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.
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