Is “America First” Hurting Global Energy Relations?

Throughout history the strong bond between the United States and Europe, arguably the world’s most important alliance, has been decisive within the international arena. Massive migration from the ‘old world’ to the ‘new’ during the past centuries has been the reason for sharing important norms and values such as democracy, liberalism, and international trade.

The election of President Donald Trump, however, has put doubt to this alliance, which was the strongest supporter of the rule-based international system of the present day. It has to be seen whether the election of this President is a temporary matter, or that the United states will continue, in some way or another, to choose a more unilateral path.

The bellicose language of President Trump and his opposition to agreements and existing matters of international affairs predating his election, have put him on a collision course with his partners in Europe. The unpredictability of the U.S. President was a reason for European leaders to give him the benefit of the doubt and start with debate instead of confrontation. However, as France’s President Macron’s short ‘bromance’ showed, Trump can hardly be influenced in matters of unambiguous election promises.

European leaders have confronted the U.S. president on several occasions on reasonable terms in order to overcome their differences in international politics. In the case of U.S. withdrawal from the Paris agreement on climate change and the unilateral departure from the JCPOA or the Iran Nuclear Deal showed Trump’s intractable belief for the ‘righteous’ path of the U.S. However, trade disputes hit the interests of European partners more directly and put the Atlantic partnership on a collision course. One country stands to benefit from current developments: Russia.

In the energy sphere, Moscow has been seeking to secure its most lucrative market for natural gas, Europe, and reduce dependence on transit countries in Eastern Europe. The South Stream pipeline was unilaterally cancelled on December 1st by President Putin as tension with Europe were rising over its role in the unravelling drama in Ukraine. Two other ambitious projects saw the light of day: Turk Stream, which has been partially constructed, and Nord Stream 2. In the latter’s case Europe is strongly divided over how to respond to another direct subsea pipeline between Russia and its most important customer in the EU: Germany.

Tensions have been rising due to the strong commercial interests of Western Europe, pipeline gas is much cheaper than LNG, and financial and political interests of Eastern Europe, less transit fees and reduced dependence on Russia. The opposing parties have been receiving support from the US, who is advocating against the construction of Nord Stream 2 as it would improve Moscow’s influence on Europe as it increases dependence and decreases Ukraine’s $3 billion in annual transit fees. Another development, however, is of significant importance for Washington’s strong opposition: the stellar rise of its own natural gas producing sector.

The fracking revolution in the U.S. has brought massive amounts of gas to the domestic market and pushed prices down. The unexpected rise in production has brought the U.S. to the fray as a major export. This has increased the necessity for new markets for American gas. An obvious potential customer is the EU, which is a massive market where domestic fields are producing less and Russia is the most imported supplier who exports a third of the annual European consumption.

Although the U.S. has denied its opposition to Nord Stream 2 is related to the export of American LNG, many analyst belief that Trump’s support for the domestic hydrocarbons sector suggests it’s a plausible goal of Washington’s. In order to weaken the commercial environment of the construction of the pipeline and create confusion for investors, the U.S. has announced it’s been contemplating on possible sanctions.

However, Trump seems to have lost his credibility as an important partner since he has made use of any situation to promote his ‘America first’ slogan. Even when this means hurting the interests of his European partners illustrated by the reciprocal tit-for-tat tariffs on goods. The European signatories of the Iran Nuclear Deal have been scrambling to save the agreement after the unilateral withdrawal of the U.S. by starting the ‘blocking statute’ process. When considering the effort and political credibility European leaders are investing in saving this deal, imagine the energy they will put in protecting direct national and company interests.

As in many other cases, America first risks being America alone.  

Vanand Meliksetian for OilPrice.com