Merkel No Longer Rules Out Nord Stream Action to Punish Putin

(Bloomberg) — Chancellor Angela Merkel put the Nord Stream 2 gas pipeline on the table as Germany and its allies mull a response to the poisoning of Russian opposition leader Alexey Navalny.

Merkel’s rethinking of her sustained support for the controversial Baltic Sea pipeline underscores the escalating tensions with President Vladimir Putin’s government after German military specialists determined last week that Navalny had been poisoned by novichok, a Russian-developed nerve agent.

The German leader supports statements from Foreign Minister Heiko Maas, who over the weekend warned that Berlin could change its backing for the project, Merkel’s chief spokesman, Steffen Seibert, said on Monday. It’s “too early” to determine what the consequences of the chemical attack would be, he added.

“The chancellor also holds the view that it’s wrong to rule something out from the start,” Seibert said at a regular government news conference in Berlin. That marks a shift for Merkel, who said on Aug. 28 that Nord Stream should be completed and remain a separate issue from Navalny.

Putin’s spokesman Dmitry Peskov didn’t immediately respond to a request for comment on the statement. Earlier, he said that the Kremlin sees no risk that Germany will block Nord Stream. The two leaders haven’t yet spoken about the Navalny case, according to Seibert.

“Any attempts to associate Russia or the Russian leadership with what happened are unacceptable for us, they are absurd,” Peskov said on a conference call. He repeated that the Kremlin is waiting for information about the poisoning from German authorities.

The ruble fell 1% versus the dollar on Monday, the biggest decline among emerging market peers. Shares of Russia’s Gazprom PJSC (OTC:OGZPY) — which leads the project — also extended losses, dropping as much as 2% in Moscow trading.

It remains open whether Merkel would pull the plug on the 9.5 billion-euro ($11.2 billion) venture, which is close to completion. Even as her chief spokesman confirmed the shift in sentiment, he offered a standard defense of the pipeline, saying that gas deliveries from the Baltic Sea conduit have been supported by EU gas directives — and that Nord Stream is only one of several channels for Russian gas, including the Black Sea pipeline TurkStream.

Seibert also noted that gas is considered one of the key energy sources to bridge Germany’s power needs while it phases out coal and nuclear and ramps up renewables.

“The risks are very real,” said Fyodor Lukyanov, head of the Council on Foreign and Defense Policy, a research group that advises the Kremlin. “It’s clear that Moscow’s behavior won’t change” despite Merkel’s calls for a reaction in the case, he said, adding that “nobody is going to say, sorry, we poisoned Navalny, we won’t do it again.”

Despite the public debate, coalition officials have signaled that there is still little appetite to abandon the project. Critics within Merkel’s Christian Democratic-led bloc have called for measures that fall short of stopping the pipeline, including a moratorium or halting gas flows once it’s completed.

The discussions are even more fraught within Merkel’s coalition partner, the Social Democrats, which have been steadfast in seeking stable ties with Russia. The SPD’s caucus leader, Rolf Muetzenich, said Sunday that invoking specific measures against Moscow “doesn’t help us” — comments that appeared to rebut Maas, an SPD member.

Merkel last week issued an uncharacteristically sharp rebuke of the Kremlin over the novichok finding and pledged a coordinated response among NATO and EU members.

The political tension caused by Navalny’s poisoning “has led to a very serious discussion in Germany and the EU about problems of our economic cooperation with Russia, including a new critical discussion over the Nord Stream project,” said Michael Harms, head of the German Eastern Business Association. “We need to do everything together to ensure that this trust is not undermined and that it is restored as much as possible”