I’m quoted by the FT | “Germany warns new US sanctions endanger Nord Stream 2 pipeline. (As) serious interference in European sovereignty”

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Chancellor Merkel, x-Chancellor Schroeder, Gazprom and Russian officials et al open valve for earlier Nord Stream 1 pipeline, 11 Nov. 2011. (Radio Free Europe)

Here is the link to the Financial Times article of 2 July 2020. (pay wall likely). However, a plain-text version is also below, at the end of this post (for which I beg the FT’s indulgence).

Comment on deteriorating US-German relations over the Nord Stream 2 project

As my brief FT quote indicates, the new PEESA Clarification Act sanctions now before Congress are intended to be so severe as to convince German officials to abandon any further attempts to complete the pipeline with Russia, killing it permanently.

This is essentially an ultimatum, which, as such, will of course be taken badly by the German side. However, German leaders’ and experts’ widely held perceptions that these sanctions are motivated primarily from the mercantilist and transactional approach to US-German relations touted by Trump — such as demands to purchase US LNG — are sorely missing the message emanating from Congress, and not least because US opposition to these projects long predates its shale gas revolution and emergence as an LNG-exporting country.

These sanctions are not flowing from Trump’s complaints against Germany.  In fact, this will be the third time Congress, on a bipartisan basis, has imposed sanctions on Russian interests contrary to Trump’s wishes.

The first instance was the codification into law of President Obama’s executive sanctions on Russia, which Obama had imposed after the Russian invasion of Ukraine in 2014.  These were made into a law in June 2017 which passed with so many votes that Trump could not veto the bill.  This was done precisely because Trump was not trusted to keep in place Obama’s sanctions, considering Trump’s demonstrated affinity for Putin.

These 2017 measures also gave Trump presidential authority to sanction Nord Stream 2; however he refused to do so.  Therefore, Congress imposed mandatory sanctions on Nord Stream 2 in December 2019, known as the PEESA act, as part of the National Defense Authorization Act (NDAA) of 2019. These were the sanctions which had the effect of immediately halting construction of the pipeline.

However, in response, both the Russian and German governments have repeatedly made clear their resolve to complete construction regardless of these 2019 sanctions.  And, once again, since Trump refuses to take further action to stop the pipeline’s construction, Congress is expect to soon enact the very severe PEESA Clarifications Act presently under consideration.

In short, US congressional sanctioning of Nord Stream 2 construction cannot be seen as simply a product of Trump’s presidency, of his nationalist-mercantalist bombast against Chancellor Merkel et al. Although various members have a range of motivations, overall these sanctions reflect a long-evolving bipartisan resolve within Congress that this pipeline project, contrary to the objections of  the German government, is harmful to the energy security of Europe. Russia’s unrelenting cyber, military, assassination, election-interference and propaganda outrages only increases the sense of urgency in Congress.

It should be noted that this is a position supported by many other European allies, who also disagree with Berlin on this matter, and have actively fought to block or, with some successes, hinder the project via legal and political channels within the European Union.

On the other side of this confrontation, Berlin has engaged in a years-long, dogged insistence that this is “purely a commercial project,” and that Russia’s Gazprom, well known for its history of monopolist practices, has instead consistently been a “reliable energy supplier” to Germany and to Europe, engaging in a business which is now being “politicized” by the USA and many EU Member states.

By insisting on these diversionary talking points, Berlin has done everything possible to avoid a frank and constructive discussion within the EU, with successive US administrations or with the German public about the obvious geostrategic and energy-market security implications of this huge dual-pipeline project.

The reality is that the combined Nord Stream 1 & 2 system, if completed, will effect the reorganization of Russian gas distribution patterns across Europe, establishing Germany as the new hub for distribution of Russian gas in Europe.  In turn, this will eliminate Russia’s present dependence on Ukraine, Belarus, Poland and other former-Soviet-dominated states to carry out its gas export business to Europe.

As a result, the persistent diversionary discourse by Berlin, lately facilitated by Trump’s nationalist-mercantilist bombast, has long blocked any frank discussion of the geosecurity and market implications of the Nord Stream projects for Europe. After so long a process, this outcome must finally be understood as the intent.

Discourse has now predictably degenerated to the point where a de facto ultimatum — “Abandon this project, or else!’ — is being presented to Berlin by the US Congress, bypassing the president.

Will Mr. Putin finally give Ms. Merkel some major concession she can offer to Congress to avoid these sanctions?  I can only imagine that a major concession ending Russia’s occupation of Donbas and/or its annexation of Crimea might be sufficient at this point. We shall see.  (Update: Meetings of the Normandy Format’s four countries, on relatively short notice, are in fact taking place today, Friday 3 July, in Berlin.  See here and here. )

I will discuss these issues in more detail in an article I am now preparing. [Text above edited for clarity and noted update, 3 July – T. O’D.]

The FT article:

Germany warns new US sanctions endanger Nord Stream 2 pipeline

Berlin officials call proposed law serious interference in European sovereignty

German officials warned that proposed new US sanctions against the controversial Nord Stream 2 gas pipeline threaten the project’s survival, calling it serious interference in German and European sovereignty.

Nord Stream 2, owned by the Kremlin-controlled gas monopoly, Gazprom, has only 160km of underwater pipeline left to build to reach its receiving station in northern Germany.

Prior US sanctions targeted companies laying the pipeline, but German officials at a Bundestag panel hearing on Wednesday argued the new round could hit companies facilitating the project, and potentially even German officials.

“We’re talking about direct and grave interference in Germany and Europe’s sovereignty and energy policy ,” said Niels Annen, minister of state in Germany’s foreign ministry, at the hearing.

Swiss company Allseas halted deepwater pipe laying for the project after the US sanctions were signed into law in 2019, and Russia vowed to continue on its own.

Nord Stream 2 has also been divisive within Europe. Some criticise the project as a means of advancing German commercial interests at the expense of Ukraine, which fears losing transit pipeline fees. Eastern European and Baltic states also worry about increased dependency on Russia.

Germany highlighted its role in brokering a new gas transit treaty between Moscow and Kyiv, which came into force on January 1 2020, to ensure gas continued to flow through Ukraine.

Many German analysts say the sanctions seem driven by American efforts to promote its own liquefied natural gas in Europe. Washington “has pushed the purchase of US LNG”, said Kirsten Westphal, of the German Institute for International and Security Affairs.

At Wednesday’s panel, Michael Harms, managing director of the German Eastern Business Association, estimated new sanctions could affect 120 companies from 12 European states, and that many companies could feel compelled to withdraw.

German chancellor Angela Merkel said the “extraterritorial sanctions” Congress was planning “are not consistent with my understanding of the law”. If passed, it would be harder to complete Nord Stream 2, but she said “we still believe it’s right to get the project done”.

The new proposed bipartisan sanctions, co-sponsored by Republican senator Ted Cruz and Democratic senator Jeanne Shaheen, are likely to be included in a defence bill winding its way through Congress.

“The purpose of the bill is to ensure that the third parties that Gazprom needs to complete the pipeline do not provide services that Gazprom needs,” said a Republican congressional official.

Thomas O’Donnell, a lecturer on global energy systems at the Free University in Berlin, said the aim was to bring down the project. “This hurdle is meant to be too high to get over.”

Lawmakers in the Senate and House are yet to vote on this year’s National Defense Authorization Act. Last year, the process took about six months, meaning Nord Stream 2 may yet have time to manoeuvre.

Gerhard Schröder, a former German chancellor close to Russian president Vladimir Putin and currently chairman of the shareholders’ committee of Nord Stream AG, told the Bundestag hearing that €12bn would have to be written off if the project failed, and urged counter-sanctions.

Nord Stream 2 spokesman Ulrich Lissek said: “Today’s hearing in the Bundestag indicates that Europeans are not going to take it any more.”

Berlin is pushing for a European response. The bloc’s foreign policy chief, Josep Borrell, said the European Commission was “preparing the ground” for counter-sanctions. Critics are sceptical the EU will reach consensus, citing its failure to act against the previous sanctions.

The project has had other recent setbacks. In May, Germany’s energy regulator and an EU court declined to exempt it from unbundling rules, which require separate, independent companies to handle the transportation and distribution of energy.

“If it wasn’t for Brexit, the biggest disaster of a European state would have been Nord Stream 2,” said Alan Riley, a fellow at the Atlantic Council. “It is hurting European relations and it is hurting relations with America.”

Additional reporting by Demetri Sevastopulo in Washington

Copyright The Financial Times Limited 2020. All rights reserved.

 

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