The United States is ratcheting up the threat of sanctions against European companies in an effort to deal a death blow to the Nord Stream 2 gas pipeline between Russia and Germany. Pictured: The Nord Stream 2 landfall facility in Lubmin, Germany, on September 7, 2020. (Photo by Odd Andersen/AFP via Getty Images)
The United States is ratcheting up the threat of sanctions against European companies in an effort to deal a death blow to the Nord Stream 2 gas pipeline between Russia and Germany. The pipeline would double shipments of Russian natural gas to Germany by transporting the gas under the Baltic Sea. U.S. President Donald Trump, like his predecessor Barack Obama, has criticized the project because it would make Germany "captive" to Russia for its energy supplies.
Trump has been especially critical of German Chancellor Angela Merkel, who, in opposition to the United States and many Eastern European countries, has doggedly pursued the pipeline project, which would funnel billions of dollars to Russia at a time that Germany is free-riding on the U.S. defense umbrella that protects Germany from that same Russia.
U.S. sanctions have delayed completion of the 1,230-km (764-mile) pipeline by more than a year and added at least $1 billion to its cost. The €9.5 billion ($11.5 billion) project, which is 90% complete, was initially slated to become operational in 2020, but its completion date is now uncertain after several key participants were threatened with U.S. sanctions and bailed out.
The unfinished part of the pipeline includes a 2.6 kilometer (1.6 mile) stretch in shallow waters of Germany's Exclusive Economic Zone and 100 kilometers (62 miles) in deep-water off the coast of Denmark.
Work on the pipeline was abruptly halted in December 2019, when Allseas Group SA, a Swiss company, was threatened with U.S. sanctions and suspended pipelaying operations in Danish waters. Allseas operated a fleet of highly specialized subsea pipelaying ships.
The sanctions were included in the National Defense Authorization Act (NDAA), the annual defense spending bill, which President Trump signed into law on December 20, 2019. The legislation required the U.S. State and Treasury departments to submit a report within 60 days that identifies "vessels that are engaged in pipe-laying at depths of 100 feet or more below sea level for the construction of the Nord Stream 2 pipeline project, the TurkStream pipeline project [a new gas pipeline stretching from Russia to Turkey across the Black Sea] or any project that is a successor to either such project."
Hundreds of companies from more than a dozen countries are involved in the Nord Stream 2 project, including at least 350 German companies, according to the German Chamber of Commerce and Industry (DIHK).
Nord Stream 2 suffered another setback in November 2020, when DNV GL, a Norwegian risk management and quality assurance group, backed out of the project due to the threat of U.S. sanctions. DNV GL's work involved reviewing documentation and observing construction activities to ensure compliance with its standards. This included monitoring the testing and preparation of equipment used by vessels to install the pipeline. It remains unclear how the pipeline activities can continue without quality assurance guarantees.
DNV GL's decision came after the U.S. State Department warned that it was "committed to fully implementing sanctions authorities in the Protecting Europe's Energy Security Act of 2019 (PEESA)." An October 20 statement said:
"We continue to call on Russia to cease using its energy resources for coercive purposes. Russia uses its energy export pipelines to create national and regional dependencies on Russian energy supplies, leveraging these dependencies to expand its political, economic, and military influence, weaken European security, and undermine U.S. national security and foreign policy interests. These pipelines also reduce European energy diversification, and hence weaken European energy security.
"PEESA provides the United States with the authority to advance U.S. national security and foreign policy objectives, in particular, to address Russian pipeline projects that create risks to U.S. national security, threaten Europe's energy security, and consequently, endanger Europe's political and economic welfare.
"In accordance with PEESA Section 7503, the Secretary of State, in consultation with the Secretary of the Treasury, is to submit a report to Congress for the relevant period, identifying (A) vessels that engaged in pipe-laying at depths of 100 feet or more below sea level for the construction of the Nord Stream 2 pipeline project, the TurkStream pipeline project, or any project that is a successor to either such project; and (B) foreign persons that the Secretary of State, in consultation with the Secretary of the Treasury, determines have knowingly sold, leased or provided those vessels for the construction of such a project; or facilitated deceptive or structured transactions to provide those vessels for the construction of such a project."
The scope of U.S. sanctions was expanded further in a veto-proof bipartisan defense policy bill passed in December 2020.
In defiance of U.S. sanctions, Nord Stream 2, which is led by Russia's Gazprom, announced on December 11 that it had resumed work on the 2.6 kilometer stretch in shallow German waters.
On December 22, the Danish Maritime Authority announced that deep-sea pipe-laying work would resume on the Baltic Sea bed beginning on January 15, 2021.
On December 23, U.S. officials revealed that a Spanish shipyard in the Canary Islands had upgraded a Russian ship, the Oceanic 5000, to complete the subsea pipelaying activities that previously had been carried out by Allseas.
On December 24, the Kremlin admitted that U.S. sanctions may succeed in preventing completion of the pipeline.
The U.S. government is now readying a fresh round of congressionally mandated sanctions that could deal a fatal blow to the project, according to the Reuters news agency. "We've been getting body blow on body blow to this, and now we're in the process of driving a stake through the project heart," an American official told Reuters on the condition of anonymity.
The U.S. pressure campaign is backed by both Democratic and Republican lawmakers who fear that Russia will gain a stranglehold over German energy supplies. U.S. Senators Ted Cruz, Tom Cotton and Ron Johnson recently noted:
"There is a broad array of U.S. sanctions and guidance targeting the Nord Stream 2 project, reflecting years of bipartisan, bicameral, and interbranch efforts and constituting a whole‐of‐government consensus that the pipeline must be stopped."
A German-Russian Project
Nord Stream 2 is led by Russia's Gazprom, with half of the funding provided by Germany's Uniper and Wintershall, the Anglo-Dutch company Shell, Austria's OMV and France's Engie.
Despite the multinational participation, the pipeline is essentially a German-Russian project promoted from its inception by Germany's center-left Social Democratic Party (SPD), which, even during the Cold War, viewed closer economic ties with Russia as a way to defuse East-West tensions.
Germany's former SPD chancellor, Gerhard Schröder, a confidant of Russian President Vladimir Putin, has been Europe's leading proponent of the pipeline. Schröder, who led Germany between 1998 and 2005, has been the Chairman of Shareholders' Committee of Nord Stream since 2006. He is also Chairman of the Board of Directors of Rosneft, Russia's biggest oil producer. He has used his connections in Germany and elsewhere in Europe to lobby for both Nord Stream 1 and Nord Stream 2.
In 2017, when Nord Stream was suffering from several serious setbacks, the former SPD leader and Foreign Minister Sigmar Gabriel revived the project, as did his successor, Frank-Walter Steinmeier, who is now Germany's president.
Not surprisingly, Germany's current Social Democratic Foreign Minister, Heiko Maas, has criticized the U.S. sanctions as foreign interference. "Decisions on European energy policy are made in Europe, not the USA," he has tweeted. "We fundamentally reject foreign interventions and sanctions with extraterritorial effects."
Europe is, in fact, deeply divided over the Nord Stream project and Germany is in the minority position. Russia is the largest supplier of natural gas to the EU, according to Eurostat. Just over 40% of EU imports of natural gas come from Russia, followed by Norway (at around 35%). Nord Stream 2, when combined with the existing Nord Stream 1, would concentrate 80% of the EU's Russian-imported gas along that pipeline route.
Germany's Nordic, Baltic and Eastern European neighbors have accused Berlin of ignoring their concerns that the pipeline is a threat to Europe's energy security and that it will strengthen Gazprom's already dominant position on the market.
In March 2016, the leaders of the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania and Slovakia, in a letter to the European Commission, warned that Nord Stream 2 would pose "risks for energy security in the region of central and eastern Europe" and generate "potentially destabilizing geopolitical consequences." They added: "It would strongly influence gas market development and gas transit patterns in the region, most notably the transit route via Ukraine."
A report by the Swedish Defense Research Agency found that Russia has threatened to cut energy supplies to Central and Eastern European more than 50 times. Even after some of those states joined the European Union, Russian threats continued.
In December 2018, the European Parliament, by a vote of 433 to 105, condemned Nord Stream 2 as "a political project that poses a threat to European energy security." It called for the project to be cancelled.
Ukraine has said that the Nord Stream 2 pipeline will deprive the country of billions of dollars in transit fees and undermine existing economic sanctions imposed by the West to compel Russia to resolve the conflict in eastern Ukraine and end its occupation of Ukraine's Crimea region.
Roughly one-third of Russia's gas supplies to the EU currently pass through Ukraine. A ten-year pipeline contract between Russia and the Ukraine was to have expired on December 31, 2019. The two sides have since signed a five-year, $7 billion deal on the transit of Russian natural gas to Europe.
Nord Stream 2 should have been operational at the end of 2019, but the project was delayed after applications to lay pipes under Danish waters were left pending since April 2017. Nord Stream Chairman Gerhard Schroeder blamed U.S. political pressure on Denmark as the main reason for the delay in approving the permits. "Denmark is putting Europe's energy security at risk," he said.
After Denmark's Social Democratic Party won the Danish general elections in June 2019, the new government removed the last major hurdle to complete the Russian-led project. In October 2019, the Danish Energy Agency approved a permit for Nord Stream to lay pipes in a 147-km section in the Danish Exclusive Economic Zone (EEZ) southeast of the Danish island Bornholm in the Baltic Sea.
In August 2020, after Russian opposition leader Alexei Navalny was poisoned with novichok, a military-grade nerve agent developed by the Soviet Union, German Chancellor Angela Merkel faced intense pressure to pull out of the pipeline project. Merkel said that the two issues should be "decoupled."