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The fact that the House of Representatives adopted the Pentagon spending bill with the extended sanctions against Nord Stream 2 proves the U.S. is very determined. However, there are issues which may render the new restrictions less effective than expected – Mariusz Marszałkowski, editor at BiznesAlert.pl, writes.
What new sanctions against Nord Stream 2 were adopted?
The 2021 National Defence Authorisation Act (NDAA) is necessary for the United States to function, because it includes specific guidelines on the financing and functioning of the defense forces. Apart from that, the bill also includes “side” issues, which do not directly pertain to the American army, but are about the U.S. national security as such, including regulations on imposing economic sanctions on Turkey for purchasing Russian air defense and anti-missile system S-400, as well as the bill that protects Europe’s energy security, i.e. the Protecting European Energy Security Act (PEESA). This part of the spending bill is key for the Nord Stream 2 pipeline, because it includes the extended sanctions that are to be imposed against the Baltic project. You can read about the technical details in the bill here.
The House of Representatives has adopted the NDAA, and now the legislation will go to the Senate and then wait for the President’s signature. Apart from the risk it poses to the construction of the pipe itself, it is also a threat to companies that provide insurance, certification, reinsurance and other similar services. The sanctions may make it impossible for Gazprom to finish the construction of the pipeline, or complicate the pipe’s go live, once it is ready to launch, we wrote about this on BiznesAlert.pl.
Is it too late for America to extend the sanctions against Nord Stream?
There have been doubts about whether the American sanctions will work. Their final impact on the construction and operational functioning of Nord Stream 2 is being questioned. The doubts pertain to the stipulations included in the NDAA on excluding from the sanctions entities that do not provide commercial services, as well as government agencies of EU states, Great Britain, Switzerland and Norway. Additionally, the new provisions require that consultations are conducted with governments from the above states before the sanctions are introduced. Moreover, the U.S. President retained his power to forego sanctions if the country’s national interest is at stake.
This means, the sanctions in the PEESA 2020 were adopted without any changes in comparison to what the bill sponsors had presented to the Congress in July 2020. However, due to the lobbying efforts of various interest groups, a few mechanisms were added to the bill, which may in reality result in limiting the sanctions’ impact on Nord Stream 2.
Nevertheless, the sole possibility of restrictions caused concerns among the companies, which until recently had been engaged in the endeavor. This is evidenced by, among others, the fact that the ships working on the project are flying the Russian flag only. There are no chartered ships from Western companies, which had previously provided supply to the vessels that were laying the gas pipeline on the Baltic seabed. Fearing sanctions, Russian companies create fictitious companies and assign their assets to them. This happened in the case of the Akademik Cherskiy vessel, the Fortuna barge and a few supply ships.
The race against time may impair the efficiency of the sanctions. The PEESA 2019 bill targeted two projects pursued by Gazprom: Nord Stream 2 and Turkish Stream. When it referred to the Senate in May 2019, 30 percent of Nord Stream 2 and 60 percent of Turkish Stream had been already completed. However, because it took a lot of time for the sanctions to pass, Russia, or rather its Dutch-Swiss contractor Allseas, managed to complete the latter project without hitting any hurdles. However, Nord Stream 2 was not as fortunate, because on the 21st of December 2019, president Donald Trump signed the NDAA. Upon the news, Allseas decided the risk of American sanctions was too high and withdrew from the construction site, leaving 94 percent of the pipeline done.
A similar scenario may play out for the regulations that were submitted to the Senate in early June 2020. For instance, the spending bill imposes restrictions on the companies that modify and modernize ships to prepare them to continue the Nord Stream 2 construction. Of course, back in June that provision was important, because the work on adapting the Akademik Cherskiy had only just begun. Unfortunately, because of the fact that the Congress took so much time to work on the bill, this provision seems to have lost its efficiency. The Akademik Cherskiy and the Fortuna barge had all of their modifications done in German ports.
Summary
So far the U.S. sanctions against Nord Stream 2 did their job to a large degree, considering they stopped the project for one year. Without actually executing any of the sanctions, the U.S. forced the majority of Western companies to withdraw from the construction site. Hence, Moscow was forced to look for alternatives and drag ships from every corner of Russia to the Baltic. The new sanctions would impact European companies, and perhaps even institutions of various EU states, even though the provisions on exemptions mentioned above and the parts about consultations with European allies, show that Washington is looking for ways to avoid disputes with Europe. The 2020 NDAA did not include such concessions. It is worth mentioning that undermining the companies that finance Nord Stream 2 is already possible, thanks to the provisions in the CAATSA bill from July, as it can work retroactively.
Russians do not have relative business contacts with Americans, especially in the area of maritime services, so in theory they are not concerned about the pressure coming from the new sanctions. However, they are changing the ownership and organization of their assets. It is more likely that this means they are wary about new sanctions, rather than fearful over issues with acquiring loans in U.S. banks, or concerned over problems with commercial activities in the United States, as their maritime companies do not have any businesses there anyway. In other words, the U.S. sanctions against Nord Stream 2 are another deterrent, a kind of nuclear weapon in a military conflict, which is supposed to pose a big threat, albeit one that may never be used. Nobody knows whether they will be introduced on time, or whether they will hit European entities engaged in this contentious project.
