European Union: EU Reacts To Impact Of Russia Sanctions Bill On European Energy Investments

Background

On August 2, 2017, President Donald Trump signed a bill imposing new sanctions on Russia. Days earlier, the proposed legislation sparked a vigorous reaction in the European Union.

On July 26, 2017, European Commission President Jean-Claude Juncker warned of "unintended unilateral effects that impact the EU's energy security interests". In the same vein, the French government opined that the extra-territorial reach of the text appears to breach international law. The German and Austrian governments also issued a joint statement disapproving of the proposal's encroachment into European energy supply matters.

Sanctions Impacting Energy Investments

Provisions aimed at sanctioning investors who have contributed to the development of pipelines in Russia (section 232 of the bill) are of particular concern to Europe. These sanctions could subject companies involved in such activity to a host of punitive measures, including: (i) prohibitions on access to financing from U.S. financial institutions and oppositions to loans from international financial institutions; (ii) prohibitions on acquiring government procurement contracts; (iii) prohibitions on foreign exchange and banking transactions; (iv) asset freezes; and, (v) visa bans on corporate officers.

The European Commission has highlighted the impact of these sanctions on certain energy projects such as: the planned Nord Stream 2 gas pipeline (from Russia to Germany, under the Baltic Sea); the Baltic Liquefied Natural Gas plant project (in the Baltic Sea); and the Zohr gas field project in Egypt.

Although section 232 retains language added to an earlier draft (notably to appease European concerns), that the President should act "in coordination with allies of the United States" before imposing sanctions, apprehension remains.

Potential Retaliation

The European Commission has declared that, if its concerns are not sufficiently assuaged, it "stand[s] ready to act appropriately within a matter of days". Although there has been no official announcement of its proposed plan of action, its focus is reportedly on eliciting official reassurance that the sanctions would not be applied in a way that targets EU interests. Beyond that, the European Commission may consider other options for resolution (once the bill becomes law), including:

WTO action. The EU could sue the US before the WTO, requesting removal of the offending measures and imposing retaliatory tariffs on US goods if successful. In 1996, the EU started a WTO claim over US sanctions against Cuba, but did not take it further. (Indeed, Russia may also go down the WTO route – it threatened to do so in 2014, in response to US sanctions). The WTO dispute settlement process could take upwards of 12 months to conclude (likely longer, depending on appeals).

EU Blocking Statute. In 1996, the EU adopted Council Regulation 2271/96 ("the Blocking Statute") to address extra-territorial issues affecting European interests arising from U.S. sanctions against Cuba. Similarly, the EU could use this approach to prevent recognition of U.S. measures, prevent compliance by European companies, and allow recovery of damages resulting from those measures.

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