Trump Folds on Nordstream 2 Because … Logic

Since its first announcement I have been convinced the Nordstream 2 pipeline would be built.  I have followed every twist of this story from my days writing for Newsmax.

And the reason for my confidence can be summed up in one word.  Money.

Nordstream 2 simply makes too much economic sense for any amount of political whining from the U.S. and Poland to stop it.  Poland has no power within the European Union.

Germany does.  And while I’m no fan of Angela Merkel getting another political weapon to hold over the heads of the Poles, their attempts to derail the project were always going to end in tears for them.

And so now Poland and the U.S. cried a lot of crocodile tears recently when President Trump finally acceded to reality and ended the threat of sanctioning five of the biggest oil majors in the world over doing business with Gazprom over Nordstream 2.

Nordstream 2’s investors are Uniper, OMV, Wintershall, Royal Dutch Shell and Engie.  After all the permits were issued and construction begun the only thing that could stop Nordstream from happening was these five companies folding to U.S. pressure and backing out of the project by calling in their loans to Gazprom.

And when they were unwilling to do that, Trump had to fold because you can’t cut these companies out of the western banking system and starve them of dollars and euros without an extreme dislocation in oil prices and global trade.

Bluff called.  Nordstream 2?  Holding Aces.

Trump?  Holding two-seven offsuit.

Lack of Polish

The big loser here is Poland unless they come down off their Russophobic high horse.

Why is Nordstream 2 so important to Poland?  Because it forces Poland into choosing between two things the current ruling Law and Justice Party doesn’t like.

  1. Renegotiating a gas transit deal with Gazprom through Ukrainian pipelines without as much leverage.  Because the current agreement expires at the end of 2019.
  2. If they reject this first option then they are at the mercy of buying gas from Nordstream 2 putting them politically in the hands of Germany.

Merkel is angry with Poland for trying to assert its sovereignty having begun Article 7 proceedings over their law putting Supreme Court justices under review from the legislature, which the EU has termed a violation of its pledge to protect ‘human rights.’

And so, expect Poland to now open up talks with Gazprom to negotiate a new deal or be stupid and buy LNG from the U.S. at two to three times the price they can get it from Gazprom.

Keeping Them Distant

From the U.S. side of the equation there are few things in this life that Donald Trump and Barack Obama agree upon, and stopping Nordstream 2 was one of them.  This, of course, tells you that this opposition is coming from somewhere a lot higher than the Presidency.

U.S. and British foreign policy has been obsessed for more than a hundred years with stopping the natural alliance between Germany’s industrial base and Russia’s vast tracts of natural resources as well as Russia’s own science and engineering prowess.

These two countries cannot, in any version of a unipolar world dominated by The Davos Crowd, be allowed to form an economic no less political alliance because the level of coordination and economic prosperity works directly against their goals of lowering everyone’s expectations for what humans can accomplish.

That is their greatest source of power.  The complacency of our accepting low expectations.

So, Donald Trump finally folding on stopping Nordstream 2 is yet another example of the limits of what power the U.S. has and of its threats.  When he denounced the project he said,

“I never thought it was appropriate. I think it’s ridiculous. And I think it’s certainly a very bad thing for the people of Germany. And I’ve said it very loud and clear.”

But notice that he never said why.

Because there is no downside for Germany.  That’s the point.  Russian piped gas is simply cheaper and more reliable than LNG produced more than 3000 miles away.

The downside is for the U.S.

It begins the process of Germany and Russia re-establishing stronger economic ties cut in half by the 2014 sanctions over Crimea.  It keeps Merkel in power a little while longer having stood up to the bully Trump and showing some German independence.

This is something she sorely needs right now coming into regional elections in October.

Most importantly, this gas will be paid for in euros, not dollars.  And this further undermines the effectiveness of U.S. sanctions as Gazprom will have a steady supply of euros to pay back its investors and diversify Russia’s currency reserves.

The Flow of Money

There is no way for U.S. LNG supplies to be competitive in Europe without massive artificial barriers-to-entry for Russian gas.  And even if Nordstream 2 was somehow stopped by the U.S., Russia’s massive Yamal LNG facility on the Baltic Sea would still out compete U.S LNG from Cheniere’s terminal in Louisiana.

Location. Location. Location.

We saw this last winter when vicious cold snaps forced a hostile Britain to buy a few tankers of Yamal LNG from Novatek to keep its citizens from freezing. With the planet cooling rapidly, expect this source of spot demand to Europe to increase.

And this is why Russia also benefits from Poland building an LNG terminal. Because don’t for a second think Poles will suffer extreme cold because Andrej Duda hates Russians.

That’s just funny, right thar!

But, for Germany, and the EU as a whole, more cheap energy is the path to remaining somewhat relevant in the global economy.   With Germany ending the use of nuclear power it needs the type of energy Nordstream 2 supplies.

In fact, Germany will eventually need Nordstream 3.

Each intervention by the U.S. or one of its satraps (and Poland’s leadership certainly fills that bill) to block any further business between Russia and Europe, but especially Germany, keeps the world on edge and inches us closer to a military confrontation while open trade and travel moves us farther from that outcome.

And anyone who argues otherwise is simply talking their book.  They profit from war and tension.  They profit from manipulating markets and, in effect, stealing the wealth someone else created.

So, this is not to say that Nordstream 2 is some kind of messianic gift from the gods or anything.  It is the result of massive interventions into the free market for energy born of necessity in a world governed by nation-states for more powerful than they have any right to be because of control of the issuance of money and the rent-seeking behavior of the people who most benefit from the creation of endless supplies of that money.

But, that said, in the current state of things, rapprochement between Germany and Russia via projects like the Nordstream 2 points us towards a future without such nonsense.

I said points, not achieves.  It’s a beginning not an end.  Lost in all of this discussion of European energy security is the fact that even at the height of the Cold War the U.S.S.R. never once shut off gas supplies to its enemies.  And under Putin that fact remains.

And how’s that for an inconvenient truth.


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24 thoughts on “Trump Folds on Nordstream 2 Because … Logic

  1. Correct. One further ingredient is that US fracked gas and oil production is near terminal. Majors like Chesapeake energy have never made a profit surviving on ZIRP and a market casino in which honest price discovery is irrelevant.. Once interest rates rise on those massive accumulations of debt its all over

    • That’s correct and Tom mentioned that the planet is cooling also. Currently 25% of the US natural gas supply comes from 1 shale play. The Marcellas I think. Anyway, the US is likely going to have a very serious natural gas problem in the near future due to severe decline rates. The next two to three winters will give us some idea where we are headed climate wise. Maybe similar to what it was in the 50s and 60s which was pretty darn cold or it could be much worse. Either way we are in deep doo doo.

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