Economic War on Russian Gas

American interference in European life is not new, including in the field of energy


…by Pierre-Charles HIRSON, via VT Damascus

The United States is waging a ruthless economic war against Russia over Europe’s gas supplies, with Project Northstream 2 and Europe as the battleground as its target. The Americans do not hesitate to trample on European sovereignty by applying the extraterritoriality of their law on European territory to European companies participating in this project.

It is a gas pipeline connecting Russia (Vyborg) to Germany (Greifswald) via the Baltic Sea crossing Finnish, Swedish and Danish waters. Project worth around 10 billion euros. It is 51% financed by Gazprom and the rest between ENGIE (France), OMV (Austria), Shell (Anglo-Dutch), Uniper (E.ON group – Germany) and Wintershall Dea (BASF group – Germany) ranging from 9 % to 15%.

The stake here is the influence and the increase in power through the dependence of the Customer / Supplier relationship, with Europe in the role of the customer. Russia is an essential partner because it supplies the majority of European gas, almost 40% in 2018. Europe, between the search for energy dependence and security of supply, will sometimes push the Americans to export their LNG gas (Natural Gas Liquified) by LNG carrier, sometimes financing and authorizing gas pipeline projects between Russia and Europe: Yamal-Europe, Northstream 1 and 2, Turkistream.

However, European energy policy is largely dependent on the national and individualist political choices of its member states. This is how Europe finds itself divided between countries favorable to and opposed to the project. The major European players are Germany, the only major beneficiary of this project, Poland, Ukraine and the Baltic States as main opponents.

Taking advantage of European dissensions, the United States will find intra-European relays to justify their interference. They are calling for the cancellation of the Northstream 2 project in an effort to protect Europe and prevent Russia from using gas as a means of coercion. We will see how the American trap is set and how the noose will gradually tighten on the European companies participating in the project.

An American power issue

The reasons for the American relentlessness to stop the German-Russian project Northstream 2 can be seen from two angles. The one economic and the other under a politics of influence.

Economic, because let us remember, it is Europe that is asking the United States to diversify its supply. In 2015, a “package” from the European Commission launches the foundations for an “Energy Union” which outlines an axis of diversification of gas suppliers through increased use of LNG. LNG delivery by LNG carrier has the advantage of being flexible and presents a wide variety of suppliers, but is more expensive than Russian gas by pipeline.

The report also recommends that the Commission do its utmost to “remove obstacles to LNG imports from the United States”. This will be achieved in 2015 and the first exports of American LNG to Europe will be in 2016. Close to self-sufficiency thanks to the shale gas and oil revolution that began in 2007, the United States dethroned Russia in 2009 in as the top gas producer, and Saudi Arabia since 2018 as the top oil producer. The country’s energy security is assured and American private companies can now storm international markets, with the blessing of their government, even if it means giving them a few nudges.

Politics of influence, because a Europe dependent and under Russian control, in particular the first European power which is Germany and NATO framework nation moreover, would be an unacceptable loss of influence for Washington. The reorientation of American energy policy is in the service of its power policy, because delivering gas to Europe makes it possible to reduce the deficit in the American trade balance vis-à-vis it, to loosen the grip Russian market in the European gas market, to increase its potential to influence the region as an energy supplier.

Strategy and targeting of US laws to be taken extraterritorial

The chain of US sanctions follows an astonishing gradation. The first date back to 2014, under President Obama’s mandate following the Crimean crisis and they continued under President Donald Trump, notably in 2017 with the “Countering America’s Adversaries Through Sanctions Act” (CAATSA) (countering the adversaries of the America through sanctions) which target Iran, North Korea and Russia.

The start of sanctions against Russia:

The various sanctions packages between 2014 and 2018 are broad in scope, targeting politicians, businessmen, strategic sectors such as energy or defense, financial restrictions and the export of technological equipment. The overall objective is to penalize the development of strategic Russian sectors. However, the Northstream 2 project and European companies are not yet directly targeted.

Like a snub to the US administration, the consortium signed the funding agreement in April 2017. Washington is increasingly critical of the project and threatens the Europeans. At the NATO summit in July 2018, President Trump declared that “Germany is a prisoner of Russia” and asked it to abandon the project. The laying of the first pipes begins in September 2018 and by this act the Europeans show that they have no intention of letting the Americans interfere in their affairs.

US constraints hamper the development of Russian gas projects in the broad sense, but the Northstream 2 is advancing and the development of gas liquefaction plants in the Russian Arctic is being done in part with Chinese funding. US sanctions are ineffective. They must review their strategy by targeting specific objectives to torpedo the Northsteam 2. A race against time begins before the pipelines are complete.

Level 1 extraterritorial weapon: European target – the “Allsea” company

The centerpiece of the Northstream 2 project is its pipe-laying boat, the “Pioneering Spirit” from the Swiss company Allsea. Without an installation boat, no pipes are laid at the bottom of the water and the project comes to a halt. The Americans are going to apply the extraterritoriality of their right to a European society, in European waters. This is a first and it will work.

The vote in December 2019 in the law of the “Protecting Europe’s Energy Security Act of 2019 (PEESA) (Protecting European energy security) directly targets the company Allsea by“ imposing sanctions on construction buildings on Russian export pipelines, and for other uses ”. The Swiss company complies by suspending its activity in December 2019 for fear of possible US sanctions.

Level 2 extraterritorial weapon: targeting Russian pipe-laying companies

The United States anticipates the fact that the pipe laying will resume sooner or later with Russian companies, beyond the reach of current American laws. This is the reason why the head of the American diplomacy, Mike Pompéo announces in July 2020 a tightening of the sanctions by including the Northstream 2 project in the “Countering America’s Adversaries Through Sanctions Act (Caatsa)” of 2017. This allows to continue Russian companies participating in the construction of this project.

Indeed, far from giving up the project, the Russians are working on the modification and purchase of laying boat via the Russian companies KVT-RUS for the “Fortuna” and Gazprom with the “Akademik Tscherski” to resume the activity abandoned by the Swiss company. Work will resume on December 11, 2020, after a year of shutdown, in order to complete the laying of the remaining 6% of pipes, i.e. 120 km in Danish waters and 30 km in German waters.

The level 3 extraterritorial weapon: Targeting support activities for the laying of pipelines

This is a first victory for the Americans and their European allies. The project was delayed for a year. This precious time saved will allow the Americans to prepare for the future. In anticipating the laying activities by Russian companies, we must find another angle of attack to prevent them from working. The strategy is to target companies in support of these boats. Since June 2020 US senators have been looking into the subject. An “Act” is prepared and will be incorporated into the “National Defense Authorization Act” passed on January 1, 2021. This sanctions all companies or individuals who provide services and insurance to any laying vessel, welding facilities, security services. testing and inspection for the pipes of the Northstream 2 project. In other words, it is a legal encirclement of sanction on all activities and services related to Russian ships.

On January 13, 2021, the US government officially warns the European companies concerned by directing them to withdraw before it is too late…. The Norwegian certification group DNV GL is withdrawing in early January 2021, and the Zurich Insurance Group is also reportedly throwing in the towel.

The American strategy is thought out, formidable, and the sanctions surgical because targeting critical activities each time. European companies give up one after the other for fear of sanctions, but also perhaps for lack of support and European legal solutions protecting them. The scope of US sanctions is adjusting as the Russians and Europeans find solutions. Proof for those who doubted the extraterritoriality of American law as a weapon of economic war, in the service of American power politics.

The project bogged down but still continues, with Germany and Russia continuing the project despite constraints. But the fatal blow could well come from elsewhere: from the German political and societal chessboard. The necessity of the project is increasingly criticized as well as the repeated violations of human rights of the Russian partner.

Information warfare and cognitive encirclement in Germany

From Obama to Trump, the United States has only increased sanctions on Russia by exploiting the Skripal and Navalny cases. It should be remembered that Alexeï Navalny, opponent to the Kremlin, was transported from Russia to Germany for treatment in August 2020. This was done thanks to the mediation of a small German NGO “Cinema for peace” which he would be interesting to study the ramifications. This case will be used as a cognitive bias to divide society and the German political class. Linking two visibly unrelated cases: Project Northstream 2 and the Navalny affair including his arrest upon his return to Russia in January 2021 and the subsequent crackdown on protesters.

The bias could be summed up as follows: Should and can Germany trust Russia, which poisons its opponents and violently represses its protesters, entrusting it with a large part of its energy security. The idea is catching on among German politicians, but the Chancellor refuses to tie the two cases together for the moment, but does not rule out European sanctions against Russia. However, the question has been asked, and the seed has germinated: human rights versus politico-economic project.

Another powerful influencer in Germany is the environmental lobby. It is a powerful voice of opinion that has been mobilized from the outset against the project, but in the name of environmental protection. If the project is sufficiently delayed, the subject will be on the menu of the next German federal election in September 2021, of which the increasingly popular Green Party of Annalena Baerbock will certainly be an influential member of the new government. It’s a safe bet that this will be done to the detriment of the project. Canceling the project for ecological reasons could be an honorable way out for Germany, without calling into question the American authority and the extraterritoriality of its right.

Divergent interests and European divisions

Russia wishes with this project to perpetuate its market shares in Europe in the face of competition from LNG, and thus maintain its economic model of gas income. It also wants to position itself on the European gas market, where imports are forecast to increase to cope with the drop in intra-European production. Russia is also developing an LNG offer, with its arctic gas fields, to diversify its outlets to Asia, but also to offer Europe a more flexible and less restrictive delivery method than a physical pipe.

However, Europe, which captures the bulk of Russian exports, remains its main market (90% in 2016), while development towards Asia is very competitive. This is a political project for the Kremlin, but also an economic one because it is a major inflow of money for a still fragile Russian economy.

Germany has made the political choice, whatever its leaders say, to carry out this project despite the reluctance of its partners, despite the possible alternatives, despite the questionable economic interest and despite the two recent gas pipelines linking it to Russia. : Yamal-Europe in 2006 and Northstream1 in 2012. Is this a consequence of the German “Ostpolitk”, a political axis taken up by Chancellor Gerald Schröder who is at the origin of the two Northstream projects or a drift of part of the German political and industrial class?

We can ask ourselves the question when we find at the head of Nord Stream AG, the “reconverted” Gerald Schröder, at the head of the Nord Stream AG 2 consortium Matthias Warnig, formerly of the Stasi and close to the Kremlin, and our two friends at the Rosneft executive committee. The same goes for German finance and industry. We will find Deutsche Bank, KfW (Credit Institution for Reconstruction) and Dresdner Bank.

The Dresdner Bank with Matthias Warnig to advise Gazprom during the major consolidation maneuvers of Russian energy companies in the 2000s. It would be interesting to study the links between the German companies E.ON, RWE, BASF and Gazprom with the game of equities by subsidiaries and the appointments to these boards of directors and see if there are any links uniting its actors by showing the common interests for these projects. A game of actors and troubled interests not necessarily for the benefit of Germany, nor of Europe.

Germany made an individualistic choice that could seem strategically interesting in the long run. By positioning itself as a regional gas hub with an influx of Russian gas to increase its power. A hub is an annuity on insured gas transit and it means having control of the tap. Enough to have arguments around a negotiating table in front of its European partners. This strategy turns against it by force of events, and certainly explains the lack of solidarity of its other partners.

Europe is outraged, protested and contested, vigorously admittedly, at US interference. The EU thought it had found a technocratic compromise to calm the American wrath in February 2019 by including the Northstream 2 project in “European gas regulations”. This forces Gazprom and its associates to separate supplier and producer activities, and also to share facilities with other potential suppliers / producers. This is a huge loss of profitability for the consortium. However, the text leaves the door open to exemptions, and nothing has yet been done to comply with them.

The Americans, not letting themselves be drowned in the twists and turns of European law, remain consistent with their starting line by demanding an outright end to the project. Poland also uses its law as an economic weapon to impose a fine of 6.5 billion euros on Gazprom and sanctions the other five partners. For its part, Paris called on Berlin in early February to stop the project, despite Engie’s involvement.

Russian LNG and its rise in the Arctic in the American sights

Russia is developing its Yamal and Gydan arctic gas fields as well as LNG-related technologies. The major players in this development are the private Russian company Novatek, and European (Total, Technip, Saipem, others), Chinese (CNPC, Silk Road Fund, CNOOC) and Japanese companies. Russia aims to become a major player in LNG in view of its resources, but also to develop know-how in these technologies. This would allow it to lessen the risk of Western sanctions on the import of technology, as the US sanctions already include the Novatek company, as well as the export of technology and service for offshore activities in the Arctic.

Global warming makes it possible to exploit these resources and navigate via the northern route, despite the extreme conditions. This route offers a strategic advantage as it is 15 days shorter to connect the Atlantic to the Pacific without passing through the Suez Canal. The other strategic advantage is the enormous Russian advance with its 39 icebreakers. The United States has only one that works. One part of the American strategy is to limit Russian development in the Arctic by deploying coercive measures on navigation via international organizations in the name of environmental protection. In November 2020, “The International Maritime Organizations” (IMO) banned the navigation of ships carrying heavy fuel oil in the Arctic, targeting the Russian fleet.

The United States has become the third largest exporter of LNG behind Australia and Qatar. Russia is the fourth and has many plans to increase its capabilities, exploiting the important resources of the Arctic which relies on the navigability of the northern route. The United States is trying to contain a competitor in the LNG market, but also Russia’s strategic rise in the Arctic, a region which is already a geopolitical issue.

Implications and consequences

Beyond the merits or not of the Northstream 2 project, or the American interest in supplying LNG to Europeans, the issue has now shifted to European sovereignty. The United States has crossed the Rubicon. It is at the heart of Europe, on European territory, that the United States wants to sanction European companies thanks to the supposed extraterritoriality of their law. The change of tenant at the White House that declares America is back and ready to lead the world is not reassuring.

Moreover, should we see it as a coincidence of fate when Joe Biden chooses Anthony Blinken as new Secretary of State, he who wrote “Ally versus ally”, whose subject is the crisis of 1982 between France, Germany , the USSR and the United States about… a Siberian gas pipeline. The United States then inflicted retaliatory measures on Europeans and their companies, but they had been able to react by taking countermeasures. The sanctions will be dropped and the project will be done. Proof that Europe is capable of bending the American giant to defend its interests.

American interference in European life is not new, including in the field of energy, but on the other hand the use of their right on European territory is one. It is a complete violation of European sovereignty that must be seen as the beginnings of the China / US confrontation.

If it is trampled by our ally in a period that is still relatively calm, then what treatment will await us in the zones of turbulence to come… On the other hand, China will certainly not be more inclined to respect neither sovereignty nor values. European.

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  1. Nice article, thanks to the editors. We all remember very well that Russia has always been a constant and very reliable partner for Europe. Pipe gas, delivery – the cheapest. There is simply no alternative. But the United States decided to upset this balance. And, by the way, all this hysteria was started by your beloved Trump. He didn’t care that if severe winters come to Europe, they will freeze without our gas. No. Of course they will survive, but the lion’s share of the gas goes to the German industry. The Germans are not stupid. They are very pragmatic people. No amount of green energy will save them. Whoever promoted something in the spirit of the extravagant Greta Tunberg, but nuclear power plants, oil and gas are a reality that cannot be avoided in the near future. What can Americans offer for Europe? – Buy gas in Russia in the north and resell it to Europe at their own prices. No need to reinvent the wheel.
    For information: the length of pipelines in Russia can circle our planet more than 40 times. And the radius of planet equator is well-known to everyone since 10 y.o. age.

  2. What’s really evil about this is the missed opportunity for peace. We could have saved this card as an alternative to expanding NATO and putting troops and missile bases on Russia’s borders but of course, it was never about good faith.

    We could have said … we will stay away from former Soviet Republics but if Russia ever does invade Poland or Romania, we could replace Russian NG exports w/U.S. LNG to reassure that former Soviet bloc. This would never happen of course but it could have been there as a failsafe. Europe could agree to pay 2 to 3 times the market value for NG in the lunatic scenario where Russia invades, something they would never do.

    But sigh, we have to use our LNG to box them into a corner and try to kill them. We are using our LNG to start a war, not to prevent one.

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