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The Existential Danger to Nord Stream 2 of a Renewed U.S. Sanctions Push

5 MINS READMay 21, 2019 | 21:43 GMT
A section of pipe hangs from a crane at a construction site of the Eugal gas pipeline in Germany, which will transport natural gas arriving from Russia through the Nord Stream 2 pipeline.
(SEAN GALLUP/Getty Images)

The United States has long considered obstructing the Nord Stream 2 pipeline, which would have the capacity to send 55 billion cubic meters of Russian natural gas directly to Germany by way of the Baltic Sea -- bypassing Poland, the Baltic states and Ukraine.

Stratfor's geopolitical guidance provides insight on what we're watching out for in the week ahead.
The Big Picture

The United States has long considered obstructing the Nord Stream 2 pipeline, which would have the capacity to send 55 billion cubic meters of Russian natural gas directly to Germany by way of the Baltic Sea. However, a recent statement from U.S. Energy Secretary Rick Perry has now offered the strongest indication yet that Washington could be getting serious about sanctioning the roughly $11 billion project.

What Happened

During a visit to Ukraine on May 21, U.S. Energy Secretary Rick Perry warned that a sanctions bill targeting Russia's Nord Stream 2 pipeline project could come in the "not too distant future." This comes after four U.S. senators introduced a bipartisan bill on May 15, known as the Protecting Europe's Energy Security Act, aimed at obstructing the pipeline between Germany and Russia. If signed into law, the bill would impose financial and travel sanctions against any pipe-laying vessels involved in constructing Russian offshore energy export pipelines, including individuals and companies that facilitate the use of such vessels.

Why It Matters

It remains unclear whether the United States would pass the sanctions bill before the end of the year, or whether such sanctions would come in time to derail the pipeline project. According to unnamed sources close to the Nord Stream 2 project, there is a belief that Washington will not actually follow through with sanctioning on the pipeline, and that Perry's statement was instead intended to deter Western investment into future Russian energy projects.

That said, the United States has also long floated the possibility of sanctioning the roughly $11 billion pipeline, which would send Russian natural gas directly to Germany by bypassing Poland, the Baltic states and Ukraine. And the fact that Perry's comments came shortly after the senators introduced the sanctions bill could indicate that this is a real possibility being considered by Washington.

The U.S. energy secretary's statement offers the strongest indication yet that Washington could be serious about sanctioning the roughly $11 billion pipeline between Germany and Russia.

In response to Perry's statement, Kremlin spokesman Dmitry Peskov ensured the project would still be completed "for the benefit of European [gas] consumers" despite U.S. sanctions. But if fully imposed, such sanctions against pipe-laying vessels could potentially be a death sentence for Nord Stream 2, as there are only a few companies that have access to such vessels (including Italy's Saipem and Switzerland's Allseas). Following delays in obtaining the permits needed to access Denmark's waters on the Baltic Sea, it's also highly unlikely that the pipeline will be ready to enter service by the end of this year, per the original timeline.

In addition to serving as another major pressure point in its competition against Russia, U.S. sanctions against Nord Stream 2 also risks driving a wedge between Washington and major European Union countries with companies involved in the pipeline. Such companies include Uniper and Wintershall (Germany), Shell (the United Kingdom and the Netherlands), OMV (Austria) and Engie (France), which combined are responsible for half of the project's funding.

At the same time, the sanctions could deepen existing disputes over Nord Stream 2 within the European Union as well. While Germany clearly stands to benefit from having a new inflow of natural gas, many other EU countries — most notably, Poland — would lose out on their status as transit states of Russian energy to Europe, and have thus remained opposed to the project.

What to Watch for

There are several developments to watch for in deciphering whether the United States will actually make good on its threats to sanction Nord Stream 2. These include:

  • Movement in Congress: The recently proposed sanctions bill is not yet scheduled to come to a vote in either the U.S. House of Representatives or the Senate. It would need to pass both congressional chambers before getting to the desk of U.S. President Donald Trump.
  • The White House's position: While the Trump administration has passed numerous sanctions against Russian individuals and entities, it has so far been hesitant to impose more severe sanctions against Moscow. Since Trump took office in January 2017, the hardest-hitting U.S. sanctions imposed against Moscow involved the major Russian aluminum company Rusal, though even those sanctions have since been reversed because of their impact on the global industry. Thus, while Perry's statements could suggest that the White House is seriously considering sanctions against Nord Stream 2, it will be important to watch for any indications of Trump's actual position on the matter.
  • More funding for diversification projects in Europe: Beyond Nord Stream 2 specifically, the United States has politically backed several energy diversification projects aimed at weening Central and Eastern Europe off Russian oil and gas, including liquefied natural gas import terminals in Poland and Lithuania, pipeline interconnectors in the Baltic states and Ukraine's efforts to modernize its energy infrastructure. However, this support has so far been largely technical in nature and has not yet taken on a significant financial component.

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