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Nord Stream 2 and sanctions: what to expect?

Despite the turbulence accompanying the change of power in the United States, a media report came out that the U.S. Senate and House of Representatives agreed on fresh sanctions against Nord Stream 2. Political consensus is a shaky phenomenon, but beginning from December of last year the matter of sanctions against the Russian gas pipeline project became an exemplary implementation of bipartisan and bicameral consensus in the United States. So, what does the sanction “package” consist of now and what does it mean for Nord Stream 2?

Back on 20 December 2019, ten days before the transit contract was signed (whose terms and the very existence should probably be attributed to the imposed sanctions), U.S. President Donald Trump signed the National Defense Authorization Act (NDAA) for the fiscal year 2020, which includes the five-year Protecting Europe’s Energy Security Act (PEESA).

According to the terms of these sanctions, restrictions are imposed on all “vessels that engaged in pipe-laying at depths of 100 feet (30.48 m) or more below sea level for the construction of the Nord Stream 2 pipeline project, the TurkStream pipeline project, or any project that is a successor to either such project”. The sanctions also apply to all contractors which have “knowingly sold, leased or provided those vessels”. These restrictions mean, first of all, the impossibility to do business and the blocked assets and all transactions within the U.S. jurisdiction, and also, refusal of entry and cancelation of visas and authorization documents for persons involved.

In addition, this document clearly stipulates conditions for the lifting of sanctions, stressing that sufficient volume of gas transit must be ensured for the Ukrainian gas transmission system. In particular, the sanctions will be lifted if the project does not result in the reduction of the volume of Russian gas exports via existing pipelines (in particular, via Ukraine) by more than 25%. The average monthly volume transmitted via these pipelines in 2018 (excluding unforeseen circumstances) will be used for comparison. By the way, according to data by Gas TSO Ukraine, the volume of gas transit during ten months of 2020 amounted to 45 bcm, which is much less than during the similar period of 2018 (72.1 bcm).

Similarly, no sanctions will be imposed if the capability of the Russian government to use Nord Stream 2 as an instrument of coercion and political influence is minimized. It means unbundling, i.e., ensuring that the Russian government-controlled business entities do not control the gas pipeline, and instead, it is managed by an independent operator.

Moreover, a U.S. State Department’s statement published on 20 October issued an extended guidance concerning implementation of existing sanctions. Despite the widely used misconception in mass media, these are not fresh sanctions, but they are no less important because of the supplement according to which authorized U.S. agencies will interpret the aforementioned provisions of PEESA. The statement clarifies, in particular, what the sanction-warranting action “provide[d] those vessels for the construction of such a project”, which also includes “upgrades or installation of equipment for those vessels”, means. This extended interpretation is very significant, considering numerous statements about possible engagement of Russian pipe-laying ships MV Akademik Chersky, MV Fortuna or MV Defender (which need upgrade for these purposes), and also, recent “voyages” of the first-mentioned of them in the Baltic Sea.

Speaking about the fresh sanctions (which Bloomberg reported on 11 November, citing three sources), they are, probably, a part of the draft National Defense Authorization Act (NDAA) for the fiscal year 2021. According to this report, the fresh restrictions will target insurance and technical certification companies. If this legislation is enacted, Nord Stream 2 won’t be able to receive insurance and technical certificates required for operation within Denmark’s exclusive economic zone. It is a critical restriction, because while reequipping and upgrading of vessels by solely Russian or dummy companies still can be imagined, procuring insurance and certification this way is altogether impossible.

So, what do they think about all that in Germany, the country whose government is still favoring the Russian project? Despite the discontent at the sanctions on the one hand, there is also another trend. “Russia’s fatal miscalculation”, “a coffin for billions”, “a controversial gas pipeline” – that’s how Nord Stream 2 is called in the headlines of leading German publications this fall. Does that mean the change of the project’s paradigm in Germany? Or, perhaps, it’s just a “wait-and-see” tactic, which is also a part of the strategy of solving this problem until it gets lost by itself somewhere on the bottom of the Baltic Sea?

As practice shows, the struggle against Nord Stream 2 is a constant “walk on the edge of a razor blade”: the construction was halted while the project was 93.5% completed, while the idling Russian pipe-laying ships are still moored at a German port. Therefore, extended interpretation of the existing sanctions and the probable fresh sanctions are a factor that can finally tilt the balance in favor of Ukraine.

But what about Ukraine? Where are we in this story? There are many tasks we still can and should accomplish in order to get involved ourselves in the fight for European (and therefore, Ukrainian) energy security.

Firstly, intensifying a diplomatic dialogue with European partners, first of all, with Poland as our natural ally, Germany as the project’s major beneficiary and at the same time “victim”, and France as an influential European force not lost for Ukraine with finality under the pressure from the Russian lobby yet.

Secondly, seizing the opportunity (not as a result of scandals or curiosities but thanks to a systemic work) to gain a more influential place in the United States political agenda. To that end, we can take advantage of the “window of opportunities” opening in the nearest six months, during the change of U.S. administration and outlining of America’s new foreign policy.

Thirdly, not diminishing the importance of “unofficial” diplomacy and information campaigns to combat Russian fake news: joint statements and open letters, speeches at international conferences and studies – these things can become the deciding vote when we’ll be “walking on the edge of a razor blade” next time.

Anastasia Synytsia

DiXi Group Junior Analyst

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