Soviets did not have the knowledge. However, in exchange for oil, they were ready to provide mainly Italy and West Germany with the missing knowledge, especially. Oil was of course one of the foundations of post-war economic recovery, with very few domestic resources. ENI controlled some fields in the neighborhood (Egypt), but these capacities were nowhere near enough. And Russian oil came in handy. Not only was it readily available, it was also cheap. In return, the Italians supplied industrial goods, thus preserving and stimulating domestic jobs.
Mutual interdependence
The result of this seemingly contradictory and ideologically controversial cooperation was the development of a relationship of mutual interdependence between Western European countries and the SU, which also applies to today’s Russia: stable provision of energy (crude oil and natural gas) is in the strategic interest of both sides, as one side ensures supply security, the other export and economic stability. And this model worked stably both during the Cold War and during the collapse of the Eastern bloc and the literal collapse of the Russian economy in the 1990s. Cracks, which eventually escalated into energy crises and temporary interruptions of supplies, began to appear together with geopolitical changes in Eastern Europe, the beginnings of which can be found in the Orange Revolution in Ukraine (2004/2005).
Sixty years after the first agreement between ENI and the SU, the environment has changed significantly in many respects: the SU no longer exists, it was economically devastated and lost the Cold War; the EU has made significant progress in integration and has formed a monetary union. However, shadows of the Cold War remain, as best seen in the case of Nord Stream 2. The project, which at first glance does not conceal major strategic shifts, is not so. Otherwise, the US would not be so actively involved in it and creating circumstances where even an important part of the European economy becomes a hostage. And it is precisely the EU that, in the given circumstances, along with Russia, of course, is losing.
Nord Stream 2 Presented
The second pipeline (the first started operating in 2012) will double the capacity of natural gas exports along this route – to approximately 110 billion cubic meters per year. This will allow the Russian monopolist Gazprom to fully provide alternative routes to the current export capacities to Europe, which mostly run through Ukraine, Belarus, and Poland (Yamal-Europe pipeline, with annual capacities of 33 billion cubic meters). Therefore, the project remains at the core of the geopolitical and energy confrontation between Russia and part of the transatlantic alliance, the core of which is the US-Poland axis. The latter opposes Nord Stream from day one not because of ecological or environmental reasons (although such statements can be found), but mainly for economic and political reasons. It realizes that due to the implementation of the project and the interests of certain energy multinationals (in addition to Gazprom, primarily Dutch Shell, German E.On, Austrian OMV, and Italian Engie), it will eventually be left without transit revenues and with reduced bargaining power against Gazprom. It is quite clear that in the past, those countries that played an important transit role also had better negotiating positions in Moscow.
Effective American sanctions
The US, on the other hand, strongly opposes the project, both due to its support for Poland and pursuing its own geopolitical and energy goals. In addition to counting on increased exports of its own liquefied natural gas (LNG) to Europe, which outgoing President Trump has repeatedly discussed with European leaders, they also do not want new transit capacities for Russia, which will undoubtedly strengthen the position of Russian energy on the European market. In line with its modus operandi, Trump intervened with a measure that temporarily even halted the laying of the second pipeline, by placing the project on the US sanctions list, he forced the Swiss company Allseas to withdraw from the project, as otherwise the company itself would face negative consequences; and laying pipelines for the transit of natural gas in open seas is not an activity where there is a wide choice of contractors. There are only a few specialized companies. Therefore, Gazprom and its European partners had no choice but to temporarily suspend the project and find another subcontractor that would not be significantly affected by US sanctions.
The German Chancellor has expressed opposition to US policy and strongly advocated for the completion of the project, about which there is not even close to a consensus among European countries. However, 60 years later, history repeats itself – the broader international political context, including the active efforts of the first global superpower, the US, is mostly unfriendly to Russia’s new strategic energy projects. The opposition is strong, both in words and in deeds – not least, the Polish competition watchdog issued a €50 million fine to Gazprom in August for alleged competition restrictions, which is still far from final, but regardless shows that pressure is mounting. Unlike the 1960s, the coalition of Western European countries that relies on pragmatic development (at least) of economic or energy relations with Russia is slightly broader today. This is also why Nord Stream (1 and 2) is not exclusively a German-Russian project, but has significantly broader implications, primarily originating from the energy multinationals involved in the project – of course, with the blessing of the countries from which they originate.
January 20, 2021, when Biden officially takes office in the US, will therefore be interesting from this point of view as well, as the future of Nord Stream 2 will in many ways be a litmus test for predicting future relations in the triangle of the US-EU-Russia.
Sharing is caring!