There is clear evidence of Russian interference in March 2019 parliamentary elections in Estonia, including attempts to hack into Estonia’s “i-Voting” platform.  Estonia becomes the first NATO member to invoke NATO’s Article V for a cyberattack.  NATO forward deployed forces are put on alert.  Russian interception of NATO reconnaissance aircraft results in a fatal accident.  The US and its European allies blame Russia.  Germany suspends work on Nord Stream 2 gas project, calling on the Kremlin to cooperate with the investigation.

In apparent spite of NS2’s failure, Russia announces a second gas pipeline project to China, drawing the ire of Europe.

Fighting in the Donbas region of Ukraine escalates, with more clear involvement from the Russian military regulars. In May, armed groups originating from disputed areas in Eastern Ukraine bomb the Brotherhood pipeline, causing significant damage and cutting off the transit of Russian gas through the Ukraine to Europe. This cuts off 100 bcm per year pipeline capacity, leaving 140 bcm per year of capacity for 200 bcm per year of demand. (European gas storage is near its low in May, and Europe has 20 bcm in storage when the Ukrainian pipeline is attacked.) Given low demand in the summer, the cutoff of gas and limited stores will become a serious issue if not resolved by November, when stores are usually highest, around 60 bcm.^[1]

Though denied by Moscow, US intelligence confirms that this attack was conducted with direct targeting support from the Kremlin to make the attack as damaging to Ukraine’s gas distribution network as possible.

In response, the United States also unilaterally enacts broader sanctions against Russian businesses and Putin’s cronies.  Europeans are slower to follow, but the EU enacts some targeted sanctions against Putin’s inner circle. 

NATO also begins to more openly consider the path towards Georgia’s membership in the alliance.

Fall 2019: The relative elimination of gas transit through the Ukraine and the approaching winter sends the EU into crisis.  The Balts, Bulgaria, Finland and Visegrad countries are all highly dependent on Russian gas, several at more than 75% of their annual energy needs^[2].  The Trump Administration calls on the Europeans to import US LNG to make up for the lost Russian gas, but the EU also begins talks with Moscow to restore some supplies.  President Trump initially refuses to sell US LNG at a discount, threatening to reduce the US commitment to NATO unless the Europeans buy US LNG at full price and definitively closes NordStream.  Trump has to back down on his threats and agrees to a price reduction for US LNG, due to growing Congressional pressure. However, potential US exports of just shy of 60 bcm/year (by the end of 2019, the US will have about 100 bcma lng export capacity, but about 40% is tied up in long-term contracts) can only cover about 60bma of the roughly 100bcma taken off the market.^[3]  With NordStream 1 near full capacity, Europe also looks to other options, including nearly 17bcma from the first three trains of the Yamal lng facility in Russia. Europe also pays a premium for the remaining 35bcma needed, diverting resources from China, which Russia matches through piped gas via the Power of Serbia pipeline, which comes online towards the end of 2019.

The energy shock undermines growth prospects for the whole EU economy, which spills into the broader global economy, depressing energy demand.  The EU Commission enforces mandatory energy conservation measures, calling for faster development of renewables.  It also lays out plan for a unified smart grids, more cross-border connections, and greater coordination among national transmission system operators, but these measures will take time to implement.

Moscow signals it will make concessions on Ukraine, hoping that an easing of tensions will delay implementation of measures that reduce EU dependence on Russian gas.