Could Gazprom’s Nord Stream undersea gas pipelines, partially destroyed by saboteurs in September 2022, eventually be restarted? The idea of reconnecting Europe to the giant Russian Yamal gas fields has been introduced as a possible bargaining chip in the widely expected ceasefire talks between Russia and Ukraine. While political optics of such a deal are terrible, for the struggling European economies it is an economic no-brainer.

Denmark’s energy agency ordered the operator of the Nord Stream pipelines to cap the severed ends of the three destroyed pipelines this week to preserve their integrity, making it possible, in theory, to patch the holes created in a series of explosions in September 2022 and lift the pipes to the surface for repairs.

The idea of restarting Russian gas deliveries to Germany is clearly in the air and favoured by some in the German political firmament. Leader of Germany’s Alternative für Deutschland party (AfD) Alice Weidel told a party conference this week that “We will put Nord Stream back into operation, you can count on it!’ as the right have (correctly) identified the end of cheap Russian as being a major cause of the collapse of the German economy.

That has not gone down well with Ukraine’s supporters. The Baltic states have been adamant that all Russian gas imports should end. Polish President Andrzej Duda the same week that Germany “should not be tempted” to resume Russian supplies just because its economy is struggling; Germany’s economy has contracted for two years in a row and is predicted to shrink again this year. Rather than repair the €10bn pipeline that is capable of supplying 40% of Europe’s gas needs, Duda said that Nord Stream should instead be “dismantled.”

Detractors argue that resuming Russian gas deliveries threaten Europe with energy dependence, but also frame it as a military threat as the money it generates funds Russian President Vladimir Putin’s war machine. Russia’s Gazprom earned some €6.5bn from gas exports to Europe last year.

The loss of cheap Russian gas has been disastrous for Germany leading directly to its deindustrialisation as heavy industry has had to close down due to the soaring cost of gas and energy. The end of gas imports came just as the government decided to shutter its six powerful state-of-the-art nuclear power plant (NPP) in the midst of one of the worst energy crises this century in 2022 that turned Germany from a net exporter of energy into a net importer. That has put pressure on the rest of the EU, as Germany’s neighbours are forced to supply Germany with power under EU rules that have driven up costs in those countries as well. Sweden and Norway in particular are now suffering from power price inflation and have frozen plans to increase power links with Germany to cap exports capacity so they can use more of their domestic production capacity to meet their own domestic demand.

The upending of Germany’s energy security has led to the biggest collapse in German living standards since the Second World War and a downturn in economic output comparable to the 2008 financial crisis.

The downturn is having political consensus too. The funding of the war in Ukraine – Germany has been Ukraine’s most generous EU backer – has put intolerable strain on Germany’s finances that was already in a budget crisis after budget spending bumped up against borrowing limits imposed by the constitution by the so-called Schuldenbremse, or “debt brake” that limits government borrowing. At the end of last year, German Chancellor Olaf Scholz announced that Berlin has run out of money for Ukraine and will drastically reduce its contributions after this year. Tensions over money and wrangling over a €3bn aid package for Ukraine has already led to the collapse of the ruling coalition and German policy is in limbo as the country waits for a new government in a general election slated for February.

The quality of German life was already falling before the war started but has been made much worse by the various shocks the conflict has unleashed. The failure to protect German industry from the energy price spike may turn the 2020s into “a lost decade for Germany,” according to a recent paper published by the Forum for a New Economy, the Spectator reports. The economic malaise is fuelling the rise of the far-right AfD that won several key regional elections in November and is currently ranked second in popularity after the conservative Christian Democratic Union (CDU).

And Russia’s gas business is still doing well, despite the setbacks. Gas production rose 7.6% in 2024 y/y to around 685bcm, according to comments by Deputy Prime Minister Alexander Novak on January 30. This year Russia expects to increase gas production again. Pipeline gas exports also increased last year by 15.6% to over 119bcm, while LNG exports were up by a more modest 4% to 47.2bcm (21.2mn tonnes).

Despite the myriad sanctions on Russia, Europe bought 22.6bcm (17mn tonnes) of LNG from Gazprom in 2024,  mostly via terminals in France, Spain and Belgium. Taking LNG and piped gas together, Russia's export to Europe were up 20% year on year to about 50bcm - around a third of pre-war export volumes.  This year imports of piped gas may fall after Ukraine walked out on a gas transit deal with Russia, but delivered via the one remaining route, TurkStream that runs through the Black Sea, continues to rise, as does shipped LNG deliveries.

Publicly, Germany has ended the import of Russian gas and the CDU leader Friedrich Merz, who is very likely to take over from Scholz in the upcoming elections, has called for all Russian gas imports to end. However, embarrassingly, Germany continues to be the biggest importer of Russian gas via the backdoor imports routed through French and Belgium ports among other alternatives. Despite the fighting-talk, Europe remains hooked on Russian gas.

Currently, Europe is still consuming half of Russia’s annual gas production. Although the volume of piped Russian gas has fallen dramatically over the last two years, the volume of Russia’s LNG exports to Europe have doubled in the last two years and are currently at an all-time high and still rising. Ukraine’s supporters wanted to include an LNG ban in the sixteenth package of sanctions under debate at the moment and due to be enacted in February, but that idea has already been dropped as unworkable, according to reports.

The Danish energy agency decision to cap the four strands of the Nord Stream 1 & 2 pipelines creates the possibility that the damaged pipes could relatively easily be patched, pumped dry and lifted to the surface for repairs at some point. The one strand that survived the 2022 bombings in September 2022 is still pressurised and could in theory be turned back on tomorrow to deliver a badly needed 25bcm of gas to the EU – half as much again as Ukraine was delivering until it turned off the spigot on January 1.

The idea of restarting Russia’s gas deliveries has been in the air for a while now. Russian President Vladimir Putin and Scholtz held their first phone conversation in two years in November to talk about the war. Not much was agreed, but amongst the points raised, Putin said that he was willing to restart gas deliveries to Germany through the working pipeline if there was an acceptable Ukrainian ceasefire deal.

The optics of restarting the import of Russian gas are terrible after the ardent campaign by Ukraine’s supporters to shut down all Russian gas imports, but economically it is a no-brainer. A recent report from former Italian Prime Minister and ex-European Central Bank boss Mario Draghi showed in excruciating detail how Europe has lost its competitive edge and has fallen badly behind the US and China. Reconnecting to cheap Russian energy would go a long way towards solving that problem.