Early indications in US-Russian negotiations suggested that ongoing talks between Washington and Moscow involve a set of issues that are more closely related to bilateral economic relations and business deals than to a war settlement as such. One interpretation of these negotiations is that both sides, particularly the American side, view this exchange as a process that could pave the way for significant economic agreements.

Reports from Washington and Saudi Arabia indicate that US negotiators believe that creating economic interdependences, properly structured to serve American national interests, as a prerequisite for long-term peace. One important element of such a strategy would perhaps be to prevent the formation of alliances between Russia, China, and Iran in critical spheres such as gas supplies.

A Quiet Agenda Behind the Talks

Since last year, multiple reports have emerged—in the US and German press—highlighting American interests in reviving the now-defunct Nord Stream 2 gas project. The relationship between the United States and Russia in the gas sector is a paradoxical item on the two countries' bilateral agenda. During his first term, US President Donald Trump was a vocal opponent of Russia's gas supplies to Europe, viewing them as a source of Europe's dependence and a means by which Europe effectively funded Russia's aggressive behavior. Yet present negotiations suggest a different path might lie ahead.

"Germany is totally controlled by Russia because they will be getting from 60 to 70 percent of their energy from Russia, and a new pipeline, and you tell me if that's appropriate because I think it's not and I think it's a very bad thing for NATO." Trump said during a 2018 meeting with NATO Secretary General Jens Stoltenberg. 

For years, Trump saw Russia as a competitor on the European gas market and right now the US interests are clearly winning. Since Russia’s full-scale invasion of Ukraine in 2022, Russia’s share of Europe’s gas market declined from over 40 to 19 percent currently, while the US share, comprised of Liquified Natural Gas (LNG), grew by 60 percent in 2022 alone and now stands at about 18 percent. 

It was under Trump, in late 2019, that the US imposed sanctions on companies involved in the construction of Russia’s Nord Stream 2 gas pipeline, which runs from the Russian Baltic coast to Germany. This decision played a significant role in delaying the completion of the project, which both Moscow and Berlin considered strategic at the time. Moscow’s several attempts over the years at manipulating European customers’ behavior though gas leverage also contributed to Russia’s decline as a supplier.

Nixon and the Cold War Pipeline Deal

Washington position at the time was consistent with history. More than fifty years ago, Richard Nixon’s administration opposed the “gas for pipes” deal between the Soviet Union and West Germany that involved Germany supplying Russia with large-diameter steel pipes—a technology the USSR lacked—in exchange for gas from the newly explored fields in Western Siberia. Without that deal the delivery of Russian gas to Europe would not have been possible for years, possibly decades. It ended up being a major part of the détente agenda and provided a lifeline for the Soviet Union’s struggling economic model.

It is all different now, according to reports about Stephen Lynch, an American entrepreneur, who has worked extensively in Russia. He is reportedly interested in buying the assets of the Swiss company Nord Stream 2, the operator of the pipeline, which are now up for auction in bankruptcy proceedings.

According to the Wall Street Journal, last year Lynch applied for a license from the US Treasury Department that would permit him to negotiate over the pipeline with entities currently under US sanctions. The person who may be on the other end of this possible deal is Matthias Warnig, Vladimir Putin’s personal friend and the former head of the Nord Stream 2 parent company, as reported by the Financial Times. US officials, speaking to the Financial Times, indicated that key figures from the Trump administration are aware of the effort to attract US investors and view it as part of a broader attempt to restore ties with Moscow. 

Europe’s Dilemma: Reliability vs. Affordability

The US and Russia are now almost equal as suppliers of gas to Europe. If the reported changes in thinking in Washington are real, Russia’s share will grow. According to Re: Russia, an independent expert platform on Russia studies, once supplies are restored, Russian pipeline gas would quickly rise to account for 20 percent of Europe's total gas imports. Including the LNG supplies at the 2024 level, Russia’s total share would be around 27-28 percent. Collectively, imports from the US and Russia would approach nearly half of all European gas imports. 

The US and Russia so far have been competitors on the European market. Russia enjoys a significant physical advantage with its pipelines, but a severe reputational damage in reliability in Europe following the war on Ukraine and earlier energy pressure campaigns. Russian pipeline gas is significantly less costly than American LNG, which involves liquifying the gas, loading it onto LNG carriers, transporting it by sea to special terminals that have regasification facilities, and only then transporting it by pipelines within the European continent. 

On the other hand, gas pricing is a complex issue. Russian pipeline gas used to be far cheaper for consumers than American LNG. But the European Union, years ago, transitioned from long-term contracts typically tied to oil prices to market-defined prices, making the effective prices for gas sourced from various countries more comparable. Nonetheless, Russia does have a lower cost base and greater price flexibility than US companies do. It means that Russia can offer lower prices to its clients of choice. 

Toward a Gas Cartel?

Europe’s main issue with Russia as a supplier has been Moscow’s inherent unreliability, stemming from its readiness to weaponize this critical energy source. Should the US and Russia, two previous competitors, manage to create an arrangement whereby gas transit becomes a mutual interest and responsibility of both, a managed competition of pipeline and LNG gas to the European market could result. Europe’s supply of gas would have a diversified base of American and Russian origin, and no individual actor would have the dominant position that Russia had prior to its war against Ukraine. This arrangement could further broaden to exploration, developing new fields, and implementing new technological innovations to improve efficiency and mitigate climate impact. The outcome could come to resemble a gas OPEC, notes Re: Russia.

Given President Trump’s energy dominance strategy announced in February, there is a certain logic to the plan. A US-Russia gas "cartel" could be an attractive alternative to a theoretical Russia-Iran cartel, as those two countries hold over 40 percent of the world’s proven gas reserves combined. However, it is unclear to what extent Russia would be willing to pursue such an arrangement if it risked jeopardizing its stable relationship with China, Russia's main trading partner and key supporter.

The opinions expressed in this article are those solely of the author and do not reflect the views of the Kennan Institute.