THE U.S. RUSSIAN SANCTIONS BILL CONSEQUENCES

Author: Mr. Wolfgang Ischinger, Germany’s Ambassador to the U.S., 2001-06, and Chairman of the Munich Security Conference since 2008.

"The sanctions bill against Russia will not achieve its objectives and will instead cause new problems. It will compromise European energy security and damage U.S. relations with Europe. The bill’s language suggests that it aims to advance U.S. commercial interests at Europe’s expense. Section 257 prioritizes “the export of United States energy resources to create American jobs”—which sounds to Europeans like an unfriendly political attempt to promote U.S. exports of liquefied natural gas to Europe.

One target of the bill is the Nord Stream 2 natural gas pipeline from Russia to Germany, involving both Russian and European companies. There are good arguments why Europe should diversify its gas supply, but the dependency fears around NS2 are exaggerated. Europe has taken decisive measures to boost supply security: constructing additional interconnectors and LNG terminals, employing reverse flow capabilities, and eliminating restrictive clauses on ultimate destinations. These measures make it difficult for Russia even to consider using energy as a weapon against Europe.

There is a vibrant debate in Europe about NS2 and the best way forward. Strong arguments, both pro and con, are being exchanged. The Polish and Ukrainian governments are concerned that the pipeline will compete against Russian gas flowing through pipelines in their territories. Some, including German Chancellor Angela Merkel, propose to welcome all additional sources and supply routes of energy to Europe, including American LNG. Ideally, the market would decide the best course.

This is not a question that should be decided in Washington. It is a European issue, to be decided by Europeans based on European law and regulation. How would the U.S. react if Europe were to pass legislation on the merits of the Keystone XL pipeline, especially if it was perceived to benefit European business?

Even if one opposes NS2, the bill will harm Eurasian energy security in other important ways. Perhaps most egregiously, the bill extends sanctions to countries outside Russia where U.S. persons provide goods, services and technology for certain projects “in which a Russian energy firm is involved.” The presence of Lukoil, a private Russian company, in Azerbaijan could potentially trigger sanctions on the Shah Deniz gas field and deter Caspian gas shipments to Europe via the emerging Southern Corridor. Under such a threat, banks could renege on financing. Rather than promote security, the bill  jeopardizes one of Europe’s new gas pipeline alternatives to Russia, a $45 billion undertaking that is well under way. This provision will force American companies out of joint ventures in which Russian companies participate around the world.

The bill exposes to sanctions goods, services, technology and information that  “significantly facilitate” even the maintenance of pipelines carrying Russian oil and gas or passing through Russia. That can stall two-thirds of Kazakhstan’s oil exports shipped through the Caspian Pipeline Consortium, which is led by Chevron but has a 31% Russian government share. It can hinder operations and safety for pipelines, such as those passing through Ukraine, that deliver some 32% of Europe’s oil and a similar share of its gas consumption. For Europe, terminating such large oil or gas imports from Russia is not feasible: alternatives for such large volumes are unavailable.

Joint U.S.-European experience with sanctions affirms two longstanding lessons. First, sanctions work best when they are multilateral. Second, sanctions alone rarely achieve a national-security outcome. Ideally, they create leverage. They almost always presume a negotiation, where adjusting the sanctions can be part of a strategy for achieving a desired goal.

Leverage goes hand-in-hand with flexibility—and the bill curtails flexibility. Its unilateral approach can tip the scales in favor of those who want to end Europe’s participation in the existing trans-Atlantic policy approach on Russia, including the sanctions regime.

If the bill becomes law in its current form, it will alienate America’s important European allies, complicating the transatlantic alliance at a critical moment