Russia not to be able to build Nord Stream 2 pipe bypassing Ukraine - Ex-U.S. envoy

21:50, 29 June 2018
Economy
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REUTERS

Despite the recent decisions, first by Finland and then Sweden, to permit the Nord Stream 2 pipeline to use their Exclusive Economic Zones, it is unlikely that the project will be implemented, former U.S. Ambasssador to Ukraine John Herbst wrote for the American Interest.

Over the past 10 months, the United States has introduced a critical new factor into the equation. In July 2017, in response to the Trump Administration’s dalliance with the idea of easing sanctions on Moscow, Congress passed a tougher sanctions bill that inter alia required the Administration to develop a list of individuals in Putin’s circle, implicitly making them subject to sanction for their association with President Putin’s aggressive policies. The list was compiled by January and used as the basis of initial sanctions on April 6, including sanctions against Oleg Deripaska and Viktor Vekselberg, an unnerving warning shot to Moscow’s financial elite, the article in American Interest reads.

These sanctions have the consequence of increasing substantially the difficulty of finding partners for the project. In part this is a result of the way that business is conducted in Russia today. The geopolitical goal of Nord Stream 2 is to allow Moscow to sell its gas in the West without relying on the pipeline systems in Ukraine. By design, this would deliver an economic blow to the government in Kyiv that Moscow is trying to destabilize, and would also prevent any interruption in the flow of Russian gas to Europe if it decided to widen its current war against Ukraine.

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But President Putin also intends for Nord Stream 2 to serve his domestic interests, and this will make it much harder to build the pipeline for two reasons. First, he wants to use it to reward his cronies who were hit earlier by Western sanctions. Reports indicate that Arkady Rotenberg and Gennady Timchenko, oligarchs and long-time associates of the Russian President, will be principal builders of the pipeline. Rotenberg and Timchenko as well as their pipeline building companies have been sanctioned by both the United States and the European Union. This means that others involved in the project will be operating with Russian oligarchs, if not directly, then through some cut-out company, thus creating for themselves a significant risk of being sanctioned.

Second, President Putin is also using the current Western, and especially American, sanctions regime to bring his own oligarchs to heel. That would explain why the Russian Alfa Group appears to be emerging as the Russian financier of the project. It is about to purchase Wintershall, one of the five European energy companies that support the project in a consortium with Gazprom. In particular, following the recent sanctioning of Deripaska and Vekselberg, the Alfa partners must understand the risk of this undertaking. But it can hardly ignore the will of Russia’s powerful leader. Sanctioning Alfa Bank would likely send Western firms considering participation in Nord Stream 2 scurrying for the exits. The prospects for profit in Nord Stream 2 are dwarfed by the dangers of falling afoul of Congress’s sanctions legislation.

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