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January 10, 2020

Unilateral sanctions targeting Russia come at cost to transatlantic relationship

By Rainey Center

As published on January 9, 2019 in Euractiv

US sanctions designed to undermine Russian natural gas exports to Europe specifically target European-based companies at the risk of further weakening an already fragile US-European relationship, write Martin Jirušek and Robert Dillon.

Martin Jirušek is an assistant professor at the Faculty of Social Studies, Masaryk University, Czech Republic, and managing editor of the Czech Journal of Political Science; Robert Dillon is an associate fellow for energy security at the Rainey Center and the former communications director of the U.S. Senate Energy and Natural Resources Committee. 

US lawmakers took one final swing in 2019 at Vladimir Putin before leaving Washington for the holidays with the passage of sanctions against EU-based companies involved in the construction of two Russian natural gas pipelines.

The sanctions, which target Russian gas giant Gazprom’s Nord Stream 2 and TurkStream pipelines and are meant to block Moscow’s efforts to shore up its dominant position in Europe’s import market, landed with a thud, however. Poorly designed, whether accidental or the result of political compromise, the sanctions turned out to be more of a shoeshine than the knockout blow American lawmakers were hoping to land.

For starters, the potential financial penalties and travel prohibitions on companies aiding the construction of the Gazprom pipelines are unlikely to take effect for at least 60 days, by which time both projects will have progressed well beyond arm’s reach of the United States.

In the case of TurkStream, Gazprom completed the most vulnerable portion of the pipeline more than a year ago and is now in the final stages of readying to send up to 1 trillion cubic feet of gas annually to Turkey and southeastern Europe. Construction of Nord Stream 2 in the Baltic Sea, meanwhile, is slated to wrap within a few weeks. When finished, it will have the capacity to deliver an additional 2 trillion cubic feet of gas a year to northern Europe.

Both projects redirect gas flows around Ukraine, which has long served as the leading transit country for Russian gas. The end-of-year sanctions may have helped Ukraine strike a better bargain with Gazprom but the Russian gas giant ultimately got the reduction in gas shipments through Ukraine that it wanted.

In the end, Congress pulled its punches, passing watered-down sanctions designed to be neither effective nor too offensive, while signalling to voters at home that they haven’t gone soft on the Kremlin ahead of the 2020 elections but doing little to help Ukraine or change Moscow’s behaviour.

A more effective censure against Nord Stream 2 would have targeted the project’s financial backers, including the major European energy companies Engie, Uniper, Wintershall and Royal Dutch Shell.

Congress has long viewed Europe’s reliance on Russian oil and gas as a threat to regional security and the transatlantic alliance. More than sanctions or additional shipments of “freedom gas,” though, the best way to address Europe’s energy insecurity is to support its efforts to forge an agreement on enforcing rules governing energy purchases and cross-border infrastructure with non-EU countries.

Now that the undercard is out of the way, however, the European Commission can ring the bell on the main event and begin to address internal disagreements among its members that undermine the union that is the EU’s greatest strength.

To have a puncher’s chance against Russia – and put to rest Washington’s anxieties – the European Commission must convince the national governments of its 28 members to universally enforce regulations addressing shortcomings in the internal energy market, including rules on third-party access, unbundling and price transparency, as well as protections for energy pacts with neighbouring countries outside the common market.

With over half of EU states dependent on imports to meet more than 50% of their energy needs and domestic gas production in steep decline – not to mention the challenges of trying to achieve regional climate goals – maintaining secure energy supplies is pivotal to the Union’s integrity.

Recognizing the EU´s primacy over cross-border infrastructure and supply agreements with countries outside the common market will protect the flow of energy to all EU members. It can also deliver an effective counterpunch to Moscow’s preference for negotiating with nation’s separately, a tactic designed to maximize its leverage and put weaker countries on the ropes.

Germany and other EU members, however, have chafed at placing the common interest of the union above those of their own capitals. This has interfered with the functioning of the market and the flow of gas supplies, leaving smaller members vulnerable to shortages and manipulation.

All of Europe benefits from a competitive, transparent, well-supplied and connected energy system. The economic power of the common market puts individual member states on equal footing with even the biggest energy suppliers, protecting both big and small alike.

A common market requires a standard set of rules to bind it together, though, particularly with a commodity as fundamental to national economic success as energy.

As long as individual states continue to place their economic interests above the collective interests of the broader market – as Germany did on the OPAL and Nord Stream 2 pipelines – and the European Commission is unable or unwilling to enforce compliance with EU´s ‘federal’ rules, Gazprom and Russia’s other state-backed energy companies will have the advantage.

A strong showing of solidarity could deliver an effective check hook to Gazprom, putting the Russian brawler on the canvas. Otherwise, Russia will continue to bob and weave around Europe’s attempts to make the market more competitive, transparent and secure.

Russia is as dependent on the revenue stream from selling oil and gas to Europe as Europe is on Russian energy supplies. Given the choice of playing by the rulebook of more united Europe or throwing in the towel and losing access to its market of 512 million consumers, Brussels might discover that Moscow has a glass jaw.

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