Madison Sargeant is a Midshipman in the U.S. Navy’s Reserve Officer Training Corps at Boston University and is currently studying International Relations and Statistical Methods. She can be found at @SargeantMadison on Twitter. Divergent Options’ content does not contain information of an official nature, nor does the content represent the official position of any government, any organization, or any group.
National Security Situation: The development of the Nord Stream 2 gas pipeline running from Russia to Europe across the Baltic Sea threatens Ukrainian economic and national security.
Date Originally Written: June 24, 2020.
Date Originally Published: August 26, 2020.
Author and / or Article Point of View: The article is written from the perspective of the Ukrainian government.
Background: Energy security is an increasingly pressing issue for the European Union (EU). As indigenous natural gas production diminishes, energy demands increase, and relations with the Russian Federation become more divisive, natural gas imports have become a widely debated topic among EU member states. The annexation of Crimea and subsequent support for separatists in eastern Ukraine by the Kremlin has prompted sanctions and statements of solidarity with Ukraine by the European Union. Despite this, EU member states, notably Germany and Italy, have moved forward with pipeline projects that eliminate Ukraine as a transit state for Russian gas.
Development of the Nord Stream 2 pipeline, which bypasses traditional routes through Ukraine, Belarus, and Poland to deliver natural gas directly from Russia to Germany has divided the EU in both political and energy strategy. Another pipeline project, TurkStream, will transport Russian gas through Turkey into southern Europe upon completion. The aggregate capacity of both Nord Stream pipelines, as well as the TurkStream pipeline, rival Ukraine’s entire capacity for Russian natural gas transit[1]. These projects have caused controversy within the EU and outrage from the United States, which has attempted to slow the pipeline’s completion through sanctions. Nord Stream 2 and TurkStream have highlighted the tensions between Russia, Ukraine, and the transatlantic community more broadly.
Significance: If Russia can bypass transit through Ukraine, it will be less constrained in its war in the Donbass region. Similarly, the European Union will be less incentivized to moderate the conflict between Kyiv and Moscow. From an economic standpoint, Ukraine receives $3 billion U.S. Dollars in Russian gas transit fees annually—revenue that would be lost if Russia no longer needs Ukraine to get gas to its final destination. Ukraine’s Gross Domestic Product in 2018 was a mere 130.8 billion; the loss in revenues would be a significant obstacle to Kyiv’s military efforts in the east, as the government allocates funding between various departments, including that of defense[2]. A weakened economy and loss of European interest in the wellbeing of the Ukrainian state, coupled with safe transport of Russian gas without Ukraine’s pipelines increases the likelihood of Russia intensifying the conflict in eastern Ukraine.
Option #1: Diversification.
Ukraine could collaborate with the Caucasus and Central Asian states, namely Georgia, Azerbaijan, Turkmenistan, and Kazakhstan to develop energy transit routes across the Caspian and Black Seas, and through Ukraine into Europe. Introducing Central Asian energy into the European market will increase competition and reduce reliance on Russian gas by the EU. This option ensures Ukraine’s role as an energy transit state will not be squashed in the face of new pipeline projects circumventing it, while strengthening Ukraine’s relationship with regional partners.
Risk: This option would not provide an immediate solution to Ukraine’s predicament as pipeline projects take upwards of ten years. Foreign investment in such a project may be unattractive at this time. Ukraine’s current tax laws dissuade foreign investment and are in need of reform. Europe’s plans to minimize fossil fuel use in the long term may also make this project undesirable, although investment in Nord Stream 2 and other new pipelines suggests otherwise. Most notably, this option does not eliminate the risk of Russia escalating the conflict in eastern Ukraine. Russian gas would still circumvent Ukraine.
Gain: Central Asian energy transit through Ukraine can replace the revenue lost from the Nord Stream 2 pipeline. Pipeline already exists in Ukraine to carry out transportation, and building pipelines in the Black Sea is less complicated and costly compared to the Baltic Sea[3]. Such a move also increases Ukraine’s political standing in the region and diminishes Russian influence.
Option #2: Maintaining the status quo.
Ukraine may seek to extend the December 2019 contract with Russia regarding gas transit through Ukraine. This option maintains the status quo between Ukraine, the EU, and Russia. The conflict in eastern Ukraine is likely to remain frozen at its current level and Russia is unlikely to work towards ending it.
Risk: This option relies on Russian cooperation with Ukraine. When both Nord Stream 2 and TurkStream are fully online, Russia will have options regarding how it transports its natural gas to European clients. Ultimately, this option is one that only buys Ukraine time in finding a solution to the military conflict in the east.
Gain: In the short term, Ukraine and Russia would remain dependent on one another for safe gas transit through Ukraine, which decreases the likelihood of Russia escalating the conflict. Additionally, Ukraine may not suffer greatly from loss of revenue depending on how many cubic meters of gas are redirected from Ukrainian pipelines to Nord Stream 2 and TurkStream. This option also incentives the EU member states to stay involved in the conflict resolution process in Ukraine.
Other Comments: Both options require a reevaluation of the compatibility of the EU’s energy and Ukraine policies. The EU cannot actively support Ukraine’s territorial integrity and autonomy while engaging in economic developments that undermine Ukraine’s ability to fund its military activities against Russian aggression. With European investment in Nord Stream 2 and TurkStream, it is substantially more difficult for Ukraine to attract the European support it needs to combat the problems it faces economically, politically, and militarily. EU policies that are coherent and consequential are critical to any improved standing for Ukraine.
Recommendation: None.
Endnotes:
[1] Sydoruk, T., Stepanets, P., & Tymeichuk, I. (2019). Nord Stream 2 as a Threat to National Interests of Poland and Ukraine. Studia Politica; Romanian Political Science Review, 19(3/4), 467-490.
[2] Ellyatt, H. (2019, December 16). Ukraine and Russia look to strike new gas deal amid US sanctions threat. https://www.cnbc.com/2019/12/16/ukraine-and-russia-look-to-strike-gas-transit-deal.html
[3] Oliker, O. (1999, December 31). Ukraine and the Caspian: An Opportunity for the United States. Retrieved June 16, 2020, from https://www.rand.org/pubs/issue_papers/IP198.html