EU regulations could further disarm Vladimir Putin’s pipeline weapon



Russian President Vladimir Putin is currently pushing for fast track certification for his Nord Stream 2 pipeline, but those efforts are unlikely to be up to the standards of antitrust laws and the European Union’s regulatory system.

On November 17, a German regulator ordered Russian gas giant Gazprom to comply with EU antitrust restrictions. Such compliance is non-negotiable and states that the owner of a pipeline cannot be the same entity as the owner of the natural gas it transports. Simply put, it is illegal in the EU for Gazprom to own the pipelines that transport its gas.

This demand strikes at the heart of Putin’s gas pipeline project as it has the potential to drastically reduce its ability to control the European energy market, play favorites, punish countries and isolate Ukraine.

In accordance with EU regulatory requirements, Gazprom cannot order its pipeline subsidiary to engage in abusive practices such as pricing, predatory pricing, price discrimination or monopolization.

These regulations reflect laws first developed by the United States at the end of the 19th century to reduce the power of the country’s industrialists, the so-called “robber baron”. They have since been widely adopted internationally to prevent similar abuses.

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Gazprom argues that the official owner of the Nord Stream 2 pipeline is a separate Swiss subsidiary. However, Moscow’s attempts to claim that this Swiss subsidiary is independent of Gazprom is about as credible as saying that Gazprom itself is independent of the Kremlin.

Moreover, Switzerland is not part of the EU, which means that its companies can flout EU laws and regulations. Instead, the regulator insisted that the pipeline be subject to German laws. In order to comply, Gazprom must transfer the pipeline to a subsidiary based in Germany. The entity must also be financially and legally independent from its Russian parent company.

The regulator has suspended certification of the pipeline until Gazprom meets these requirements. This will likely postpone the process at least until March 2022 at the earliest. Further delays are expected as the European Commission has to approve any new agreement.

The importance of this regulatory regime should not be underestimated. The German regulator is autonomous and will supervise the new German company Nord Stream 2 on its territory. It has the power to prohibit and sanction illegal behavior.

More importantly, the European Commission must approve any new ownership agreements and will likely demand that the same ownership unbundling (a process known as ‘unbundling’) be imposed on Gazprom in all EU countries. The European Parliament voted against Nord Stream 2 specifically because of fears that Russian control of the pipeline could jeopardize the continent’s future energy security.

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In addition to European laws, Putin’s gas pipeline project also faces renewed opposition from the US Congress, which is preparing mandatory sanctions designed to prevent the commissioning of the completed pipeline.

These sanctions come in the form of an Amendment to the National Defense Authorization Act, a sweeping defense policy bill that Congress passes each year. Congress approved similar sanctions a year ago, but US President Joe Biden changed course in the spring of 2021 to restore relations with Russia’s pipeline partner Germany.

Encouraged by this US green light, the Kremlin became noticeably bolder in its militarization of energy supply in the second half of 2021. Russia’s refusal to meet growing European demand has helped trigger an energy crisis and has pushed gas prices to record highs while leaving European gas storage facilities to empty dangerously as the winter season approaches.

With this show of force, Putin seems to have hoped to pressure Germany for the rapid certification of Nord Stream 2. However, he may have overestimated his hand.

The increasingly aggressive nature of Russia’s energy tactics in recent months has clearly pissed off some European leaders. A parallel Russian military build-up on the Ukrainian border has dramatically increased these concerns.

The main objective of the economically and logistically unnecessary Nord Stream 2 project has always been to bypass Ukraine. This will remove Moscow’s dependence on the Ukrainian transit system and potentially pave the way for a dramatic escalation of Putin’s seven-year military campaign to force Ukraine back into the Russian sphere of influence.

With the coming into office of a new government in Germany, few Berliners wish to be complicit in a Kremlin plot to extinguish the Ukrainian state. Olaf Scholz, Germany’s pending chancellor, recently declared his support for Ukraine’s aspirations for EU membership.

Meanwhile, the coalition agreement of the new tripartite German government states that “the German government will continue to help Ukraine restore full territorial integrity and sovereignty”, a clear reference to the return of Crimea and the region. of the Russian occupation Donbass under Ukrainian control.

The Nord Stream 2 saga is still far from over. Putin will continue to push for certification and use the many geopolitical tools at his disposal to do so, but he may have gone too far and raised too many alarms to expect an easy ride. The regulatory hurdles that lie ahead may yet prove the failure of its most elaborate plans.

Diane Francis is a non-resident senior researcher at the Eurasia Center of the Atlantic Council, editor-in-chief of the National Post in Canada, author of ten books and author of a newsletter on America.

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The opinions expressed in UkraineAlert are solely those of the authors and do not necessarily reflect the views of the Atlantic Council, its staff or its supporters.

The Eurasia Center mission is to strengthen transatlantic cooperation by promoting stability, democratic values ​​and prosperity in Eurasia, from Eastern Europe and Turkey in the West to the Caucasus, Russia and Central Asia in the East .

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Image: The logo of the Nord Stream 2 pipeline project seen at the Chelyabinsk Pipe Rolling Plant in Russia. February 26, 2020 (REUTERS / Maxim Shemetov)



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