Taps Coogan – September 28th, 2022

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As has been widely reported, three catastrophic leaks were detected in the NordStream 1 and 2 pipelines in the past two days. All relevant parties are now considering the leaks an act of sabotage with Russia and the West blaming each other.

While the culprit remains unknow, the details of the event point to a state actor with submarines, highly specialized divers, or control over the pipeline entry points in Russia, i.e. not Ukraine.

The prime suspects are thus, of course, Russia or the US.

Despite a tremendous amount of misreporting, sanctions on Russia have not yet targeted the oil and gas sectors. While some countries like Poland and Lithuania have chosen to cease Russian gas imports, Germany cleared its companies to pay for Russian gas in Rubles back in April and had been importing gas from the Nordsteam 1 pipeline until Russia invented technical reasons to shut it down at the end of August.

The idling of NordStream 1 in late August was just the latest example of a long running Russian strategy of inventing problems with its pipelines to boost gas prices and pressure Europe.

Recall that Gazprom-operated gas storage sites in Germany were sitting mysteriously empty all the way back in June 2021 and Russia has been similarly inventing technical reasons for throttling exports via the Yamal pipeline since the Summer of 2021, long before the Ukraine war and talk of sanctions.

Yet after over a year of tremendous success with the approach, the strategy had finally hit a wall. Despite Russia completely idling Nordstream 1 since late August, benchmark European gas prices had actually fallen by roughly 50% on the eve of these explosions. That was thanks to a glut of LNG filling European gas storage earlier than anticipated.

It is within that context, a 50% drop in natural gas prices, that the NordStream pipelines have blown up. The price of Russian gas has subsequently bounced back by about 20%. That comes despite the fact the these pipelines were not being used and Russia has not changed its gas exports via other pipelines to Europe since the explosions.

So yes, there are motives for Russia to be behind the sabotage. Furthermore, Russia could be signaling a capability to destroy other energy infrastructure such as the nearby Baltic pipeline between Norway and Poland, which was inaugurated the same day as these explosions. Perhaps the Russians are signaling that the economic relationship is permanently breached.

Nonetheless, Russian media proxies have been consistently lobbying for an end to sanctions by pointing to the burden of high energy costs (while obfuscating that they’ve been throttling supplies since before the Ukraine War and that sanctions don’t apply to energy yet). Destroying the NordStream pipelines seems to strongly undercut the imagined ‘carrot’ of sanctions relief for Europe, no matter how illusory it was to begin with.

Does the US have motivations?

The US has long been opposed to the NordStream 2 pipeline on the grounds that it was a means to cut Ukraine out of the gas transit business, that the EU was too dependent on Russian gas, and that competition via LNG was more likely to bring gas prices down than duplicative pipelines to Russia. However, neither NordStream pipeline was currently operating and NordStream 2 was unlikely to ever come online. Sanctions would have been enough to stop the use of NordStream 1 if such a decision were ever made and, in all likelihood, Germany would be a willing partner in the application of further sanctions on Russian energy if such a decision were made. Perhaps the US wanted to make sure Russia didn’t turnoff the pipelines though Ukraine? Perhaps the US is sending a warning to Russia about the use of nuclear weapons?

None of the aforementioned scenarios seem perfectly plausible but, at the end of the day, someone did destroy the Nordstream pipelines.

We may never know who, but we can guess at the implications. In the narrowest sense, European gas prices have gone up despite increased Russian flows since the explosion. In the big picture, it is even more clear that there will not be de-escalation in the war in Ukraine or the energy war between the West and Russia. There is now no turning back for either side.

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