U.S. Senate Threatens Sanctions Over Russian Pipeline

Washington and Berlin face off again over Nord Stream 2 as European ships are targeted.

By Amy Mackinnon, a national security and intelligence reporter at Foreign Policy., and Robbie Gramer, a diplomacy and national security reporter at Foreign Policy.
The U.S. Capitol building in Washington is pictured on Nov. 7, 2018.
The U.S. Capitol building in Washington is pictured on Nov. 7, 2018. Zach Gibson/Getty Images

In the latest uptick of trans-Atlantic tensions, European ships involved in the construction of a controversial gas pipeline from Russia to Germany could be subject to U.S. sanctions under a new bipartisan bill that will be introduced in the U.S. Senate as early as Monday.

The bill, sponsored by Sens. Ted Cruz, a Republican, and Jeanne Shaheen, a Democrat, would sanction companies involved in laying deep-sea pipelines for Russian energy projects, taking direct aim at the Nord Stream 2 pipeline, which has emerged as a major source of tension between the United States and Germany. Foreign Policy obtained a draft copy of the bill.

Critics say the Nord Stream 2 project, which would double the amount of Russian gas piped to Germany via the Baltic Sea, makes little commercial sense and is a geopolitical power play by Moscow to exert energy leverage over Western Europe. Countries such as Poland and the Baltic states have joined the United States in opposing the pipeline. They also warn it could destabilize Ukraine as it wages war against Russian-backed separatists in the east of the country. Despite the conflict, the Ukrainian government relies heavily for revenue on transit fees for Russian gas going into Europe.

The Trump administration has rebuked Germany for moving forward with the project, one of a raft of recent issues straining trans-Atlantic relations alongside Iran, climate change, and trade. Last July, U.S. President Donald Trump accused Berlin of being held “captive” to Russia due to its dependence on Moscow for energy, a charge German officials sharply dismissed.

While Trump has clashed with Democrats and Republicans alike over his handling of relations with Russia, there is broad bipartisan opposition in Washington to the Nord Stream 2 project.

Proponents of Nord Stream 2 say the pipeline offers a way to increase Europe’s supply of cheap Russian gas through a more reliable route than the traditional pipe across Ukraine, which has been subject to multiple disruptions and has been hostage to geopolitical tensions between Kiev and Moscow over the past decade.

The bill takes aim at the vessels used to lay deep-sea pipelines, which involves technological know-how that Western energy companies have but that Russia lacks. “That’s one of the few areas where, essentially [Russia’s national gas company] Gazprom lacks that technical expertise and technology in order to build the pipeline projects,” said Agnia Grigas, an expert on Eurasian energy issues with the Atlantic Council, a Washington-based think tank.

A senior Republican aide familiar with the draft legislation said parts of it were modeled on previous U.S. efforts to target Iranian oil exports.

Trump administration officials have telegraphed warnings of sanctions for months if the project moved forward. In January, U.S. Ambassador to Germany Richard Grenell wrote a letter to a group of companies involved in Nord Stream 2, warning them that they could face sanctions if they continue with the project under another 2017 U.S. law, the Countering America’s Adversaries Through Sanctions Act.

German Foreign Minister Heiko Maas criticized the threats that same month. “Questions of European energy policy must be decided in Europe, not in the U.S.,” Maas said. “To impose unilateral sanctions against Nord Stream 2 is certainly not the way to go.”

Under the bill, people who continue to sell or lease boats for use in Nord Stream 2 construction would be subject to a U.S. travel ban, and any assets in the United States would be frozen. The bill also allows for a range of penalties to be imposed on people who provide financial or technical support services or insurance to the vessels.

“Could it delay things? Sure. Could it stop it altogether? Now I’m much more dubious,” said Richard Nephew, a senior research scholar at Columbia University’s Center on Global Energy Policy. “The Russians have made pretty clear that they’re going to proceed with this no matter what.”

Nephew, who formerly served as principal deputy coordinator for sanctions policy at the State Department, said that while U.S. sanctions could hamstring the involvement of Western vessels, it might only be a matter of time before Russia develops the technology itself.

The legislative proposals, which apply to all vessels used in laying pipelines at depths of 100 feet or more for Russian energy exports, could also impact the further construction of the TurkStream gas pipeline, which stretches across the Black Sea from Russia into Turkey.

Grigas, author of the New Geopolitics of Natural Gas, said that the two pipelines were part of Russia’s effort to solidify its hold on European gas markets at a time when there is increasing competition globally.

In its current format, the bill also calls for the secretary of state to submit a report to Congress each year scrutinizing the activities of all companies involved in the construction of the Nord Stream 2 pipeline, including financial institutions, and assessing whether they have violated any other U.S. sanctions on Russian people or companies.

Nord Stream 2 representatives did not immediately respond to request for comment.

The bill would put under scrutiny two companies that have contracts to lay pipes for Nord Stream 2: Switzerland’s Allseas and Italy’s Saipem, two of only a handful of companies worldwide that operate pipe-laying vessels. It also ratchets up pressure on Gazprom and the five companies partnering on Nord Stream 2: Uniper and Wintershall from Germany, Anglo-Dutch Shell, OMV from Austria, and Engie of France.

The $9.5 billion pipeline project, which is slated to be completed late next year, could enable Russia to bypass Ukraine entirely as it exports gas to Europe, depriving Kiev of the $2 billion to 3 billion it earns in transit revenues. A transit contract between Ukraine’s state energy company Naftogaz and its Russian counterpart Gazprom is due to expire at the end of the year. If it’s not renewed, the loss of transit revenues could tip Ukraine’s fragile economy into a recession, said Yuriy Vitrenko, Naftogaz Group’s chief operating officer.

“Frankly, we are not prepared at all,” he told Foreign Policy.

The company is currently stockpiling reserves to heat homes throughout the winter and planning on reversing energy flows from central Europe to Ukraine, but Vitrenko said that the country may face energy shortages if it is cut off entirely from Russian gas.

Foreign Policy reporter Keith Johnson contributed to this report.

Amy Mackinnon is a national security and intelligence reporter at Foreign Policy. Twitter: @ak_mack

Robbie Gramer is a diplomacy and national security reporter at Foreign Policy. Twitter: @RobbieGramer