SANCTION REACTIONS

Germany Ponders Tit-for-Tat

A handout by Nord Stream 2 claims to show the first pipes for the Nord Stream 2 project at a plant of OMK, which is one of the three pipe suppliers selected by Nord Stream 2 AG, in Vyksa
The US sanctions on Russian-led energy cooperations such as Nord Stream II might hammer some European companies. Source: DPA

In the latest round of escalating tensions, German political and business leaders accused the US of using sanctions to boost their own economic interests in Europe – to channel more oil and gas into the European market. “In our opinion, such extraterritorial effects of such sanctions are contrary to international law,” said Jürgen Hardt, Germany’s coordinator of transatlantic relations, on Thursday. Mr. Hardt told German broadcaster SWR that it was not acceptable for the US to impact Europe’s energy policy through sanctions.

The US government now has the power to scotch the blueprints for Nord Stream II, a pipeline to supply natural gas from Russia directly to Germany via the Baltic Sea. Construction is due to start in 2018, with completion in 2019. What makes the situation so threatening for the EU, is the US now has, in the form of sanctions on Russia, the instrument to torpedo this energy project. The penalties would sweep European and German energy companies in their net, and Europe’s economy would take a hit.

In the worst case, America’s desire to punish Russia for cyber-attacks – and to rap President Trump on the knuckles for currying favor with Russian premier Vladimir Putin – could unleash a trans-Atlantic clash.

Germany’s economics minister, Brigitte Zypries, warned that the US measures could spark a trade war with the European Union. “There is the possibility of retaliation, and the World Trade Organization sees it this way,” Ms. Zypries said in an interview with German TV broadcaster ARD. “Our companies could suffer damages.” Her comments echoed those of European officials in the immediate aftermath of the US vote. “We could take countermeasures against US agricultural imports to Europe,” said Elmar Brok, an EU parliamentarian who represents German Chancellor Angela Merkel’s conservative bloc.

“There is the possibility of retaliation, and the World Trade Organization sees it this way.”

Brigitte Zypries, German economics minister

On Tuesday, the US House of Representatives passed a draft bill that bolsters economic sanctions against Russia – ones that were imposed after Moscow annexed Crimea, supported President Bashar al-Assad in Syria, and presumably interfered in the US presidential election. The House and the Senate must first align their versions of the legislation before submitting it for President Trump’s signature.

According to Gernot Erler, Germany’s commissioner for Russian affairs, the sanctions could even disrupt Europe’s energy supply. The draft bill not only rejects Nord Stream II, but also threatens any European-Russian cooperation on energy, “right down to repair work on the pipelines the EU’s energy supply depends on,” Mr. Erler told newspaper Neue Osnabrücker Zeitung. Mr. Erler also criticized the US government, saying its primary aim was to use its own energy resources to create US jobs and strengthen the country’s foreign policy.

Chemicals giant BASF, which has long cooperated with Russian partners through its energy unit Wintershall, was one of the first big German companies to criticize the US sanctions. BASF’s boss, Kurt Bock, complained: “To impose fines on a third party, at the expense of Europe, and at the same time to promote the American economy according to the motto ‘buy American gas’ – this is remarkable.”

Supermarkt in Moskau
After Western sanctions in 2014, Moscow banned the import of many foods from the West including cheese and fish. Source: DPA

The German Committee on Eastern European Economic Relations, a parliamentary group, said sanctions against the US should be used as a last resort. “I have to say this is, of course, the very last thing we want,” said Michael Harms, the committee’s director, on Thursday in Berlin.

Oddly, these uncertainties overshadow the profits Germany’s eastward-focused industries are poised to reap from expanded US sanctions. Mr. Harms’ committee forecast German exports to Russia will rise 20 percent this year, more than twice its earlier estimate. In the first five months of 2017, these exports soared by 28 percent.

At the same time, the risks are growing. If the US wants to partake in the expansion, modernization or maintenance of Russian export pipelines, the sanctions “would be a fundamental intervention in European energy supply, and would lead to rising energy prices and declining competitiveness in Europe’s economy,” said Mr. Harms. Moreover, apart from Nord Stream II, the Americans could target other projects in future sanctions. The draft bill now hovered like a Damocles sword over European companies.

“This is ‘America first’ in a new dimension,” Mr. Harms said.

 

Ruth Berschens heads Handelsblatt’s Brussels office, leading coverage of European policy. Klaus Stratmann covers energy policy and politics for Handelsblatt in Berlin. Moritz Koch has been the Washington correspondent for Handelsblatt since 2013. Jeremy Gray is an editor for Handelsblatt Global. To contact the authors: berschens@handelsblatt.com, stratmann@handelsblatt.com, koch@handelsblatt.com.

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