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Urgent Stock Market Message

Here’s Why The US Sanctions Against Russia Threaten Germany’s Interests

Politics / GeoPolitics Aug 03, 2017 - 05:41 AM GMT

By: John_Mauldin


By Antonia Colibasanu : The US House of Representatives has passed a bill to renew and expand sanctions against Russia that were imposed after Russia’s annexation of Crimea. The bill, however, could also have a negative impact on some European energy projects that are linked to Russian companies.

Since the initial bill was first approved by the Senate on June 15, the European Union has been lobbying US lawmakers to revise the proposed legislation and reduce its effects on third-party countries.

But lobbying is essentially all the EU can do at this point; it can’t hit back against the US because such a move would require approval from all member states, which is unlikely.

A Heavy Blow to EU Companies Involved in Russian Energy Projects

The initial version of the bill would have imposed sanctions against any foreign person or entity that has significant investments in certain Russian energy projects.

This means that even non-US companies involved with Russian businesses could be targeted.

It is this part of the bill that has drawn criticism from the EU, particularly Germany, because European companies are involved in several energy projects with Russian businesses.

EU efforts to convince US lawmakers to revise the bill have had limited results. According to media reports, they did manage to increase the percentage of Russian participation required in an energy project to qualify for sanctions from 10 to 30 percent.

But this still means that the sanctions could affect some functioning infrastructure projects like the Baltic LNG project (run by Shell and Gazprom), the Blue Stream pipeline (run by Italy’s Eni and Gazprom), CPC pipeline (run by Shell, Eni and Rosneft), and Nord Stream 1 (run by various European firms and Gazprom).

If these European companies decide to increase their level of investment in these projects, they can be penalized under the US sanctions bill.

The bill could also penalize companies involved in Nord Stream 2, a joint project between German and Austrian companies and Russia’s Gazprom. Nord Stream 2 will enable Russian gas to be delivered to Germany without using the existing pipeline that runs through Ukraine.

This project has been the subject of US criticism before. It would make it easier for Russia to cut off gas supplies to Ukraine—without any subsequent effect on other European consumers—and allow Moscow to use energy as a tool to influence Kiev.

But Germany has a different perspective; it sees the project as another way to secure its energy needs, and it wants to protect the interests of German companies.

So, while the EU and Germany both oppose the US sanctions bill, they do so for different reasons. Germany has a direct interest in some of the projects that could be affected by the bill, while the EU just doesn’t want the US meddling in European affairs.

The EU Is Paralyzed

Imposing any measures that could penalize US businesses operating in the EU would be difficult—all initiatives proposed by the commission need to be approved by the EU Council, which would require agreement from all member states, and this is unlikely.

So ultimately, the EU can do little to retaliate at this point. The bloc’s decision-making process and the level of bureaucracy involved prevent it from amassing a coherent response. And the ability of individual member states to respond independent of Brussels is restricted—as members of the common market, they can’t take action on a bilateral level against a third party.

Thus, agreement on how to proceed is required from across the bloc. But considering that European states can’t agree on much these days, let alone their views on Moscow, it’s unlikely that they will come to an agreement on how to respond to the sanctions bill.

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