US anti-Russia sanctions may have negative impact on European energy security Analytic

4 August 2017. PenzaNews. US President Donald Trump signed into law a bill imposing new sanctions against Russia while acknowledging that the document has a number of shortcomings including “unconstitutional provisions”.

Photo: Matt H. Wade, Wikipedia.org

“While I favor tough measures to punish and deter aggressive and destabilizing behavior by Iran, North Korea, and Russia, this legislation is significantly flawed. In its haste to pass this legislation, the Congress included a number of clearly unconstitutional provisions,” says the statement by Donald Trump published on the White House website.

Earlier, the Senate voted 98-2 in favor of the bill. US President could use the power of presidential veto, but did not do it.

“Despite its problems, I am signing this bill for the sake of national unity,” the American leader said.

In turn, European politicians expressed concerns that new sanctions could jeopardize EU interests, including energy security.

“The College of Commissioners discussed today the state of play of the US draft Bill on Russia sanctions. Commissioners expressed their concerns notably because of the draft Bill's possible impact on EU energy independence. […] Depending on its implementation, this could affect infrastructure transporting energy resources to Europe. It could also have an impact on projects crucial to the EU's diversification objectives such as the Baltic Liquefied Natural Gas project,” says the statement by the European Commission, published on Wednesday, July 26.

Commenting on the current situation, Chi Kong Chyong, Research Associate and Director of Energy Policy Forum, EPRG, Judge Business School, University of Cambridge, said it is important to understand the nature of EU’s concerns regarding the new US sanctions.

“It has been discussed for a few years now by energy experts and academics that if Russia would sell gas to Europe very cheaply, then US LNG could find hard to compete with Gazprom in Europe. This has been supported by many researches including mine. If Gazprom ‘flooded’ Europe with cheap gas then US LNG exports to Europe would be minimal. From Gazprom’s commercial perspective, to realise this strategy and compete with LNG in Europe, the company believes that it needs direct access to North-Western European gas markets to minimise commercial and political risks associated with exporting gas through transit countries. Thus, one economic angle to look at the new sanctions against participation of European companies in Gazprom-led gas projects is to give competitive advantage to US LNG in Europe,” the expert said.

Meanwhile, the problem of energy security in Europe cannot be solved in a single way, given the diversity of market and political conditions across the EU countries.

“While the exporters of gas – Russia and USA – are looking for more customers in the oversupplied market environment, European energy security is at odds: European gas markets are very diverse – for some markets, more cheap Russian gas does not create huge energy security concerns; for others, more US LNG contributes both to economic and energy security. There is no single solution to the problem of energy security for all EU Member States. […] Therefore, it is a political choice of each MS to choose energy suppliers and their ‘level of energy security’ but this should be done in a way consistent with European energy laws and regulations, and not subject to short-term national political cycles,” the analyst said.

In his opinion, the European Commission’s negative reaction towards the sanctions is understandable.

“The European Commission predominantly uses ‘soft’ power, for example, laws and regulations, to reach political objectives and hence it is understandable to see its reactions towards the sanctions. I think that the European Commission believes there are economic tools that it theoretically can use to support more LNG in selective Member States – regulations of prices for access to internal transmission network services. These regulations could be perceived to be in line with the EU energy laws and regulations without jeopardising fundamental freedom to trade and invest, and to be less politicised,” Chi Kong Chyong explained.

In turn, Jonathan Stern, Distinguished Research Fellow and Founder, Natural Gas Research Programme, Oxford Institute for Energy Studies, said that the key issue is whether sanctions can be applied retroactively, which means whether they be applied to ongoing projects where investments have already been made.

“I do not think so. The last time the Americans tried to impose retroactive sanctions on a Russian – then Soviet – gas pipeline was in the [Ronald] Reagan era, it was a disaster in terms of transatlantic relations and failed of stop the project. So what we have now is the US attempting to impose sanctions on Nordstream I and Blue Stream: projects which have been ongoing for many years so it is complicated to understand how sanctions can be imposed on these projects,” the expert said.

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According to him, Nordstream II has also been targeted.

“However the pipe has been purchased and is currently being coated, while investments have all been made by the European energy companies so I don’t understand how sanctions will apply to that project either. The key issue impacting Nordstream II is whether the EU will succeed in obtaining a mandate from member states to negotiate a new international agreement, and if that happens whether this will hold up the project,” Jonathan Stern explained.

In his opinion, the main impact of sanctions will be on projects where investments and construction have not yet started

“They are, for example, Baltic LNG and the third train of Sakhalin LNG. With regard to these projects – any company, which invest, risks being fined. Baltic LNG was planned to start up in 2022–2023, but no significant investments have yet been made, so sanctions do not have any immediate impact,” the analyst added.

Meanwhile, William Courtney, former US Ambassador to Georgia and Kazakhstan, Adjunct Senior Fellow, Executive Director at the RAND Business Leaders Forum, stressed that the sanctions are not “anti-Russian”: they were imposed not against the country but in response to specific Russian behavior chosen by the government of the country.

He reminded that at first the West imposed sanctions because of Crimea and further sanctions, including “sectoral” ones, because of the situation in Donbas. Then after the US Presidential elections, the US required Russia to withdraw 35 diplomats and deprived Russian diplomats of access to two vacation estates, one in Maryland and one in New York, which former US President Barack Obama said were being used “for intelligence purposes.”

William Courtney said that new sanctions are primarily in response to “election interference” and continued war in eastern Ukraine, where some 10,000 people have been killed over three years of fighting.

The new sanctions law will allow, but not require, the US president to impose sanctions that could impede the Nordstream II gas pipeline project, he said.

“Washington understands Germany’s and Europe’s energy concerns, and will be sensitive to them. The US had long favored the development of multiple sources of global energy and multiple routes to ship energy to global markets, so as to enhance competition and increase efficiency in the global energy industry and lower prices to consumers,” said a retired American diplomat, who has served as Senior Director for Russia, Ukraine and Eurasian affairs in the Bill Clinton administration.

Moreover, he expressed the opinion that some trends in Russia – Russian coercive foreign policy, shrinking space for civil society in Russia, diminishing of the efficiency of the Russian economy and declining productivity – are a source of concern.

“The West would benefit if Russia’s foreign policy became less coercive, if Russia’s politics became more open, and if Russia’s economy became more productive. If and when this will happen is uncertain,” he said.

Roberto Castaldi, Research Director of International Centre for European and global governance, Director of the Research Centre on Multi-Level Integration and Governance Processes at eCampus University, called sanctions against Russia symbolic.

“The sanctions are little more than a symbol. Therefore they will remain,” he explained and added that Europeans cannot ignore the fact that the Europeans borders were changed and close their eyes on the situation in Ukraine.

In his opinion, sanctions against Russia will not be lifted in the near future.

“Until the Minsk agreements remain dead letter the sanctions will stay. Russian economic downturn is pushing Putin to use foreign policy for legitimacy purposes. This makes it difficult to change course in the bilateral relationship with the EU,” Roberto Castaldi added.

In turn, Fernand Kartheiser, Luxembourg Parliament member for the Alternative Democratic Reform Party (ADR), drew attention to three equally worrisome trends.

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“The first assumption is that the leading Western power, the United States, seems to be behaving more and more irrationally and unpredictably in international relations. For all those allied to the US this is a most unwelcome development. Many people, including me, had hopes that President Trump would try to fix the relationship between the US and Russia. Unfortunately this has not yet taken place and the political Washington continues to organize a witch-hunt against Russia,” the politician said.

The second alarming moment, in his opinion, is that the sanctions may become both unreadable and therefore inescapable.

“People tend even to forget why they exist at all. For instance, the Vice-President of the European Commission said in the Luxembourg Parliament, that the sanctions had been introduced because ‘of Syria’ - which is not the case. In addition, the growing political, legal and structural chaos around these sanctions is making an exit strategy even more difficult to put in place,” Fernand Kartheiser explained.

Moreover, from his point of view, the sanctions cannot be easily justified under international law.

“My personal reading is that they are getting closer and closer to clear illegality and are simply a way of trying to enforce American political and economic interests onto Russia and the EU, especially in the field of energy. All together, these sanctions are not reaching any positive aim and are becoming more and more dangerous not only in respect to our relations with Russia but also for the cohesion within the Western Alliance,” Luxembourg Parliament member said.

In his opinion, further development of the situation is difficult to predict.

“It remains to be seen, whether the Commission will try to defend European economic interests in the context of these sanctions. But in my eyes, Europe is now paying a price for having continuously given in on these sanctions, extending them again and again, even though many Member States were not enthusiastic about them. A few Eastern European States, with the support of the US and the UK, are pushing us into a conflict posture against Russia. As a conservative politician from Luxembourg, I say clearly that I don't approve of this policy which takes the EU and its Member States as hostages for the benefit of the strategic goals of a minority,” Fernand Kartheiser said.

Moreover, in his opinion, the current situation demonstrates possible miscalculations in the policy of the European Union.

“In a way, this ‘Russia question’, which is largely artificial and unjust, shows us also that a too ambitious European political integration can be a mistake. Many [in Europe] are even dreaming of a European army, but doesn't the present situation around Russia show us exactly the dangers of such dreams?” the deputy wondered.

“I advocate a friendly and reasonable relationship with Moscow. Sanctions and threats are not the means that we should use to resolve the open questions between the West and Russia,” the politician resumed.