Brussels hit by falling-out between Washington and Moscow

Brussels hit by falling-out between Washington and Moscow

Nicoló Sartori | Senior Fellow and Head of the Energy program at the IAI
President Donald Trump's latest sanctions against Russia, imposed under heavy pressure from Congress, also risk causing serious damage to the European energy sector. The continent is still highly dependent on Moscow for its oil and gas, and the sanctions are another blow to the two sides' historic alliance.

Russia is already at the center of a political and institutional conflict between Congress and the White House, but Donald Trump’s new sanctions could also widen the gap between the United States and Europe. By putting even more pressure on Russia’s oil and gas sector, they could weaken Europe’s security of supply. The sanctions also reflect the growing divergence in strategic priorities between Brussels and Washington on energy and climate issues.

Congress butts heads with the White House

On July 27, the Senate forced President Trump’s hand by approving a bill giving Congress the power to respond to aggression by third-party states, including Russia. The bipartisan law seeks to prevent the White House from cozying up to the Kremlin by giving Congress the power to impose sanctions. It also ties the hands of the president, who is seen as too soft on Moscow, though he can still veto the measures.

The new law imposes stricter sanctions on the energy, defense, and intelligence sectors, and on the privatization of Russian state-owned assets. In energy, the measures are targeted mainly at the country’s export pipelines. Congress wants to penalize companies that provide technology, services, investment or other support for such projects. The new sanctions are much more stringent than the existing ones, which are aimed primarily at Russia’s Arctic exploration and unconventional drilling activities, and could be a significant blow to Moscow’s energy policy.

Nord Stream 2 not the only victim

The legislation will also impact relations between Moscow and its European partners on energy issues. Much of the public attention has focused on its impact on the Nord Stream 2 pipeline which, when completed in 2019, will ensure that most Russian natural gas avoids Ukrainian territory on its way to Europe.

The European energy companies Engie, OMV, Shell, Uniper and Wintershall have decided not to acquire stakes in the project, but each has guaranteed around €950 million in longterm finance. Under the new sanctions, they would be blacklisted by Washington.

While Nord Stream 2 has already sown the seeds of discord in Europe, it would not be the only project put at risk by the sanctions. Another is TurkStream, the offshore pipeline being built by Gazprom to transport Russian gas direct to Turkey via the Black Sea, and potentially to southeast Europe.

The measures will also affect a series of projects which, while less important, still play a key role in European energy security. One is the CPC pipeline, which carries oil from the Caspian to the Black Sea and on to European markets. Another is the Ukrainian section of the Brotherhood gas pipeline, owned by Gazprom and UkTransGAz, which will be unable to carry out badly needed maintenance and modernization.

Europe and US falling out of love?

The sanctions will also impact projects that are of strategic importance to Europe and involve Russian companies. One is the South Caucasus Pipeline, part of the Southern Gas Corridor, which is partly owned by Russia’s Lukoil. Another is the Zohr offshore gas oilfield in Egypt, in which Rosneft has a minority stake alongside ENI.

The energy sanctions are the latest in a string of strategy differences between Trump and his European partners. When the G7 failed to achieve a common stance on energy following the announcement of Washington’s departure from the Paris Agreement, Brussels and other European capitals made no secret of their feelings.

While the impact of sanctions on Nord Stream 2 has yet to be quantified, they would increase Gazprom’s control of the European gas market and give Germany an undesirable monopoly on the transport of Russian gas to Europe. One of the most worrying issues is that the US move is wholly unilateral, taking no account of structural conditions in the European energy market. Like it or not, the continent will remain dependent on Moscow for a long time to come. It is caught between a rock and a hard place, trying to keep its energy partnership with Russia afloat without compromising its strategic ties to the United States.

Energy policies: the parting of the ways

Washington’s foreign policy used to take account of Europe’s need for energy security. This was reflected in moves to open new trade routes from the Caspian Sea, include Turkey in the regional energy architecture, and create cooperation mechanisms in the eastern Mediterranean. The sanctions put Brussels and Moscow at loggerheads on energy after their carefully maintained détente of recent years. They are a clear sign that Europe and America are no longer headed in the same direction.