Kartik Mittal examines the Nord Stream 2 gas pipeline, Sanctions and COVID-19

June 30 2020

Nord Stream 2, Sanctions and COVID-19

Kartik Mittal, Partner

Read through a few monthly government lists of designated individuals and entities and it soon becomes apparent that the sanctions landscape is subject to constant change. Against this background, keeping up to date with the vast spread of global restrictions in place at any one time can be challenging. Meanwhile, the dramatic impact of COVID-19 on the global economy, as the world wages war against this invisible enemy, inevitably adds a further complex dimension.

In response to the drastic measures taken by assorted governments to combat the cirus, some sanctions have been temporarily suspended on humanitarian grounds. But this does not yet include any of those imposed by the US government against its perceived enemies, such as Iran and Venezuela. If anything, they have increased with successive layers of sanctions being imposed.

Taking a hawkish view that the project represents a security risk to Europe by increasing Russia's economic and political influence in Germany and other EU countries, the Nord Stream 2 Pipeline has suffered a similar fate in US hands. Once completed, the pipeline is designed to export natural gas under the Baltic Sea from Russia into the European Union. 

On 21st December 2019, President Trump signed a law that would impose sanctions on any firm that helped Gazprom, Russia's state-owned gas company, to complete construction of the pipeline. Almost immediately, this forced work on the project to stop as the threat of sanctions caused Allseas, the Swiss-Dutch pipe-laying company, to suspend its Nord Stream 2 operations. 

But a contingency plan soon emerged. As confirmed by its CEO, Alexey Mille, Gazprom set about the task of laying the remaining 160km of pipeline itself. After a three-month journey around the globe, recent satellite images have shown that the Akademik Cherskiy, a Russian pipe-laying ship, is set to challenge US sanctions and complete the project.

Pressure was further ramped up in early June, when a bipartisan group of US senators introduced a bill for outlining further Nord Stream 2 sanctions: The Protecting Europe's Energy Security Clarification Act would serve as an addition to the legislation signed by President Trump last December. The bill is designed to expand the scope of existing sanctions, threatening to penalise not only companies involved in laying pipes, but also those providing underwriting, insurance/reinsurance to those involved in the project, or port facilities for relevant ships.

Sanctions are designed to have a significant effect over time: the damage caused to the oil-producing economies of Iran and Venezuela provide stark evidence of their impact, on top of COVID-19 and the recent sharp decline in world energy prices. Such sanctions not only have an economic impact on the sanctioned country, but also on the sanctioning country since their impisition places restrictions on a variety of businesses that want to trade with their counterparts in the sanctioned country. 

Like many European countries, the UK is undoubtedly in the midst of a deep recession, the impact of which will become even more apparent over the coming months, as Chancellor Rishi Sunak recently confirmed. In these circumstances, it is pertinent to ask whether the UK should continue to pursue its current policy in relation to international sanctions. 

An alternative option may be to change direction in order to give UK businesses the maxiumum potential opportunity to trade around the world and to facilitate a swift recovery so that the UK economy can recover from this recession as soon as possible. Given the additonal impact of Brexit on UK trade from the end of this year, there is an additional incentive to consider changing course. 

Although some countries regard COVID-19 as an opportunity to ramp up economic pressure, many others have already called for the suspension of sanctions against Iran and Venezuela. As an illustration, France, Germany and Belgium recently put out a joint statement saying that sanctions should not be attached to UNSC humanitarian assistance relating to the COVID-19 crisis. 

Such efforts have been further supplemented by statements from the UN Special Rapporteur on the Right to Food, the UN Secretary-General and the High Commissioner for Human Rights on the need for sanctions to be amended to ensure they do not hinder efforts to combat the virus.

These are certainly challenging times and almost every country around the world is feeling the economic effect caused by this global health emergency. Whether tehre will be any fundamental shift in sanction policies as a result remains to be seen. 

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