Since Ecuador holds the third most important reserve of oil in South America, China also had much to gain from the establishment of this relationship. However this article seeks to look beyond the surface of this political relationship, focusing on understanding how the exchange of money and trade of oil has impacted Ecuador and, most notably, Ecuador’s environment.

China’s investment in the growth of Ecuador’s infrastructure has come at a critical cost. The national growth of Ecuador’s economy has led to severe environmental degradation within the South American country. According to The Ministry of the Environment Ecuador had 31.2 million acres of native forest in 2016; by 2018 it had lost 288,760 acres. Between 1990 and 2018, just over 4.9 million acres of forest were lost in Ecuador. Santiago Ron, an Ecuadorian biologist and professor at the Pontifical Catholic University of Ecuador, says that “for its size, Ecuador has the highest annual deforestation rate of any country in the Western Hemisphere, “

While Ecuador has received monetary support from China in the form of loans, these loans have left Ecuador $19 billion in debt. In addition to the debt, China’s aggressive quest for foreign oil has strained tensions with Ecuador. According to records by Reuters, China is pursuing a  “near-monopoly control of crude exports from an OPEC nation, Ecuador.” Now Ecuador heavily relies on funding by the Chinese, to cover 61% of the government’s $6.2 billion in financing needs. This, however, isn’t a donation, but rather in return, China can claim up to 90% of Ecuador’s oil shipments in the coming years. However, over time Ecuador’s petroleum has become insufficient in paying the debt to China. In its efforts to pay back the debt, Ecuador has been pushed to exploit their land through mining and more invasive oil extraction.

To accommodate China’s payment demands, Ecuador has continuously been pushing their own limits. Indigenous populations, such as the Amazonian ethnic group Shur, have been forced to leave their lands so that mines and electrical transmission towers can be developed and then used to pay back China with resources. In San Marcos, 26 Shur families were evicted from their homes and the surrounding areas — a total of 116 people were forced to leave, including 52 children and teenagers. These families not only lost their homes, but their cultivation areas. Group migration because of land exploitation has caused drastic pollution and deforestation. Land that once was home to large amounts of biodiversity has now become a site for an open-pit mega-mine known as the Mirador project.

Some other ways in which Ecuador has sought to fulfill its payments has been by cutting national costs elsewhere. Ecuador decided to save money by building their own dam and generating low-cost electricity. However, this dam was built and financed by China, and can be found lying alongside the active volcano Reventador. According to Ecuador’s Minister of Energy Carlos Perez, the dam was, “supposed to christen Ecuador’s vast ambitions, solve its energy needs and help lift the small South American country out of poverty.” Carlos Perez recognizes that “China took advantage of Ecuador,” and that “the strategy of China is clear. They take economic control of countries.” In addition to the many scandals that have accompanied this project, the dam only runs at half capacity and is an impending liability to the environment and to the Ecuadorian government. Construction of the dam was rushed, with insufficient trials and incomplete research conducted that led to its ultimate inefficiency. The dam’s existence has deteriorated the local environment by drying up the nearby Coca River and eliminating an entire aquatic ecosystem.

While these have proven to be detrimental aspects of the current state of Ecuador-China relations, the reality is that Ecuador continues to remain reliant on China as a commercial and political partner. 

Therefore Chinese encroachment on Ecuador’s maritime borders have not been legitimately respected. Because Ecuador is heavily dependent on China, they do not have the basis to implement harsh punishments on Chinese violations. Ecuador switched from a dependency on the United States and multilateral organizations, to another dependency on China. The concern is that Ecuador didn’t learn anything from its previous experiences, and is still dependent on the old commodities export model.

In July 2019, the Ecuadorian Navy was put on “high alert” by the Defense Minister, as they spotted significantly large Chinese fleets approaching Galapagos Island and threatening maritime boundaries. In 2017, Chinese vessels ”were captured in the Galapagos Marine Reserve carrying 300 tons of marine wildlife.” Among them, Fu Yuan Yu Leng 999 was caught with illegally obtained sharks among them endangered whale sharks and hammerhead sharks. While China proposed a ban on fishing, they had no incentive to follow through with this proposal. China also strategically placed the prohibition period in the fall months, knowing that their fleets are only present in the summertime. While the Galapagos Island falls under Ecuadorian jurisdiction, Ecuador’s dependence on China has forced them to be docile when handling China’s encroachment. 

It is essential that not only Ecuador but that the world ensures the preservation of Galapagos Island which holds nearly 3,000 marine species among them “humpback whales and sea turtles to giant manta rays and hammerhead sharks.” This is a problem that continues to rise in relevance. U.S. Secretary of State Mike Pompeo commented on the matter, saying that, “the People’s Republic of China subsidizes the world’s largest commercial fishing fleet, which routinely violates the sovereign rights and jurisdiction of coastal states, fishes without permission, and overfishes licensing agreements.”

The time has come for Ecuador to make amends with the West and seek allies outside of China. Once this has been done, Ecuador can regain independence and address their disputes and disagreements with China on equal footing, all in an effort to preserve its fragile ecosystem. 

Change must be enacted. Ecuadorian Kichwa indigenous elders call this moment pachakutik, or “time of change.” Reevaluating China-Ecuador relations is an important first step in ending this vicious cycle of poor sustainable development.

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In the new agreement, Serbia and Kosovo agree on the establishment of a single market, guarantee a free flow of people, services and capital, and create railway and highway links. Although Serbia and Kosovo have previously had many negotiations towards the betterment of bilateral relationships, the improvements were minimal. Tensions between Serbia and Kosovo actually increased in 2018 when Kosovo imposed a 100% tariff on goods imported from Serbia. Considering that Kosovo used to be a Serbian province and its 2008 independence was never recognized by Serbia, the sudden achievement of a deal in 2020 was unexpected.

What was even more surprising was a Facebook post by Russian Foreign Ministry spokesperson, Maria Zakharova. She posted a photo of President Vucic and Trump at the Oval Office and another photo featuring Sharon Stone’s rather provocative leg-crossing scene from the American thriller “Basic Instinct.” Commenting on the two photos, Zakharova implied that instead of sitting as if he was being interrogated by Trump, Vucic should present himself more confidently. 

Zakharova’s reckless remark immediately sparked wide-spread vexation, and Vucic himself commented on the situation, saying that “the primitivism and vulgarity she showed speaks about herself, but also about those who have given her the job.” Although Russian President Vladimir Putin and Zakharova herself later apologized for this misconduct, The White House meeting reveals an underlying shift in Serbia and Russia’s historically close relationship. Considering the European Union has always tried to normalize the relationship between Serbia and Kosovo, the agreement will undoubtedly improve Serbia’s relationship with the EU. What is more, the Serbia-Kosovo agreement contains political items that may indicate Serbia’s effort to distance itself from Russia. This leaves the future of the Serbian-Russian alliance uncertain and makes clear Serbia’s intention to strengthen its relationship with the EU. 

Serbia and Russia are both Slavic and Orthodox countries that have traditionally always been allies with each other. Ties between the two countries strengthened in 2008 when Kosovo, an autonomous Serbian province with an ethnic Albanian majority, declared its intent to leave Yugoslavia (which includes the current-day Serbia, Croatia, Montenegro, Slovenia, Bosnia and Herzegovina, and Macedonia). To fight against Western pressure to internationally recognize Kosovo as an independent country, Serbia sought help from its Slavic brother, Russia. Since then, Russia has supported Serbia’s sovereignty and territorial integrity regarding Kosovo, refusing to recognize Kosovo’s independence. The two countries have also formed close economic partnerships and collaborated militarily. Russia’s investment in the Serbian economy totaled up to $4 billion in 2019, and it is expected to invest another $500 million over the next two years, while also supplying the country with natural gas.

Serbia is also the only Western Balkan country that purchases Russian weaponry. In 2016, Serbia signed an agreement on the purchase of the Buk air defense complex for its military. When Aleksandar Vucic assumed the Presidency in 2017, news media in both countries eulogized the friendship between Serbia and Russia. Putin is the most popular foreign leader in Serbia due to his understanding of Serbia’s national culture and interests.

Nevertheless, the two countries do not always have the same goals, and Serbia cannot completely side with Russia due to geographical and economic reasons. Serbia’s geographical location illustrates it’s strategic position: caught in between two rival powers in Europe, with the European Union in the West and Russia in the East. Russia is able to support Serbia’s stance on Kosovo and provide military assistance, while the EU brings more economic benefits to Serbia. A report from the EU delegation to Serbia mentions that the EU has long been a major trading partner with Serbia, receiving, on average, 67% of Serbia’s total exports. Meanwhile, around 60% of Serbia’s total imports of goods come from the EU member countries every year, showing deep economic ties between Serbia and the EU. 

Besides this, almost all of Serbia’s neighboring countries (Hungary, Romania, Bulgaria, Macedonia, Croatia) are EU members, leaving Serbia and Bosnia and Herzegovina as the only two countries that support Russia in the Western Balkans. As Vucic stated during an interview this March, Serbia is always on a path towards greater collaboration with the EU. Serbia has demonstrated this commitment by backing the EU denouncement of the Presidential election in Belarus — a Russian ally — and suspending the 2020 “Slavic brotherhood” military drills with Belarus and Russia due to “great and undeserved pressure from the European Union.” The previously mentioned Serbia-Kosovo agreement also indicates that Serbia will diversify its energy sector, where Russia has an entrenched role. Interpreting the meaning of this economic diversification, the U.S. envoy to Belgrade said it “means [Serbia’s] distance from Russia.” 

Though Serbia has displayed an interest in joining the EU, it is less likely that a formal offer will take place any time soon due to the presence of unresolved problems. The first and most crucial barrier towards EU entry lies in the recognition of Kosovo as an independent country. Although Serbia and Kosovo were able to normalize economic relations, Vucic has made it clear that Serbia will reject EU membership if it means recognizing Kosovo’s independence and letting it become a member of the UN. Speaking on this issue in a press conference, Vucic said: “It is clear what our answer will be. If you want a direct answer, it is no.” Moreover, Vucic claimed that most Serbians prefer to keep the Serbian-Kosovo relationship as it is. This is mainly a result of Western policies in Serbia in the 1990s, such as NATO’s illegitimate bombings of Yugoslavia in 1999 during the Kosovo War, which resulted in the death of around 1500 people. This unhealed wound makes it even harder for Serbia and Kosovo to reach a final compromise.

Aside from the aforementioned grudges against Kosovo, Serbia’s increasing connections with Russia, China, and the United States also worry the EU. The Serbia 2020 Report drafted by the European Commission mentioned that “Serbia continued to develop intense relations and strategic partnerships with a number of countries worldwide, including Russia, China, and the U.S. Serbia… needs to progressively align its foreign and security policy with that of the European Union in the period up to accession.” These relationships include having frequent high-level meetings and military cooperation with Russia, increasing cooperation with China, and supporting the United States by moving the Serbian Embassy in Israel to Jerusalem. By pointing out these issues, the EU implies that it hopes Serbia will keep its distance from Russia, China, and even the United States as it seeks EU membership. However, the EU cannot expect this effort to happen anytime soon, because Vucic openly claims that Serbia is not planning to sacrifice its current relationship with these countries. In his address at the 74th Session of the General Assembly of the UN this September, Vucic said: “…Serbia chooses the independent foreign policy, [and]independent decision-making as its path towards the future. And that is why we don’t hide [it]anywhere, and not even in this hall, but we praise good and friendly relations we have with the People’s Republic of China, Russian Federation, and wish [for]better and better relations with the USA. because our job is to take care of our people, we do not care what someone else in the world might tell us.” The statement is sufficient to manifest Vucic’s refusal to prioritize the EU’s demands by weakening ties with Russia, China, and the United States.

Another obstacle to Serbia’s EU accession is that Serbia doubts the EU’s ability to support European countries in times of crisis. This was especially evident after the EU’s decision to ban the export of essential medical equipment to countries that are not EU members during the coronavirus pandemic. Criticizing European solidarity as nothing but “a fairy tale on paper,” Vucic turned to Russia and China and was able to receive immediate medical and economic aid. In response, the EU — fearing Russia and China’s increasing influence in Europe — provided 93 million euro in economic aid a few days later.

Vucic claims that Serbia intends to maintain an independent foreign policy and is not trying to please either the EU or Russia. This is demonstrated by the fact that Serbia does not always side with Russia, often opposing its Slavic brother on a series of issues, as well as the fact that Serbia has not expressed much enthusiasm about joining the European Union, especially after the EU’s initial reluctance to help Serbia during the pandemic. For now, it seems Serbia is committed to maintaining a neutral stance and gaining support from both the EU and Russia while seeking to strengthen other potential partnerships outside Europe, namely with China and the United States. 

Yet, Serbia will remain a prospective candidate for EU membership, despite Vucic’s recent criticism of the alliance and the EU’s hesitation to expand its ranks. Given that the EU’s previous expansion brought in Eastern European countries with issues of corruption and economic troubles, Serbia will need to demonstrate greater political and economic stability in order to earn an invitation. Furthermore, France, one of the EU’s key leaders, is especially uncertain about welcoming new members, believing the alliance should focus on achieving greater consensus between the existing members. Nevertheless, it is clear that, despite Vucic’s claims of an independent foreign policy, Serbia seems to be leaning towards the EU and shifting away from Russia. Though Serbia will likely continue to play both sides for now, it seems its end goal lies with the EU.  

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Created on the ideological foundation of an “ever closer union,” the European Union (EU) consists of 28 economically wedded nations. Despite the EU’s image as a singular European family with common monetary and agricultural policy, it finds itself on uncertain footing in matters of energy security.

Europe’s energy markets are highly fragmented and characterized by regional pricing disparities. This lack of homogeneity across national energy governance has pushed the EU to extend the notion of European unity to the energy sector, as it seeks to create an “Energy Union.” Yet, while the European Commission attempts to tackle this broad mission of creating a singular and liberalized gas market, it has yet to make clear whether energy security will be governed by policies that promote consumer’s interests or by geopolitical politicking.

The debate surrounding EU energy regulation has been brought to the forefront by Nord Stream 2 (NS2), a gas pipeline running from Russia to Germany that is financed and operated by Kremlin-owned energy behemoth Gazprom. The pipeline has challenged the jurisdiction of EU governance, turning up the heat and igniting a fiercely contested debate as to whether the EU should intervene and stop the project on the basis of foreign policy concerns or allow completion of the pipeline under existing regulatory frameworks.

 On September 5, 2015, Gazprom and five Western European oil companies inked an agreement to build NS2, an offshore natural gas pipeline that runs through the Baltic Sea to connect Russia and Germany. Running 1200 kilometers, the pipeline will operate similarly to its predecessor, Nord Stream, and will carry a combined 110 billion cubic meters (bcm) of Russian natural gas to Germany each year. The pipeline has transcended the boundaries of a commercial project, becoming the focal point of a charged discussion on national security. NS2 has exacerbated European fears regarding Russia’s threat to the region’s security, as many believe the pipeline could become a source of Russian leverage, thereby undermining energy security. Ultimately, the project brings to light the scope of the EU’s policy toolbox of regulation and law and prompts the question: does the EU serve as a neutral market regulator or should the Commission wield its power to secure regional security interests?

 This article weighs the pros and cons of each side of the debate surrounding the EU’s course of action for NS2, with correspondent Yoran Henzler arguing for a political approach that prioritizes security interests and Luke Zapolski arguing for a market-based approach that prioritizes economic efficiency. 

Yoran Henzler: Prioritizing Security Interests

Nord Stream 2 undermines EU energy security rather than safeguarding it, providing Europe a false sense of security while putting it further into the hands of a nefarious actor. Completion of the project gives Russia increased capabilities to disrupt the political climate and leverage its energy position as a foreign policy tool. Rather than providing a secure pipeline for energy supplies, NS2 increasingly disadvantages the EU as Russia will increasingly look to manipulate the asymmetries of its relationship with its largest importer.

The EU serves to be a political union as much as it is an economic union, consisting of both a commission and parliament and having member states committing to a Common Foreign and Security Policy. Although the EU has stressed the importance of being a neutral market regulator that champions competition and liberal markets, its priority above all is to protect and maintain the security interests of member states. When nefarious countries such as Russia hold such market influence that serve to potentially threaten the EU’s security through the use of its “gas weapon”, matters of national security outweigh a market-based approach.

Russia has consistently illustrated its willingness to act heinously in order to achieve its political aims, the latest action being the poisoning of opposition leader Alexei Navalny. Key leaders across Europe have voiced concerns about Russia’s behavior becoming increasingly reckless since construction of the pipeline began, including European Commission President Ursula von der Leyen. While Germany outlines that the project is strictly commercial, it has become progressively more difficult to separate Russian commercial projects from its patterns of political conflict, election meddling, and opposition suppression that has only intensified in recent years. Although the pipeline is 94% completed, the EU must recognize Von der Leyen’s concerns. It needs to begin prioritizing the region’s national security and assess the political impact the pipeline has on countries, rather than solely on economic interests. Even American allies across the pond have cried out that the pipeline stands to become an umbilical cord that further intertwines Europe to the meddling of Russian influence, imposing strict sanctions aimed at stopping completion. Rather than the debate revolve around the commercial interests of the pipeline, the EU instead needs to discuss diversification strategies that wane itself from Russian gas dependence in order to maintain its legitimacy and influence across matters of international geopolitics.

These diversification strategies were explicitly drafted in the Energy Union Strategy in 2015, which aimed to focus on non-Russian energy sources and ensure security and consolidation across EU member states. NS2 directly competes against this directive, as Europe currently imports 40% of its energy supplies from Russia and completion of the pipeline would only increase its dependence. The intent of the Energy Union was to create a common energy strategy across member states so that the EU could utilize its regulatory toolbox in a more strategic and targeted manner. This allows them to promote liberal markets and competition while keeping powerful players, such as Russia, in check and unable to destabilize markets. Russia has consistently proven its unreliability as a gas supplier who has intentions to leverage its position to exert its aggressive foreign policy.

In 2006 and 2009, Russia halted the gas supply to Ukraine in order to demand repayment of outstanding debts due to Gazprom. Russia has also used its gas weapon to undermine democratically-elected governments in both Ukraine and Georgia, siphoning off pipelines and stopping the flow of gas in response to more pro-EU stances taken by democratically elected leaders. These archetypal Russian supply disruptions that destabilize energy security had led experts in Eastern European nations to expect potential disruptions of up to 40% if Russia chooses to shut off NS2. Eight Eastern European leaders have signed a letter that openly rejects NS2 on the premises of it paving the way for “potentially destabilizing geopolitical consequences”.

The European country who stands to lose the most from completion of the pipeline is Ukraine, whose proximity to Russia continues to place it in a precarious position as it looks to move toward more democratic policies while also maintaining relations with the Kremlin. In order to feed Europe its gas supplies, Russia must transport the oil through Ukrainian pipelines that were built when it was under Soviet control. This pipeline network acts as an insurance against Russian meddling, giving Ukraine political leverage over its neighbor while providing critical government revenue through transit fees that Russia must pay, of which Ukraine receives more than $2 billion annually.

Completion of NS2 allows Russia to eliminate the need to cooperate with Ukraine while no longer having to pay expensive transit fees. Rerouting of gas supplies through NS2 rather than Ukraine pipelines further augments the imbalance of power between Russia and Eastern Europe, giving Russia increased leverage to undermine energy security, social cohesion, and democratic advancements of European countries in its periphery. Rather than adding energy security, the pipeline increases Ukranian dependence on Russia while further driving a wedge between EU member countries.

Instead of increasing Russia’s gas supply to the EU energy mix, the EU needs to take advantage of its economic and political weight and take a united front in confronting Russia’s coercive energy tactics. The EU is the biggest energy importer in the world, as well as Russia’s largest gas market, and, therefore, needs to turn the tables on the asymmetries of its interdependence to instead create a more symbiotic relationship with its Eastern neighbor. The EU needs to rebalance supplier and consumer security concerns in order to balance these asymmetries and prevent Russia from using its gas leverage to regulate its political relationships. This can best be done through diversification efforts while still maintaining a cooperative relationship with Russia. The EU should seek to stabilize Ukraine/Russian relationships through directing government investments into outdated Ukrainian pipelines and coming together to the negotiating table to renegotiate pipeline contracts while improving Ukrainian compliance to avoid further fall-out.

Taking on diversification efforts while seeking to improve EU/Russian relations will serve to keep the EU out of its current spiral of security dilemmas, where a EU action creates a Russian reaction, and vice versa. Key diversification developments that need increased focus and investment include the Southern Gas Corridor, an initiative aimed at improving energy infrastructure and supply routes in Southeast Europe. The EU has estimated investment costs of approximately $45 billion in the pipeline, which feeds gas from the Shah Denix gas field in the Caspian Sea through the South Caucasus, Trans-Anatolian and Trans-Adriatic pipelines to member states in the southeast. Other pipeline developments that add to diversification efforts include the Eastmed pipeline, which runs from Israel, crossing through Cyprus, in order to reach Greece. Building relationships with other energy exporters, including Algeria, Libya, and Egypt provide other opportunities for diversification, as well as liquified natural gas (LNG) from the United States. In general though, the complex debate around energy politics should be taken into careful consideration. While it is a lower-emitting energy source in comparison with coal and nuclear, it still contributes massively to carbon emissions worldwide. Progressive and forward-looking legislations such as the Clean Energy for all Europeans Package will carry increasingly more weight. Germany’s well-known ‘Energiewende’, a pact to switch to renewables, could lead by example, ridding itself of the abominable energy dependence on Russia, and embracing the future of energy security at an early stage.

The complexity surrounding energy security requires careful consideration of both political and commercial impacts while seeking to best promote the interests of consumers. While NS2 may be commercially viable, the EU can no longer separate this pipeline project from foreign policy assessment and must instead look for more sound alternatives that do not threaten the security of member states.

Luke Zapolski: Prioritizing A Market Based Approach

Rather than attempting to stop a privately financed commercial project based on an undefined foreign policy assessment, the EU must instead evaluate the prospects of NS2 under the merits of existing competition and regulatory frameworks. Charged political discussions in matters of national energy security have become largely irrelevant, and, instead, undermine the accomplishments of the EU’s directive of forming an Energy Union, while blatantly ignoring the commercial realities of today’s energy market in Europe.

Through the process of connecting scattered gas markets through regulatory and competition law, energy supplies across the European bloc are no longer procured through long-term “take it or leave it” contracts with monopolies that force unfair prices onto consumers. Instead, the proliferation of trading hubs across the EU offers energy contracts at arms-length deals based on “spot prices” that index how much it costs to procure supplies there and then and are highly subjected to regulatory oversight that ensures fair prices. These gas hubs and spot-markets have significantly altered the landscape of gas markets across Europe as increased supplier optionality has largely reduced the potential for monopolistic behavior and unduly high prices. Currently, more than 50% of all energy supplies across the Eurozone are  priced based on spot prices.

Against this backdrop, while memories of Soviet dominance may still linger, these new market developments mean that fears of the pipeline giving Russia leverage to impose assertive foreign policy measures are outdated and based on perceptions that do not align with today’s commercial realities. EU liberalization and regulatory oversight in energy markets have triumphed against Russia’s ability to exert commercial pressure as a dominant supplier, pushing state-owned Gazprom to accept regulatory and competition laws while offering spot-indexed pricing that is competitive with alternative energy sources. Rather than seeking political concessions, Gazprom’s behaviors are defined by a desire to defend its market share across its most prized region, while maximizing revenues and its commercial position. Through increased competition and regulatory practices, the geopolitical threat of Russia using its “gas weapon” has become largely irrelevant as Gazprom is unable to charge higher prices or to reduce deliveries without losing market share to alternative suppliers. Instead of being viewed through the political lens of trying to thwart a threat that is only perceived rather than genuine, NS2 must be assessed on the basis of economic interests.

This market-based approach toward evaluating NS2 must consider how it may potentially further the goals of the Energy Union: creating a competitive and transparent gas market that enhances physical infrastructure, interconnectedness and consumer choice. Although the rise of gas trading hubs have allowed for price divergence to a certain extent, more liquid and integrated markets enjoy more competitive prices than regions who lag behind. Specifically, Western countries such as the UK, Germany, and the Netherlands, which have more established trading hubs that receive an influx of energy supplies from a number of suppliers, offer lower prices.

In contrast, Central European countries are largely home to more regional “transit” hubs that lack the necessary infrastructure, interconnectivity, and liquidity, and, as a result have significant pricing disparities due to an overall lack of competition. Completion of NS2 would accelerate the necessary developments needed to bolster these regional trading hubs, as additional infrastructure will be required to absorb the extra capacity brought on by the pipeline. These developments triggered by NS2 would induce structural reforms including consolidation between regional trading hubs that would increase the interconnectivity and allow for more competitive prices.

As these regional hubs strengthen and become more liquid, they will in turn evolve into full-fledged trading hubs that are competitive with their Western counterparts. Hubs scattered across Central Europe will now be able to exert pricing pressure on Western countries and potentially become “market makers,” where spot-pricing indexation is based on the prices these hubs supply. An unintended consequence of this pricing effect is that it may put even further pressure on Russian prices, essentially making Russian gas compete with Russian gas. Czech traders, for example, may be able to procure Russian gas from a trading hub in Germany for lower costs compared to traditional Russian pipelines.

The region who stands to gain the most from these developments is Southeastern Europe, which significantly lacks the energy infrastructure needed to compete with its northern and western neighbors. Developments in energy markets lag so far behind that the region has found itself in a “two speed Europe,”, where low investment and competition creates energy prices that are considerably higher than their more developed counterparts. The EU has attempted to converge the two pricing systems by launching a number of initiatives to pour investment into the region in order to enhance infrastructure and interconnectivity. The additional gas volumes brought online by NS2 would accelerate these initiatives, creating a vertical corridor that intertwines the north to the south and feeds additional volumes of gas to a growing market. Rather than put into question energy security, NS2 has the opposite effect by increasing competition. The project aligns with the goals set forth by the EU and helps bolster regional trading hubs by supplying them additional volumes and allowing them to reach the scale of their western rivals, thus reducing regional price-differentials and moving the bloc toward a more uniform and competitive pricing system.

It is these structural reforms that best serve to the benefit of Ukraine, rather than the status-quo of its existing transit fee dependency. The current Ukrainian pipeline networks are horrendously aged and require an EU estimate of $3.2 billion of investment to bring the pipelines to full capacity. Russian motives for wanting to reroute already procured energy supplies to Europe are entirely based on commercial interests, as the cost dynamics behind using Ukranian pipelines put Gazprom at a severe disadvantage compared to other pipeline routes. The construction of NS2 brings about a shift of commercial interest to Ukraine: high transit fees and high gas prices for low transit fees and low gas prices. Ukraine will be able to source gas supplies from Western markets that come cheaper than traditional Russian gas, in turn, putting even more pricing pressure on Gazprom. Shifting away from the status-quo of transit fees will additionally force the Ukrainian government to initiate the energy sector reforms that are so desperately needed. Rather than EU energy security being tied to the frail geopolitical relationship between Russia and Ukraine, a country that has notoriously squandered billions of transit fees, NS2 provides further options for transit routes and reduces disruption risk based on Ukrainian geopolitical tensions.

One of the main aims of the liberalization of gas markets in Europe was to ensure market competition that was overseen by regulatory frameworks; yet, the EU has made it increasingly clear that it intends to use its regulatory toolbox to meddle into broader political scheming where it prescribes the normative concepts of good or bad onto commercial projects. Rather than being a neutral market regulator that champions competitive markets and equal application of law to all commercial parties, the EU is increasingly using regulatory provisions to take on selective and targeted action to intervene in free markets with the goal of specific outcomes, in this case: NS2.

The once liberal paradigm is now in the hands of a more mercantilist Commission that risks undermining the EU’s neutrality if it chooses to interfere with NS2. Politically-motivated intervention in the commercial realm has the potential to cause even more geopolitical instability across the region. Instead, it is imperative that NS2 be assessed on its added value to the energy market reforms set forth by the EU.

The views expressed by the authors do not necessarily reflect those of the Glimpse from the Globe staff, editors, or governors.

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