The US had other ideas

Western Europe –​ rich, populous, highly developed – has always been short of natural resources. The consequences have been felt by better endowed but poorer societies elsewhere for at least five hundred years. The industrial centres in the Seine-Loire basin, the Po valley, the Bavarian Danube and the Rhine-Ruhr metropolis require a constant supply of hydrocarbons that can’t be satisfied by Europe’s declining reserves in the Netherlands and the North Sea. Today, every country in Europe except Norway and Denmark is a net importer of crude oil and natural gas; Germany imports more natural gas than any other country on earth. Stavanger and Aberdeen allow the North Atlantic periphery for the most part to supply itself, but the raw materials that power Europe’s industrial core – precious metals as well as hydrocarbons – have to come from outside. Austria, Italy, even nuclear-powered France: when it comes to energy Europe is geographically incapable of autarky.

The single most important source of Europe’s oil today is Russia, though Kazakhstan, Iraq, Nigeria and Libya are also high on the list. More than half Europe’s natural gas comes from just one place: Siberia. The gas fields east of the Urals, on the Yamal Peninsula and around the mouth of the Kara Sea, are the largest in the world. They are also some of the least accessible. In winter, the temperature drops below -40°C. The ground is permanently frozen under layers of snow all the time. Conditions are even worse in summer, when the permafrost is covered by uncrossable swamp. To get at the gas means drilling down a kilometre or more, into the Cenomanian layer or the Albian, even into the Aptian rock formed more than 100,000,000 years ago. Drilling is only part of the effort. Towns must be built for workers, and railways, bridges and pipelines constructed to carry people and gas in and out. It is a vast work of engineering, its costs borne by the Russian state.

Hysterical Russophobia is now fashionable both in Britain and continental Europe – there has always been plenty in Finland and the Baltics, where the feeling is understandable. On this view, reliance on Russian hydrocarbons is pathological while Putin stands at the head of a resurgent empire threatening regional domination. It’s an odd way of looking at a country with an economy smaller than Brazil’s. The topographical challenges faced by the Russian gas industry – the cold, the harshness of the endless steppe – are problems that affect Russia as a whole. In the absence of surpassing Soviet ambition these conditions have produced only underdevelopment. The road connecting St Petersburg in the far west to Vladivostok in the far east wasn’t fully paved until 2015. In contemporary Russia oil and gas sales account for 60 per cent of exports and 30 per cent of GDP. Far from being a reanimated evil empire, Russia has reverted to a third world model of political aristocracy funded by the sale of natural resources. Russia’s residual military strength – though much exaggerated, like China’s, by the American and European defence industries – does augment its influence. (Russia could probably conquer Finland, in a parallel universe in which no other European countries responded.) But the talk of it as a threat to Western Europe is laughable. The routine cyber-espionage conducted by most nations is held in Russia’s case as evidence of malign intent. Assassinations of dissidents abroad don’t help. Still, how to judge Europe’s reliance on Russia for energy? Having farmed out some of its autonomy by accepting a weak form of military protectorate under the United States, is Europe giving up even more of it through dependence on Russian gas?

Natural gas is the fuel of domestic comfort and cooked meals. It has many industrial uses too, from power generation to fertiliser. Gas drawn straight from the ground in its naturally occurring form of methane and alkanes wasn’t widely used in Europe until the 1950s. It is less energy-dense than coal or oil, but when burned it emits less carbon into the atmosphere and is safer than nuclear power. The adoption of gas for heat and electricity played a major part in lifting the once constant smogs in cities like London. It has long been seen as the logical bridge in the long transition from hydrocarbons to renewable energy.

The vast infrastructure needed to supply natural gas from the Earth’s crust mostly goes unnoticed, but it is some of the most impressive constructed by man. Consider the Troll A gas platform, a structure so big that even standing on the sea floor off the west coast of Norway its concrete columns reach a hundred metres above the surface. Almost half a kilometre tall and weighing 680,000 tonnes, it is the largest structure ever built and then moved. Once gas is drilled and drawn up to platforms like Troll A, it has to be transported to wherever it is needed. It is usually compressed and pumped through a pipeline between the gas field and its destination. The only other option is to freeze it down to -163°C in order to turn it into liquid natural gas, which can be transported in ocean-going tankers. But most gas is supplied through steel pipelines, a metre and a half in diameter, and in some cases thousands of kilometres long. Once laid, the pipelines can’t be rerouted: they are permanent fixtures. The relationship between the owners of the gas and its buyers must be enduring for construction projects on this scale to make sense, and that implies long-term strategic alliances.

Thane Gustafson’s account of the building of the Russian-European energy alliance is impressively detailed. The first pipelines between Russia and Europe were laid in the late 1960s, soon after the extent of the gas reserves in Siberia became clear. Soviet planners immediately saw the benefit of pipelines to Europe. Natural gas would be a boon for industrialising the state, but the USSR had more than it could use and lacked the capital necessary to pursue development on its own. Any ideological qualms, on either side, would have to bow to strategic necessity. Gustafson lays out the story of the creation of what is now Gazprom, the Russian state gas company, avoiding easy Russophobia. He has great admiration for the gazoviki who designed the system, especially Aleksei Kortunov, who developed the Siberian gas reserves in the 1960s under the sponsorship of Aleksei Kosygin, a senior Politburo member, and Nikolai Baibakov, chairman of the state planning committee. Kortunov designed the industry that modernised the Soviet Union’s internal energy system and Kosygin opened the breach in the Iron Curtain that allowed Siberian gas to flow to Europe. The first pipeline to Austria opened in 1968, unaffected by the invasion of Czechoslovakia. West Germany supplied the steel.

The strategic implications of what Gustafson calls the first ‘gas bridge’ were complicated. The Soviet president, Leonid Brezhnev, wanted the cash from energy exports to Europe to help fund the arms race with the US and support the Soviet invasion of Afghanistan. But other members of the nomenklatura felt the money should be used differently. Kosygin thought it should be channelled into civilian development: Gustafson quotes a letter he wrote to the Politburo in 1980 in which he said that Brezhnev’s plan was ‘ill thought through … adventuristic, lacking any reliable economic or political basis, and therefore discredits the USSR’. Kosygin resigned, and died two months later. After his death, Brezhnev poured resources into an expanded pipeline building project. Within a few years, six new large-diameter pipelines had been constructed to connect Europe to the Siberian gas fields, some twenty thousand kilometres of pipeline in all – a network that remains important today.

American planners saw little benefit to the US in an energy alliance between Western Europe and the Soviet Union. But they didn’t act until 1982, when the director of the CIA, William Casey, persuaded Reagan to levy sanctions on companies assisting the Soviets’ pipeline construction. The sanctions backfired: the USSR simply set up its own pipe and compressor industries. A decade later the collapse of the Soviet Union provided a second opportunity: Western consultants pushed for the break-up and privatisation of Gazprom along with the rest of Russia’s state industries. But even Yegor Gaidar, arch-thief of the Yeltsin-era scavengers, thought Gazprom should be kept together. As Gustafson recounts, the company was partly privatised but much of the stock was bought by former company men. When Putin came to power at the turn of the millennium he had no trouble rounding them up and taking the company back under state control. He purged the 1990s Gazprom chairman Rem Viakhirev and appointed his own former adviser Aleksei Miller to head the firm, with Dmitry Medvedev as chairman of the board.

By the time Putin came to power it was already clear that the springtime of capitalist transformation promised by huckster management consultants would never arrive. Gazprom was now by far the biggest company in a much reduced polity. The usual narrative has been that Putin’s domination of Gazprom shows a return to an aggressive Brezhnev-era position. But energy is always a tool of statecraft. Contemporary Russian foreign policy has a veneer of aggression that masks insecurity about the state’s fragility. Russian adventures in Syria, for example, were less an expression of Russian power than an attempt to demonstrate an image of power to others. The alleged assassination attempt on 20 August of the government critic Aleksei Navalny does not suggest confidence on the part of Russia’s leaders. It also coincided with a fall in revenues from energy sales that has put pressure on the state budget. When it comes to the gas alliance with Western Europe the Russian government has above all been pragmatic. It has managed the decline of the Soviet gas fields, invested in the difficult development of the Yamal Peninsula reserves and navigated the shifting regulations of the European energy industry. Europeans may complain about Gazprom, but if it didn’t exist they would have to invent it.

The first pipelines out of Russia ran through Belarus, Poland and Ukraine. At a time of Soviet dominance this wasn’t a problem. But when the USSR collapsed Ukraine’s independence in particular became an enormous strategic liability for Russia. If Ukraine could block Russian energy exports by refusing transit through its territories, or by raising transit fees, it could hold much of the Russian economy to ransom. The only thing in Russia’s favour was that Ukraine and its neighbours depended on Russian gas themselves. By the 2000s, however, Ukraine had been enticed into a precarious alignment with the EU. Gustafson explains that for years it had been accepted practice for Ukraine to siphon off gas from the Russian pipelines that crossed its territory, without paying for it. That changed after the Orange Revolution of 2004: on two separate occasions, in 2006 and 2009, disagreement with Ukraine resulted in Russia’s shutting off the gas flow to Europe in the middle of winter. When Ukraine responded by buying back Russian gas that had already been transported to Europe instead of purchasing it directly from Russia, Moscow was alarmed: Russia’s decision was being treated as no more than a service area for Western Europe. This strategic concern was partly what drove Russia’s decision to annex Crimea in 2014 and to invade eastern Ukraine, launching a conflict that continues today in the form of a tense stand-off punctuated by occasional flare-ups, accompanied by US and EU sanctions on Russia.

From the perspective of the Russian government, the presidential election held in Belarus on 9 August represented another considerable risk to its interests. Since Russia lost the Baltics and Ukraine, Belarus was the last intact section of the wall between it and the West. The Yamal-Europe pipeline runs right through it. At first it seemed that Aleksandr Lukashenko, in office since 1994, had managed to pull off yet another sham re-election, but as protests and strikes continued into their second week the situation deteriorated. The opposition candidate, Sviatlana Tsikhanouskaya, who fled to Lithuania after the vote, declared from her exile that she was the victor: large street demonstrations by her supporters are still going on, and Lukashenko’s position is far from secure. Russia’s leaders must have foreseen the potential for trouble when he decided to stand for a sixth term. Poland and Lithuania gave overt support to the opposition, as they have done in successive Belarusian elections. But Western European governments have shown little interest in trying to flip the country. The sanctions proposed by the EU in response to the rigged election are limited, and similar measures were instituted in 2006. Russia’s leaders were perturbed by Lukashenko’s attempts to balance their influence by making overtures to the EU, offering visa-free travel to Europeans, and refusing to recognise the annexation of Crimea. Yet he was still an important ally. When the election came, Russia chose to gamble. It may yet pay off: should Lukashenko succeed in controlling the situation he will emerge chastened, in need of Putin’s support, and shorn of any appetite for flirtation with Europe. If he fails, Russia will be forced to consider more drastic measures.

For now​ , Russian gas must still pass through Ukraine, but that may not be the case for much longer. In November 2011, Angela Merkel and Dmitry Medvedev met in Lubmin, on Germany’s north-east coast. Together with an assortment of European politicians they turned a tap meant to symbolise the opening of the Nord Stream gas pipeline. Unlike the old pipeline system, Nord Stream runs under the Baltic, directly connecting Russia and Germany. The pipeline is owned by the Russian state and was funded by European financial institutions, which backed the project at the insistence of German diplomats. Once, more than 90 per cent of Russian gas destined for Europe passed through Ukraine. Since Nord Stream opened, the figure has dropped to around 40 per cent. Nord Stream 2, which follows a similar route under the Baltic, was nearing completion at the end of last year, with Russia due to benefit from new German laws exempting the pipeline from EU competition regulations. Russia seemed to be on the verge of securing the supply of euros it needed, and making its strategic alliance with Germany more secure than ever before.

But the US had other ideas: it issued unilateral sanctions and stopped the pipeline project in its tracks. The pretence that the US doesn’t run the world is common only in Europe, but even in European capitals the truth is occasionally recognised. From the German perspective the Nord Stream pipelines make good sense, and while much of Eastern Europe is opposed to the German-Russian energy alliance only US power could prevent its expansion. With a hegemon’s interest in all things, the US sees Nord Stream 2 as a minor threat to its own interests and is determined to prevent its completion. US defence planners charge that Russia – along with China – is ‘undermining the international order from within’. The US should counter by ‘embracing energy dominance’. The State Department has enlisted the Baltic states, Poland, Slovakia, Hungary and Romania in an anti-Russia alliance. Before Covid-19 hit, the US military was planning military exercises in Eastern Europe that would have involved the largest deployment of American forces to Europe in more than 25 years. If it hadn’t been for the virus, twenty thousand US soldiers would now be crawling around Poland fording rivers. The Trump administration is also planning to redeploy some US troops currently stationed in Germany to Poland. That it is capable of such dramatic interventions in European affairs shouldn’t be surprising. In the last few years the US has ended Russian oil sales in Latin America and reduced Iranian oil exports to zero. If you’re under the illusion that Britain’s lot is different, recall that the US is at present forcing the Bank of England to keep hold of one billion dollars’ worth of Venezuelan gold, which the Venezuelan government has been trying to withdraw to fund virus relief.

The US has been urging Europeans to reduce their hydrocarbon imports from Russia for some time. Many European planners are sympathetic: the trouble is that few other options are available. Most Persian Gulf supplies go to East Asia – and in any case the US has crippled Iran’s hydrocarbon exports. Liquid natural gas can be shipped from the US thanks to the shale boom, but unlike Japan, where LNG technology was pioneered, much of Europe still lacks the infrastructure needed to process it. A pipeline from Russia is more efficient. The only alternative is Energiewende, the transition from an energy system based on hydrocarbons to renewables.

In Germany, green activism and an unusually powerful anti-nuclear movement have raised the question of sustainable energy to a prominence not achieved elsewhere. But oil and gas still satisfy the majority of Germany’s energy needs, so even where the interest in renewables is most advanced it’s clear how slow the transformation will be. In the UK last year, for the first time ever, more electricity was generated from renewable sources than from gas, coal and oil. But there remains the problem of what in German is called Dunkelflaute: those times when the sun, wind and other renewable sources don’t generate sufficient power. Without a breakthrough in storage technology, renewable energy can complement the hydrocarbon-based system but can’t replace it. Gustafson argues that Germany’s closure of nuclear and coal power plants means that in the medium term there will be more demand for gas, not less. Renewables will eventually change the international energy system, he thinks – but not for decades. Natural gas, as a relatively clean fossil fuel, is likely to play some role for the rest of the century.

In​ the meantime, Russia has been exploring ways to protect itself against the vagaries of the European economy and the American prerogative. After the 2008 global financial crisis, it accelerated its programme to export gas to China. The first pipeline, running from Irkutsk to Heihe on the Chinese border, opened last December. The pipeline took seven years to build and the construction team had to dig under the Amur River, which marks the border, to finish it. Russia is beginning to ship liquid natural gas to East Asia along routes across the Arctic Sea newly opened up by global warming. But there’s a limit to what can be achieved. The gas fields in eastern Russia are much smaller than those in the west of the country, and despite the land border between Russia and China the distance between the gas fields and China’s main population centres is vast. For Russia there is no real replacement for an energy alliance with Europe.

Although Nord Stream 2 has been suspended the Russian-German umbilical cord is still operating fine. In January another new pipeline opened, TurkStream, which connects Russian gas to European pipelines via Bulgaria. As Gustafson points out, the route doesn’t have the symbolic resonance of a new direct link between Russia and Germany, but it still ensures a steady supply. Europeans can gripe about having to do business with the Russian state and Russian planners may complain about being beholden to the European market, but geography conspires against them. The gas is where it is. The rivers run where they must. And the relationship between Germany and Russia is about more than grubby transactions over energy. Volkswagen, a state-owned enterprise (the second largest external shareholder is the state of Lower Saxony, a reminder that state-owned industry is not the sole preserve of Russia and China), has a factory in Kaluga. Mercedes has a factory in Moscow.

Despite the forces ranged against it, the Russian-European energy alliance has held firm. The US State Department dislikes European ‘dependence’ on Russian gas, but who is really dependent on whom? Germany has done rather well out of the arrangement. And Russia’s supply of gas to Europe isn’t a strategic lever of the kind the US has in its control of the supply of Persian Gulf hydrocarbons to East Asia, because Russia is even more reliant on the revenue from energy sales than Europe is on Russian gas. Cutting off the supply would hurt Russia and Rhineland industrialists alike. A better question is this: what does the energy alliance show us about the balance of power in Europe itself?

The extent​ of the economic divide in Europe came to the fore in spectacular fashion during the Eurozone financial crisis. It was always the case that southern Europe couldn’t compete industrially with northern Europe, and that monetary union was only making the problem more pronounced. Gustafson reminds us that the collapse of the Soviet Union led to a brief experiment with a common currency among the former Soviet states, although plans for a ‘rouble zone’ were soon aborted for the same reason the euro is now under pressure: national economies have divergent monetary needs. Moscow called off its experiment because it didn’t want to give the former Soviet republics the power to print roubles: greater equality between national economies would have come at Russia’s expense. The EU faces a similar divide: the victims of the Eurozone crisis (Portugal, Ireland, Italy, Greece, Spain) on one side; a German-aligned northern European block (Austria, the Netherlands, Denmark, Sweden) on the other.

Gustafson’s analysis shows that while the European energy infrastructure is more integrated than ever, energy strategy is still decided at a national level. In France, unlike Germany, nuclear power still dominates electricity production. Uranium has to be imported, but France’s main suppliers are Canada and West African countries. France has long-term gas contracts with Russia, but – thanks to its nuclear power plants – it imports a third as much gas as Germany. Reliance on Siberian gas follows a rough gradient of decreasing importance the further west and south you go: the energy alliance with Russia is vital to Germany and Austria and matters little to Spain and Portugal. Increasing inequality within Europe exacerbates this tendency: the northern industrial centres are increasingly concerned about energy supply, the deindustrialising south less and less so. The result is that Germany has been challenged over its strategic relationship with Russia not just by Poland and Ukraine but by other Western European states. Natural gas, Gustafson argues, has been a bridge between continents and over ideologies, and has been vaunted as the route to a renewable energy system. But it has also emerged as another force of division in Europe.

The German political system is credited with combining effective municipal politics and competent national administration. This has been possible partly because of Germany’s geography. Uniting three fertile but unconnected river basins in what Friedrich List once called the ‘middle position’ in Europe required central planning and compromise. The German mercantile right is no weaker than America’s or Britain’s, or less grasping. But it’s more pragmatic about its own survival. It has insisted on domestic political leadership that isn’t totally incompetent, and it has come up with ways of protecting the poor for long enough to rob them. This national pragmatism has also enabled it to maintain a long-term energy supply from Russia. But it hasn’t extended to Germany’s role in Europe. To this day German policymakers are deluded about the way Germany functions in the Eurozone. The German economy generates an enormous trade surplus, and the great majority of its exports are to other European states. The government and its leaders have simultaneously insisted that the German export-led growth model should continue, and that southern Europe should emulate it. This is an arithmetic impossibility.

The divisions within Europe aren’t helped by the general stagnation of European economies, which affects even the rich North Atlantic periphery. But Germany’s delusions about its own role have stopped it providing a solution to European inequality. Instead it has stuck to fretful expressions of concern about burdening ‘German taxpayers’ – a euphemism, as it always is, for ‘the rich’. The price is mass unemployment across the south and ultimately the internal cohesion of the EU itself. Emmanuel Macron fancies himself a strategist of a future Europe, but in practice his global vision seems to amount to pay-offs for French arms companies. Sustaining European integration in the long term will require pan-European economic planning and redistributive policies. Northern Europe will have to use its secure Russian energy supply and industrial power to support the south. At present this seems a very distant possibility.

Fragile and iniquitous political orders can survive for longer than we expect them to. But if Germany et al continue to view southern Europe as a collection of indentured delinquents, these stresses could be mortal. In response to the Covid-19 outbreak, Germany and France agreed to create an EU recovery fund run by the European Commission. The financial press praised the proposal as a salvatory precedent. But even during a deadly pandemic the EU found it hard to organise a Europe-wide response. Agreeing a shared recovery programme involved a pitched battle lasting weeks. Disaster response is temporary by design. Yet pan-European co-ordination of this sort will need to happen every year for an integrated Europe to survive.

28 August