Transatlantic Sanctions (III)

USA imposes its first sanctions against a company participating in Nord Stream 2. Berlin cautions against loss of "European sovereignty."

BERLIN/MOSCOW/WASHINGTON | | russische-foederationusa

BERLIN/MOSCOW/WASHINGTON (Own report) - The United States is imposing, for the first time, concrete sanctions on a company, because of its participation in the construction of the Nord Stream 2 pipeline. In one of its last official acts, the Trump administration announced that it would impose sanctions on the Russian pipe-laying vessel Fortuna. Whereas, Moscow has declared that it will nevertheless do everything it can to complete the pipeline that will bring Russian natural gas directly to Germany, more companies from several European countries –including the German company Bilfinger - are abandoning the Nord Stream 2 project due to threats of US sanctions. The pull-out is not without its risks, because the companies are thus demonstrating their vulnerability to blackmail from the United States - a disadvantage, for instance, on the highly attractive Chinese market. Since Russia is vigorously pursuing the expansion of the natural gas pipelines to China, the EU risks losing its privileged purchasing position. German Foreign Minister Heiko Maas recently warned that there is "no need to talk of European sovereignty" if that means "bending to Washington's will."

Creative Responses

To push through the construction of Nord Stream 2, the Mecklenburg-Vorpommern State Parliament decided on January 7, to establish a foundation, in the hopes that the United States would limit its coercive measures to attacks on private companies and refrain from direct attacks on public institutions. If necessary, the foundation would be doing what private companies no longer can once they are hit by sanctions - procure and provide the necessary materials and machinery for the construction and maintenance of the pipeline. The foundation funded by the Mecklenburg-Vorpommern State with only 200,00 Euros, will initially receive €20 and later €60 million from the Nord Steam 2 Consortium. Since natural gas is considered a transitional energy source pending conversion to renewable energies, the foundation has been named Foundation for Climate and Environmental Protection MV. Supporting construction of the pipeline is but one of its purposes. The US sanctions "are forcing us to also develop creative responses," the foreign policy speaker for the SPD in the Bundestag, Nils Schmid, is quoted to have said.[1]

Service Providers Drop Out

While the foundation is trying to ensure the completion of the pipeline, new problems emerged regarding the complementary services, when another US sanctions law came into effect at the beginning of the year. Whereas previous sanction laws have been aimed directly against the pipeline's construction, the Protecting Europe's Energy Security Clarification Act (PEESCA) is also penalizing secondary services providing insurance and underwriting.[2] Already on January 4, the Norwegian company DNV GL (Den Norske Veritas Germanischer Lloyd) announced that, because of PEESCA, it had to immediately terminate the work for Nord Stream 2 that it had been doing for several years. Without certification, no natural gas pipeline can go into operation.[3] Several sources have just independently confirmed that the Zurich Insurance Group, which covers the insurance for the construction work, will also terminate its work for Nord Stream 2.[4] Without insurance coverage, risky work, such as the construction of a pipeline, can also not be undertaken. The segment of the pipeline (28 kilometers) that is still missing in German territorial waters can be completed, because US sanctions only affect pipes laid at a certain depth. The future of the approximately 120 kilometers still to be laid in Danish waters is completely uncertain.[5]

Uncertain Future

Yesterday, in one of its last official acts, the Trump administration again expanded sanctions and imposed them on Russia's Fortuna pipe-laying vessel. Washington applied the Countering America's Adversaries Through Sanctions Act (CAATSA), which had gone into effect August 2, 2017. It was reinterpreted by US Secretary of State Mike Pompeo on July 15, 2020, allowing CAATSA to also be applied to the Nord Stream 2, which had been initiated prior to CAATSA's coming into effect. This makes a mockery of international law's prohibition of retroactive legislation. According to the new interpretation, persons and enterprises, supplying or otherwise supporting the Fortuna, for example in a service function during a port call, may also be penalized. Further developments are considered uncertain. Although Moscow has announced that it will continue to pursue the construction of the pipeline, Russia's Gazprom group has, for the first time, publicly admitted that the project could end in a failure. Political pressure could - under special circumstances - lead to a project, such as Nord Stream 2, having to be "suspended or abandoned," according to a company publication.[6]

Risks and Side Effects

The war of sanctions threatens to have serious consequences for companies from Germany and other European countries. On the one hand, it weakens European companies' global competition. The fact that the industrial service provider Bilfinger, as was announced yesterday, is also withdrawing from the Nord Stream 2 project,[7] reduces the company's attractiveness in the eyes of not only Russian but, even more, of Chinese contractors. The same applies to Switzerland's AllSeas special vessels operator, which had withdrawn from the Nord Stream 2 project already back at the end of 2019. It lost its global monopoly standing, it had had at the time. Today, Russia is in a position to carryout the same operations itself, without being vulnerable to US sanctions. On the other hand - should the Nord Stream 2 project actually end in ruins - German companies would lose their current privileged access to Russian gas. Russia and China are meanwhile negotiating not only on expanding the Power of Siberia pipeline to a 44 billion m³ volume - almost the volume of Nord Stream 2 - but also on a supplementary pipeline (Power of Siberia 2). Already at the end of 2018, the Oxford Institute for Energy Studies (OIES) had warned that, for the time being, "European consumers and politicians are in the relatively comfortable position as a monopoly consumer of Russia's West Siberian natural gas."[8] However, they could lose this position.

"European Sovereignty"

The power struggle over Nord Stream 2 has a long-standing principled significance. It is not merely about whether the German government can expand its access to Russia's enormous natural gas reserves, nor only about Berlin and Brussels' refusal, in principle, of extraterritorial sanctions. "Such measures are unacceptable and in violation of international law," declared, for example, EU Commission President Ursula von der Leyen in early November.[9] Foreign Minister Heiko Maas was quoted at the end of December having said, there is "no need to talk about European sovereignty, if that means bending to Washington's will in the future."[10] Therefore, the German government will "not alter its stand on Nord Stream 2." Most recently Marc-Antoine Eyl-Mazzega, an expert at the renowned Institut français des relations internationales (IFRI) in Paris, judged that "the Americans are trampling on European sovereignty." The EU is caught "in a power struggle" - and is not doing enough to defend its interests against Washington. If this does not change, then "tomorrow it may affect other sectors."[11]

 

[1] Land will Bau von Nord Stream 2 absichern. Frankfurter Allgemeine Zeitung 07.01.2021.

[2] See also Transatlantische Sanktionen (II).

[3] Nord Stream 2: Norwegischer Zulieferer stoppt Arbeit vor Fertigstellung. berliner-zeitung.de 05.01.2021.

[4] Zurich Insurance to drop out of Nord Stream 2 project. euractiv.com 18.01.2021.

[5] Moritz Koch, Klaus Stratmann, Jakob Blume: Nord Stream 2 AG verschiebt Weiterbau - Versicherer Zurich steigt offenbar aus. handelsblatt.com 15.01.2021.

[6] Claudia von Salzen, Christian Schaudwet: Was die US-Sanktionen für Nord Stream 2 bedeuten. tagesspiegel.de 19.01.2021.

[7] Bilfinger kündigt laut Bericht Verträge mit Nord Stream 2. handelsblatt.com 19.01.2021.

[8] James Henderson: Russia's gas pivot to Asia: Another false dawn or ready for lift off? Oxford Energy Insight 40. November 2018. See also Transatlantische Konflikte (II).

[9] Moritz Koch, Klaus Stratmann: Wettlauf gegen die Zeit: Ab 5. Dezember soll Nord Stream 2 fertiggebaut werden. handelsblatt.com 27.11.2020.

[10] Maas: Bleiben bei unserer Haltung zu Nord Stream 2. Frankfurter Allgemeine Zeitung 29.12.2020.

[11] Magdalena Pistorius: Nord Stream 2: Europe stays quiet while US 'tramples over EU sovereignty'. euractiv.com 15.01.2021.