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Germany’s ‘malign’ Nord Stream 2 problem won’t go away – POLITICO

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Gazprom’s Russia-to-Germany pipeline under the Baltic Sea is threatening to erupt into a geopolitical storm just as U.S. President-elect Joe Biden takes office.

On Monday, the German economy ministry said it had been informed by the U.S. of plans to impose sanctions as of Tuesday on the Russian pipelaying ship finishing the final sections of the pipeline. The ministry was “taking note of the announcement with regret,” a spokesperson said.

Nord Stream 2 has secured permission from both Germany and Denmark to finish construction of the last 75 kilometers of the 1,200-kilometer route.

The sanctions news comes as the geopolitics of the pipeline become even more fraught.

There’s growing pressure on Berlin for a rethink after Russia held a kangaroo court hearing for opposition leader Alexei Navalny on Monday, when he returned to the country following a poisoning attack widely believed to have been perpetrated by Russia’s secret police.

Asked whether Navalny’s detention was cause for Chancellor Angela Merkel to reconsider her support for the pipeline, government spokesman Steffen Seibert told reporters: “The position of the federal government on the Nord Stream 2 project, which is a commercial project, has been presented here often enough and has not changed.”

That’s not the position of the outgoing Trump administration or of the incoming Biden one, which mirrors the unease felt in much of Central Europe, where the pipeline is seen as an instrument of the Kremlin’s political power.

The U.S. State Department has been spreading the word. “We can confirm that the Department has been reaching out to companies to update them on the passage of additional mandatory sanctions … and the sanctions risk of continued association with the NS2 project,” a spokesperson said via email, adding: “Those who are aiding and abetting this Russian malign influence project must get out now or face the consequences.”

Those warnings are working. Zurich Insurance Group, one of several insurers on the project, said via email Monday that it “is committed to fully comply with any applicable sanctions regulations.”

Earlier this month, Norwegian company DNV GL, which is supposed to certify the completion of the pipeline, also pulled out citing sanctions threats.

German response

Berlin’s careful stance is unlikely to change after Germany’s governing Christian Democratic Union party on Saturday elected a new leader, Armin Laschet, who favors maintaining ties with Russia and currently leads the state of North Rhine-Westphalia, home to Germany’s energy giants RWE, E.ON and Uniper.

But the federal government’s position conceals a fierce domestic scrap over the project. Many NGOs and the Green Party are opposed, while big business and some local governments are keen.

The German state of Mecklenburg-Vorpommern, where the pipeline is set to come ashore, is taking advantage of a U.S. exemption for noncommercial government activities to advocate for the pipeline. The state legislature passed a bill to create a nonprofit climate foundation explicitly aimed at “contributing to the progress of the work on the Nord Stream 2 pipeline” — with a €20 million donation promise from Nord Stream 2 to boot. But major NGOs are refusing to have anything to do with the foundation.

The U.S. embassy in Berlin told German media that the workaround attempt “won’t change the facts.” But Germany’s federal tax office issued fast-track approval for the entity, setting up what could be a diplomatic standoff.

The NGO Deutsche Umwelthilfe is preparing a lawsuit to try and stop construction in German waters, arguing it violates environmental rules. The group has also appealed to Competition Commissioner Margrethe Vestager, urging her office to investigate the German climate foundation for possible violations of EU state aid rules.

“We can confirm we have received the letter, to which we will reply in due course. We will now assess its content and look into the matter,” a Commission spokesperson said Friday.

Brussels stuck in the middle

The European Commission is less than enthusiastic about the pipeline, worried about the bloc’s energy security. But it’s also not thrilled about U.S. sanctions being applied to activity in the EU — which it considers contrary to international law.

The Commission is set to unveil a policy paper as soon as Tuesday on how to protect European businesses from extraterritorial sanctions. A draft obtained by POLITICO shows the EU will consider “possible involvement in foreign proceedings to support EU companies and individuals” seeking to fight sanctions. But any proposal may not come until “the fourth quarter of 2021,” the draft reads.

That leaves a tricky issue for Biden once he becomes president on Wednesday. Having campaigned on a return to normalcy after four years of Trump trade wars and transatlantic bluster, Biden will now have to find the balance between repairing frayed relations with Germany without looking weak on Russia.

“Efforts to resolve the Nord Stream 2 issue will be a tightrope,” said Richard Morningstar, who served as special envoy for Eurasian energy under the Obama administration.

The new sanctions require the U.S. to consult with affected countries before being applied — and German Foreign Minister Heiko Maas said he’s ready to talk with Biden’s team.

“One possible thing that could be done is to suspend construction on the pipeline if there were to be serious talks on an agreement — with Germany, but also with Poland, Ukraine and other Central and Eastern European countries — that could limit the threat of Nord Stream 2 from an energy security standpoint and also protect the interests of Ukraine,” Morningstar said.

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