Europe

The problem with the “energy weapon” is that it is notorious for backfiring. That fact couldn’t have rung truer than this week when it was reported that Germany, a major natural gas importer in Europe, was going to co-finance the construction of a $576 million liquefied natural gas (LNG) receiving terminal in northern Germany. The announcement, billed as a “strategic move,” is the culmination of years of European diversification away from the grip Russia had on Europe’s natural gas market when it briefly cut off supplies to Ukraine in the winter of 2006. It is important to note that back in 2006, commentators were quick to point out that the dispute between Ukraine and Russia did not significantly disrupt Europe’s access to Russian gas and was settled quickly. But the die was cast in the minds of policy makers: Russia held too much leverage. European governments, utilities and private industry responded dramatically. The continent made a crash campaign to build LNG receiving terminals, to promote freer trade in cross-border electricity and natural gas trade, to pass anti-monopoly legislation aimed at Russia’s state firm Gazprom, and to bulk up on renewable energy. More than a decade later, as the U.S. industry prepares a massive wave of LNG exports, Gazprom is sending out the message that its main goal moving forward is to preserve its market share, even if it means sharply discounting its prices. The change in strategy comes in the wake of internal criticism at the highest levels inside the Kremlin that Gazprom suffered market setbacks between 2009 and 2013. After growing steadily since the early 2000s, Gazprom’s market share in European gas markets fell to 23 percent in 2009 in the aftermath of the Ukraine crisis. Market problems continued through 2013 when the state firm started to implement a new price discounting model. That market-oriented response included partial retroactive payments back to customers to compensate them for the gap between natural gas spot market prices and higher oil-linked prices contained in Gazprom’s long-standing contracts. Contract revision demands from European buyers after 2006 has resulted in the volume of spot market and oil and gas hybrid-indexed pricing for European gas purchases to hit over 70 percent of sales, up from less than 20 percent in 2008. In response to these changes in market conditions, Gazprom also postponed indefinitely its Shtokman LNG export project. The origins of Gazprom’s shift were chronicled recently at a presentation at Columbia University’s Center for Global Energy Policy, where Russian energy scholar Tatiana Mitrova told a U.S. audience that the flexibility of Russia’s new pricing and sales regime is a direct result of rising renewable energy installations in Europe, combined with the emerging threat of U.S. LNG exports. The latter prompted the Kremlin to diversify away from reliance on Gazprom for exports with the approval of Novatek’s initiative to develop Yamal LNG in 2013. The project is considered a successful one inside Russia. Gazprom contracts totaling roughly 16 billion cubic meters (bcm) are due to expire in the next few years. Poland, which built an LNG receiving terminal in 2015 with help from Qatar, has already announced it will not be renewing its gas dealings with Russia, likely in favor of U.S. LNG. Lithuania also has a new LNG receiving terminal. It remains to be seen to what extent other European countries will follow suit. Germany’s declaration that it too will expand access to U.S. LNG via a new import terminal is telling, since Germany’s leaders had previously staked out a strident pro-Russian gas position amid U.S. objections to the Nordstream 2 gas pipeline project from Russia to Germany.  Europe’s LNG import capacity stands at 20 billion cubic feet per day (bcf/d) and LNG imports averaged 5.1 bcf/d in 2017. Russian pipeline gas represented 35 percent of total European gas use in 2017, slightly higher than the level Russia’s Gazprom says it seeks to maintain. There is much debate about the price point at which U.S. LNG can compete with Russian gas in Europe, and the numbers vary in large measure given different assumptions about how much of the cost of capital will be recovered for U.S. LNG facility developers and what will constitute the value of the U.S. natural gas to be shipped. If one assumes the $2.25 export facilities fee (or higher) that is embedded into early U.S. LNG export contracts, Henry Hub natural gas spot prices, and ongoing transport costs, U.S. LNG needs a $6.00 to $7.00 million British thermal units (mmbtu) price to be competitive to Europe. This past summer, conditions were positive for U.S. shipments; at liquefaction and shipping costs of around $3.00 to $4.00 per mmbtu and spot prices for U.S. natural gas averaging just under $3.00, U.S. LNG could make landfall in Europe at under $7.00 per mmbtu, in line with comparable prices for other supplies. The spot price for LNG in Southern Europe traded between $7.70 mmbtu and $8 mmbtu this summer, a low seasonal demand time. Southern European prices are currently averaging around $9.50 mmbtu as winter approaches. If global natural gas markets got more price competitive over time, some integrated U.S. players are in a position to compete effectively with Gazprom. That’s because they would be able to lower or waive altogether facilities fees and will have access to gas that could be available on a zero cost, or even negative cost, basis since there will be plenty of stranded gas that is an associated waste product of valuable oil and natural gas liquids production and likely to be flared for no value if markets cannot be developed. On that basis, U.S. LNG can land into Europe at below $2.00 to $3.00 mmbtu. Mitrova estimates Gazprom’s hard Siberian production costs are $0.90 and then it has a $1.20 transport tariff cost for pipeline operations between western Siberia and the Russian border. An additional export duty is imposed by the central government of 30 percent of the sales price. This latter charge could presumably be lowered to allow Gazprom to be more competitive with U.S. supplies. In other words, if a global glut of natural gas were to develop in the coming years as some predict, the price point of U.S.-Russian gas competition in Europe could produce dramatically lower prices than today. The outlines of how U.S.-Russian energy dimensions might spill over into international relations are already apparent as European countries, including now apparently Germany, reassess how to manage their overall energy import mix. Some countries may opt to investigate higher use of renewable energy to politely bow out of the geopolitics of natural gas imports. Ironically, that might leave both U.S. and Russian natural gas sellers to duke it out with China, which is positioning itself as an exporter of solar panels and battery storage to Europe. China is also investing in European nuclear plants. Ira Joseph, who leads S&P Global’s European gas and power energy service, told the Columbia University Center for Global Energy Policy forum that the costs of battery storage could become a determining factor in European natural gas prices down the road. That development, if it materializes, was not anticipated in Moscow when it brandished the energy weapon so briefly in 2006. It highlights that energy security concerns can be a strong motivator for substitution of fuels.

Italy’s populist government has relished defying the European Union, and its latest showdown with Brussels could threaten the continent’s fragile recovery—and the global economy.

This article was originally published here on ForeignPolicy.com on August 31, 2018. The first big battles between the U.S. military and the Wehrmacht during World War II were not actually in Europe. Between Nov. 8 and Nov. 10, 1942, the United States and allied forces landed in Algeria and Morocco. After defeating Vichy French forces, the armies proceeded east to Tunisia to take on the German forces in that country. Why North Africa? Allied military planners had determined that an invasion of France in 1942 was doomed to fail, so plans were made to attack Germany from—as Winston Churchill reportedly remarked—the “soft belly of the Mediterranean.” It was from Tunisia that the invasion of Italy and the long, bloody march to Berlin began. Perhaps Russian President Vladimir Putin is a student of history, or maybe he likes maps, but whatever his hobby, he seems to understand geography quite well. The character of Moscow’s influence differs greatly from the old Soviet days when it was collecting client states (except for Russia’s ongoing deployment of force in Syria). But it has been effective—or effective enough—in drawing important allies away from the United States while presenting Russia as a competent, nonideological partner that shares interests with the regional players. Therein lies the central logic to Russia’s Middle East-Europe strategy: establish influence at Washington’s expense, weakening the U.S. position in the region, and in the process apply pressure on Europe via its weak underbelly—in this case to the south and southeast of the European Union. Draw a line on a map from Moscow to Damascus and from the Syrian capital to Erbil in the Kurdistan region of Iraq. Everyone knows what happened in Syria: The Russians entered the conflict there to save an ally and have helped him prosecute a war that has produced millions of refugees, many of whom have made their way to Europe and left others banging on its gates. The effects on European politics have been profound, galvanizing a populist, nativist, and pro-Russian right at the expense of Europe’s postwar liberal consensus. While Syria is a well-known story, only a few in Washington seem to have noticed that since 2017, Russia has reportedly invested $4 billion in the Kurdish oil and gas sector. From Erbil extends the line of Russian influence and power to the east from Iraqi Kurdistan to Iran. That Moscow-Damascus-Erbil-Tehran line represents an important axis of Russian influence. But other Russia-dominated geographic lines are even more relevant for Europe. One line starts in the Russian capital and proceeds due south to the Turkish capital, Ankara. Moscow has not exactly turned Turkey, but the combination of Syria, where Putin is the powerbroker; Turkish President Recep Tayyip Erdogan’s worldview; and the still changing nature of international politics after the Cold War, has made a Turkey-Russia partnership of sorts possible. The Turks are scheduled to receive Russia’s advanced S-400 air defense system in July 2019, Turkey’s volume of trade with Russia is bigger than with the United States, and Erdogan recently identified Moscow—along with Beijing and Tehran—as an alternative to Washington. All of this has stoked (mostly overblown) fears within the Washington policy community about “losing Turkey,” but for the Europeans who are connected to Ankara through the flow of goods and services and who regard Anatolia as a buffer between them and Moscow, burgeoning Turkey-Russia ties are a problem. Start again, but this time cross the Mediterranean and stop at Cairo, make a sharp left and extend the line to Benghazi. That is the third axis. The Russians, with their uncompromising position regarding the threat of Islamism, offer high-tech weaponry—and a no-questions-asked policy on human rights—and for Egypt’s leaders that’s an appealing alternative to the United States. Egypt has been a critical component of the existing regional political order, which has favored the exercise of U.S. power in the Middle East for at least three decades. Rather than reversing Henry Kissinger’s 1970s-era Westward flip of the Egyptians, Moscow has pushed and pulled in places where Americans and Egyptians have been at loggerheads. This can’t make European leaders very comfortable. About 10 percent of world trade—much of it going to and from Europe—passes through the Suez Canal. Egypt’s ties to Russia also raise the prospect that for the first time in a long time, U.S. and European navies may not be able to operate totally unimpeded in the Eastern Mediterranean. Libya is the most intriguing and revealing of all of Moscow’s plays in the region. It is unclear how deeply involved they are in the eastern part of the country, but the Russians are certainly aligned with the Egyptians and Emiratis in opposition to any political settlement that includes an Islamist component to a new government in Tripoli. The would-be Libyan strongman Khalifa Haftar has met with Russian officials several times, and in 2017 Putin (not coincidentally) deployed a small Russian force to an air base in western Egypt about 60 miles from the Libyan border. Publicly, the Russians have counseled compromise among Libyan political forces, but the Europeans suspect that Moscow supports Haftar. Libya might seem a stretch for Putin, who, it is often said, has limited resources to expend on foreign policy. Why bother? Well, underneath eastern Libya is one of the world’s largest reserves of light, sweet crude oil and the fifth-largest reserves of natural gas in Africa. The bulk of Libya’s oil and gas exports go to Europe. It would be strategically remiss of Putin not to become involved in Libya, a place from which Russia can potentially influence energy supplies to Europe. It seems to be a pretty good bet that this has crossed the Russian president’s mind. Only last year, Russia experts were dismissing the country’s intervention in Syria, its information campaign in Europe, and the annexation of Crimea as little more than a nuisance. It should be clear by now, however, that Moscow’s return to the Middle East beyond Syria is about something much bigger—just take a look at the map.

Despite a rift in the relationship, the United States could work with Europe to help African states achieve their peace and security goals. 

The following is a guest post by David Gevarter, an intern for European studies at the Council on Foreign Relations. Before the recent North Atlantic Treaty Organization (NATO) summit, observers feared how President Donald J. Trump’s populist, illiberal tendencies could damage the transatlantic security relationship. These concerns proved true in many regards, but it would be wrong to assume that only U.S. populism could cause upheaval in the alliance. European politics matter too, especially in the areas that are most crucial to the Pentagon, like nuclear weapons. As part of NATO’s shared nuclear deterrent, the United States currently deploys the B61 gravity bomb in five NATO countries: Belgium, Germany, Italy, the Netherlands, and Turkey. While nuclear weapons are not popular among the European public, technocrats in European governments have recognized that the NATO nuclear deterrent is an unpleasant but strategic imperative. However, the rise of populist and nationalist movements across Europe could damage this consensus and threaten the integrity of NATO’s nuclear mission. The Trump administration believes that the United States must deploy more tactical (non-strategic) weapons in Europe through NATO to signal to Russia that any use of tactical weapons would be met by an equivalent response. The 2018 U.S. Nuclear Posture Review claims that Russia is more likely to use tactical nuclear weapons in a first strike to gain advantage because it believes the United States would not escalate with a strategic nuclear strike. As such, the Trump administration has placed great importance on expanding the United States’ arsenal of tactical nuclear weapons—such as the B61—as a way of countering the perceived Russian advantage in this field. Yet, this strategy could encounter serious obstacles as populist governments gain a foothold on the continent, exacerbated by growing anti-American sentiment. As the wave of populist governments gains popularity in Europe, instead of upholding long-standing NATO commitments, these governments might cave to the will of the masses. They could order the withdrawal of NATO—namely, U.S.—nuclear weapons from their territory, disregarding strategic necessity. The surge of populism in Germany, the backbone of the European project, can do the most damage to the shared nuclear deterrent. The current German government has thus far maintained the nuclear status quo despite opposition, but Angela Merkel’s hold on power is not what it used to be. Recent figures show that 71 percent of Germans favor banning nuclear weapons, and a change in Germany’s executive government could put NATO interests at risk. In the 2017 federal election, Merkel’s political alliance lost a significant percentage of its seats in the Bundestag, most notably to the populist, right-wing party Alternative for Deutschland (AfD). In its platform, AfD explicitly calls for the withdrawal of all NATO troops and nuclear weapons from German territory. With the near collapse of the current German government over immigration, the possibility of a rise to power by AfD or a party with similar views is no longer far-fetched. Like in Germany, the specter of populism has become very real in Italy, with the anti-establishment coalition formed by the League and 5-Star parties taking power. This could spell trouble for the NATO shared deterrent, given the broad unpopularity of nuclear weapons in the country. Accordng to a 2007 survey, 70 percent of Italian respondents indicated that the use of NATO nuclear weapons would never be justified, even in the context of war. Over half of respondents indicated that they believed NATO nuclear-sharing agreements violate the Nuclear Nonproliferation Treaty and that Italy should not be party to such agreements. Maintaining and expanding the U.S. nuclear arsenal in Italy will require significant cooperation from the Italian government, but Prime Minister Giuseppe Conte's government has shown little intention to acquiesce to President Trump's demands for NATO, such as increasing defense spending. It appears that the new, pro-Russia government in Italy is willing to do whatever it takes to appeal to public opinion, irrespective of the ramifications. Russia has always wanted the withdrawal of U.S. nuclear weapons from Europe and such a move could be part of an Italian strategy of warming relations with the Kremlin. The 2016 attempted military coup showed that Turkey is the most unstable NATO country, where the future of nuclear sharing is, at best, unsure. Since the attempted coup, President Recep Tayyip Erdogan’s populist government has further undermined Turkey’s relationship with the United States, NATO, and other Western countries as the country secures diplomatic and military rapprochement with Moscow. Erdogan has leveraged populist rhetoric to consolidate power, galvanizing support for his agenda and eroding checks and balances on his rule. Erdogan himself is no fan of nuclear weapons, and it is easy to imagine a scenario in which, as part of a pivot toward Moscow, Erdogan orders NATO nuclear weapons out of Turkey. Even if that is not the case, many experts argue that the United States should withdraw its nuclear weapons from Turkey, given the deteriorating political climate in the country. This, given the country’s proximity to Russia and other areas of interest in the Middle East, could jeopardize NATO’s ability to hold enemy targets at risk with its nuclear arsenal. The uncertainty throughout NATO countries prompts questions regarding the future of the shared nuclear deterrent. If U.S. tactical nuclear weapons are withdrawn from Turkey or elsewhere in Europe, where else could they go? Some have suggested Poland, given the country’s desire for an increased NATO presence, but this unprecedented expansion of the nuclear deterrent to Eastern Europe could—and likely would—spark a dramatic showdown with Russia, turning the Polish border with Kaliningrad into a hot zone. The worsening wave of populism in Europe could give impetus to European popular opposition to nuclear weapons, forcing their withdrawal from the continent. If the Pentagon truly wants to adhere to its designs to expand its arsenal of tactical nuclear weapons deployed in Europe as part of the NATO shared nuclear deterrent, it needs to start coming up with contingency plans. At the very least, President Trump should stop antagonizing NATO allies and try to preserve what little good will remains toward the U.S. agenda.

The following is a guest post from Christopher M. Vassallo, an intern at Foreign Affairs at the Council on Foreign Relations. If you want to know how this week’s North Atlantic Treaty Organization (NATO) summit will likely play out, look no further than June’s European Union (EU) summit. The events of the earlier summit will still be fresh in the minds of European heads of state when President Donald J. Trump arrives in Brussels this week. Trump will likely assume the role of the skeptical populist, intent on dominating the agenda of an alliance he once dismissed as “obsolete.” To German Chancellor Angela Merkel and French President Emmanuel Macron, the EU’s liberal stalwarts who profess that Europe is stronger together, this spectacle will seem like déjà vu. Two weeks ago, at the EU summit a mere twelve minutes down the road, five Euroskeptic heads of state—the leaders of Austria, the Czech Republic, Hungary, Italy, and Romania—derailed constructive policymaking by haggling over language. Among other tactics, Hungarian Prime Minister Viktor Orban insisted on dubbing migration an “invasion,” and Italian Prime Minister Giuseppe Conte threatened to veto the entire slate of conclusions unless they included concrete plans to reduce refugee numbers. Trump shares the views of these two hardliners and has been working behind the scenes to support them. In April, he congratulated Orban, a fellow anti-migration crusader with whom presidents George W. Bush and Barack Obama frequently tussled, after his electoral victory. He also promised a White House visit to Conte, who backed Trump’s plan to reinstate Russia to the Group of Eight (G8). Trump might also find common ground with the leaders of Poland, Romania, and the Czech Republic, who comprise the rest of NATO’s anti-migration wing. For the Euroskeptics, the EU summit provided a welcome showdown between their energized forces—adherents of a populist, nationalist platform, hostile to migration and centralized European authority—and the EU’s traditionally dominant liberal core, led by Western European nations like France, Germany, and Belgium. Trump is familiar with this conflict, which is manifest throughout U.S. politics. His presence along with the Euroskeptic leaders will reveal a similar rift within NATO. While the EU summit was convened to address a host of issues—including Brexit, American tariffs, and EU expansion in the Balkans—migration monopolized discussions. Even though the flow of migrants into the EU has fallen 95 percent from its 2015 peak, division over the issue in recent weeks nearly toppled Angela Merkel’s chancellorship in Germany and helped forge an unnatural governing alliance between Italy’s radical left and right. During the EU summit, dissension between nationalists and liberals forced an all-night session that produced only a non-binding set of conclusions on migration. The EU summit made it clear that the union is a fragile entity, vulnerable to surging populism. The union is premised not on shared nationality, language, or religion, but instead bound together by a more nebulous faith in the common market, open borders, and the supremacy of democratic institutions. By agreeing to restrict open borders within the EU, Merkel and Macron indicated that a premise of the union was subject to negotiation. Like the EU gathering, this week’s NATO summit presents another occasion to discuss shared values—and for populist leaders to force similar compromises on long-established principles. It is possible, of course, that Trump will reaffirm Article 5 of the North Atlantic Treaty, which he conspicuously omitted from last year’s speech. He could also reassure allies ahead of his one-on-one meeting with Russian President Vladimir Putin, by declaring that neither the U.S. troop presence in Poland nor NATO war games in the east are up for negotiation. But he will almost certainly pass on this opportunity. Instead, Trump will likely antagonize his already battle-weary audience. He will lecture Europeans on defense spending, repeating his recent letters to each NATO nation not yet spending at least 2 percent of GDP on defense. He will likely touch on tariffs, repeating his particular disgust for German luxury car imports, as he did at last month’s Group of Seven (G7) summit. What is certain is that Trump, like his Italian and Hungarian counterparts, will sit down with NATO’s weakened liberal core, which has suddenly shown a willingness to compromise on principles that were once off limits. They are increasingly negotiating by his rules, on his terms. Trump is unlikely to repeat his G7 performance, in which he stormed off, revoked support for the group’s conclusions, and condemned one leader to “a special place in hell.” Why should he, when several NATO allies share his outlook? What the summit will reveal is the degree to which Trump has transformed the alliance, by simultaneously cultivating illiberal European backers and exploiting the liberal leaders’ willingness to compromise. What is less clear is whether Trump will offer any positive vision for NATO, one that clarifies the alliance’s enduring purpose in the twenty-first century. To the deal-obsessed U.S. president, it might seem heretical to speak to NATO allies about values, rather than simply make demands. But as the imminent Soviet threat of nuclear annihilation has receded, replaced by a more diffuse threat environment, the foundations of the NATO alliance (like the EU) are fragile, resting on the more vague principle of cooperative self-defense. To survive, NATO requires steady affirmation of why it exists in the first place. If Trump refuses to invoke shared values, only then will NATO truly be obsolete.

Trump's antipathy toward the EU overlooks America’s enduring interest in a united Europe that can serve as one pillar of an open, rule-bound international system.

President Trump goes to Europe this week. Its leaders are bracing for the impact.

For two decades, Europe has followed the United States' lead and advocated for a “free and open” internet. The prevalence of online censorship and disinformation has severely tested that approach.

Now that a new anti-establishment government is taking power in Italy, it remains to be seen if the economy will be remade, or broken further.

Italy's new government could pursue a path that could have a devastating effect on Europe’s financial position