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This article was originally published in WorldECR's Issue 92 on pages 32-33. The Issues can be purchased here

The political and legal aspects of Nord Stream 2

Kartik Mittal

According to its Charter, only the UN Security Council has an international mandate to apply sanctions. But thanks to geopolitical dynamics, the sanctions landscape is constantly evolving with some nation states continuing to impose them unilaterally. The dramatic impact of Covid-19 has led to some sanctions being temporarily suspended on humanitarian grounds, although this does not yet include those imposed by the US government.

Sanctions are designed to have a significant long-term effect: the damage caused to Iran and Venezuela provide stark evidence of their impact. Such sanctions not only cause economic harm to the sanctioned country, but also to the sanctioning country since their imposition places restrictions on assorted businesses that want to trade with their counterparts in the sanctioned country.

Adopting a consistently 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 provoked a very hostile reaction from the Trump administration. Once completed, the pipeline will export natural gas under the Baltic Sea from Russia into the European Union.

Last December, President Trump signed a law that would impose sanctions on any firm that helped Gazprom, Russia's state-owned gas company, to complete the pipeline’s construction. It had an immediate effect, forcing 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.

Further Nord Stream 2 sanctions are now proposed. Co-sponsored by Republican senator Ted Cruz and Democratic senator Jeanne Shaheen, these are likely to be included in a new defence bill. They are 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. Although it will take months to move through Congress, because the bill is bi-partisan, it may yet survive the forthcoming elections. 

In July, German officials warned that these new sanctions could potentially threaten the project’s survival. At a Bundestag panel hearing, it was suggested that they could not only hit companies facilitating the project, but potentially even German officials.  Niels Annen, minister of state in Germany’s foreign ministry told the panel: “We’re talking about direct and grave interference in Germany and Europe’s sovereignty and energy policy.”

In 1996, an EU blocking statute was enacted to protect EU operators from the extra-territorial application of third country laws: it served to counteract US sanctions against Cuba, Iran and Libya.

When the US re-imposed sanctions against Iran in 2018, after its withdrawal from an agreement over curtailing its nuclear programme, the European Commission announced that it would implement the blocking statute, declaring the US sanctions against Iran null and void in Europe and banning European citizens and companies from complying with them.

Whether the same course might be taken over Nord Stream 2 remains to be seen, although German chancellor Angela Merkel has said that the “extraterritorial sanctions” Congress is planning “are not consistent with my understanding of the law”.

But a stark divergence of national interests presents a problem: some EU member states have diametrically opposing views. While Germany and others understandably champion the economic benefits of Nord Stream 2, the Baltic States and Poland inevitably fear the security implications of increasing the EU’s energy reliance on Russia and circumventing the transit route through Ukraine. They believe that it potentially compromises the EU’s Common Foreign and Security Policy (CFSP).

Meanwhile the US rhetoric has intensified with the US threatening to impose sanctions on any companies helping Russia to build the pipeline for which half the funding has been provided by five European energy groups: Shell, Uniper, Wintershall, OMV, and Engie. Mike Pompeo, the US secretary of state, said recently: “It’s a clear warning to companies that aiding and abetting Russia’s malign influence projects will not be tolerated. Get out now, or risk the consequences.”

In practice, it seems likely that the US Congress will expand sanctions to include any company helping to build the pipeline construction, or assist in related activities: all are at risk of exposing themselves. This could also extend to any bank that transfer funds on behalf of any of the entities involved. Pompeo’s words are unambiguous: “Let me be clear, these aren’t commercial projects. They are the Kremlin’s key tools to exploit this bad European dependence on Russian energy supplies . . . a tool that ultimately undermines transatlantic security.”

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