Pipe Dreams US sanctions on Russia hit Nord Stream 2 gas line, European companies

America’s blacklisting of Putin's cronies is damaging business relations with Russia and could spell the end of the €9.5 billion gas pipeline to Germany. Even Chancellor Merkel cast doubt on Nord Stream 2.
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The long reach of US sanctions has stretched all the way to boardrooms across Europe, including German companies like VW, software maker SAP, Deutsche Börse’s securities firm Clearstream and Nord Stream 2, the €9.5 billion gas pipeline project from Russia to Germany.

The connection is thanks to a new blacklist of Russian oligarchs with ties to Vladimir Putin, announced by President Donald Trump last week in retaliation for Russia’s “malign activity,” that poses considerable legal risks to European businesses. The US Treasury said that even non-US persons could face sanctions if they helped any of the blacklisted people or companies. Thomas Heidemann, a Russian expert at the law firm CMS, told Handelsblatt that cautious German firms would no longer do business with big Russian companies fearing US repercussions.

Clearstream, the Deutsche Börse-owned firm that provides settlement and custody services for international equity trades, has already refused to provide services for the equities of the Russian companies on the US sanctions list. Complications could arise for huge German companies like Volkswagen, which buys aluminum from Russia. SAP and other software companies could also be at risk if they continue to supply Russian firms.

I don’t think the pipeline will be completed any time soon. Banks will be hesitant to provide funding. Julia Pfeil, commercial lawyer, law firm Dentons

The US blacklist also raised doubts about whether German banks would help finance Nord Stream 2, a project of Russian state-controlled gas company Gazprom and partially funded by Western companies, including BASF, Uniper, and Shell. The Nord Stream 2 is under construction and scheduled to start gas deliveries in 2020 and is capable of supplying energy to 26 million households. “I don’t think the pipeline will be completed any time soon. Banks will be hesitant to provide funding,” said Julia Pfeil, a lawyer at Dentons.

Even Chancellor Angela Merkel cast doubt, albeit for different reasons, about the pipeline which would run from Russia to Germany across the Baltic Sea and circumvent land-based pipelines in Ukraine. At a joint press conference with Ukrainian President Petro Poroshenko, Ms. Merkel said: “I made very clear that a Nord Stream 2 project is not possible without clarity on the future transit role of Ukraine,” Ms. Merkel said. “So you can see that it is not just an economic issue but there are also political considerations.”

Indirectly, the German Chancellor referred to Ukraine’s precarious situation after pro-Russian separatists launched civil war in the country in 2014 and Russia annexed Ukraine’s Crimea peninsula. Ahead of his visit, Mr. Poroshenko, who fears a loss of income from the new pipeline, told Handelsblatt that Nord Stream 2 is a “bribe for loyalty,” given by Russia to Germany. But he needn't worry too much. If his blunt opposition to the project doesn't kill the pipeline, it could end up being US sanctions that do.

Mathias Brüggman is head of Handelsblatt's foreign affairs desk, Moritz Koch is Washington correspondent and Torsten Riecke in the paper's international correspondent. To contact the authors: [email protected], [email protected] and [email protected].