A year after the first sanctions on Nord Stream 2, the US has expanded its restrictions
The new sanctions have once again been “stitched” into the country’s defence budget. How do the Americans want to harm the Russian pipeline this time? And will they be able to stop the newly resumed construction again?
On 1 January 2021, the US imposed new sanctions against Nord Stream 2. The fact of new restrictions was not a surprise. Nobody concealed their preparation, and Moscow understood that their adoption was only a matter of time. As in December 2019, sanctions against the pipeline were “sewn” into the US defence budget for the 2021 fiscal year, which began on 1 October 2020.
The US House of Representatives and the Senate of Congress approved the draft defence budget back in early December, but current US President Donald Trump refused to sign the document by vetoing it on 23 December. However, this did not help. In response, the US Congress launched a procedure to override the presidential veto and succeeded. A new vote on the draft on 1 January passed in favour of adopting the defence budget, which came into force.
By the way, Trump’s veto had nothing to do with sanctions against the Russian pipeline. He was dissatisfied with entirely different points in the defence budget. For example, the downsizing of US troops in Afghanistan, South Korea and Germany or the regulation of the Internet, which was also sewn into the defence budget.
Interestingly, both houses of Congress managed to override a presidential veto for the first time during Donald Trump’s presidency. Previously, he had vetoed nine bills.
So what exactly are the new defence sanctions in the US defence budget? Recall that previous sanctions have already banned the sale, lease or provision of vessels for laying pipes 100 feet (30.48 m) deep or more in the construction of Nord Stream 2 and Turkish Stream. The latter project was not affected by the sanctions, as it had already been completed. But they did affect Nord Stream-2. Allseas pipelayers stopped work immediately, and the pipeline project was frozen for a year. Only in December 2020 was construction resumed by Fortuna, and so far in German waters. The works there are not in deep water, so they are not subject to sanctions. However, both Fortuna and Akademika Chersky are expected to resume pipe-laying in the Danish section next. Completion of this section would mean the end of Nord Stream 2. But as soon as work starts here, US sanctions can be imposed immediately.
And now not only against the owners (including former) of the ships. The sanctions have been extended not only to vessels laying pipes but also to other types of work. First, insurance risk assessment, insurance or reinsurance, which is necessary for the completion of such a project, is prohibited. Secondly, it is prohibited to provide services, facilities and premises for technological upgrades or installation of welding equipment for pipe-laying vessels. Third, it is prohibited to provide testing, inspection or certification services necessary to complete the construction and operation of Nord Stream 2.
All of these limitations have been known for a long time. The first two points are not so scary. As for the technological upgrades of the pipelayers, the Americans are probably too late with this ban. Since the Fortuna is already operating in German waters, the vessel is clearly ready and does not require any technical upgrading. “The Akademik Chersky was also very likely in time to be retrofitted with all the necessary equipment. In particular, the vessel had to be configured for laying pipes of a larger diameter, which is required for the Nord Stream 2 project. Prior to that, the equipment had been configured to lay pipes of a smaller diameter. “Chersky had been docked in the Baltic since May in different ports, first in the German port of Mukran (where the pipes for the project are laid) and then in the port of Kaliningrad. Russia presumably had enough time to technically prepare the Akademik Chersky for the final push – laying pipes in the Danish section. And also to prepare for the consequences of sanctions after the resumption of construction.
The situation with insurance is more complicated, but probably not critical either. Without insurance, offshore work is impossible. It is to be hoped that Moscow has found a way around this sanctions restriction. European companies, in fear of the US, will clearly refuse to insure the Fortuna and the Akademik Chersky as soon as they start working in Danish waters. The European insurers should therefore have been replaced, for example, by Chinese insurers, who might be braver, or by some Russian insurance company, which is “not sorry” to be thrown into the sanctions fire.
Russia has been under various US and EU sanctions for years and has become quite adept at operating under restrictions. The sanctioned Russia Bank continues to operate, Siemens gas turbines are operating in Crimea, etc.
“In essence, the new sanctions concretise the previous ones. Everything about the vessels that will build Nord Stream 2 is becoming toxic. But so far these are not the worst sanctions against the project. Because the previous wording of the restrictions also meant banning everything related to construction. In fact, there is nothing new”, – said Igor Yushkov, an expert at the Financial University under the Government of Russia and an expert at the National Energy Security Fund.
The most dangerous item may be the third one, which prohibits companies from providing testing, inspection or certification services for gas pipelines. Because the previous paragraphs interfere with the process of pipeline completion itself, while the third paragraph may prevent the already fully completed gas pipeline from being put into commercial operation.
Igor Yushkov, however, is not concerned about the third point so far. The experience of Norwegian DNV GL, which certifies the equipment and the entire gas pipeline, is quite illustrative. At the end of November, this company said it was partially withdrawing from the Nord Stream 2 project because it was afraid of the threat of sanctions from the US.
“However, this company said it would not certify only the equipment on the ship, but not the pipeline itself. Therefore, I think that for the time being, these restrictions will mostly apply to the construction”, – Yushkov explains.
Although he stipulated that the application of sanctions could be quite peculiar. That is why all companies seek clarification of the sanctions from OFAC, which gives the final instruction on what can and cannot be done. “I think we may see such requests from European companies, and then everything will be definitively clear about the breadth of the bans,” the interlocutor believes.
For now, Yushkov sees the new sanctions as not scary, because they only concern construction, and they are already, in fact, working.
“At the construction stage, everything depends on Gazprom, on us. We want – we build, we violate sanctions, our ships will fall under restrictions, it will complicate their life in the future, but we will finish the pipe”, – the expert explains.
Another thing is that there are three more bills on sanctions against Nord Stream 2 under consideration in the US. They are at different stages of readiness and have different contents. “They are not only talking about the construction phase, but also the commissioning phase and the operation of the pipeline itself. They have a ban on pipeline maintenance, which can create considerable complications not only for Gazprom, but also for the European regulators and the European commercial companies that are forbidden to maintain the pipeline. But Germany is obliged to keep the pipeline, which goes into its territory, in working order, even from the point of view of environmental legislation, so that there are no accidents,” Yushkov said. Therefore, the future fate of Nord Stream 2 will depend on what happens with other draft laws, whether there will be softened language there.
Gazprom’s European partners in Nord Stream 2 continue to support it. For example, the Russian ambassador to Austria, Dmitry Lubinsky, noted Austria’s constructive, independent and consistent position on the implementation of the project with the participation of the country’s leading energy concern, OMV.
“They understand here that the project is economically profitable for Austria and they count on the fact that the construction of the pipeline will be completed in accordance with the existing contractual framework and in spite of the illegal sanctions of the US, which have narrowly self-serving goals – not only to push back Russia and sell their own LNG, but also to strike a blow to the competitiveness of the EU energy-intensive industry”, – Lubinsky said.
Uniper CEO Andreas Schierenbeck also said on 31 December that he expects the pipeline to be completed soon. He said he hoped that the U.S. position on the project will change with the new administration and that the transatlantic relationship will once again become a true partnership.
Olga Samofalova