Russian energy sanctions bill puts another crack in strained US-Europe relations

Key Points
  • The House of Representatives moved forward legislation that limits the kind of business energy companies can do with Russia.
  • Some European leaders worry the sanctions could impact their oil and gas firms and pipeline projects.
  • Sanctions experts say the Trump administration needs to coordinate with Europe to make the sanctions effective.
Sean Gallup | Getty Images

Congress opened another rift in America's strained relationship with Europe on Tuesday when the House of Representatives moved to limit the type of business energy companies can do with Russia.

Some European leaders are bristling over the potential impact on the continent's oil and gas companies, despite efforts by U.S. lawmakers to ease their concerns. Complicating matters, the Trump administration will be responsible for implementing the penalties, which are tied to legislation that strips President Donald Trump of authority over Russian sanctions.

The dispute over sanctions policy between Washington and Brussels illustrates how Russia's alleged meddling in the 2016 election is having ripple effects across the Beltway and the energy industry.

It also shows that the European Union and the United States are diverging somewhat on sanctions policy after coordinating responses to Russia's military intervention in Ukraine and its 2014 annexation of Crimea, according to risk consultancy Eurasia Group. While the EU remains focused on the Ukraine issue, Congress is now using sanctions to address Russia's attempt to disrupt elections.

FT:  New US sanctions on Russia are dividing Europe
FT: New US sanctions on Russia are dividing Europe

"Along with Climate, NATO and trade, the sanctions issue will add to transatlantic strains that have emerged between the U.S. and EU since Trump assumed office," Eurasia Group said.

Extraordinary Times

The proposed measures targeting Russia's energy sector are part of legislation that prevents Trump from easing sanctions on Moscow without Congressional approval. The bill now goes to the Senate.

Sanctions experts say that in ordinary times the executive branch's power over these penalties should prevail to avoid hamstringing the diplomatic process with Congressional hearings and votes. But Trump has denied the U.S. intelligence community's assessment that Russia sought to tip the election in his favor and dismissed investigations into the issue as witch hunts.

"The whole point of this bill is that the Congress doesn't trust the administration to conduct policy," said David Goldwyn, chairman of the Atlantic Council's Energy Advisory Board and former envoy for international energy affairs at the State Department under Hillary Clinton.

The bill prohibits U.S. companies from investing in certain new oil and gas joint ventures when a sanctioned Russian company holds a 33 percent or larger stake in the project. Europeans fear the measure could have unintended consequences for their energy firms.

The bill contains a modification to the 2014 Ukraine Freedom Support Act, which Eurasia Group believes could open the door to secondary sanctions on non-U.S. companies that make "significant investments" in Russian oil projects. Analysts say the sanctions could complicate joint ventures in growth areas like Brazil's offshore fields.

The law also gives Trump the option to penalize companies that invest in new pipelines to export oil and gas from Russia, though lawmakers revised this provision to require him to coordinate with U.S. allies.

Exxon to challenge accusations it violated Russia sanctions
Exxon to challenge accusations it violated Russia sanctions

If he exercises that option, it could impact plans for a natural gas pipeline from Russia to Germany called Nord Stream 2. Germany and the European Commission have both raised the prospect of retaliation, though analysts say that is unlikely.

Goldwyn notes that some EU members oppose Nord Stream 2 because they believe it consolidates Russian dominance over Europe's energy market at their expense.

"The threat of retaliation against the U.S. for legislating prospective sanctions against European pipelines is really unlikely because the Europeans are not of one mind on whether Nord Stream is a good idea," he said.

A path to a deal

Scrapping Nord Stream 2 is likely a non-starter for Germany, said Richard Nephew, the lead sanctions expert in U.S. nuclear negotiations with Iran. But by giving Trump authority to sanction companies for investing in Russian pipelines, Congress opened the door to cutting a deal, according to Nephew, now a senior research scholar at Columbia University's Center on Global Energy Policy.

The Trump administration could leverage the authority to get Europe to cooperate on the new Russian energy sanctions, he said. That could include assuring European drillers don't take advantage of the sanctions to gain a competitive advantage over U.S.-headquartered producers.

"That's the ideal world here," he said. "You never impose sanctions on anyone. It's mostly signaling."

In his view, the danger is that the Trump administration does not implement the sanctions in a way that satisfies Congress, and the penalties fail to exert pressure on Russia while putting U.S. drillers at a disadvantage. That could cause Congress to take a more direct role, he said.

"The only pathway to an effective policy is going to be in coordinating with the Europeans," Goldwyn said.

"Until [the Trump administration] does, we're going to have another 535 secretaries of State," he said, referring to the number of lawmakers in both houses of Congress.