On December 20, 2019, President Trump
authorized sanctions against companies and
individuals who are participating in building Nord Stream Two, a pipeline under the Baltic Sea that will bring
Russian natural gas to western Europe, principally Germany. The pipeline is
more than 80 percent completed. The sanctions were included in
the 2020 National Defense Authorization Act, which funds America's huge
military and will be difficult to overturn. Already a pipeline-laying company
has suspended its operations. Germany, the main beneficiary
of this huge project, has denounced the US sanctions. These sanctions are wrong on two fronts and are very likely to
backfire against US long-term interests.
The
Economic Case for Nord Stream Two
The economic case in
favor of completing Nord Stream Two is simple. In a world that is free, or
mostly free, market participants — and not politicians — decide which projects
are likely to return profits. The very fact that the pipeline is being built tells
us that the investors expect it to be successful in replacing existing, higher
priced energy sources and/or providing a solid, lower cost energy source for
future economic growth in Germany and western Europe. In fact, no one has
claimed otherwise.
The
German government has been supportive of the project, because natural gas is a
cleaner energy source than coal and is seen, rightly or wrongly, as safer than
nuclear energy.
The
move also has political support because many ordinary Germans are interested avoiding
increases to their cost of living by securing access to affordable energy
sources. Limits on these sources will increase the cost of living and
decrease real wages.
Meanwhile,
the German government plans to shut down all except eight of its coal-fired plants by 2030 and
all of its nuclear power plants by 2022. So Germany will be left
with windmills, solar panels, and little else, which may be fine with its large
environmental activist sector but will not provide enough power to support the
nation. Natural gas appears to be the answer, and Russia has large supplies for
sale.
Economically,
this is the end of the controversy, since market participants are much better
than politicians at foreseeing the economic viability of such a project. But although
environmental regulations are harming average Germans, the US government is now
trying to make things even more difficult for ordinary Europeans by attempting
to control the flow of energy resources in Europe.
The
Geopolitical Case for Nord Stream Two
The
publicly stated US case against Nord Stream Two is that it will leave Germany
too dependent upon a potentially hostile power to fuel its economy. I say
"publicly stated," because the US wants to sell liquefied natural gas to Germany but
at a cost that is estimated to be double that of pipeline gas from Russia. The US is taking it upon
itself to decide what is best economically and geopolitically for the world's
third-largest economy. Do our policymakers really have a better understanding
of these matters than Germany's own policy makers? I highly doubt it.
Germany
may be foolish in shutting down its coal and nuclear energy sources, but in
this regard it is hostage more to its own radical environmental lobby than it
will ever be hostage to Russia. In fact, one way to look at this issue is that Russia is
saving Germany from its own foolishness. I predict that this environmental
lobby will never be satisfied and will simply move on to campaigning against
another pillar of German industry.
Furthermore, Germany
has many energy options even if it does shut down its coal and nuclear plants.
It can import nuclear power from France and coal-fired power from Poland.
Poland is campaigning to stop the new pipeline, too. A skeptical person would
wonder whether it does so for geopolitical reasons or because it fears a loss
of export revenue and/or a loss of influence over a former enemy. In any event,
this is Germany's decision, not that of the US and especially not that of
Poland.
The
geopolitical case in favor of Nord Stream Two is as straightforward as the
economic one. The German and Russian economies would become interdependent to
some extent. If
Germany becomes dependent upon Russian natural gas, Russia will likewise become
dependent upon export revenue from Germany. This interdependency theory for
peace between former enemies was key to the foundation of the European Union.
Our
post–World War II statesmen were wiser than our present bunch. They saw that
Germany's attempt at creating an autarkic state was linked to its aim t control
the natural resources of its neighbors (such as wheat from Russian and oil from
the Balkans) via invasion and annexation. On the western front, France had
plentiful coal supplies and Germany had state-of-the-art steel mills. By agreeing
to join the European Coal and Steel Community France and
Germany ended their century-old and bloody competition to control each other's
resources. Such a simple thing to do, and yet how many millions died and were
enslaved to pursue the false god of economic autarky? Frederic Bastiat's purported dictum was never so
prescient:
When goods don't cross borders, soldiers will.
The great missed opportunity of our
times is that Russia has not been welcomed back into the community of peaceful
nations. Where does the blame lie? Some would say that Russia's annexation of the Crimea in 2014 exposed
its still-expansionist goals. Others would say that expanding NATO to encompass most of the former
Warsaw Pact nations is to blame. Economic integration and cooperation may not
be a panacea for stopping a new Cold War, but the demise of Nord Stream Two
almost guarantees that geopolitical tension will increase.
The US should not assume that Germany
and the other countries of western Europe that desire to purchase Russian
natural gas will acquiesce in this affront to their sovereignty. If the US persists in enforcing sanctions, one can envision the
eventual breakup of NATO itself.
You heard it here first.