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Nord Stream 2: A Choice Between Control or Operating
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Reference: IVEY-W27971-E
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Year: 2019
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Number of pages: 17
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Geographic Setting: Germany; Russia; Ukraine; United States
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Publication Date: Aug 25, 2022
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Source: Ivey Business School (Canada)
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Type of Document: Case
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Industry Setting: Retail Trade
Description
Nord Stream 2 was an offshore pipeline project of the Russian energy company Gazprom to transport natural gas to Europe. The US government was skeptical about this project as it believed that Russia would use the pipeline to increase its influence in Europe. The Russian annexation of Crimea and reported Russian support to the secessionist groups in Eastern Ukraine further complicated the situation. The events in Ukraine resulted in the United States and European Union imposing economic sanctions on the Russian government, institutions, and specific individuals. The pipeline construction was completed amid continued hostilities, repeatedly imposed sanctions, and political transitions in the US and Germany.
Nord Stream 2 AG, the Swiss-based subsidiary of Gazprom which was created to operate the pipeline, applied to the German national energy regulator for pipeline certification but was refused until Gazprom created a German subsidiary to operate the pipeline. Such a condition would require Gazprom to dilute its stake and control over its critical asset; however, not meeting the regulator’s conditions would ensure that the pipeline remained inoperative and that the company’s US$11 billion investment to complete the project would be held up until Gazprom could mount a legal, diplomatic, and geopolitical campaign to overturn the regulator’s decision.
Nord Stream 2 AG, the Swiss-based subsidiary of Gazprom which was created to operate the pipeline, applied to the German national energy regulator for pipeline certification but was refused until Gazprom created a German subsidiary to operate the pipeline. Such a condition would require Gazprom to dilute its stake and control over its critical asset; however, not meeting the regulator’s conditions would ensure that the pipeline remained inoperative and that the company’s US$11 billion investment to complete the project would be held up until Gazprom could mount a legal, diplomatic, and geopolitical campaign to overturn the regulator’s decision.
Learning Objective
This case study is suitable for undergraduate- and graduate-level programs in international relations and business management. For international relations students, it can be used in a course on geopolitics. Business management students can use it in courses such as strategic management, global strategy, and international political economy. After working through the case and assignment questions, students will be able to
- assess the attractiveness of a business opportunity;
- estimate the geopolitical risks associated with international projects;
- understand how interdependence could help in the proliferation of geopolitical risks;
- analyze the role of economic interests in catalyzing geopolitical realignment; and
- design business strategies that could possibly minimize the adverse impact of geopolitical conflicts.