U.S. sanctions against companies building the $11 billion Nord Stream 2 pipeline have been signed into law on Dec. 20 and have already borne their first results.
Allseas Group, the Swiss-Dutch contractor that was laying the last leg of the pipeline, suspended its activity. This will most likely delay the controversial project, which would deliver Russian gas directly into Germany, bypassing Ukraine; bringing 110 billion cubic meters of annual transit capacity when combined with the existing line.
Germany and the European Union have opposed the sanctions as U.S. interference.
In spite of this, many feel that this move comes as too little, too late. Senior U.S. officials told Bloomberg earlier this week that the sanctions have been introduced too late to have any real effect and that the U.S. may try to impose costs on other Russian energy projects. Energy analysts told the Kyiv Post the same thing.
“Had they pushed this legislation through almost any time up to late summer, they would have stopped the project,” said Chris Weafer, co-founder of Macro-Advisory in Moscow. “Now, on the one hand, the engineering is almost all done… and the political commitment in Berlin is also now irreversible.”
Meanwhile, Russia’s Gazprom on Dec. 21 reached a deal with Ukraine’s Naftogaz to transmit Russian gas through Ukraine for five years, with an option to extend to 10 years. This takes the sting out of Nord Stream 2, which Ukraine feared would deprive it of an annual $3 billion in transit fees.
Jens Mueller, a Nord Stream 2 spokesman, told the Kyiv Post in an email that the project will still be completed.
“Completing the project is essential for European supply security,” Mueller wrote. “We together with the companies supporting the project will work on finishing the pipeline as soon as possible.”
The sanctions were attached to a massive U.S. defense spending bill, which U.S. President Donald Trump approved on Dec. 20. The Trump administration now has 60 days to identify companies and individuals servicing the pipeline.
According to the law, the sanctions would apply to companies and individuals involved in the construction of Nord Stream 2 and TurkStream, even if the companies changed their name or were replaced by others. In addition, sanctions would also be imposed on shipping companies that lay pipeline for the project, and on firms or individuals that sold, leased or rented any vessels used on the pipeline project.
The law also includes a 30-day period during which companies can wind down their operations.
Reached by phone on Dec. 20, an Allseas spokesman said that work was ongoing and that the company was closely following the progress of the sanctions bill.
Shortly after, Allseas released a statement, which read “In anticipation of the enactment of the National Defense Authorization Act (NDAA), Allseas has suspended its Nord Stream 2 pipelay activities.”
“Allseas will proceed, consistent with the legislation’s wind-down provision and expect guidance comprising of the necessary regulatory, technical and environmental clarifications from the relevant US authority.”
On Dec. 18, U.S. senators Ted Cruz and Ron Johnson sent a letter to Allseas CEO Edward Heerema, putting him and the company on “formal legal notice,” and saying that the bill was “passed specifically to immediately halt your company’s work on Nord Stream 2.”
“The consequences of your company continuing to do the work for even a single day after the President signs the sanctions legislation would expose your company to crushing and potentially fatal legal and economic sanctions,” they wrote.
However, the sanctions do not target the pipeline’s investors, which include Gazprom and Royal Dutch Shell.
Ilya Ponomarev, who once served as a lawmaker in Russia and is now an energy and technology entrepreneur in Ukraine, said that while Allseas’ exit from the projects would drive up project costs for Gazprom, the project will invariably be completed.
“Gazprom lacks the vessels to complete it. (These sanctions) will not be painless,” said Ponomarev. However, “there are countries that are resistant to sanctions, like Turkey. One way or another, the pipeline will be finished next year.”
Weafer said that as the project neared completion, German political resolve to see it through has only strengthened.
“This has become a political point of principle in Berlin,” he said. “The U.S. tried to interfere with (Germany’s) domestic energy policy and (they’re) not going to let them do it.”
He added that because the sanctions were delayed for so long, it sends a signal that the U.S. wanted to make a political statement but was not actually that strongly interested in stopping the pipeline and upsetting Germany.
Still, the German government condemned the sanctions, saying that the U.S. was “meddling” in Germany’s internal affairs.
German Foreign Minister Heiko Maas was quoted on Dec. 19 as saying that European energy policy is decided in Europe, not the U.S. and that Germany was “opposed in principle to interventions from abroad and to extraterritorial sanctions.” Current and former U.S. diplomats told media outlets that the move would put the U.S. at odds with Germany.
Russian president Vladimir Putin also promised reciprocal sanctions.
The sanctions would also target companies involved with TurkStream, which runs under the Black Sea. Turkish President Tayyip Erdogan stated on Friday that Turkey would “retaliate.”
However, last month, Gazprom has begun to fill the TurkStream pipeline with gas. While the TurkStream 2 pipeline is still in the works, it will run overland.
