The petroleum industry is the dominating feature of the Russian economy. Crude and refined petroleum make up 45 percent of the country’s exports and provide 30 percent of its GDP.
Gazprom, the state-owned oil company, has control over the largest natural gas reserves in the world — it owns 17 percent of the world’s reserves and 72 percent of Russia’s. Given that Gazprom is functionally an extension of the Russian government, Moscow has considerable leverage over neighboring countries, as it can dictate the path and quantity of oil shipments.
“Pipeline diplomacy,” therefore, is a powerful tool in Moscow’s foreign policy inventory, one which it is not afraid to use.
In 2006, Russia attempted to leverage its natural gas exports for political gain when it ceased gas exports to Ukraine over a price dispute. While gas exports resumed, the incident serves as a reminder of Russia’s influence over Ukraine.
Ukraine’s underdeveloped energy sector means that it is largely reliant on Russian gas exports and transit fees, the latter of which provides Kiev with roughly $2–3 billion annually, about 3 percent of its GDP.
With the ousting of pro-Russian president Viktor Yanukovych in 2014 and the subsequent souring of relations between the two neighbors, Russia has sought to bypass Ukraine entirely from its export network. This initiative has manifested itself in two major projects: Nord Stream 2 and TurkStream, which are pipelines connecting Russia to Germany and Turkey, respectively.
These projects would not only weaken the Ukrainian economy but would also diminish what little leverage Kiev has left over Moscow. At the moment, nearly 40 percent of the 193 billion cubic meters of gas that Gazprom pumps to Europe pass through Ukraine. Because of this, Russia may be wary to provoke Kiev more so than it already has.
Jacek Czaputowicz, Poland’s Minister of Foreign Affairs, expressed his concern with the Nord Stream 2 project last month, as he suggested that its implementation could weaken Ukraine’s ability to counter Russian aggression.
The United States has also expressed its dissatisfaction with the European Union’s negotiation with Russia and has even considered imposing sanctions on European companies who cooperate with Russia on the Nord Stream 2 project.
Ultimately, however, the fate of Nord Stream 2, and by extension that of Ukraine, will be decided in Brussels and Moscow. German Foreign Minister Heiko Maas made this point, stating that “questions of European energy policy must be decided in Europe, not in the U.S.”
While Germany, the de facto ruler of the European Union, may realize the potential consequences that the Nord Stream 2 pipeline may have for Ukraine, it has been insistent that the benefits of the project far outweigh the risks.
Despite this position, Germany recently gave into pressure from its fellow EU member states and acquiesced to a motion that would strengthen regulations over the Nord Stream 2 pipeline — effectively limiting Russia’s potential influence in the future.
Russia could have interpreted this measure as a sign of EU support for Ukraine, albeit a tempered one. In response, Deputy Foreign Minister Alexander Pankin remarked that “If obstacles to the project are being prepared to force Russia to pump gas through Ukraine … then this project is unlikely to work out.”
This EU resolution puts Russia in a difficult position, as the stricter regulations will likely delay the opening of the pipeline, weakening Russia’s negotiating power in 2020 when its transit agreement with Ukraine is set to expire.
As a result, the EU’s decision Friday represents a small victory for Ukraine in their bitter and lonely struggle for sovereignty against Russia. Despite this, Russia’s pipeline diplomacy presents a serious problem for Ukraine in the coming years.
While Nord Stream 2 may have hit a small snag, Russia will have undoubtedly reduced its dependence on Ukrainian infrastructure in a few years. Without any seriously committed partners to contend with Russia on the global scale, Ukraine will become increasingly vulnerable to Russia as it loses its political leverage.