Security & Geopolitics

The U.S. Sanction Bill Against Russia Could be Trouble, for Everyone

Few weeks ago the U.S. Senate approved a sanction bill against Russia targeting its energy industry. Some European countries strongly protested, but the sanctions could bring to the surface latent tensions within the EU


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Last June the U.S. Senate passed by a vote of 98-2 the Countering Iran’s Destabilizing Activities Act of 2017. The act aims at imposing new mandatory sanctions against persons and entities involved in Iran’s ballistic missile program and with the Iranian Revolutionary Guards.
The sanction bill also included new sanctions directed at Russia – besides the exiting ones, put in place after the Ukrainian crisis – motivated by the alleged meddling in 2016 U.S. Presidential election and the involvement in Syria and Ukraine.
The decision came in the context of a possible reshaping of the relations between the United States and Russia promoted by President Trump. While the Presidency tries to build closer cooperation between the two powers , the bill gives the Congress the power to block the President should he try to ease the existing sanctions.
This, of course, if the sanctions are implemented.
For the time being they are still under consideration, but the possibility itself is already generating tensions.

Old sanctions, new sanctions and the European energy market

Measures are aimed at targeting Russia’s defence, metals, mining, railway, intelligence and the energy sectors, with the latter being a particularly sensitive spot for European countries.
In 2014 the EU implemented the sanctions at the same time the US did, and were precisely the European sanctions that hurt Russia the most, as Europe is the primary market for Russian energy exports. The loss of portfolio investments and direct ones from Europe seriously affected the Russian economy, but Europe needs Russia as much as Russia needs Europe, to import energy and as a growing market to export a wide range of products.
This time European countries do not seem willing to back the US and the political confrontation that is likely to arise between the two if further sanctions against Russia are approved, will not be the only one.

The United States vs. the European Union.

The unwillingness to jeopardize the economic cooperation with Russia in key sectors as energy, made some European countries extremely vocal in opposing the tightening of existing sanctions.
Shortly after the Senate approved the sanction bill, Austria’s Chancellor Christian Kern and the Foreign Minister of Germany Sigmar Gabriel, made a joint statement, suggesting that the final aim of this manoeuvre is to secure energy jobs in the US to the detriment of Russia’s energy industry.
In a context where the U.S. is trying to increase its LNG exports towards multiple destinations, including Europe, the almost unanimous support of the Senate for more stringent sanctions has been interpreted as the attempt to favour U.S. natural gas suppliers at the expenses of their Russian competitors.
What worries European officials the most about the new legislation is the possibility for the White House to extend sanctions to those firms that invest in Russian energy projects.
The first thing that comes to mind is the Nord Stream 2, the planned pipeline that would deliver Russian natural gas directly to Germany going beneath the Baltic sea and thus bypassing Ukraine.
Gazprom has financed half of the project, while the other half is paid by a consortium including Royal Dutch Shell, the French Engie, Austrian OMW and Germany’s Uniper and Wintershall.
Gabriel and Kern described the possibility of fining European companies taking part in the project as introducing a “completely new, very negative dimension into European-American relations” and urged the U.S. to back off and leave the European Union deal with its energy matter independently, with its own rules, in an open and competitive market.
Putting aside her distinctive caution, German chancellor Angela Merkel backed her Foreign Minister Gabriel condemning what is looked at in Berlin as interference in European energy affairs.
The most powerful country of the European Union is unwilling to loosen its energy ties to Russia, but not everyone in Europe shares its plans.

European countries vs. European countries

While some European countries are strongly opposing further sanctions on Russia and are eager to strengthen energy cooperation with the Kremlin, others do not share the same plans, and internal disagreements could impair the already poor ability of the EU to act cohesively.
Among those having a different view there certainly are those Eastern European countries that greatly benefit from the current Russian export routes as they have conspicuous revenues generated by transit fees. Leaving aside the transit fees issue, these countries suffer from a quasi-total energy dependence from Russia, finding themselves in a very vulnerable position. Therefore having a stronger, even better connected with Europe Russia is not seen as the most desired outcome.
Finally, there are those southern European countries that have never been enthusiastic about the Nord Stream 2 project, as it does not fit in with their regional ambitions.
Italy has been dialoguing with neighbour countries – as Greece and Cyprus – to develop new gas infrastructures with the double aim of diversifying its energy supply and potentially becoming a regional energy hub.
Besides being the final destination of the Southern Corridor, thus receiving natural gas from the Caspian region, Italy has plans to increase its imports from northern Africa, especially once development of the super-giant Zohr gas field is completed.
Another option that is being explored from time to time regards the development of the gas fields in the Eastern Mediterranean basin, belonging to Cyprus and Israel.
In this context, southern European countries are less interested in strengthening further the ties they have with Russia, but are instead interested in more energy independence. Some countries could develop their own resources, while others toy with the idea of becoming a regional gas hub. Italy could receive natural gas from a variety of countries and, by using the reverse flows already discussed in the European Energy Strategy of 2015, bring that gas to other European countries.
Comes with no surprise that Italy has been a strong opponent of the Nord Stream 2, using as an argument that one of the objectives of the Energy Union is, indeed, the diversification of supply.
With such a wide array of ambitions it is hard to think that the European Union will be able to act cohesively in case the U.S. goes further in approving the sanctions against Russia.

The US vs. Russia

Finally, the ultimate rivalry. The U.S. and Russia, engaged in a never ending confrontation and competition that concretizes in many fields, the conflicts in Syria and Yemen, the relationship with Iran and China, military capabilities and intelligence. Among these there is energy too, as a way to boost revenues and create jobs, but also as a means of gaining leverage in the international landscape, since being among the biggest world energy producers gives any country access to incredible power.

The sanctions that were passed by the U.S. Senate are still under discussion. It remains to be seen if the House will support them or not. President Trump, despite maintaining a more conciliatory attitude towards Russia, has made of creating jobs in the U.S. one of his top priorities and given its unpredictability, it is hard to tell what his next moves will be.
No European country is likely to desire increased sanctions against Russia, however, some more than others have an interest in avoiding their implementation.
If the sanction bill clears the House it could deepen the rift between the U.S. and the E.U. and among EU member countries themselves.