Obama And German Chancellor Merkel Hold Joint Press Conference At White House

On Friday, President Obama met with German Chancellor Angela Merkel at the White House and seemed to dismiss the notion that Russia would “turn off the tap to Europe” by calling it “unrealistic”. He added that natural gas kept flowing even at the height of the Cold War. Both leaders appeared to be ready and willing to take resolute action – in the form of ‘sectoral’ economic sanctions – if prompted by Russia’s actions in Eastern Ukraine.

As Breaking Energy outlined previously, such sanctions would impose high costs on all sides even if the US were to ‘use’ its oil price leverage over Russia because the price of oil has no directionality and therefore would also spell costs for US oil majors. Unsurprisingly, given deep German-Russian interdependence, German businesses have voiced their vocal opposition to tougher trade sanctions targeting Russia’s industrial, financial and energy sectors.

In this context, while specifically addressing the energy realm, President Obama said that “some countries are more vulnerable than others (…), we have to take this into account.” Naturally, Russia benefiting from its vast European pipeline infrastructure is the dominant energy supplier in Europe and in many ways the most viable – definitely, in terms of cost effectiveness – option for Eastern European countries that lack access to LNG or Western European supplies.

This describes exactly the fear some Eastern European countries – particularly former Soviet satellites – seem to have. They are arguably more dependent on Russian natural gas supplies than their Western neighbors. In this respect, Chancellor Merkel said that Germany and the EU are actively working on addressing this vulnerability – noting that “six countries depend 100 per cent on Russian natural gas” – by promoting an “energy union in the medium term, building new pipelines and sharing supplies”.

EU_Imports_of_Russian_Gas

Source: Reuters; from realclearenergy.org

In a timely interview with DW, former US Ambassador to NATO Ivo Daalder said up to this point all sanctions and threats from the West have had little to no measurable effect on Russian behavior, and thus asked “why (…) more sanctions and more threats will have a different impact?” He explains why President Putin, in his opinion, is making a fundamental miscalculation:

“In the short term it’s clear that sanctions have not been able to cause positive change in Russia. Given where Putin is and what he has been saying since March 1, it’s very clear that he is willing to take some significant hits in the short term because he believes he is right in the long term. I think that is one of the most fundamental miscalculations. In the longer term the cost of what he is doing will rise for Russia, it will rise because the US and NATO and Europe are going to be more united than ever before because the economic costs for Russia are going to be increasing; perhaps not this week or next week, but certainly this month, next month and next year. Sanctions may not succeed in stopping what’s happening (…) in eastern Ukraine, but in the long term sanctions will be a severe blow to Russia and lead to a change of course.”

While Daalder’s assessment appears plausible, US miscalculations could be revealed over the medium to longer term. Keep in mind, miscalculations occur because actors’ assumptions about each other‘s rationality turn out to be incorrect. Frederick Kempe, President of the Atlantic Council in Washington D.C., wrote in his seminal book “Berlin 1961” extensively about miscalculations between then President John F. Kennedy and Soviet leader Nikita Khrushchev around the so-called “Berlin Crisis”. General Brent Scowcroft underscores in the foreword to “Berlin 1961” the significance of those events: “It was the Berlin Wall’s rise in August 1961 that anchored the Cold War in the mutual hostility that would last for another three decades, locking us into habits, procedures, and suspicions that would fall only with that same wall on November 9, 1989.” As things currently stand, it appears the Ukraine crisis may have ‘beamed’ us back to that historic state of affairs.

The US could already be miscalculating by suggesting a Russian supply-shutoff to Europe is “unrealistic”. First, it happened twice before, though indirectly and for different reasons. Second, this time President Putin could use it strategically in an attempt to drive a wedge between the US and the EU depending on how far the latter is willing to go in terms of joining the US in tightening the screws on Russia.

However, debilitating the Alliance by undercutting EU-US relations could also come about ‘indirectly’ with acts of pipeline sabotage enacted during military skirmishes – at a minimum – on Ukrainian soil. In that case, President Putin would have plausible deniability following the currently applied logic that there are supposedly no Russian soldiers in the Eastern Ukraine. Note, this ‘indirect act’ would be crucial for Gazprom to avoid contractual penalties imposed by European gas consumers whose supplies would be disrupted. Gazprom could ostensibly invoke “force majeure”. Moreover, it could be argued that less prosperous societies tend to absorb prohibitive costs better than wealthier democratic societies because the latter would have to adjust their respective standard of living downward and are unlikely to be willing to do so.

Eastern Europe is front and center in another potential US miscalculation. Former US Ambassador to NATO Daalder assumes the Ukraine crisis will bring the US and Europe closer together. However, frictions – potentially even within the EU – are already on the horizon. This brings back unpleasant memories of 2003, when then US Secretary of Defense Donald Rumsfeld addressed EU foreign policy weaknesses with regard to internal European division over the use of force in Iraq. He distinguished between “old” Europe (i.e. Germany) and “new” Europe (i.e. formerly communist, Eastern European countries such as Poland). In today’s geopolitical world, energy security remains an integral part of foreign policy as countries scramble to lock up long-term supplies of natural resources at low prices. The standoff with Russia over its actions in Ukraine could illustrate the “old” versus “new” European distinction remains valid, particularly in the energy space. It is important to note that before meeting German Chancellor Angela Merkel in March, Polish Prime Minister Donald Tusk told a news conference the following according to Reuters:

“Germany’s dependence on Russian gas may effectively decrease Europe’s sovereignty. (…) Increasingly more expensive energy in Europe due to exorbitant climate and environmental ambitions may also mean greater dependence in Russian energy sources. (…) The question of Ukraine is a question of EU’s future, EU’s safety, and a correction of EU’s energy policy.”

 

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