Trump’s Nord Stream 2 Sanctions Backfire: Germans Urge European Firewall Against US Sanctions

German politicians have called on Europe to adopt protective measures against US sanctions after Washington managed to halt completion of a new submarine gas pipeline linking Russia directly to Germany.

The bipartisan US move initiated by Congress last week threatened sanctions against companies working on completing Nord Stream 2, Europe’s biggest energy-infrastructure project, which the US and some European countries fear could give Russia some control over the continent’s energy supplies and boost revenues for an increasingly belligerent Kremlin, The Wall Street Journal wrote.

The move prompted Swiss pipe-laying company Allseas Group S.A. to stop work on the $10 billion pipeline, just weeks from completion. The pipe would double direct gas shipments to Germany by Russian’s state-owned gas giant PAO Gazprom.

Despite announcement of the stoppage, Russian energy minister Alexander Novak told a state-owned press agency on Thursday that only 160km, or the underwater part of the Nord Stream 2 pipeline, remained to be completed, work that would be finished within months by using Russian ships. Russian state media reported that Gazprom’s pipe-laying vessel Akademik Cherskiy, currently in the far east, would be brought to the Baltic to complete the pipeline.

The US’s move sparked outrage in Germany, prompting senior officials and politicians to call for a coordinated approach to protect the strategic interests of European Union members against future US sanctions.

“Europe needs new instruments to be able to defend itself from licentious extraterritorial sanctions,” wrote Niels Annen, Germany’s deputy foreign minister, in a tweet last week.

The dispute adds to strain in the Western alliance since the Trump administration adopted a series of foreign-policy moves, including troop withdrawals, trade tariffs and the withdrawal from certain international agreements, without consulting with allies.

Some German officials say that fortifying Europe’s defenses against US sanctions could require closer cooperation with Russia and China at a time when President Trump is pressuring EU allies to side with Washington in its trade, technology and geopolitical disputes with Beijing.

Others questioned Washington’s motivations, saying that the sanctions were driven by the desire to increase exports of American liquefied natural gas, or LNG.

Miguel Berger, the German Foreign Office’s director general in charge of economic affairs, wrote in a tweet last week that the sanctions were an “attempt to use coercive measures for selling LNG to Europe.”

The extraterritorial reach of US economic sanctions has been a recurring irritant for Europe. Washington has imposed fines worth tens of billion dollars on European firms, especially banks, for past sanctions breaches, and European officials have worked on ways to protect the continent’s companies.

A senior German government official said, in response to the pipeline sanctions, that Germany would make a renewed European push to build a firewall against US sanctions when it takes over the EU’s rotating presidency next year.

One goal would be to create a separate financial infrastructure that would allow European companies to escape the scope of US sanctions. The banks involved would have to be based in jurisdictions out of the US’s reach, such as China or possibly Russia, the official said.

“Washington is treating the EU as an adversary. It is dealing the same way with Mexico, Canada, and with allies in Asia. This policy will provoke counter-reactions across the world,” this official said.

Some European officials have even toyed with the idea of adopting sanctions of their own against the US, for instance to deter policies they think endanger the environment.

“What if the EU Parliament would sanction the Keystone pipeline on environmental grounds,” a senior German diplomat asked, speaking to The Wall Street Journal this week, in reference to the oil pipeline connecting Canada and the US that has been opposed by environmentalists in both countries.

Building a shield against US sanctions is difficult because of the size of the US economy, the role of the dollar in international transactions, and the fact that the US has control over much of the world’s financial plumbing.

The EU has failed to protect its companies that do business in Iran since the US reintroduced sanctions against the country last year after Washington exited the 2015 nuclear deal. US officials have urged Europe to tighten its own sanctions on Iran instead of trying to work around US measures.

In January, the British, French, and German governments created a company to carry out a complicated barter-like scheme with an Iranian counterpart out of America’s reach. So far, it has not completed a single transaction.

Richard Nephew, a senior fellow at the Brookings Institution, said the rising frictions between the US and its traditional allies would encourage the development of similar arrangements.

Russia and China have banks and other companies that do no business in the US and are thus immune from US sanctions. Some of those firms, like China’s Bank of Kunlun, were the main conduit for China’s Iran sales under the previous pre-nuclear-deal set of Iran sanctions.

Yet for Western firms to start using such institutions would carry reputational and compliance risks. Even Chinese firms have grown more cautious about bucking US sanctions. Bank of Kunlun, whose China National Petroleum Corp. parent is listed on the New York Stock Exchange, has repeatedly frozen business with Iranian firms over the last year. China’s purchase of Iranian oil plummeted after US sanctions waivers were removed.

Peter Beyer, German Chancellor Angela Merkel’s trans-Atlantic affairs coordinator, told German radio on Wednesday that finishing the pipeline would now be more expensive, but that it would be completed in the second half of 2020.

Source: The Wall Street Journal