Congress is poised to impose sanctions on the Nord Stream II gas pipeline project, a project long opposed by Ukraine, Poland, the Trump (and before that Obama) administration, theprevious European Parliament, many inside the former European Commission (albeit quietly), and even many Germans. Congress’s opposition to Nord Stream II is well founded. Yet enacting the sanctions mandated by the Protecting Europe’s Energy Security Act (PEES Act), for all its careful crafting, may not actually block Nord Stream II but may instead burden the US-German relationship. Rather than impose sanctions, the administration should waive them for now but prepare even stronger contingency sanctions to be implemented should the Kremlin once again use gas exports as political leverage against Ukraine, Central Europe, or the Baltics.
The Nord Stream II challenge
Nord Stream II, the Russo-German Baltic Sea gas pipeline project designed to deliver Russian gas to Germany directly is bad policy: it increases Europe’s dependence on Russian gas in contravention of the EU’s own stated energy objective of diversification of energy sources and increases Russian leverage over Central European consumers and governments whose countries rely on Russian gas supplies and transit fees, by allowing Russia to bypass them while continuing to supply German and other Western European energy markets. Nord Stream II thus divides the European Union energy market and EU cohesion generally. Aware of Moscow’s habit of seeking to dominate its neighbors, Central Europeans, especially the Poles, have been developing alternatives to Russian gas (including liquefied natural gas from the United States), with some success. But such a major reorientation will take years.
Similarly, since Ukrainians overthrew Putin-controlled President Viktor Yanukovych in 2014, Ukraine’s government has wisely developed alternative means of purchasing gas, including Russian gas, through pipelines from its western neighbors that bring Russian gas to Ukraine from the West (so-called “reverse flow”). These arrangements mean that Ukraine no longer purchases any Russian gas directly from Russia for domestic consumption, a major national security achievement that mitigates much of the Kremlin’s energy leverage over them. Still, while Ukrainians no longer face the prospect of gas shortages due to Kremlin cut-offs, Nord Stream II gives Russia the option of curtailing gas flows through the existing pipelines transiting Ukraine, thus depriving Ukraine of $3 billion dollars in annual revenues—right around 2.5% of Ukraine’s gross domestic product (GDP), from transit fees.
Many Europeans outside those countries most vulnerable to Russian pressure know these issues well, and opposition to Nord Stream II has been strong, even within the European Union’s own institutions. In December 2018, the European Parliament voted overwhelmingly against Nord Stream II. The EU has for years supported secondary gas pipelines to facilitate “reverse flow” to Ukraine and vulnerable EU member states in Europe. At the same time, the EU has sought to apply to Nord Stream II its own energy regulations, e.g., the EU’s 2009 Gas Directive, to chip away at Russian coercive energy leverage; in 2019, the EU amended (and strengthened) its related Third Energy Package policy to apply to offshore pipelines, such as Nord Stream II.
These steps together are slowly weakening Russian gas leverage over Europe. But it still exists and will for years to come. Nord Stream II will prolong it. Notwithstanding the concerns of its neighbors and allies, the European Parliament (at least, the previous one), and many within the European Commission, Germany has pressed ahead with the project, partly because it unwisely decided to phase out nuclear power just as it was also phasing out coal for sound environmental/climate change reasons.
While Germany has laudably supported reverse pipeline projects and other means of mitigating the potential strategic risks of its own project, it has not done so with effort commensurate with the challenge. Instead, it has pressed ahead with Nord Stream II, which now appears to be at a late stage of the deep-water phase of construction.
Congress’s sanctions solution
The US Congress has stepped in and put the “Protecting Europe’s Energy Security Act” (PEES), originally introduced by Senators Ted Cruz (R-TX) and Jeanne Shaheen (D-NH), into the National Defense Authorization Act, a massive piece of legislation likely to pass in Congress and be signed soon by US President Donald J. Trump.
Unlike some Russia sanctions legislation that is more retrospective, punitive, and unfocused, PEES concentrates on the policy objective of blocking Nord Stream II; and the final version seems more carefully crafted than earlier versions. Its focused sanctions include mandating visa bans and full blocking sanctions against vessels and their companies engaged in gas pipe-laying at sea depths of 100 feet or more. That targets an area of pipeline construction in which Russia appears to be dependent on Western technology. (PEES also covers TurkStream, another problematic Russian pipeline project with many of the strategic downsides as Nord Stream but is now essentially complete and reportedly near operational.)
PEES provides for a wind-down period of thirty days after enactment for companies to pull out of Nord Stream II and includes a number of carve-outs, including an exception for repair and maintenance of the pipeline, specifically including environmental remediation.
In a nod to ongoing EU efforts to reduce Russian energy leverage over Europe, PEES also includes a sunset clause that would lift sanctions against Nord Stream II should the president certify that two conditions have been met. The idea of a sunset clause is laudable, but the details make it an impractical tool. The first condition for sanctions sunset certification is that Russia has lost the ability to use Nord Stream II as a tool of coercion. That’s an intriguing approach, but PEES makes a criterion of that condition the determination that the Russian government no longer owns or controls Nord Stream II’s transmission network, which seems a near-impossible standard to meet as long as state-controlled (or Putin-crony controlled) companies dominate Russia’s energy sector. The second criterion for sunset certification—that Nord Stream not result in a decrease of gas transit through existing pipelines of more than 25 percent—reflects a reasonable standard to determine whether the Kremlin is again resorting to use of gas flows for political leverage.
While the sunset provision is probably not usable, however, PEES provides a broad national security waiver authority, allowing the president to waive all sanctions on the basis of US national security interests—a low bar compared to other sanctions waiver authority the Congress has given the Trump administration for Russia-related sanctions—and a report to Congress.
The problem with sanctions
PEES assumes that even at this late stage of Nord Stream II construction, the pressure of US sanctions will frighten away Western companies and the project will halt. This is possible.
But it is also possible that because Nord Stream II is sufficiently close to completion, the Russians will find a way to complete the last pipe-laying portions of the project. (A cut-rate approach to undersea pipe-laying would raise the odds of engineering failure and/or environmental disaster, but in that case the Russians could use PEES’s carveout for pipeline repair, maintenance, or environmental remediation to hire a Western firm willing to make the needed fixes.) In any case, PEES’s sanctions are solely focused on blocking Nord Steam II’s completion; it does not offer options should the project be completed.
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