ASSISTING ‘INVISIBLE HAND OF MARKET’: U.S. THREATENS GERMAN COMPANIES OVER NORD STREAM 2

Thursday 30 July 2020

ASSISTING ‘INVISIBLE HAND OF MARKET’: U.S. THREATENS GERMAN COMPANIES OVER NORD STREAM 2

In a last-ditch attempt to impede the Nord Stream 2, the Trump administration began to threaten German (and not only) companies who are involved in it with sanctions.

According to German media, this is a showing of a new, and incredible, “low point” in Transatlantic relations.

According to a report by German outlet Die Welt, the United States is increasing pressure on German and European companies involved in the construction of the Nord Stream 2 Baltic Sea pipeline.

In the past few days, US representatives had held video conference calls with contractors of the project to “point out the far-reaching consequences of continuing to work on the project,” the outlet reported.

The company representatives sometimes faced up to twelve representatives of the US government.

They “made it very clear in a friendly tone that they want to prevent the pipeline from being completed,” the newspaper quoted an unnamed observer of the talks:

“I think the threat is very, very serious.”

US Secretary of State Mike Pompeo announced that the controversial Baltic Sea pipeline to transport gas from Russia to Germany would now fall under a law that would allow punitive measures, among other things, against companies doing business with Russia or countries like Iran and North Korea.

In response, the German Federal Government declared that it rejected extraterritorial sanctions, since these were “contrary to international law”.

The German economy condemned the threats as an “incredibly low point in transatlantic relations”.

Nord Stream 2 is said to transport gas from Russia to Germany and is particularly controversial in Eastern Europe.

The main fear is a weakening of alternative pipelines and traditional transit countries, such as Ukraine. The US government argues that Europe is becoming energy-dependent on Russia.

The United States had previously tried to impose sanctions on Nord Stream 2. Sanctions put into effect by President Donald Trump at the end of 2019 are aimed at the operators of laying ships involved in the construction. The construction of the pipeline therefore had to be interrupted.

Russian President Vladimir Putin expressed optimism that the project would be completed by early 2021, with a delay of only a few months.

On July 16^th, the US updated its sanctions regime against the Nord Stream 2.

Until July 15^th, the scope of US sanctions legislation excluded direct investors, enhancing Russia’s ability to build export pipelines before August 2^nd 2017. That cut-off date was removed, meaning contracts signed for Nord Stream 2 and the second line of TurkStream will be included.

“The US signals that sanctions could potentially be applied retroactively, including in respect of European companies that are Gazprom’s partners in Nord Stream 2. However, it is hard to see how this could be enforceable; this would be against the law and should it happen it would certainly be contested in international courts,” according to Katja Yafimava, researcher at the Oxford Institute for Energy Studies.

“The question is whether the state department has the right to independently enforce the provisions of this law. The state department is formally subordinate to the president, but no separate documents have been issued stating that the president gave the state department the right to impose sanctions from the [sanctions act] package,” according to Igor Yushkov, an expert of the National Energy Security Fund and the Financial University under the Government of the Russian Federation.

The proposed additional sanctions in the draft national defence act “are unacceptable and contrary to international law, and the EU firmly opposes them,” EU high representative for foreign affairs and security policy Josep Borrell said on June 25^th.

The biggest issue is that the US is concerned that there are no buyers for its liquefied natural gas (LNG) that it wants to sell to Europe at prices, higher than those Russia offers Europe.

Sometimes, the invisible hand of the market requires a tangible attempt at a push for it to properly and “independently” settle the market on a desirable scenario.

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