NIS2 Article 21 in Azure: Implementing Network Security Controls with Terraform

Most NIS2 content on the internet is written by lawyers for lawyers. It explains what the directive requires in broad strokes, references recitals and annexes, and leaves engineers staring at a wall of legal text wondering what to actually build.

This article is different. It focuses specifically on the network security controls required by NIS2 Article 21 and maps each requirement to concrete Azure resources — managed with Terraform.

Disclaimer: This article covers the technical network infrastructure controls relevant to NIS2 Article 21. Full NIS2 compliance requires organizational measures, incident response procedures, supply chain controls, and additional technical layers beyond what infrastructure code alone can provide. Nothing here constitutes legal advice.

What NIS2 Article 21 Actually Requires

NIS2 Article 21 mandates that essential and important entities implement “appropriate and proportionate technical and organisational measures” to manage cybersecurity risks. For network infrastructure, the relevant requirements break down into four concrete areas:

1. Network Segmentation Systems must be isolated based on criticality and function. Unrestricted lateral movement between workloads is not acceptable.

2. Access Control Access to systems must be strictly controlled. Default-allow is not acceptable — both at the network layer and the identity layer.

3. Minimizing Attack Surface Public exposure of internal systems must be eliminated where possible. Every publicly reachable endpoint that doesn’t need to be public is a finding.

4. Monitoring and Auditability Infrastructure must be auditable. Changes must be traceable. Ad-hoc ClickOps does not produce an audit trail.

The good news: a well-architected Azure Hub & Spoke environment with Terraform addresses all four — if you implement it correctly.

Mapping NIS2 Requirements to Azure Architecture

NIS2 Article 21 Requirement    →    Azure Control
─────────────────────────────────────────────────────
Network Segmentation           →    Hub & Spoke VNet topology
                                    NSG with Default-Deny
Access Control (Network)       →    Azure Firewall + Forced Tunneling
                                    Private Endpoints (no public access)
Access Control (Identity)      →    Managed Identities + RBAC
                                    local_auth_enabled = false
Minimize Attack Surface        →    public_network_access_enabled = false
                                    Private DNS Zones
Auditability                   →    Terraform IaC (version-controlled)
                                    Azure Policy compliance reporting

Control 1: Network Segmentation via Hub & Spoke

NIS2 requires that critical systems are isolated from each other. A flat VNet where all workloads can communicate freely fails this requirement immediately.

The Hub & Spoke topology enforces segmentation by design — Spokes cannot communicate with each other directly, all traffic routes through the Hub:

# Hub VNet — centralized shared services
resource "azurerm_virtual_network" "hub" {
  name          = "vnet-hub-${var.environment}"
  address_space = var.hub_vnet_cidr
}

# Spoke VNets — isolated workload environments
resource "azurerm_virtual_network" "spoke1" {
  name          = "vnet-spoke-01-${var.environment}"
  address_space = var.spoke1_vnet_cidr
}

# Bidirectional peering with forwarded traffic
resource "azurerm_virtual_network_peering" "hub_to_spoke1" {
  name                      = "peer-hub-to-spoke1"
  virtual_network_name      = azurerm_virtual_network.hub.name
  remote_virtual_network_id = azurerm_virtual_network.spoke1.id
  allow_forwarded_traffic   = true
}

Spoke-to-Spoke traffic is blocked by default — the peerings only connect each Spoke to the Hub, not to each other. Any cross-Spoke communication must be explicitly routed through the Hub and inspected by the Azure Firewall.

Control 2: Default-Deny at the Subnet Level

Network segmentation without enforcement at the subnet level is incomplete. An NSG with explicit Default-Deny on all Spoke subnets ensures no unexpected internet traffic reaches workloads:

resource "azurerm_network_security_group" "zero_trust" {
  name                = "nsg-zero-trust-${var.environment}"
  location            = var.location
  resource_group_name = var.resource_group_name

  # Allow internal VNet traffic (peering)
  security_rule {
    name                       = "Allow-VNet-Inbound"
    priority                   = 100
    direction                  = "Inbound"
    access                     = "Allow"
    protocol                   = "*"
    source_address_prefix      = "VirtualNetwork"
    destination_address_prefix = "VirtualNetwork"
    source_port_range          = "*"
    destination_port_range     = "*"
  }

  # Block all internet traffic — explicit deny
  security_rule {
    name                       = "Deny-Internet-Inbound"
    priority                   = 4096
    direction                  = "Inbound"
    access                     = "Deny"
    protocol                   = "*"
    source_address_prefix      = "Internet"
    destination_address_prefix = "*"
    source_port_range          = "*"
    destination_port_range     = "*"
  }
}

# Bind immediately — an unbound NSG enforces nothing
resource "azurerm_subnet_network_security_group_association" "spoke1_nsg" {
  subnet_id                 = azurerm_subnet.spoke1_default.id
  network_security_group_id = azurerm_network_security_group.zero_trust.id
}

The priority gap (100 → 4096) leaves room for application-specific rules without touching the baseline. Your security team can add rules for specific ports and protocols without restructuring the NSG.

Control 3: Egress Control via Azure Firewall

Blocking inbound traffic is necessary but not sufficient. NIS2 also requires controlling what leaves your network — to detect data exfiltration, prevent C2 callbacks, and enforce least-privilege egress.

Azure Firewall with Forced Tunneling routes all outbound Spoke traffic through a central inspection point:

resource "azurerm_route_table" "spoke_udr" {
  name                          = "rt-spoke-forced-tunneling-${var.environment}"
  location                      = var.location
  resource_group_name           = var.resource_group_name
  bgp_route_propagation_enabled = false

  # All internet traffic through Azure Firewall
  route {
    name                   = "route-to-firewall"
    address_prefix         = "0.0.0.0/0"
    next_hop_type          = "VirtualAppliance"
    next_hop_in_ip_address = azurerm_firewall.fw.ip_configuration[0].private_ip_address
  }

  # KMS bypass — required for Windows VM activation
  route {
    name           = "bypass-azure-kms"
    address_prefix = "23.102.135.246/32"
    next_hop_type  = "Internet"
  }

  # Azure AD bypass — prevents Managed Identity lockouts
  route {
    name           = "bypass-azure-ad"
    address_prefix = "AzureActiveDirectory"
    next_hop_type  = "Internet"
  }
}

The Firewall then enforces FQDN-based Application Rules — only explicitly allowed destinations can be reached. Everything else is dropped and logged. That log is your audit trail for NIS2 Article 21(2)(b) — monitoring and incident detection.

Control 4: Eliminating Public PaaS Endpoints

Every PaaS service deployed with a public endpoint is an attack surface. NIS2 requires minimizing exposure — for Azure PaaS services, this means Private Endpoints with public access explicitly disabled:

resource "azurerm_key_vault" "kv" {
  name                          = "kv-${var.environment}-${random_string.suffix.result}"
  public_network_access_enabled = false  # No public endpoint
  enable_rbac_authorization     = true   # No access policies — RBAC only

  network_acls {
    default_action = "Deny"
    bypass         = "AzureServices"
  }
}

resource "azurerm_private_endpoint" "kv_pe" {
  name      = "pe-kv-${var.environment}"
  subnet_id = azurerm_subnet.endpoints.id

  private_service_connection {
    name                           = "psc-kv"
    private_connection_resource_id = azurerm_key_vault.kv.id
    subresource_names              = ["vault"]
    is_manual_connection           = false
  }

  private_dns_zone_group {
    name                 = "default"
    private_dns_zone_ids = [azurerm_private_dns_zone.kv.id]
  }
}

An external scanner will not even receive a TCP connection — the endpoint simply does not resolve to a public IP. This directly satisfies NIS2 Article 21(2)(h) — securing network and information systems.

Control 5: Identity — Eliminating Static Credentials

Access keys and connection strings are an audit finding under any serious compliance framework. NIS2 Article 21 requires proper access control — which means cryptographic identity, not shared secrets.

The Azure pattern: Managed Identities with scoped RBAC assignments, local authentication disabled:

resource "azurerm_linux_function_app" "app" {
  # ...
  identity {
    type = "SystemAssigned"
  }
}

# Least-privilege RBAC — only what the app needs
resource "azurerm_role_assignment" "app_kv_secrets" {
  scope                = azurerm_key_vault.kv.id
  role_definition_name = "Key Vault Secrets User"
  principal_id         = azurerm_linux_function_app.app.identity[0].principal_id
}

When the resource is deleted, the identity and all its permissions are automatically destroyed. No credential rotation. No secret management. No leaked keys in Git history.

Control 6: Auditability via Infrastructure as Code

NIS2 requires that changes to network and information systems are traceable. This is where Terraform provides compliance value beyond just automation.

Every resource in this architecture is:

Version-controlled — every change is a Git commit with author, timestamp, and diff
Reviewable — pull requests enforce four-eyes review before changes reach production
Reproducible — terraform apply produces the same result every time, documented in state

A terraform plan output is an audit artifact. It shows exactly what will change, why, and what the current state is. No ClickOps, no undocumented manual changes, no “someone did something in the Portal last Tuesday.”

What This Covers — and What It Doesn’t

This architecture addresses the technical network security controls of NIS2 Article 21. For full compliance, your organization also needs:

Incident response procedures — documented playbooks for security events
Supply chain risk management — vendor assessments, third-party controls
Business continuity measures — backup, recovery, resilience testing
Organizational measures — security awareness, governance, reporting chains

Infrastructure code is the foundation. Compliance is the full building.

The Result

Implementing NIS2 Article 21 network controls in Azure with Terraform gives you:

Network segmentation via Hub & Spoke topology — Spoke-to-Spoke isolation by default
Default-Deny at the subnet level — no unexpected internet traffic
Centralized egress inspection via Azure Firewall — logged, auditable, FQDN-controlled
Zero public PaaS endpoints — Private Link for every data-plane service
Zero static credentials — Managed Identity and RBAC throughout
Full audit trail — every change version-controlled and reviewable

The modules that implement this architecture are available on the templates page — each one tested against these controls and documented for audit purposes.