US Should Consider Export Controls to Target Russia's Nord Stream 2 Pipeline, Panelists Say

The U.S. sanctions bill against Russia’s Nord Stream 2 pipeline may not have the chilling effect that lawmakers expect, trade experts said. The U.S. should introduce export controls to bolster the sanctions, the experts said, but those restrictions may be too late because the Russia-Germany pipeline is nearing completion. The bill also may disproportionately sanction German businesses involved in the project instead of the real target, they said, which is Russia.

“I don’t think it’s the right approach,” Daniel Fried, an Atlantic Council fellow and former sanctions coordinator for the State Department, said during a Dec.19 event hosted by the Atlantic Council. “The tool may be misplaced.”

Sanctions against companies involved in Russia’s Nord Stream 2 pipeline will be included as part of the 2020 National Defense Authorization Act, according to a Dec. 17 press release from the Senate Foreign Relations Committee. The legislation will enact U.S. sanctions against companies involved in the pipeline, including companies that leased or sold vessels to complete the pipeline. Annie Froehlich, a trade lawyer and non-resident Atlantic Council fellow, said companies may have already changed “their business activities” in anticipation of the sanctions. She also said the project is nearly complete, which may undercut the bill’s power. “The sanctions may not have enough of a bite to have a chilling effect on the construction activities,” she said.

If the sanctions do drive companies away from the project, Russia may be able to finish laying the piping, Froehlich and Fried said. In anticipation of this, the Trump administration should consider imposing export controls on technologies and items used in the project, which Russia will most likely seek to import, they said. Froehlich said the Commerce Department has shown a precedent for imposing licensing restrictions “in connection with [similar] non-conventional oil projects,” adding that the controls could be similar to restrictions imposed against Huawei (see 1912130052), China’s technology giant. The controls would have a “very significant chilling effect on the ability of those companies to receive items that are subject to U.S. jurisdiction,” she said.

Some administration officials also believe the bill is coming too late to have a significant effect, according to a Dec. 17 report from Bloomberg. Speaking during the panel, John Herbst, director of the Atlantic Council’s Eurasia Center and a former State Department official, said those officials likely work in the Treasury Department. He said Treasury has made mistakes in the Russian sector before, including by imposing sanctions on Russian aluminum producers -- which severely hurt the aluminum market -- before later withdrawing the sanctions (see 1901150025). “My understanding is that the whole interagency favors [these sanctions] … with the exception of the Treasury Department,” Herbst said. “They've embarrassed themselves … on this subject.”