July 24, 2021

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No waves here: US waives sanctions for Nord Stream 2, CEO too

2021-05-21 15:24:38

The US Department of State submitted on May 19 a report to Congress pursuant to the Protecting Europe’s Energy Security Act (PEESA), as amended, listing four vessels, five entities, and one individual involved in construction of the Nord Stream 2 pipeline, including Nord Stream 2 AG and the company’s CEO Matthias Warnig.

“I think the US decision to state that Nord Stream 2 and its CEO were subject to sanctions and then immediately waive those sanctions suggests that the US have realized that keeping the threat of future sanctions – which would have been the case should the US simply decided not to include Nord Stream 2 and its CEO in the sanctions report in the first place – is no longer working and the pipeline would get built regardless but the US relationship with Germany would be in tatters,” Katja Yafimava, a senior research fellow at the Oxford Institute for Energy Studies, told New Europe on May 20. “Instead, the decision seems to have been made to demonstrate the US willingness to preserve the trans-Atlantic alliance and not risk it over Nord Stream 2,” she added.

Secretary of State Antony Blinken said in a statement the actions on May 19 demonstrate the Administration’s commitment to energy security in Europe, consistent with US President Joe Biden’s pledge to rebuild relationships with US allies and partners in Europe. “We will continue to oppose the completion of this project, which would weaken European energy security and that of Ukraine and Eastern flank NATO and EU countries,” Blinken said, stressing that US opposition to the Nord Stream 2 pipeline is unwavering. “Though we may not always agree, our alliances remain strong, and our position is in line with our commitment to strengthen our Transatlantic relationships as a matter of national security,” he said.

Yafimava argued that the Biden Administration calculation might be that making this waiver look like extending an olive branch to Germany and Russia as it was announced ahead of the meeting between Blinken and his Russian counterpart, Sergei Lavrov, could help it secure some concessions from Germany in respect of Nord Stream 2 operation, rather than construction.

“It might also think the next German coalition government would be more receptive to its demands if it includes the Greens, and this in turn may have an impact on the regulatory regime to be established by the German regulatory authority although the latter is an entity de jure independent from the government,” Yafimava argued. “Ultimately, however, I believe the EU regulation – rather than the US influence – will be the main factor determining Nord Stream 2 operation,” the Oxford expert added.

Following the Blinken-Lavrov meeting on the margins of the Arctic Council Ministerial on May 19, spokesperson Ned Price said the Secretary of State noted that the US sought a more stable and predictable relationship with Moscow. “To that end, Secretary Blinken and Foreign Minister Lavrov discussed Russia’s Arctic Council Chairmanship and the importance of cooperation given our shared stake in the region,” Price said.

Carnegie Moscow Center Director Dmitri Trenin wrote the US temporary waiver on Nord Stream 2 is not a concession to Moscow but part of US-Germany dialogue. “Nord Stream 2 has long become a Transatlantic issue. Despite civilized appearances at Reykjavik, no de-escalation of US-Russian confrontation should be expected at this point,” Trenin wrote in a tweet.

Chris Weafer, co-founder of Macro-Advisory in Moscow, said improving US-German relations are a greater priority for the White House. “But, in a surprising follow up, the US Secretary of State said that the sanctions against Nord Stream 2 and its CEO, are waived. This is because of overriding US national interests. The ‘national interest’ is the wish to improve relations with Germany, a clear objective of the Biden administration,” Weafer wrote in an emailed note, adding that German officials, including both the President and the Chancellor, have repeatedly stated that the gas pipeline is in the country’s best interest and they wanted it to happen. Any effort by the US to block the pipeline would damage US-German relations, according to Berlin officials.

“In practice, this should mean that the pipeline will be completed. Gazprom has sufficient resources to complete the engineering work and the pipelaying is ongoing in both German and Danish territorial waters,” Weafer wrote. “Russian officials say that they are aiming for the pipeline to be completed ahead of the German elections – set for late September – so that it does not become an issue, for example with the Green Party.”

According to the Macro-Advisory expert, this is not to say that the project is now 100% safe. He reminded that members of the US Congress have expressed outrage at the State Department action and are demanding further actions to prevent the gas from flowing through the pipeline. “As to what exactly they can do, further than the actions already taken and now diluted by the White House, is unclear. But the sponsors of the PEESA legislation will certainly be looking for options. The one factor that may keep their ire in the rhetorical rather than in actions is that there are so many major US domestic problems to be dealt with. No matter how Russia phobic Congress is, domestic concerns are always of greater importance,” Weafer wrote.

Ukraine concessions

He argued that Russia may yet have to make some Ukraine concessions. It is also possible that Germany may insist on some Ukraine concession from Russian gas monopoly Gazprom, for example a commitment to maintain larger transit volumes for longer via the Druzhba pipeline. “Or it may be part of the negotiations to try and reach a settlement in Eastern Ukraine,” Weafer wtote, adding, “It is certainly hard to imagine that Gazprom will get a free pass on Nord Stream 2”.

The Nord Stream 2 project, which would transport Russia gas under the Baltic Sea to Germany, bypassing Ukraine, is already more than 95% complete.

Nord Stream 2 AG said on May 20 the company does not comment on US sanctions decisions and potential impacts on the project. “Regarding the pipelay status, we can only refer to figures communicated earlier: as of March 31, a total of 2,339 kilometres [out of 2,460 kilometres] or 95% of the Nord Stream 2 Pipeline had been laid,” a Nord Stream 2 spokesperson told New Europe on May 20. “At this time, approximately 121 kilometres [or 5%] remained to be laid, 93 kilometres in Danish waters and approximately 28 kilometres in German waters. The figures will be updated in due time,” the spokesperson added.

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