Pipe Dreams

US sanctions on Russia hit Nord Stream 2 gas line, European companies

main 23251153 Alexey Druzhinyn dpa – Vladimir Putin Russian president signing autograph Sakhalin-Khabarovsk-Vladivostok gas pipeline
May soon be a collector's item. Source: Alexey Druzhinyn / DPA

The long reach of US sanctions has stretched all the way to boardrooms across Europe, including German companies like VW, software maker SAP, Deutsche Börse’s securities firm Clearstream and Nord Stream 2, the €9.5 billion gas pipeline project from Russia to Germany.

The connection is thanks to a new blacklist of Russian oligarchs with ties to Vladimir Putin, announced by President Donald Trump last week in retaliation for Russia’s “malign activity,” that poses considerable legal risks to European businesses. The US Treasury said that even non-US persons could face sanctions if they helped any of the blacklisted people or companies. Thomas Heidemann, a Russian expert at the law firm CMS, told Handelsblatt that cautious German firms would no longer do business with big Russian companies fearing US repercussions.

Clearstream, the Deutsche Börse-owned firm that provides settlement and custody services for international equity trades, has already refused to provide services for the equities of the Russian companies on the US sanctions list. Complications could arise for huge German companies like Volkswagen, which buys aluminum from Russia. SAP and other software companies could also be at risk if they continue to supply Russian firms.

“I don’t think the pipeline will be completed any time soon. Banks will be hesitant to provide funding.”

Julia Pfeil, commercial lawyer, law firm Dentons

The US blacklist also raised doubts about whether German banks would help finance Nord Stream 2, a project of Russian state-controlled gas company Gazprom and partially funded by Western companies, including BASF, Uniper, and Shell. The Nord Stream 2 is under construction and scheduled to start gas deliveries in 2020 and is capable of supplying energy to 26 million households. “I don’t think the pipeline will be completed any time soon. Banks will be hesitant to provide funding,” said Julia Pfeil, a lawyer at Dentons.

Even Chancellor Angela Merkel cast doubt, albeit for different reasons, about the pipeline which would run from Russia to Germany across the Baltic Sea and circumvent land-based pipelines in Ukraine. At a joint press conference with Ukrainian President Petro Poroshenko, Ms. Merkel said: “I made very clear that a Nord Stream 2 project is not possible without clarity on the future transit role of Ukraine,” Ms. Merkel said. “So you can see that it is not just an economic issue but there are also political considerations.”

Indirectly, the German Chancellor referred to Ukraine’s precarious situation after pro-Russian separatists launched civil war in the country in 2014 and Russia annexed Ukraine’s Crimea peninsula. Ahead of his visit, Mr. Poroshenko, who fears a loss of income from the new pipeline, told Handelsblatt that Nord Stream 2 is a “bribe for loyalty,” given by Russia to Germany. But he needn’t worry too much. If his blunt opposition to the project doesn’t kill the pipeline, it could end up being US sanctions that do.

Klaus Mangold The ‘Mr. Russia’ of German business The Frankfurter Allgemeine newspaper once ran a story about Mr. Mangold, a former chief of Daimler and ex-head of the Committee on Eastern European Economic Relations. The paper called him: “The Mr. Russia of German business.” He has plenty of contacts and investments in Russia, and reportedly a great relationship with Mr. Putin. Mr. Mangold has said he supports political action through trade. He is now the head of the TUI travel group and has brought about many deals between Russian elites and European companies – including reportedly helping Russian tycoon Alexey Mordashov buy majority shares in TUI. Source: DPA
Alternative for Germany A useful party The Alternative for Germany, a party of the populist far right, has long been friendly with Russia. The head of the AfD's youth wing, Markus Frohnmaier, is an enthusiastic advocate for a better relationship between Germany and its eastern neighbor. He argues that the EU’s sanctions on Russia have only a negative impact. Most recently, AfD members traveled to Crimea and Syria. But toeing a softer line also has support on the other end of the political spectrum. The opposition Left Party has repeatedly criticized EU sanctions. In a declaration in February they urged a repeal, saying Russian sanctions “cause even more problems than they solve.” Source: Imago
Russia Today State media in Germany RT, the state-funded media organization, has been classified as a “foreign agent” in the US. British media watchdogs have warned RT more than a dozen times, and French President Emmanuel Macron accused the channel of spreading “deceitful propaganda” and “defamatory untruths.” In Germany, the head of RT, Ivan Rodionov, argued his organization is no different than any other state-funded organization, such as Deutsche Welle or the BBC. Source: Reuters
Peter W. Schulze Dialogue of Civilizations Research Institute Mr. Schulze, a political scientist, heads a think tank based in Berlin that was co-founded by Vladimir Yakunin, a Russian businessman and associate of Mr. Putin who is rumored to have held a high rank in the KGB. Mr. Yakunin is also on the US’ sanctions list. Funding sources for the institute are opaque but some German media have suggested that Mr. Yakunin invested over €20 million in the institute. One German newspaper argued that locals say the think tank is an “instrument of Moscow’s hybrid warfare.” In a letter to Handelsblatt Global Mr. Schulze denied any influence of the Russian government. Instead, DOC "is committed to maintaining its independence from any government or political influence," he states. Source: DoC / CHLietzmann
Wolfgang Kubicki + Frank Elbe Lawyers, advisors, lobbyists, politicians? In November the UK's Guardian newspaper sighted an email that linked Wolfgang Kubicki (pictured), a senior member of the Free Democrats in Germany, with lobbying for the Nord Stream pipeline project, the same project that Gerhard Schröder oversees now. The same email also involved Frank Elbe, a former German ambassador to Poland, India and Switzerland. Both men denied they were involved in any lobbying activity and just doing their jobs as lawyers and advisors. Source: DPA
Matthias Warnig Old friends with business interests in common A former spy for the East German government, Mr. Warnig has known Vladimir Putin since he was a civil servant in St Petersberg. The two are apparently still close friends. That association is also linked to business interests: Mr. Warnig is head of the board at Rusal, the world’s largest aluminum company, and also the head of the much-criticized Nord Stream 2 project. Mr. Warnig is notoriously media-shy which is why this picture of him exiting a reception for Mr. Putin, together with Gerhard Schroeder, from 2014 caused so much consternation in Germany. Source: DPA

Mathias Brüggman is head of Handelsblatt’s foreign affairs desk, Moritz Koch is Washington correspondent and Torsten Riecke in the paper’s international correspondent. To contact the authors: brueggmann@handelsblatt.com, koch@handelsblatt.com and riecke@handelsblatt.com.

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