Mariupol, Ukraine – Germany’s Chancellor Olaf Scholz is to halt certification of the Nord Stream 2 natural gas pipeline, which was set to double gas flow to the country from Russia.
The move announced on Tuesday marked the most dramatic measure yet to punish Moscow for its recognition of two separatist regions in Ukraine.
The $11bn infrastructure project had already driven a wedge between Germany and the United States, with Washington and Europe pressuring Scholz for weeks to publicly state the future of the pipeline would be at risk if Russia moved against Ukraine.
President Joe Biden on Wednesday said the US would impose sanctions on on Nord Stream 2 AG, the company in charge of building the pipeline, and its bosses. Although it is registered to a Swiss firm, its parent company is the Russian state-owned gas giant Gazprom.
However, the moves targeting the pipeline project could end up affecting Germany more than Russia.
More than 38 percent of the natural gas used by the European Union last year was imported from Russia, according to Eurostat, while government figures say it accounted for nearly 27 percent of the energy consumed in Germany.
The figure had been expected to increase by next year as the country closes nuclear and coal-burning power plants.
Following President Vladimir Putin’s recognition of the independence of rebel-held regions in eastern Ukraine – Donetsk and Luhansk, known collectively as Donbas – on Monday, which raised fears that a full-scale invasion was near, oil prices surged nearly five percent and stock prices dropped.
Former Russian president Dmitry Medvedev tweeted on Tuesday afternoon that European gas prices would soar following Germany’s decision, although a spokesperson for the European Commission said EU supplies were secure and storage sites were 30 percent full.
“Welcome to the brave new world where Europeans are very soon going to pay 2,000 euros for 1,000 cubic meters of natural gas!” Medvedev tweeted.
However, Ukrainian Foreign Minister Dmytro Kuleba welcomed the move, tweeting that it was the “morally, politically and practically correct step in the current circumstances”.
Europe is vulnerable after years of limited progress in completing a flow of affordable gas and electricity across the region.
It is not yet clear how long the certification of the pipeline, which was completed late last year and runs from Russia’s coast to northern Germany under the Baltic Sea, will be delayed.
Qatar, Japan and other countries have been approached by the US to reroute gas supplies to Europe if the conflict escalates, but Doha said on Tuesday that neither it nor any other single country has the capacity to replace Russian supplies.
Germany has maintained the pipeline is solely a commercial project, but Nord Stream 2 also has geostrategic consequences, bypassing Ukraine and potentially depriving it of approximately $2bn in transit fees from Russia.
“Russia uses Nord Stream 2 as a tool for influence over Germany and Europe – it divides the EU and transatlantic relations, while undermining the credibility of Germany in Europe and the US,” said Stefan Meister, a Russia and Eastern Europe expert at the German Council on Foreign Relations.
“If it went ahead it would weaken Ukraine because the Ukrainian pipeline will go offline.”
A gas supply shortage in Europe has particularly hit Germany’s low-income workers, which Scholz’s Social Democrats (SPD) party relies on for votes. Previous talk of US sanctions on the project had only made it more popular in Germany.
“Germany has been resisting pressure from the US because it absolutely needs reliable gas supplies from Russia and, for all it is now one of the top exporters of liquified natural gas in the world, the US cannot replace Russia in that role as key gas supplier to Germany,” said Ronald Smith, senior oil and gas analyst at BCS Global Markets.
“Ukraine stands to lose several billion dollars per year in transit fees – which is what makes NS2 a cheaper option for shipment – a key stream of hard currency income for the country,” he said.
The loss of the fees could further destabilise the country as it continues to face the threat of a full-scale invasion.