Nord Stream 2 is major leverage against Russia: Ex-German ambassador

Russia will lose tens of billions of dollars if a pipeline project to transport gas to Germany is abandoned — and that threat is something that Europe can use to pressure Moscow, according to a former German ambassador to the U.S.

“I think the pipeline represents a major item of leverage for us, if we handle it smartly,” said Wolfgang Ischinger, who is now chairman of the Munich Security Conference.

Nord Stream 2 is a gas pipeline from Russia to Germany that will carry 55 billion cubic meters of natural gas to Europe every year if approved by regulators. The project, estimated to cost $11 billion, is contentious because it bypasses countries like Ukraine and Poland who vocally oppose it, and it’s been caught up in geopolitical debate.

Meanwhile, the U.S. and its European allies have been alarmed by a buildup of Russian troops at the border of Ukraine, with many experts afraid that Moscow will invade its neighbor.

Some European leaders have suggested that the pipeline should be added to a potential sanctions list against Russia.

Around 43% of Europe’s total gas imports come from Russia, according to Eurostat. Europe has been gripped by an energy crisis since last year, facing record high gas prices amid the lifting of Covid-19 restrictions, which put pressure on depleted natural gas stocks. Governments’ goals to transition to cleaner energy has triggered higher demand for gas, as it’s considered cleaner than some other fossil fuels.

Benchmark natural gas prices have soared more than five-fold in the last year, and the outlook remains grim for consumers and businesses — threatening regional economic recovery — due in no small part to a drop in gas flows from Russia.

It will be “painful” for Europe to limit gas from Russia and there may be more energy shortages, but Moscow should expect Europe to retaliate if military activities escalate, Ischinger said.

“It is an item of leverage. I think Russia definitely has an interest to continue its income sources from providing gas and oil … to its western European partners,” Ischinger also told CNBC. “We need to handle it carefully, but smartly.”

Western officials have accused Russia President Vladimir Putin of using energy as a political weapon, something Moscow denies. Russia also denies U.S. allegations that is is planning an invasion of Ukraine.