MUNICH Feb. 18 (german-foreign-policy.com) – At the Munich Security Conference last weekend, the power struggle between Berlin and Washington openly escalated to an unprecedented level. US Vice President Mike Pence reiterated his ultimatum that Berlin and the EU immediately renounce their political and economic projects, which are not fully in accord with US policy, pertaining particularly to the Nord Stream 2 pipeline and the Iran nuclear deal. German Chancellor Angela Merkel rejected the US demands. In view of the dispute with Washington, German Foreign Minister Heiko Maas declared at the Security Conference that “Europe” faces the “crucial question” whether it will be “the subject or the object of global policy in the future.” It must, therefore, “transform geo-economic capital into geopolitical capital” to become “a cornerstone of the international order” and “develop its own geopolitical identity.” Maas is expressing his demands, at a time, when the EU’s Iran policy is about to fall apart and the European power base needed for Berlin’s ambitions is crumbling.
On the weekend, the Trump administration reiterated its demand that Berlin and the EU renounce their political and economic projects, which are not fully in accord with US policy. In his speech at the Munich Security Conference, US Vice President Mike Pence demanded that European countries follow the United States and immediately withdraw from the Iran nuclear deal. Pence praised those EU members, who are taking a strong stand against Nord Stream 2 and added, “we recommend others to do the same.” The Vice President also declared that Washington has been “very clear” with its allies on “the threat posed by Huawei and other Chinese telecom companies.” In view of many EU countries recognizing the Venezuelan insurgent Juan Guaidó as “interim president,” Pence called on the EU to recognize Guaidò as “president.” The difference being that, according to the Venezuelan constitution an interim president must immediately call for new elections – while a president is not obliged to do so. Finally, the US Vice President threatened to disregard guarantees to the Alliance: “We cannot ensure the defense of the West if our allies grow dependent on the East.” This was also addressed toward Berlin, seeking to complete and put Nord Stream 2 into operation.
“A Cornerstone of the International Order”
The Trump administration’s demands are catching Berlin and the EU at a time, when they are seeking to lay the groundwork for an autonomous world policy, capable of acting independently of Washington. This was reiterated by German Foreign Minister Heiko Maas on the weekend in Munich. Berlin is clearly “focusing on a strong Europe that is able to act” to “hold our own in the world of tomorrow.” Only “when we act together,” based on the European continental power, will Germany be able to “preserve its influence at the national level.” If this cannot be achieved, “we risk our impact being eroded in a world of great power competition.” Maas claims, “the crucial question facing Europe is whether we will be the subject or the object of global policy in the future.” Great Britain should be included even after it leaves the EU. Europe, which is a “global power in trade policy” must “transform geo-economic capital into geopolitical capital,” to secure its global position of power. “We need to work much harder on building a strong and sovereign Europe,” the German foreign minister demanded. The European Union “should not only become a cornerstone of the international order” but also “develop its own geopolitical identity.”
Unwilling to Surrender
Accordingly, the German government is stubbornly trying to ward off the growing US demands to abandon the political and economic projects of Germany and the EU. Chancellor Angela Merkel reconfirmed in Munich that she wanted to proceed with Russian gas supply. Russia had been a dependable gas supplier already in the first cold war period. It must also be prevented that Russia develops “dependence” on China – also for gas sales. This is why Russia must “remain a partner,” at least to some extent. Europe’s powers also wanted to maintain the nuclear agreement with Iran, Merkel reaffirmed. Even though the goal is also “to contain” Iran’s policy, however, this can be better achieved, if the agreement is maintained, “so that pressure can perhaps be applied in other areas.” Berlin and the EU are, in any case, at the moment, not prepared to surrender in the controversy with Washington.
Teetering at the Brink
In the meantime, there are signs of major setbacks for the German government. For example, contrary to German wishes, Brussels decided last week that Nord Stream 2 can only be constructed under significantly worse conditions. It remains uncertain whether the nuclear agreement with Iran can be saved. Until now, the condition for success was that business with Iran could be maintained at a significant level. This has not materialized. The recently established “Instrument in Support of Trade Exchanges” (INSTEX) financial vehicle – a sort of barter system – has proven unsuitable for reversing the situation. In Munich, Iran’s Minister of Foreign Affairs Mohammed Dschawad Sarif confirmed that the INSTEX “is not enough.”
In Iran “the nuclear agreement has already lost significant support among the population,” because the EU makes big promises in terms of trade but few deliveries, according to a recent analysis published by the German Institute for International and Security Affairs (SWP). In Teheran’s political establishment, as well, “opponents to the agreement have become stronger and inspired the country’s hardliners.” If there is no trade success soon, “even the pragmatists will no longer shy away from abandoning the agreement,” it continues. “This will have the nuclear agreement in Iran teetering at the brink.” Also on the brink will be the EU’s attempts to implement an independent Middle East policy.
Crumbling at the Base
Moreover, the European power base is seriously crumbling. The Munich Security Conference organizers had originally planned to have Chancellor Merkel and French President Emmanuel Macron reject the predictable US demands side by side, which failed. Macron, who has been consistently duped by Berlin since assuming office (german-foreign-policy.com reported ), had cancelled his participation. Thus, Merkel was forced to defend the German-European positions alone – and thereby, involuntarily, demonstrate the growing disintegration of the repeatedly proclaimed “European unity.”
 Remarks by Vice President Pence at the 2019 Munich Security Conference. whitehouse.gov 16.02.2019.
 Rede von Außenminister Heiko Maas bei der 55. Münchner Sicherheitskonferenz am 15. Februar 2019 in München.
 See also The Power of the Pipes.
 Rede von Bundeskanzlerin Merkel zur 55. Münchner Sicherheitskonferenz am 16. Februar 2019 in München.
 Iran drängt Europäer zu mehr Einsatz. tagesschau.de 17.02.2019.
 Azadeh Zamirirad: Atomkrise mit Iran: INSTEX taugt nicht zum Befreiungsschlag. swp-berlin.org 01.02.2019.
 See also Hegemonie nach deutscher Art.
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The Power of the Pipes
BERLIN/MOSCOW/BEIJING, FEB. 12 (german-foreign-policy.com) – The privileged German-European access to Russian natural gas could be lost, is the warning, as the battle over the “Nord Stream 2” pipeline persists. According to a recent analysis published by Oxford University, western sanctions, imposed on Russia in 2014, have encouraged Moscow to seek alternative markets for its resources. China, in particular, plans to purchase large amounts of Russian natural gas. The first pipeline is scheduled to go into operation this year. A second pipeline – tapping the fields currently supplying gas exclusively to Europe – is in planning. The same applies to new Russian liquefied gas projects. In the future, “European customers” will most likely have to compete in Russia with “Asian customers,” the Oxford University analysis predicts. Instead of forcing Moscow to its knees, the sanctions could put an end to Berlin’s privileged access to Russian natural gas and if the “Nord Stream 2” fails, it could further worsen the EU’s position.
Major economic and political decisions Moscow had made in the 1990s and during the first decade of the millennium had provided Germany and the EU privileged access to Russian gas. At the time, Russia obviously had an economic interest in expanding its supply of gas to the EU – because it could build on the already existing infrastructure, Europe’s geographical proximity as well as the growing consumption within the EU.
Russia’s 2004 attempt to export gas to China had initially been a failure, because the People’s Republic of China was basically able to cover its consumption demands through domestic production and had already envisaged gas imports from Turkmenistan in view of satisfying its growing demand. Russia’s gas relations with the EU had also helped Moscow in its effort to intensify cooperation with the West. After President Putin took office, efforts were concentrated on alliances with the EU and its major power, Germany – providing the Wintershall energy company direct access to Russian gas fields. Moscow’s striving for closer German-Russian cooperation also launched the “Nord Stream 1” and “Nord Stream 2” pipelines.
This, however, brought Russia into a risky dependence on its European sales market. According to an analysis, published in November 2018 by the Institute for Energy Studies of the University of Oxford, 34 per cent of Gazprom’s total revenues in 2017 were derived from exports to the European market. Approximately 4.2 per cent of total budget revenues come from taxes on gas exports to foreign – mainly European – countries. Losses could be serious, if Russia’s exports to Europe significantly suffer. In view of the importance of its natural gas exports for its economic survival, Western aggression in the Ukraine conflict – particularly the EU and US sanctions – have driven Moscow to seek new customers to “provide a geo-political balance for its more strained relations in the West,” the author of the analysis notes.
The Power of Siberia
In spite of the complications and historical encumbrances to relations between Russia and China, Moscow’s first choice was Beijing. Once again, economic and political reasons were equally decisive. The People’s Republic of China, whose demand for natural gas had rapidly been increasing, could no longer be satisfied by its domestic production. China has thus become one of the most lucrative natural gas markets ever. From Moscow’s perspective, gas supplies to the People’s Republic of China seem to also be safe from possible western boycotts. The agreement in principle on comprehensive natural gas supplies, signed by Moscow and Beijing in May 2014, was the first step, followed by the official beginning of construction of the “Power of Siberia” pipeline, September 1, 2014 in Jakutsk. Construction has been accelerated because Chinese consumption is growing faster than expected. The pipeline is scheduled to begin operation this December. Initially an annual delivery of 38 billion cm³ (bcm) had been planned, however, now an annual five – ten bcm is in discussion. Thus, Moscow will become increasingly independent of its European gas exports.
West Siberia’s Gas Reserves
Additional projects oriented on supply to Asia have been developed. At the end of 2017, a liquefied gas (LNG) plant went into production on the Yamal Peninsula, constructed by Russia’s Novatek, in cooperation with France’s Total and China’s CNPC. A second LNG plant (“Arctic LNG 2”) is also planned in the vicinity. With these two projects and the older plant on Sachalin Island, Russia seeks to become the world’s leading supplier of liquefied gas, even without counting its pipeline gas. The liquefied gas is mainly being delivered to Asian countries, such as Japan, and India. New Delhi, which had been buying its gas from the USA, began receiving Russian LNG in mid-2018. Russia is also planning a “Power of Siberia 2” pipeline, which will also supply China. In contrast to the “Power of Siberia 1” pipeline, the second pipeline will not tap East Siberian gas fields, but rather, the Yamal Peninsular LNG plant immediately and later the enormous West Siberian Arctic LNG 2 reserves as well.
No Longer the Monopsony Buyer
This is of enormous significance, because, until now, the West Siberian gas field had only been tapped by pipelines leading to Europe – including Nord Stream. “The European consumers and politicians,” to date, have been in “the relatively comfortable position of being the monopsony buyers of Russian gas exports from West Siberia,” according to the Oxford analysis, therefore, the emergence of competition from China would “increase the strength of Russia’s bargaining position” helping to create “longer-term pressure” on the EU. The paper’s author reports that Beijing had initially insisted on buying East Siberian gas, to not provoke the European powers. However, given the rapidly escalating US aggression, China is now prepared to engage in “Power of Siberia 2” to reduce its dependence on ship-delivered LNG imports, which could – in the case of conflict – be attacked by the US Pacific Fleet at any time, a scenario that, since some time, no longer seems farfetched.
Overestimating One’s Own Power
This means that Berlin and the EU could not only lose their privileged access to the West Siberian gas reserves, but also the German gas sector’s previous influence in Russia. Moscow could also be in the position to seriously hike its prices, using China, its second major customer, as a reference. This would not only affect private consumers. The chemical industry – among Germany’s largest gas consumers – would lose a significant competitive advantage, in the event of a hike in gas prices. Berlin and the EU’s negotiating position would deteriorate even further should the “Nord Stream 2” pipeline fail, because the European market would lose even more significance for Russia. From Berlin’s perspective, the attempts to politically bring Moscow to its knees, which began with the sanctions against Russia and are now continuing with the anti-”Nord Stream 2” campaign, can lead to a loss of strategic advantage, along with as a sensitive weakening of its own competitive position.
 See also German-Russian Flagship Projects.
,  James Henderson: Russia’s gas pivot to Asia: Another false dawn or ready for lift off? Oxford Energy Insight 40. November 2018.
 Georgi Kantchev: Russia Flexes Muscles as Natural Gas Industry Booms. wsj.com 26.11.2018.
,  James Henderson: Russia’s gas pivot to Asia: Another false dawn or ready for lift off? Oxford Energy Insight 40. November 2018.