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Trump Hardball: Europe Pressured to Cancel Russia Pipeline to Avoid Trade War

Trump is pressuring Germany to cancel a natural gas pipeline deal with Russia. There are signs Merkel may cave in.

The officials said Mr. Trump told German Chancellor Angela Merkel in April that Germany should drop support for Nord Stream 2, an offshore pipeline that would bring gas directly from Russia via the Baltic Sea. This would be in exchange for the U.S. starting talks with the European Union on a new trade deal.

Raising the pressure further, Sandra Oudkirk, a senior U.S. diplomat, told journalists in Berlin on Thursday that as a Russian energy project the pipeline could face U.S. sanctions, putting any company participating in it at risk.

Mr. Trump has publicly criticized the Nord Stream 2 pipeline, saying at a meeting with Baltic State leaders at the White House this year that “Germany hooks up a pipeline into Russia, where Germany is going to be paying billions of dollars for energy into Russia…That’s not right.”

Not Right?!

Excuse me for asking but what's wrong with it?

If individuals want to voluntarily make trade deals it's nearly impossible for anything to be wrong with it.

Notice that I said "individuals". Free trade ultimately is between individuals, not countries.

US LNG a Bad Deal For Europe

Liquefied gas from the U.S. needs to be shipped over the Atlantic and would be considerably more expensive than Russian gas delivered via pipelines. A senior EU official working on energy regulation said Russian gas would be at least 20% cheaper.

“Trump’s strategy seems to be to force us to buy their more expensive gas, but as long as LNG is not competitive, Europe will not agree to some sort of racket and pay extortionate prices,” an EU official said.

Yet, there are signs Germany is wavering.

Merkel Caving Already?

A senior German official said “We are in principle open to that, but the question is what quantities the Americans can provide, and at what price.”

But with fresh pressure from Washington and with Germany’s lucrative U.S. trade relationship at risk, Ms. Merkel is traveling to Russia on Friday to meet Mr. Putin in a bid to broker a compromise that would satisfy the U.S. and her European partners.

Anyone who thinks Trump will make a deal and stick with it has holes in the head.

Everything is subject to negotiation, renegotiation, and cancellation at a whim.

Not Germany's Decision

Curiously, this is not Germany's decision to make.

A U.S.-German agreement on Nord Stream 2 may not be enough to resolve trans-Atlantic trade tensions. For trade talks to start, members of the EU would have to give the EU bureaucracy a mandate to start formal negotiations with Washington and not all members are interested in a new deal

German government officials say that since all the permits for Nord Stream 2 have been issued, there is no legal way to stop the project, which is run by Gazprom , the Russian energy giant, under financing agreements with international companies such as Engie, OMV, Shell, Uniper and Wintershall.

Convoluted Story

This story is amazingly convoluted.

Merkel is traveling to Russia looking for a compromise that is well outside her scope to make. And it would force Europe to overpay for US LNG.

This reminds me of the decision Merkel made on immigration (also not hers to make), welcoming immigrants with open arms. That mistake blew up in her face in short order.

What a pathetic EU and German response to Trump's demands!

Note that a German-Russian compromise would not even pave the way for US trade talks. That's an EU-wide decision.

Moreover, it's crystal clear that Trump like bilateral trade agreements, not multilateral ones.

Finally, there is no reason to believe that Trump would not seek to renegotiate any deal down the road.

Who Wins?

Trump has gone bonkers.

In the NAFTA dispute, he wants to set minimum wages in Mexico, but not the US; He reversed on ZTE (See ZTE Back From the Dead After Trump Reverses Sanctions), and now this.

Regarding ZTE, Angry Bear had some interesting comments.

The whiplash that many observers have felt on learning of President Trump’s about-face on China’s ZTE telecom company from condemning it as violating US national security and violating sanctions rules by selling to North Korea and Iran has been pretty easily explained by our soon thereafter learning that China has provided a mere half a billion dollars to a project in Indonesia where Trump interests are deeply involved. This is probably the most blatant violation of the Emoluments Clause of the US constitution yet, but do not hold your breath that anything formal will come of it, despite widespread outrage. Rather his backers will accept that this is necessary for obtaining Chinese support in dealing with Kim Jong-In in the possible forthcoming summit. This is supposed to trump all other considerations.

It is the hypocrisy that while Trump seems to be blithely forgiving ZTE for breaking already in-place sanctions against Iran, he and members of his administration such as John Bolton have been unyielding to the Europeans that all of their companies must cease any economic dealings with Iran ASAP now that Trump has scuttled US participation in the deal, even though it is widely accepted in Europe that Iran is in full compliance with the deal. The spectacle of the freshly arrived US ambassador issuing an immediate “order” to German companies to immediately comply with US demands on this has raised especial hackles.

If you think Trump tactics will benefit the US, think again. Global trade wars will not benefit anyone.

For further discussion, please consider What's Trump's Real Trade Target: China or Europe?

Mike "Mish" Shedlock

It is hard to get excited about the German consumer -- the individual who is not free to make his own trade agreements.

The German energy consumer is paying several times the US consumer for electricity -- because Germany politicians decided to shut down nuclear plants (in case of tsunamis, presumably), and instead build uneconomic wind factories. And now those hypocritical German politicians are having to build nasty polluting brown coal plants to keep the lights on, since wind power is as unreliable as it is expensive.

And the German consumer/voter has gone along with this nonsense. No sympathy at all for the German people -- who are getting the government they deserve.

And no sympathy for German "free traders" who would trade the long-term benefits of competing diversified energy supplies for a short-term 20% saving in the price of gas promised by a Russian monopoly (until Russia decides to increase gas prices).

(edited)

Trump hasn’t “gone” bonkers; he has always been bonkers. He is no more or less bonkers now than when Mish viewed him as the lesser of the evils. He was not. HRC was far less so.

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It's all linked. As soon as the pipe is in use Russia has a future supply advantage that must be stopped long enough for the Qataris et al to get get over land to the Mediterranean. Hard to do while Syria is under Russian influence and backed by Iran. Get the picture? It's all one big game of chess.

Now, if Assad was gone, Iran in its place and Russian gas supplies delayed/cancelled it's less of a problem. The Russian gas might even give Germany a competitive advantage. Someone, somewhere, behind Trump is war gaming all this stuff. If EU-Russia-Iran were to form a mutually beneficial axis the US would have much less influence. If Russian natural resources were married to German industry - well the US and China would have an interesting time competing.

This is the new "Great Game" similar to that between the British Empire and Russia but now much more complicated. I'm no Trumpeteer but I think the US geo-political influence will be massively reduced if a few of these alliances come about so someone is trying to put a stop to it and Germany is in cross-hairs - which way will they jump?

“This story is amazingly convoluted.”

It does nothing to help the cause for North American pipelines when Trump is demanding that Europe cancel her pipelines. What a mess!!

Energy can explain many things, such as why the EU won't leave the Iran deal despite diplomatic collision with the US. The long planned Nabucco pipeline would go through Turkey into Southern Europe. It would get supplied by Azerbaijan, Iraq and Iran. It's EU:s best bet now that Syria is under Russian and Iranian control.

I have similar apprehension. German and Russia teamed up early in WW2 to conquer Europe. A supply of gas to Germany gives Russia power over Germany, while at the same time giving Germany power over the rest of Europe.

Trump is becoming the ultimate Neocon.

How about we just admit they are both a wee bit odd.

Just as Israel has found massive gas deposits of its coast, that will not be shared with the Palestines...ah yes..zz waiting for the 3 rd temple to be built and 2000 times 1000 warriors from the east to start marching west...what a movie...coming to a theater near you..got popcorn

Aside from the price, the US LNG option does not have the required volume. Even though they think production will continue to ramp, fracking wells have a notorious short life span, and are not or barely profitable ... Does not seem to be a bet on continuity. All the problems with Russian gas in the past have been due to the Ukraine as middleman disrupting transit. So it is not Russia that uses gas for politics but the USA and the Ukraine.

Why, why did Americans elect such a president? Will he be re-elected for a second term?

" I'm no Trumpeteer but I think the US geo-political influence will be massively reduced if a few of these alliances come about so someone is trying to put a stop to it and Germany is in cross-hairs - which way will they jump?"

You can catch more flies with honey than vinegar. The US approach to alienate every country in the world has been ratcheted up and longer term it would be hard not to believe that changing or new alliances are in the works.

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