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Nord Stream 2 sanctions would “damage transatlantic unity” Germany claims

Sanctions Knowledge & Training

Germany has urged the US Congress not to impose sanctions on the Nord Stream 2 gas pipeline, saying that any moves against the pipeline will be in breach of a previous deal.

The move follows the blockage of the annual federal defense spending bill by US senators, who say they have not had enough votes on amendments, including one that would have imposed sanctions over Nord Stream 2.

The €10bn Baltic Sea pipeline, which carries gas from Russia to Germany, is already causing major geopolitical divisions within Europe. In the US, many politicians believe it would harm European energy policy and make Europe too reliant on Russian gas.

While Present Biden says he is against the pipeline, he struck a deal with Germany earlier this year to avoid alienating a key US ally over a project that is near completion. In a joint declaration from the two countries, Germany agreed to push for EU sanctions if Russia “used energy as a weapon” against Ukraine and Europe.

A report from news website Axios says Germany has now told members of US Congress that sanctions imposed on the pipeline would “weaken” US credibility and “ultimately damage transatlantic unity”.

Europe divided on Nord Stream 2

Nord Stream 2 is a critical part of Germany’s energy infrastructure and will double Moscow’s gas exports to Germany. German businesses have invested heavily in the 1,225km (760 miles) pipeline. But it’s become a geopolitical flashpoint that we could now see playing out in the sanctions space. 

Coordination between the US and Germany on sanctions that are conditional on Russia weaponizing energy represents a new frontier for the use of sanctions in Europe. And it could have massive implications for firms operating in the region, given the close and extensive trade ties between Russia and many European countries. It would require a different approach to monitoring for sanctions against hotspots such as Afghanistan, North Korea, and Iran where trade ties are less substantial. 

The pipeline also risks creating divisions over the EU’s wider sanctions strategy. Ukraine, for example, relies on existing pipelines for income and would be hard-hit by the loss of energy transit fees, as Nord Stream 2 goes around the country. It also fears that piping gas directly to Germany will remove one of the last deterrents Ukraine has against a Russian invasion – a growing concern as tensions between the two countries rise and the US urges Russia to pull back its troops from the Ukrainian border or face sanctions.

Ukrainian President Volodymyr Zelensky told Axios that he is “shocked, saddened and confused” by Germany’s efforts to save Russia’s “most dangerous geopolitical project.” Zelensky launched a Twitter campaign in November urging US senators to support sanctions.

Meanwhile, the UK has warned NATO allies that Moscow would exploit its position if European nations became reliant on the Nord Stream 2 pipeline for energy. The UK, along with Poland, Ukraine, and the Baltic States, has been vocal in questioning the wisdom of the pipeline.

The UK Foreign Secretary wrote in a November 2021 Sunday Telegraph article: “Nord Stream 2 risks undermining European security by allowing Russia to tighten its grip on those nations who rely on it for gas.”

Prime Minister Boris Johnson previously stated: “We hope that our friends may recognize that a choice is shortly coming between mainlining ever more Russian hydrocarbons in giant new pipelines, and sticking up for Ukraine and championing the cause of peace and stability.”

Other European governments say the pipeline is vital to secure energy supplies as gas prices rise amid the threat of power outages. There is fear though that the threat of a sanction could affect the insurance of the pipeline, with three top European insurers – AXA, Zurich, and Munich Re – already pulling out of insuring the construction.

Germany’s incoming coalition government has been silent on the subject of Nord Stream 2. 

Oliver Krischer, a German Green politician, told Frankfurter Allgemeine: “Since gas demand will not increase in Germany or Europe, I see no need for Nord Stream 2. There is no commitment to this in the coalition agreement.”

Work on the pipeline has also hit a bump. Certification was temporarily suspended in November by Germany’s energy regulator, because owners, Russia’s Gazprom, had created a German subsidiary for the German branch of the pipeline that did not meet the requirements of domestic law. Under the EU’s gas directive, gas producers must be separate from the company that owns the pipeline.

The decision is likely to set the project back several months, with a green light from the European Commission required once German approval has been granted. 

The issue of sanctions on Nord Stream 2 is likely to continue developing, and measures could be implemented at short notice. Compliance teams should therefore proactively assess their firms’ exposure to the pipeline, including any firms operating in service and supporting roles around the project. Understanding possible exposure before sanctions are implemented is key to helping firms stay one step ahead of changes and regulatory inquiries. 

Read more about global sanctions in our 2021 guide.

Originally published December 3, 2021, updated December 3, 2021

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