NEW YORK — The Biden administration has expressed an interest in reinvigorating U.S.-Canada relations following a virtual meeting between President Joe Biden and Prime Minister Trudeau early February. The meeting, which was the first between the then newly-inaugurated president and a foreign head of state, focused on each country’s response to COVID-19, economic cooperation during the pandemic and moving forward, as well as other shared interests among the two close allies. As the White House begins forming its foreign policy objectives and global leadership, it is essential to consider the current state of U.S.-Canada relations and where the two countries may be headed moving forward.

“Generally in world politics, there are no permanent friends, but permanent interests. But, there is supposed to be a special exception for some countries,” said Brian Bow, director at the Center for the Study of Security and Development at Dalhousie University in Nova Scotia, in an exclusive interview with Glimpse from the Globe. “It is not unique to the U.S.-Canada relationship, but Canada has a special relationship with the U.S. and Canadians were happy with that in the first half of the Cold War.”

When former President Richard Nixon reformed the United States’ economic policy in 1971, which is often referred to as the “Nixon Shock,” along with leaving the Gold Standard, Nixon began putting tariffs on products leaving the United States.

“Most countries reacted with hostility, but no one was more surprised than the Canadians,” Bow said. “They assumed it was a mistake that they weren’t on the list of countries that wouldn’t need to pay these surcharges.”

Following the change invoked by Nixon in U.S. international economic foreign policy, Canada had to do some “soul-searching,” as Bow said. Canada began realizing that they needed to have other partners rather than just entirely relying on the United States. Canada tried to diversify its economic partners, but ultimately failed, as penetrating new markets, especially in Asia, can be pricey and full of uncertainty. As a result, the U.S.-Canada Free Trade Agreement was signed in 1989, signaling that economic relations would return to normal. This agreement; which eliminated all tariffs on trade, was a precursor to NAFTA, which was then enacted in 1994. 

“Even since then, there have been these recurring periods where Canada hasn’t liked the direction the U.S. has been going in,” Bow said. “The controversy with the Bush administration over the war in Iraq in 2003 was a big one, and the election of the Trump administration in 2016 was another one.”

Bow believes that the current administration in Ottawa is better aligned with President Biden than it was with Trump. That said, he believes there is a possibility of Trump-like rhetoric making its way into Canadian politics in the future. 

“When I was a teenager in Canada, stylish clothing would make its way about five years after it appeared in America,” Bow said. “The same thing can happen with policies and parties in Canada trying on Trump-style rhetoric.” 

The possibility of conservative politicians in Canada imitating the populist and often provocative language of Trump will certainly impact relations between the two neighbors. While this style of rhetoric is not prominent in Canada yet, Canadians, including Bow, are worried this could occur in the future. The next federal election in Canada could see a tight race between liberals and conservatives. Current polls show Prime Minister Trudeau with a narrow five-point lead, but Biden’s win may have an effect on Canadian elections. Many politically engaged Canadians are happy that the Biden administration will be holding office for the next four years; a recent poll showed that four in five Canadians hoped for a Biden win. 

Canadians are excited and hopeful about the Biden administration’s position on various issues, namely climate change. Undoubtedly, the Biden administration is taking the threat of climate change more seriously than the previous administration. Already, Biden has appointed former U.S. Secretary of State John Kerry as the U.S. Special Presidential Envoy for Climate, a new position within the cabinet. Additionally, the U.S., as of February 19, has rejoined the Paris Agreement with the international goal of keeping global warming below two degrees celsius, needed to avoid the most catastrophic impacts of climate change. Canada is also a signatory of this agreement and has fiercely advocated for its importance. Most recently, on February 25th, Biden and Treadau announced that they would be coming together to reach their goal of net zero emissions by 2050 with their “U.S.-Canada Partnership Roadmap.” 

The Partnership works to align the goals and climate policies of each country so that they can cooperate more efficiently. In addition to aligning policies, the plan hopes to create more policies and projects that will promote job growth, address inequality and combat the effects of climate change. Advocating for the creation of clean-energy infrastructure and ensuring that cross-border energy is renewable is at the core of this partnership. Biden and Trudeau also committed to having polluters take responsibility for their damages.

In addition to the announcement of the plan, Trudeau said that “U.S. leadership has been sorely missed over the past years… [it is]nice when the Americans are not pulling out all references to climate change and instead adding them.” 

While both countries must implement long-term goals for climate change to protect our planet, the issue of COVID-19 has taken precedent this past year as over 500,000 people have died of COVID-19 in the U.S. alone as of February 2021. 

During the initial meeting between Biden and Trudeau, COVID-19 was the primary focus. Both leaders agreed that cooperation in combating the virus was essential. Canada has struggled to vaccinate its population due to supplies being bought up by larger economies like the United States and United Kingdom. As part of his statement, Trudeau raised the idea of buying vaccines produced in the United States. Canada is currently receiving vaccines from Pfizer and Moderna plants in Europe and Biden’s team reportedly said that it was the administration’s priority to “ensure every American is vaccinated.” 

It is unlikely, however, that the United States would sell vaccines produced domestically to Canada until late summer at the earliest. As of February 20th, 2021, only 2.43% of Canadians had received at least one dose of the vaccine compared to about 14% of the U.S. population. 

Despite the challenges associated with vaccine distribution, the United States and Canada have committed to keeping trade as open as possible. The Prime Minister’s office emphasized “the importance of avoiding measures that may constrain the critical trade and supply-chain security between our countries” in a public statement. Economically, it is in the best interest of both nations to keep borders open and encourage trade to avoid unemployment and increase GDP.   

Although Canadian and U.S. interests are more aligned than in previous years, on his first day in office, Biden signed an executive order to end the expansion of the Keystone XL pipeline, a project supported by the Government of Alberta, a provincial government of Canada. The Keystone XL pipeline, which began planning and construction in 2008, travels from Canada through Texas. The pipeline, which began operating in 2010, was scheduled for an expansion to be able to carry even more oil. Despite the pipeline providing economic benefits to both countries, Biden canceled the project in order to protect the environment and indigenous communities. A January statement from the White House said that “the President acknowledged Prime Minister Trudeau’s disappointment regarding the decision to rescind the permit for the Keystone XL pipeline.” 

Bow said that the pipeline will hurt domestic relations between the local governments and the federal government in Canada, rather than hurting diplomatic relations between Ottawa and Washington. Given that Trudeau is substantially worried about political support in his country, this may be why he showed disdain for the cancellation of the project. 

“The prairie provinces who are the major oil exporters in Canada are the ones who really desperately wanted Keystone to go through, and people in other parts of Canada don’t really care that much about it,” Bow said. “There are real differences between Canadians on those issues.” 

While the Trudeau administration did not express as much distress about the cancellation of the project, in a statement released by the Government of Alberta, Premier Jason Kenney expressed his disturbance with Biden’s actions to cancel the Presidential permit for the Keystone XL pipeline. He highlighted the 2,000 jobs that would be lost due to the cancellation of the project. The statement also said, “That’s not how you treat a friend and ally.”

Even though some of the provincial governments may not support President Biden, there is no reason to believe that the Trudeau administration, which will be in office for at least the majority of Biden’s stay in the White House, will become hostile with the U.S. over this issue, especially as, since the cancellation of the project, Trudeau and Biden have already begun working on several projects together. 

The future of U.S.-Canada relations looks hopeful as the two countries are already working together to tackle global issues such as climate change and COVID-19. However, the  relationship between the two countries can change depending on the issues at hand and the administration holding office. 

With the popularity of Trumpism in the United States and growing support of populism in Canada, both countries could experience major political shifts once the two leaders are up for re-election. However, until then, the neighbors will most likely continue to work cooperatively together and advance the two countries’ unique historical, cultural and geographical relationship.

The post Restoring the U.S.-Canada Friendship appeared first on Glimpse from the Globe.

Ituri is a northeastern province in the DRC that has seen extensive ethnic conflict occur since 1972. Violence peaked between 1999 and 2003, with an estimated 50,000 deaths. The main root of the altercations is that the Hema community, who are historically herders, were treated much more favorably during the Belgian colonization of the DRC (ending in 1960), placing them higher up on the social hierarchy. Meanwhile, the Lendu community, which is traditionally agricultural, is often the aggressor due to feeling unjustly stripped of land, natural resources and local political power. 

The conflict diminished after 2003 due to European Union peacekeeping missions, but has been reignited since 2017. Part of the reason for this is the continuous nature of the issues, with the disputes never fully ending and with groups holding onto their weapons from previous altercations. More importantly, the reason a complete cessation is so challenging is due to it being far more than a bilateral ethnic conflict. A deeper analysis of the crisis reveals that other military and ethnic groups are involved, including heavy political meddling from exterior actors due to the province’s wealth in resources — especially oil.

Since reigniting in 2017, 360,000 people have been displaced to neighboring provinces and countries, with over 1,000 casualties. Unlike the war from 1999 to 2003, there has not been a structured ethnic militia engaging in the conflict. The violence is mostly carried out by Lendu youths, not necessarily backed by their entire ethnic community, with some Hema youths carrying out reprisals. It is clear that there is no overarching command as assailants claim to be part of different groups, making intervention all the more challenging. 

The DRC’s military, FARDC, is perceived to be a very unstable force due to the levels of corruption and underfunding. FARDC frequently attempts to strike back at Lendu communities to limit their exertion of aggression, but this has just dispersed the youth groups. The dispersion enables them to spread terror in internally displaced camps, and take back some of their lost areas. Lendu youths do not fear the DRC’s armed forces, as they see the army as the natural ally of the Hema’s. Attacking army positions both helps them get rid of their enemy and enables them to take their firearm weapons. 

Aside from the military, other actors involved reveal why attaining peace in the region is such a challenge. These include other ethnic and rebel groups involved on the ground, as well as opposing political entities meddling to reach favorable outcomes. Due to past altercations in Ituri and in the Eastern DRC in general, the bordering countries of Rwanda and Uganda have historical ties to armed groups and rebellions in the region. A Congolese government official claims that migrants from the Hutu community from Rwanda fuel the violence. He asserts that they are involved both as military trainers for the Lendu’s, and as protectors of the Hema’s herds. 

Representatives of Congolese security also outline that the M23 movement, a rebel group responsible for violence just south of Ituri in 2012, is attempting to profit from the altercations from the Ugandan side. Former members of the Congolese Rally for Democracy (RCD-K), a political party and former rebel group, also own territory in the region, it is historically supported by Rwanda and is currently supported by the Ugandan government. One of the main issues of this crisis has been the continual involvement of foreign ‘invisible hands’ that help organize attacks and provide equipment, a complaint shared by several archbishops in the region. 

Due to the fragile relationship between the two ethnicities, external actors are pitting them against each other in order to rid the areas of inhabitants and exploit the benefits of the land, chiefly natural resources such as gold and oil. The greed for the district’s resources explains the heavy involvement by Uganda and Rwanda. Illegal resource exploitation has long been a pillar of the continuation in violence. The United Nations mission in the DRC explained in 2004 that inter-militia conflict will not cease in the region until the government takes care of extracting the natural resources in a credible fashion. 

However, while natural resources have always played a key aspect of violence in Ituri, oil is a particular resource that was not as prominent in the 1999 to 2003 conflict as now. Ituri is incredibly rich in oil, Lake Albert makes up much of its eastern border and is the main oil source of the region. There has been a substantial increase in oil discovery over the past decade. Therefore, despite the aforementioned history and regional factions of the area contributing to the crisis, oil is now an undoubtable key driver. Lake Albert’s oil exploration is divided into five blocks, with two being on the Congolese side of the lake, and three being on the Ugandan side. The majority of the lake and its basin are located on the Ugandan side, the country has therefore been able to control a favorable majority of the oil. 

The oil deposits at Lake Albert have often taken the center stage of the relationship between the DRC and Uganda. During the previous Ituri conflict, the Ugandan government altered its alliances with local armed groups frequently to attain its highest possible influence. Its main priorities in choosing alliances were to keep Uganda’s influence in the region high while limiting the DRC’s influence, and most importantly securing the extraction operations of their oil partners, Heritage and Tullow Oil, two foreign companies attempting to maximise profits in the region. Considering the uptake in oil discoveries on the Congolese blocks since the last Ituri conflict, it isn’t hard to imagine why Uganda might still support rebel militias on the Congolese side.

A closer look at these big oil corporations shows how rapidly the link to conflict can be made. 

They are heavily involved in the political climate of the region, oftentimes even directing it, implementing everything but a laissez-faire attitude to their surroundings. In Angola, one of the DRC’s neighboring countries, Heritage Oil hired Executive Outcomes, a private military company from South Africa, in order to drive UNITA (Angola’s second largest political party) rebels away from Heritage’s oil extraction sites. The Executive Outcomes attacked areas under UNITA’s control in accordance with Heritage and the Angolan military. As conflict near an extraction zone tampers an oil company’s ability to do business, it is highly probable that oil firms are taking sides in the Ituri conflicts, in order to ensure continuous profits. 

This assertion is strengthened when considering that Heritage Oil cooperated with Ugandan groups in the 1999 to 2003 Ituri crisis, as well as admitting to the DRC government that it had been striking deals with the leaders of rebel groups occupying Ituri. Heritage is not alone though, the Congolese government accused both Heritage and Tullow Oil of working with the Ugandan army to illegally cross the DRC border for oil exploration purposes, resulting in Congolese fatalities. Seeing as the Congolese government is the one supporting the Hema’s in the Ituri conflict and the two companies along with the Ugandan government seek to act nefariously toward the Congolese government, the aforementioned ‘invisible hands’ supporting Lendu attacks might not be as invisible as they seem. 

Both companies, Heritage and Tullow, still controlled the majority of Lake Albert’s projects until this year, despite there being a handful of smaller shareholders involved. A third company, Total SE, has recently acquired all of Tullow Oil’s stakes on the Ugandan Lake Albert projects, as well as the rights to build an East African pipeline whose source is at Lake Albert. Tullow’s motivation to sell to Total concerned itself with improving its financial situation, although fleeing the conflict-ridden area might well be a secondary factor.

Total has also been one of two major firms involved in exploring the Eastern DRC for more oil deposits. The French company outlined the risks associated with oil exploration in Ituri in a 2013 report, which specifically says that inter-community tensions and conflict dynamics may be affected by the search for oil. It had already identified at this point that certain communities will feel excluded by the benefits that oil brings, creating greater tension. Land ownership has always been a root of violence in Ituri due to competition over resources such as gold, therefore any hope of benefiting from further oil deposits only amplifies the violent meddling by corporations, bordering countries, and the DRC government itself.

The Hemu communities, many of which are now in internally displaced camps, are convinced that the attacks are fueled by the greater political interest toward oil exploration, rather than continued hatred between them and the Lendu community. An Ituri politician and businessman explains that their areas are full of oil deposits, and that chasing out communities with violence is considerably easier than incurring the costs for relocating them to use the areas for oil exploration. It is obviously challenging to uncover which government and oil companies are supporting rebel groups, as they are trying to keep their activities secret. However, the past suggests much greater forces are at war in Ituri than two ethnicities.

The communities of Ituri seem to be much more concerned with agricultural land ownership, the Hema’s want to retain their land and Lendu’s want to expand their influence. However, external actors are blinded by Ituri’s gold studs and particularly the oil deposits surrounding Lake Albert, using previous conflict in the region as an excuse to have no regard for humanitarian decency, pouring fuel on a flame that was slowly fizzling out.

The most infuriating part of the current Ituri conflicts is that much like the rest of the DRC, the region is incredibly rich in natural resources, but this wealth actually inhibits its development rather than benefiting it. Total SE outlined in their 2013 report how oil exploitation could lift up entire communities and the DRC’s economy in general, sadly this assessment strays far from reality. Military and rebel groups are clearly being strengthened by nefarious actors, the economy is being distorted as the agriculturally-intensive sector is getting eclipsed by the greed for oil, and border tensions and internal corruption is bound to worsen.

The international community can attempt to halt conflict with peace delegations as it did in 2003, but this does not solve for the invisible hands manipulating it. Local humanitarian groups offer significant help in relieving the ample health problems in internally displaced camps. However, until there is greater credibility and transparency from the governments of the DRC, Uganda and Rwanda, as well as by the oil corporations, local aid is all that can be done for the moment.

The post Why Oil Is the Hidden Agent of Chaos in the Ituri Conflicts appeared first on Glimpse from the Globe.

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.

The post Nord Stream 2: Energy Security and Russian Influence Across the Eurozone appeared first on Glimpse from the Globe.