Sanctions Targeting Baltic Sea Pipeline Rattle Russia, Benefit Ukraine

By Patrick Goodenough | December 22, 2019 | 10:25pm EST
President Trump signs the FY 2020 NDAA at Joint Base Andrews, Md. on Friday. (Official White House Photo by Shealah Craighead)
President Trump signs the FY 2020 NDAA at Joint Base Andrews, Md. on Friday. (Official White House Photo by Shealah Craighead)

(CNSNews.com) – Work on a controversial pipeline project in the Baltic Sea came to an abrupt halt at the weekend, under threat from sanctions legislation signed by President Trump on Friday.

Critics have accused Trump this year of jeopardizing Ukraine’s security – an allegation related to his impeachment last week – and of kowtowing to President Vladimir Putin. The legislation targeting the Nord Stream 2 pipeline threatens to harm Moscow’s strategic and economic interests, while benefiting Ukraine’s.

The FY 2020 National Defense Authorization Act includes provisions targeting foreign vessels and company executives involved in constructing a cherished Kremlin geo-economic project, designed to significantly increase the flow of Russian natural gas to Germany and beyond.

The U.S. worries the pipeline will only increase Europe’s energy reliance on Moscow – a concern shared by some countries in eastern Europe, wary of Russia’s history of using it energy resources as a political lever in bilateral disputes.

Trump has warned that energy reliance on Russia may make Germany beholden to Moscow. (When Germany led opposition in 2008 to Georgia and Ukraine being put on a path to NATO membership, and that same year voiced reluctance to punish Moscow over its invasion of Georgia, Russian energy supplies were cited as a likely reason.)

On Saturday Allseas, a Swiss company whose vessels are laying the Nord Stream 2 pipe on the Baltic seabed, announced it was suspending the work in anticipation of the NDAA enactment, and said it would “expect guidance comprising of the necessary regulatory, technical and environmental clarifications from the relevant U.S. authority.”

(Photo: CNSNews.com)

Two senators behind the sanctions provision in the defense policy bill, Sens. Ted Cruz (R-Texas) and Ron Johnson (R-Wisc.), had alerted Allseas in a letter last week to the repercussions of it continuing the work, including a block on its assets in the U.S. – including its U.S. headquarters in Houston, Texas – and denial of U.S. visas to key company executives.

“[T]he 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 warned.

Roughly 300 kilometers of the 1,230 km project remains to be completed. According to Allseas, its pipe laying vessel Pioneering Spirit has been laying down an average of 3 kms a day, with crews working shifts around the clock.

The Allseas vessel Pioneering Spirit in the Baltic. (Photo: Nord Stream 2)
The Allseas vessel Pioneering Spirit in the Baltic. (Photo: Nord Stream 2)

The sanctions have been criticized by Russia and Germany, but Ukraine’s government welcomed Trump’s signing of the legislation.

Prime Minister Oleksiy Honcharuk said on Twitter Ukraine’s position on the pipeline was shared by “many other E.U. countries, that for last 4 years opposed the construction of this politically-motivated project. Nord Stream 2 should not be completed.”

Europe gets more than one-third of its gas supplies from Russia, much of it flowing by pipeline through Ukraine.

Critics of Nord Stream 2 worry it may enable Russia to bypass Ukraine, which earns vital transit fees for the gas now piped through its territory to markets further west. According to the Kyiv Post, the country earns around $3 billion in transit fees, equivalent to about three percent of annual GDP.

Last week Kyiv and Moscow reached an agreement to keep the gas transiting through Ukraine for the next five years – albeit in smaller quantities. The agreement allows for 65 billion cubic meters of gas to transit in 2020, and 40 bcm for each of the following four years. By comparison, 87 bcm of Russian gas transited Ukraine in 2018, and 93 bcm in 2017.

Ukrainian officials argue that the threat of sanctions helped to secure that deal.

Honcharuk tweeted that “the sanctions reinforce the talks that we’ve held with Russia on transit of gas to Europe and play a key role in preventing any monopolies in the E.U. energy market.”

‘A political project’

The European Union opposes extraterritorial U.S. sanctions – like those reimposed on Iran after Trump withdrew from the 2015 nuclear agreement – and has criticized the measures targeting Nord Stream.

That’s despite the fact a number of E.U. member-states are themselves troubled by the project, as alluded to in Honcharuk’s tweet, and also highlighted at the weekend by U.S. Ambassador to Germany Richard Grenfell.

“We stand with the 15 European countries, the European Parliament and the European Commission who have concerns over Nord Stream 2,” he tweeted. “Our position is pro-Europe. #diversification”

In an interview with Germany’s Bald, Grenfell said he had been “hearing all day from European diplomats” thankful for the sanctions decision.

Route of the Nord Stream 2 pipeline
Route of the Nord Stream 2 pipeline

A year ago, the European Parliament voted 433-105 for Nord Stream 2 to be cancelled, describing it as “a political project that poses a threat to European energy security and efforts to diversify European energy supplies.”

The E.U. early this year amended its regulations opening up a small part of the pipeline in German territorial waters to competition. But euro-lawmakers’ opposition remained firm, and in a second vote last March called again for the project’s cancelation, 402-163.

Russia accuses the U.S. of being motivated by a desire to “impose” U.S. liquefied natural gas on Europe. The Trump administration does indeed want Europe to diversify its energy sources by looking to the U.S. – an idea also supported by the Obama administration.


 

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