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December 19, 2019

Merkel rejects NordStream2 counter-sanctions

The European response to the now increasingly-certain US sanctions on suppliers to the NordStream2 gas pipeline is to wait and see. What else can they do, since the EU has not developed any effective policy instruments in that respect? Angela Merkel told the Bundestag yesterday that she opposes counter-sanctions, and that she sees no alternative to trying to persuade the US against implementing its proposed sanctions. We agree. Starting from here, there is not much she can do at this stage. The NordStream2 gas pipeline project enjoys broad political support in Germany, including and especially from the SPD. The SPD’s position is pro-Russian and pro-carbon.

German industry is also on board, except that it demands counter-sanctions but without saying what this might involve. We noted an instance of muddled thinking on the part of the mechanical engineering lobby, who called on Merkel to leverage Germany’s position as the world’s largest exporter. The comment is confused because the large traded goods surplus weakens Germany in a geopolitical stand-off.

For now, the pipeline project continues without interruption. But FAZ spotted a potentially significant change. At the German Baltic port of Rügen pipelines were loaded onto German transport ships, but a Russian ship in that port that was previously part of the operation did not load. We do not know the significance of this, or whether this has any bearing on the actual project. The way the US legislation is drafted, suppliers face a deadline after which they are subject to sanctions. There will be no retro-active application of the sanctions. So this turns into a race against a deadline. We assume that Merkel’s caution reflects expectations that the worst confrontation can be avoided.

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