American Sanctions On Russia Will Not Hit Europe Gas Supply

US legislation renewing and tightening sanctions on Russia, stalled in the House of Representatives, was not passed before the US and Russian presidents met at the G20 summit in Hamburg. The proposed bill had already received criticism not only from Russia but also from Germany and Austria about the impact sanctions may have on Europe’s gas supply.

Europe and the United States need not worry: energy markets have undergone significant transformation in favour of importers, and Russia’s tough talk warning against sanctions is little more than posturing. Russia needs Europe as a market for its oil and gas.

The proposed sanctions bill – if passed by the House of Representatives and not vetoed by President Donald Trump – would put into law sanctions previously established under former President Barack Obama as well as expand them, targeting various companies and sectors of the Russian economy, including the energy sector. The sanctions, renewing earlier sanctions for Russia’s annexation of Crimea in 2014 and involvement in the war in eastern Ukraine, are a response to Russia’s cyber attacks during the 2016 US presidential election as well as weapons supply to Syria’s government.

Significantly, the new bill hinders Trump from easing sanctions on Russia without approval from Congress. The Senate approved the bill nearly unanimously in June.

Controversial project

Russia’s majority state-owned gas company, Gazprom, complains that the new sanctions target European companies involved in Russia’s controversial Nord Stream II pipeline project. The planned project expands the existing Nord Stream system that pumps Russian gas under the Baltic Sea to Germany and bypasses Europe’s previous gas transit hub, Ukraine. With companies from Austria, France, Germany, the Netherlands and the UK on board with the project, Nord Stream II, if completed, would support the dominance of Russian gas in Europe. Gazprom controls about 15% of global reserves and more than 70% of Russia’s.

In response to the sanctions, Viktor Zubkov, chairman of Gazprom’s board and former prime minister stated, “As the project moves towards implementation, the basic design is completed, the construction of the pipes continues, there are now more insinuations and tightening of sanctions against Russia in the field of energy. In Europe, the region’s gas supply is being threatened. Washington pursues purely economic interests by lobbying for American energy companies in Europe.”

There are two ways to interpret Zubkov’s statement. First, given the Kremlin’s history of using energy as a weapon the statement reads as an innuendo that Russia could or has the potential to threaten Europe’s gas supplies. Another, that the Nord Stream II pipeline ensures European gas supplies from Russia, and thus US sanctions that threaten the pipeline’s completion indirectly threaten Europe’s imports. Neither is quite accurate though the threat could ring true to long-term Russia watchers.