The construction of Nord Stream 2 (NS2) has been a rollercoaster of a project with many ups and downs for both its proponents and opponents. On Friday, Trump approved sanctions on companies involved in the construction of the project. The move by Washington has been strongly condemned by both Germany and Russia, who see the sanctions as evidence of the Trump administration interfering with their internal affairs.
The sanctions mean that the visas of employees can be revoked and assets can be frozen. Allseas, a Dutch-Swiss private company, is going to be significantly affected because it owns considerable assets in the U.S. and the specialized nature of its operations makes it essential for the project.
Washington’s risky game
The NS2 sanctions are one of the few topics about which both Democrats and Republicans can agree on. President Trump’s quick response regarding the signing into law of the sanctions bill shows his intention to be tough with Russia. That toughness is partly to do with the Democrats’ accusation of Moscow’s rigging of the 2016 Presidential Election with the collusion of Trump’s campaign team.
The current administration's 'America First' policy and tough stance regarding alleged trade disadvantages has put the U.S. on a collision course with trading partners. But Washington's newest sanctions on NS2 are arguably the most risky yet with the potential of upending its relationship with a crucial ally.
Allseas announced, shortly after the imposition of sanctions, that it is suspending construction activities and wait for further information on the U.S.' intentions. Although the administration has 60 days to identify the companies working on the pipeline before it imposes punitive restrictions, the Dutch-Swiss company decided to act preventively. This means that it is uncertain when NS2 will be completed. It is companies like Allseas who are currently set to suffer most from Friday’s sanctions. Related: The War For Ultimate Control Over Libya’s Oil
According to Gazprom, costs have already ballooned due to Denmark’s foot-dragging concerning approval for activities in its territorial waters. The current suspension could increase the financial burden even more. To the detriment of Gazprom and customers in northwestern Europe who will now need to find alternative sources of natural gas on the international market to replace expected supply from Russia.
Another important loser, paradoxically, is the U.S. itself. Relations between the U.S. and the EU are at a historic low and a trade war between the two may soon be upon us. Washington’s aggressive policy towards Europe under the current regime has already led to a more assertive European foreign policy and even talks of a European army. Although unlikely in the short to medium term, the fact that it is being discussed at all shows how U.S.-European relations have deteriorated.
Even Brussels, which at the start of 2019 was trying to obstruct NS2’s construction, has joined the chorus of criticism being leveled at Washington. According to EU Trade Commissioner Phil Hogan, "Brussels opposes the imposition of sanctions against any EU companies conducting legitimate business."
The unexpected winner
Besides Ukraine, who risked being circumvented by NS2 and Turk Stream, an unlikely country stands to benefit from the sanctions. While it may sound confusing, Russia is a beneficiary of the suspended activities on the construction of Gazprom's most important project. While it costs Moscow hundreds of millions in lost income and additional investments, the country is benefitting on a geostrategic and political level. Related: A Record Number Of Oil CEOs Dethroned In 2019
For a mere $9.5 billion, NS2’s price tag, Moscow has unintentionally managed to drive another wedge between key Western allies. Berlin is furious about the sanctions and its already fraught relations with Washington are set to escalate even further. According to German Foreign Minister Heiko Maas, the American sanctions amount to “interference in autonomous decisions taken in Europe.”
How the Nord Stream 2 saga will end
What is certain is that NS2 will be completed eventually. Most of the work on the 1,230 kilometer or 765 mile long pipeline has already been finished. Also, the vast majority of the $9.5 billion in investments have already been spent. The biggest problem is that Allseas is one of the few companies in the world with the specialized vessels to weld, test, and drop the pipes to the bottom of the Baltic Sea.
Technically, there are three possibilities for how this saga could develop. The first scenario would see construction activities delayed for an unspecified amount of time, before a breakthrough allows NS2 to be finished. The deadlock could be breached by political means or technical assistance from different suppliers.
In the second scenario, NS2's completion is made impossible after which construction is abandoned entirely. This is the most unlikely scenario.
The final scenario would see Trump start a trade war with the EU and use NS2 as a bargaining chip. Washington may offer a potential sanctions waiver to Allseas to extract more concessions from the EU and Germany. In this scenario, NS2’s competition would only come after the EU-U.S. trade war is brought to an end.
The next step in this saga is for Brussels and Berlin to send a diplomatic mission to Washington to find ways out of the current crisis. Whoever wins in the ongoing battle concerning NS2, the situation is a win-win for Moscow.
By Vanand Meliksetian for Oilprice.com
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