Secondary US sanctions How the US could halt Nord Stream 2

By inflicting secondary sanctions on smaller European companies involved in the Nord Stream 2 gas pipeline from Russia, the US could seriously undermine the controversial project. After all, it worked with Iran.
Source: Allseas PR
Allseas ship in dangerous waters.

Source: Allseas PR

Whenever he gets the chance, the US ambassador to Germany likes to talk about how to stop the controversial gas pipeline, Nord Stream 2. Companies working on the pipeline “are always in danger, because sanctions are always possible,” Richard Grenell told Handelsblatt. The ambassador, who, unlike most career diplomats, doesn’t shy away from controversy, is hinting that the US could use what are known as extraterritorial sanctions – that is, secondary sanctions that do not directly target an unfriendly nation but which are aimed at other countries a little too friendly with the unfriendly nation. In the case of Nord Stream 2, these are countries like Germany.  

However Grenell may just be rattling his sabers: He also said he was sure that the involved companies would pull out of the project, of their own accord, when confronted with the threat of sanctions.

Secondary sanctions could happen. The US has already used them in the case of Iran, targeting non-American companies which have dealings with Tehran and basically torpedoing Europe’s plan to side step US sanctions and remain open to the Iranian economy.

More Trump foreign policy likely

In Washington, Congress has just been taken over by the Democratic Party, which will put limits on US President Donald Trump’s ability to exercise domestic power, Julianne Smith, a former deputy national security advisor and currently a fellow at the Bosch Academy in Berlin, notes. Therefore we can expect that Trump will do more with foreign policy, which could cause problems for Germany, Smith explains.

Nord Stream 2 is intended to double the amount of gas Russia delivers to western Europe and, despite objections from other European nations, Germany has been a major champion of it. The project is a joint venture between European energy companies Uniper, Wintershall, OMV, Engie and Shell, and the state-owned Russian firm, Gazprom. It has drawn fierce criticism from some eastern European countries, who say it endangers their security while the US opposes the pipeline for strategic reasons, saying the new link would render European allies dangerously dependent on Russian gas, ultimately a weak link in United States’ own security. But critics say its real motivation is to force Europe to buy US gas, which is considerably more expensive than Russian fuel.

Sources in the German government believe that, if extraterritorial sanctions did happen, the US would first target smaller, specialist firms involved in Nord Stream 2’s construction. These might include the likes of the Allseas Group, with headquarters in Switzerland and operations in the Netherlands, that is responsible for laying sections of pipeline, and the Italian engineering firm Saipem.

Impact felt by smaller companies

The Italian company did not reply to Handelsblatt’s enquiries about the impact of US sanctions but they may be pointless because industry sources say Saipem has completed almost all of its work on the project.

A spokesperson from Allseas said they did not want to speculate about the possible impact of US extraterritorial sanctions - but it is clear that there would be one. Allseas is set to lay over 90 percent of the pipeline. Nord Stream 2 is 1,220 kilometers long and has two lines, so will require around 2,440 kilometers of piping. Only 400 kilometers have been completed

There would also be an impact on the project as a whole because Allseas is a specialist that could not easily be replaced, industry sources say.

The German government is alarmed by talk of secondary sanctions. The German Foreign Office has raised concerns with US counterparts. “We are in intensive talks about Nord Stream 2,” the ministry said in a statement. “We are trying to show them that, at all levels, this is a solely economic project, that will help improve European energy security above all.”

Source: Bloomberg
Saipem: Looking out for secondary sanctions.

Source: Bloomberg

Any extraterritorial sanctions would be considered unacceptable interference in European decision making. As Andreas Michaelis, state secretary for the Foreign Office has put it: “I do not want European energy policy defined in Washington.”

As yet, the Economics Ministry says it has not heard about any new developments. In 2017, American diplomats agreed not to impose gas-related sanctions and that agreement is currently still valid, Berlin says.

In fact, Nord Stream 2 is not only controversial in the US, there is plenty of debate on the topic in Europe and inside Germany itself. For months now, opponents of the project – even some inside the German government – have been saying the pipeline needs to be reassessed because when the decision to build it was made, not enough attention was paid to the well-founded security fears of eastern European states about Russian influence.

“Nord Stream 2 is killing Ukraine,” Poland’s foreign minister, Jacek Czaputowicz, told Handelsblatt. “If the Russian gas transit through Ukraine ends, the country doesn’t just lose significant income, it also loses the guarantee of protection against further Russian aggression,” he argued. “We need more decisive actions against Russia, through the EU and NATO.”

When it comes to this argument in Germany, US sanctions could well backfire. Even staunch opponents of Nord Stream 2 here could change their minds about the pipeline if they witness “US interference” in German affairs. They would essentially end up on Trump’s side, a place many won’t want to be.

Additionally sanctions against smaller specialist companies could also hurt US oil and gas extraction in places like the Gulf of Mexico, where they also use these companies’ services.

Moritz Koch is a political editor for Handelsblatt in Berlin. Torsten Riecke is Handelsblatt's international correspondent and Klaus Stratmann covers energy policy and politics.  To contact the authors: [email protected], [email protected], [email protected]