Tighter US Sanctions on Russia Could Hurt Europe

31.07.2017 -

The proposed US tightening of economic sanctions against Russia is making waves not only at home but also in Europe.

A bill passed by the House of Representatives last week, which must now be approved by the Senate, carries a modification to the initial sanctions contained in the 2014 Ukraine Freedom Support Act that would bar companies from making a “significant” (33% is under discussion) investment in Russian oil and energy projects.

Under the 2014 law, energy and petrochemicals giant ExxonMobil, headquartered in the oil state of Texas, has been blocked from carrying out drilling in Russia under contracts signed before sanctions were imposed but grandfathered so that they can’t be pursued. Many of the deals were agreed during the tenure of former Exxon CEO and current US Secretary of State, Rex Tillerson. All of the group’s requests for exemptions have been denied.

There is some question as to whether the additional sanctions might be vetoed by US President Donald Trump, due to his alleged close ties to Russia, or whether he would refrain, to show that the allegations are baseless. One provision of the bill to be debated by the Senate would bar the president from overturning legislative sanctions.

European companies engaged in projects with Russia fear the fallout that could come with  any US action. On this side of the Atlantic, sentiment is divided, however, over the perceived dependence on Russia that the Nord Stream 2 natural gas pipeline – in which BASF energy subsidiary Wintershall has a stake – in particular carries. Germany, which depends on Russian pipelines for much of its natural gas home heating and chemical feedstock, has little interest in tighter sanctions.

In addition to the BASF engagement in Nordstream, other European projects in Russia include an LNG terminal being built by a Shell subsidiary with Gasprom and the Blue Stream pipeline to Turkey, on which Eni is working. On the US side, oil companies such as Exxon have long been concerned that Europeans being allowed to participate in Russian oil projects could put them at a competitive disadvantage.

"It's bad that the US has left the common line it had with Europe for sanctions against Russia," said German economic minister Brigitte Zypries. “There is now the possibility of counter-sanctions against the US," she remarked, shortly before the Russian government began ordering the US to draw down its diplomatic presence.

Volker Treier, a chief economist from the German chamber of commerce, DIHK, called on the European Commission to avoid negative effects on European companies in such important sectors such as energy. According to some reports, the EU Commission and the German government have already made the case to the US government.

Looking at the competition angle, BASF’s CEO,  Kurt Bock suggested last week in response to journalists’ questions that American companies might prefer to see European companies buy US shale gas-derived liquefied nataural gas (LNG) rather than Russian gas. But due not least to the sheer volume of LNG that would have to be shipped, Bock said importing US gas would also be unrealistic from a logistical perspective He added: “Russia has always been a reliable gas supplier.