US sanctions plan targets Russia-Europe pipeline projects

Russian President Vladimir Putin speaks with journalists after his annual 'Direct Line with Vladimir Putin broadcast live' by Russian TV channels and radio stations at the Gostiny Dvor studio in Moscow on June 15, 2017.
Kirill Kudryavtsev | AFP | Getty Images
Russian President Vladimir Putin speaks with journalists after his annual 'Direct Line with Vladimir Putin broadcast live' by Russian TV channels and radio stations at the Gostiny Dvor studio in Moscow on June 15, 2017.

Russia's controversial Nord Stream 2 gas pipeline to Europe could become a prominent casualty of fresh sanctions against Moscow agreed by the US Senate as part of a package of proposed new measures against the country's key energy sector.

Senators on Wednesday overwhelmingly supported an amendment that strengthens existing sanctions against Moscow and deepens their scope, including targeting "energy export pipelines". The new sanctions need approval from the House of Representatives.

Vladimir Putin, Russian president, on Thursday brushed off the proposed sanctions as just one step in a long line of anti-Russian moves.

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"Now we know that another draft bill has appeared in the US Senate on toughening these sanctions. Why, by the way? Nothing extraordinary happened. What drove them to talk about these sanctions out of the blue?" Mr Putin said during an annual televised call-in show where he answered questions from voters. "This is, of course, a sign of continued political infighting in the US."

Nord Stream 2, which would double the amount of gas that Russian state monopoly Gazprom could supply Europe under the Baltic Sea, is under already regulatory scrutiny after claims from critics that it would increase European reliance on Russian supplies and reduce transit through Ukraine, a US ally.

The text of the Senate amendment, which was passed with 97 votes to 2 against, requires the imposition of sanctions against those who make an investment or sell, lease or provide "goods, services, technology, information, or support" to projects for the export of energy from Russia.

"It sanctions those who . . . invest or support the construction of Russian energy export pipelines," Mike Crapo, a senator from Idaho who co-authored the amendment, told the Senate.

Nord Stream 2, the company managing the pipeline, said in response that the sanction threat was a sign of "increasing politicisation of Nord Stream 2 driven by commercial interests", and suggested it was part of the US's intentions to become a major gas supplier to Europe through exports of LNG.

"This unprecedented course of action is clearly aimed at undermining the position of a future commercial competitor in an already diversified market," it said in a statement. "It follows similar scare tactics by some European countries with existing or planned gas import infrastructure to protect their own commercial interests by using political arguments."

Alexander Medvedev, Gazprom's deputy chairman, shrugged off the impact of the Senate amendment on his company. "I think the bill is aimed at US companies. This is a case of cutting off your nose to look beautiful. If senators believe that they can block the US-Russian co-operation, god be their judge," he said in comments reported by the Interfax news agency.

Fully owned by Gazprom, Nord Stream 2 is supported by European energy companies Shell, Uniper, Wintershall, Engie and OMV, which have together agreed to meet half of the project's €9.5bn costs.

The pipeline amendment, and another amendment covering investment in privatisations of state assets, were "potentially the most damaging to Russian equities," Barry Ehrlich, a Moscow-based analyst at Citi, said in a brief note to clients.

Shares in Gazprom fell as much as 3.2 per cent on Thursday, while shares in OMV fell 3.7 per cent. Engie was down as much as 1.3 per cent, Shell 1.1 per cent and Uniper 0.9 per cent.

Poland and other eastern European states have called for the pipeline to be blocked by regulators in Brussels, claiming that it will increase the EU's reliance on Russian gas supplies and is an attempt by Moscow to try to hurt Ukraine, which earns large transit fees from shipping Russian gas to Europe along Soviet-era pipelines.

Vyacheslav Volodin, the chairman of Russia's lower house of parliament, said the measures were "beyond logic".

Other Russian politicians on Thursday said the sanctions would not have a serious impact on the country's economy, which was plunged into recession in 2015 after the imposition of sanctions and a 50 per cent fall in the price of oil.

The Senate amendment tightens the sanctions regime against Russia by codifying it in law and making it more difficult for President Donald Trump's White House to ease the measures.

In addition to targeting pipelines and stake sales, the amendment would further restrict access for Russian finance and energy companies to capital, while bringing transport, metals, shipping and mining industries under the sanctions umbrella.

Analysts said that the suggestion of imposing restrictions on Russian sovereign debt and derivatives, included in the amendment, was potentially the most serious threat to the country's economy.

While not yet written into law, the Senate vote "is clearly negative", Moscow-based research house BCS Global Markets said in a note to clients. "It demonstrates how remote, difficult and protracted the process of normalising US-Russia relations is."

The benchmark RTS index in Moscow was down 2.3 per cent mid-morning.