Ukraine and the EU Conundrum

Climate change is an existential threat, but so is Putin! He is playing his penultimate hand. His mind set is “legacy Soviet Union” but he cannot recreate the circumstances that sustained that failed empire. He is destined to lose; so why let him off the hook? Merkel supported the Nordstream 2 pipeline. It had short term benefits to her country and what politician (or CEO) can look beyond the tip of his nose? Biden hoped to mollify Germany, who was slighted by the ignominious treatment at the hands of Trump. Certainly, you can remember those days. The Biden administration sought to mollify Germany last summer and backed away from its objections to the pipeline. Bad move.

Europe needs natural gas as a fuel source to displace coal for power production and other energy needs. Nordstream 2 is a cost-effective solution to obtain the gas, but it carries substantial political costs by tethering it even closer to Russia. German approval of the pipeline was expected end of January, with full EU approval following. That has slipped as a result of the Ukraine crisis. While the focus of Europe’s dilemma is on its vulnerability to Russia, one cannot dismiss the significance of the European market to Russia. Loss or a significant curtailment of Russia’s market share can have a meaningful impact on Russian gas export revenues, estimated at $62 Billion in 2021, or close to 13% of total export revenues.
Europe is wrestling with the trade-off of a short term benefit by gaining greater access to relatively inexpensive Russian gas against continued reliance on a US that could unleash another term of Trump. That is not a slam dunk.

Putin fears encirclement, but his fears are only as significant as his misguided dreams of a resurgence of a dead empire.