Germany is the biggest economy in
Europe. It is also one of the closest American allies. It is also a member of
the North Atlantic Treaty Organization (NATO), which was formed after the
second world war to provide security against the soviets. NATO is headquartered
in Brussels, Belgium and is made up of the biggest Western democracies. The key
mandate of the organization is to provide collective military support to a
member country if it is attacked.
To achieve this, the NATO members
are required to spend at least 2% of their budgets on defense. This has been a
major source of discomfort among key contributors like the United States, which
spend more than the required 2%. Another source of discomfort has been the
region’s overdependence on Russia, which is viewed as the enemy. Particularly,
Germany has been accused of putting its lifeline on Russia.
The reason for this is that the
two countries are building a large natural gas pipeline that will support
Germany’s energy sector. The total project will cost more than $10 billion.
Once complete, Germany is posed to be the biggest buyer of Russia’s natural
gas.
The US argument against Germany
are two sided. First, it accuses Germany of spending little on defense
spending. Indeed, reports have shown that Germany is not ready for combat. If
attacked, it would depend solely on NATO. This is despite the fact that Germany
has one of the biggest budget and trade surpluses. The second argument is that
by accepting Russian gas, the country is providing funding to the enemy.
A detailed report released
yesterday by Wall Street Journal said that the US was prepared to sanction the
pipeline. This may lead to interference of the construction process although
Gazprom and Chinese companies would take over. This may however lead to more
tensions between key allies.
In response to the article, the
price of natural gas declined sharply to a low of $2.799. This was the lowest
level since late February. On the chart below, the pair’s current price is
below the 21-day and 42-day moving averages while the RSI has emerged from the
oversold level. In the short term, the price could drop to the support of
$2.750.
The post Natural Gas Price Falls as Washington and Germany Disagree on Nord Stream 2 appeared first on Forex.Info.