The US Tests Europe for Strength

26.07.2017

Possible US sanctions against participants, investors, creditors, suppliers of goods or services for Russian export projects - that is, against a wide range of the European energy, technological, industrial, engineering, logistics and service companies and financial institutions - form a new tectonic rift between Brussels and Washington. Even the European Commission, which traditionally declared the priority of its policy diversification of the gas supplies sources and support for any infrastructure projects except the Russian ones, prepares to give a tough rebuff. Even the Siemens scandal, which in other circumstances could become a reason for the most powerful PR-attack against Germany as the main and decisive supporter of the Nord Stream-2 project in the EU, does not sound so acute on the background of threats against the European commercial, energy and strategic interests from overseas.

Let's try to figure out what exactly worries the Europeans who until now supported the US sanctions initiatives against Russia.

First, the political justification for possible sanctions against export pipelines from Russia, including North Stream-2 project, explicitly states that "the United States government should give priority to the export of the United States energy resources in order to create American jobs, assisting the allies and partners of the United States and strengthening the foreign policy of the United States." It means that sanctions will be used as a foreign policy weapon and a tool to create jobs in the United States. At what expense? First of all, at the expense of the European consumers. The American LNG is not competitive in the European market. To sell it at a profit, higher prices are needed in the market than those supplied by the current exporters, where Russia is the largest. In addition to high prices for Europeans, this will mean additional risks due to limited investments in infrastructure development and possible volatility of the LNG market, where tankers can at any time sail to consumers, which offer higher prices, as it happened after the Fukushima accident.

Second, for the European players it means the loss of important markets. For energy companies, present projects provide long-term, reliable and competitive gas supplies. For suppliers of pipes, equipment, laying services, logistics these projects provide multimillion and even billions of orders. For financial institutions - almost low-risk projects, in terms of funds return, with a good guaranteed rate of return. Plus they provide multiplier effect for the development of gas transport infrastructure within the EU.

In other words, the loss of European jobs creates jobs in the United States.

Third, it is a blow to self-esteem. In this case, Washington did not feel any politesse toward the so-called "allies". Europeans do not like it when they are so rudely placed before the fact that their opinion means nothing.

Even the softening of the bill's wording before the voting in the House of Representatives is not really perceived as such. The congressmen from the lower house threw in the lap of Donald Trump properly the sanctions affecting the gas pipelines. If in other paragraphs the bill obliges the president to impose sanctions or to prove to the Congress that their introduction is contrary to the national interests of the United States (a kind of presumption of guilt), in relation to participants, partners, suppliers and contractors of export pipeline projects in Russia the president "can impose sanctions." In principle, he has such a right under the US law even without this bill.

Although from a legal point of view it is pointless, from a political point of view it has immense significance. The fact is that the introduction of these sanctions, unlike a broader set, fits into the logic of Trump's election promises - new jobs, development of own energy resources and their exports, equalization of trade balances with the European countries - all these are his slogans. Having softened the wording here, the Congress at the same time shifts responsibility for the deterioration of relations with Europeans to the US president, whose statements and actions regarding the Old Continent regularly caused a stupor, or hysterics.

Anyway, despite the seriousness of the situation, the answer to the main question, whether the sanctions in the event of turning the bill into a law really work or only create temporary difficulties, depends not on Trump or Congress, but on Russia and Europe. This is not the first time that Washington tries to hamper the development of our cooperation in the gas sector by brute force. In the 80s Reagan imposed an embargo on the equipment supply, including those produced by the Europeans, with aim to block construction of a powerful gas pipeline from the USSR to Western Europe. It did not work because of the resistance of European political leaders and corporations - they needed the Soviet gas and the Soviet market. 30 years later, nothing fundamentally changed. Europe needs the Russian gas and the Russian market. It remains only to find out whether there are leaders in the EU, capable not only to say words, but also to defend the European interests against the United States.

Views expressed are of individual Members and Contributors, rather than the Club's, unless explicitly stated otherwise.

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