Who benefits — buyer or seller — from gas pipelines and dependency relationships?

Who benefits — buyer or seller — from gas pipelines and dependency relationships?
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Does a country selling natural gas via pipeline to another country gain influence by selling more gas to it or by selling less? Opponents of Nord Stream 2 — the second pipeline from Russia running directly to Germany under the Baltic Sea — have argued that this will give Russia more influence over Germany. Their argument rests on the theory that the selling country gains influence over the buying country as the volume of gas sales increases.

The Nord Stream opponents, though, are not calling for Germany to buy less Russian gas, but instead to forgo buying it directly from Russia via Nord Stream 2 and to continue buying it from the pipeline system that runs through Ukraine. They fear that if Germany imports more gas via the Baltic Sea pipeline, Russia can reduce its gas exports to Europe via Ukraine and Ukraine will lose the transit revenue it now earns from Russian gas. The theory continues that Moscow then would have greater leverage to cut off gas sales to Kiev if it doesn’t need Ukraine’s pipelines to export gas to Europe.  

On June 4, Russian President Vladimir PutinVladimir Vladimirovich PutinRussian court sentences Navalny ally to 18 months of supervision Russia says 24 diplomats asked by US to leave by September Is Ukraine Putin's Taiwan? MORE himself raised the prospect of the completion of Nord Stream 2 giving Moscow greater leverage over Kiev when he stated that future Russian gas supplies to Ukraine depend on “goodwill on the part of our Ukrainian partners.” This fear that Russia selling less gas through Ukraine will give Moscow greater leverage over Kiev, then, is based on a theory that argues a country reducing its gas sales to and through a country gains increased influence over it.

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Can both theories be true? It would seem that if one is valid, the other one cannot be. Russia can gain influence over both either by increasing gas sales to Germany and Ukraine, or through reducing gas sales to them both. If it increases gas sales to one and reduces them to the other, it logically should be able to increase its influence, at most, over one of these states but not both simultaneously. Which theory is valid? 

Since Ukraine is weaker than Germany economically, militarily and in terms of internal political strength and influence with other countries, it would seem that Russia threatening to reduce gas sales to Ukraine has a potentially much more harmful effect on Ukraine than increased Russian gas sales would have on Germany. But even if the theory that reducing (or threatening to reduce) gas sales to a country gives the seller influence over the buyer (as Putin himself seems to believe), there is something odd about those concerned about Ukrainian vulnerability to Russia’s advancing it.

Russia has forcibly taken Crimea away from Ukraine and supported pro-Russian separatists in their war against Ukrainian government forces in the Donbass, but the opponents of Nord Stream 2 want Kiev to continue to derive income from Russian gas exports through the Ukrainian pipeline system. Surely, though, continued Ukrainian economic dependence on the country that is occupying part of its territory and supporting rebellion in another is hardly in Kiev’s interests.  And since, unfortunately, corrupt oligarchs willing and able to work with Russia are powerful in Ukraine, this Ukrainian dependence on transit revenue from Russian gas seems to allow Moscow endless opportunities to interfere in Ukrainian politics and weaken its response to Russia’s hostile moves against it. 

Ukrainians and their Western supporters who want to reduce Russian influence in Ukraine, then, can best help Ukraine by working with Kiev to reduce its dependence on Russian gas transit revenue and Russian gas supplies for Ukraine. Instead of continuing Ukrainian dependence on transit revenues for Russian gas being sold to Europe, those concerned about Ukraine instead should be urging its transition from relying on Russian gas to renewable or other energy sources, as well as importing energy from other countries.

The Western opponents of Nord Stream 2, though, are not just afraid of the impact that this pipeline will have on Ukraine, but also on Germany. They apparently also believe the theory that when a large-scale natural gas pipeline is built between one country and another, the seller gains influence over the buyer. Interestingly, though, when analyzing what the impact of increased Russian gas sales to China is, Russian observers make the opposite argument. Writing in Novaya Gazeta on April 21, the Russian scholar-diplomat Georgy Kunadze argued that increased Russian gas sales to China give Beijing influence over Moscow: “[A]fter Russia becomes China’s resource appendage, it could sooner or later turn into its junior political partner that’s forced to get the senior partner’s permission when making key foreign policy decisions.” 

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I have heard many Russians express similar fears in private conversations. Here, the argument rests on yet another theory: that the buying country gains influence over the selling country as the volume of gas sales increases.

But can Russia’s selling more gas to Germany give Moscow greater influence over Berlin while selling more gas to China gives Beijing greater influence over Moscow? This hardly makes sense.

What also does not make sense is talk about increased Russian gas sales over time. As Atlantic Council economist Anders Åslund points out, demand for Russian gas is expected to decline going forward as the world transitions away from hydrocarbons toward renewable sources of energy. The real danger for Moscow, then, is that as demand for Russian gas declines, this could allow for the unwelcome prospect of China increasing its influence at less cost over a Russia increasingly desperate to sell gas to whomever is willing and able to buy it.

Many in the West are used to thinking of Russia under Putin as a strong, threatening state, but in reality, it may be becoming a weak, dependent one instead. If that is the case, the prospect of Germany buying more gas via Nord Stream 2 actually may give the West greater opportunity to influence Russia — or at least prevent it from falling increasingly under China’s influence — than if Germany forgoes buying Russian gas through Nord Stream 2, as opponents of this project advocate.

Indeed, Putin’s raising the prospect of Russia cutting off gas supplies to Ukraine, or doing so for very long, may become something of an empty threat. If overall demand for Russian gas really does decline, Moscow may become dependent on Ukraine to continue buying it.

Mark N. Katz is a professor of government and politics at the George Mason University Schar School of Policy and Government, and a nonresident senior fellow at the Atlantic Council.