New US sanctions bill on Russia threatens to further erode Minsk agreement

The diplomatic spat over new US Russia sanctions risks eroding a common US-EU position on Ukraine conflict.

Moritz Pieper
27 July 2017

Signs of tension between EU and US sanctions regimes could impede conflict regulation in Ukraine's Donbas. (c) Evan Golub/Zuma Press/PA Images. All rights reserved.On 14 June 2017, the US Senate passed a new bill calling for new sanctions on Russia, followed by a House bill on 25 July, while the European Union extended its existing sanctions regime on Russia on 28 June. On the face of it, both American and European sanctions regimes are linked to Russia’s involvement in the conflict in Ukraine, yet the Senate bill has generated much more heat because it would also penalise European companies doing business with Russia. What are the differences between these sanctions regimes, and what explains the current rift between the US and EU administrations on Russia?

On 28 June 2017, the EU Council formally extended European Union sanctions imposed on Russia. These “restrictive measures”, in the EU’s terminology, were adopted in the summer of 2014 and freeze assets of and impose travel restrictions for individuals “over their responsibility for actions which undermine or threaten the territorial integrity, sovereignty and independence of Ukraine”. In July and September 2014, the EU additionally imposed sector-specific economic sanctions that limit Russian access to capital markets, impose an arms-trade ban, an export ban for dual-use goods that could be used for military purposes, and curtail Russian access to technologies that can be used for oil production and exploration. The state-owned oil firms Rosneft, Transneft, as well as the oil unit of Gazprom, Gazprom Neft, are affected, while the gas, space technology, and nuclear industry remain excluded from these sanctions.

In addition to these sanctions that are linked to Russia’s role in the conflict in Eastern Ukraine, the EU Council, in June 2014, adopted economic sanctions that affect European economic interactions with Crimea following Russia’s annexation of the peninsula in March 2014. These sanctions include an import ban on goods from Crimea, as well as investment bans in economic sectors. The export of equipment for the production and exploration of oil, gas and mineral resources is also banned.

In March 2015, the EU aligned the existing sanctions regime to the full implementation of the Minsk Agreement — a ceasefire agreement that was supposed to end in December 2015. Since this did not happen, EU sanctions are now being extended for a six-month period. This has happened on 1 July 2016, 19 December 2016, and on 28 June 2017. The German government reportedly wants to urge the EU to add more Russian nationals and companies to the sanctions blacklist following the illegal delivery of Siemens gas turbines to Crimea. The additions could include Russian Energy Ministry officials and the Russian company that moved the turbines to Crimea.

Linking the implementation of Minsk to the lifting of Russia sanctions exposes a logical error: Russia will not suddenly assume a responsibility that it does not formally have 

Yet the Minsk agreement is dead in the water. Russia is not named once in the agreement, allowing Moscow not only to continue its policy of denying involvement in the conflict, but also to deny direct responsibility for the implementation of any ceasefire agreement. Linking the implementation of Minsk to the lifting of Russia sanctions therefore exposes a logical error: Russia will not suddenly assume a responsibility that it does not formally have (according to Minsk). This begs the question on what grounds EU leaders can ever lift these sanctions and maintain the credibility of their own rhetoric. It seems more likely that the six-month renewal mechanism risks running out of steam and lose ground to skeptical EU member states. Since these are Council sanctions adopted under the EU’s Common Foreign and Security Policy, they need to be extended by unanimity, and maintaining such a sanctions momentum is difficult in the mid-term.

US sanctions on Russia, in a coordinated policy move with the EU in March 2014, also imposed travel bans “on individuals and entities responsible for violating the sovereignty and territorial integrity of Ukraine, or for stealing the assets of the Ukrainian people”. Additional so-called targeted sanctions designate a number of defense companies and restrict the financing of economic projects in Russia in the Arctic offshore, deepwater and shale industries. Economic investments in Crimea by US individuals are prohibited, and the import of goods originating from as well as the export of goods to Crimea banned. These sanctions were imposed in the form of Executive Orders signed by president Obama in 2014, and the US is also officially committed to the implementation of the Minsk agreement.

What has generated a lot of heat in European capitals was a draft bill that was passed by the US Senate on 14 June 2017, and in a modified version by the House of Representatives on 25 July. This bill codifies existing sanctions (and makes it harder for the President to weaken them) and calls for the imposition of new ones. The bill passed by the House (suggestively labeled “Countering America’s Adversaries Through Sanctions Act”) also adds new sanctions targeting North Korea and Iran’s ballistic missile programme.

Importantly, some of the new proposed sanctions are restrictions with extraterritorial effect. Such unilateral sanctions with extraterritorial effect are called “secondary sanctions” because they do not stop at sanctioning the target state directly, but also aim to punish third country entities’ dealings with the target state. This extraterritoriality distinguishes US sanctions from EU “restrictive measures”. In Russia’s case, the new sanctions would not only target Russian entities and individuals, but also any third-country companies that invest in Russian Arctic offshore, deepwater and shale oil projects. US secondary sanctions are a powerful instrument because of the ubiquity of the US dollar as international reserve currency.

The bill also includes an option for the Treasury Department to levy fines against any companies investing in Nord Stream II, a pipeline that would connect Russia to Germany via the Baltic Sea. Section 232 of the House bill adds that such a move should happen “in coordination with allies of the United States”, but this caveat is legally weak and politically negligible. If the bill became law (if the White House does not oppose it, that is, or if a presidential veto is not overridden by Congress), it would not only affect Russia’s energy sector, but force European investors to consider abandoning the project. Nord Stream II is controversial even within the EU, as Germany considers it a bilateral economic project, while the EU Commission seeks to monitor its implementation with a view to EU competition law and the ambition to create a European Energy Union.

Adopting sanctions out of actionism is easy, coming up with clear preconditions and mechanisms for their lifting is not

Poland, circumvented by Nord Stream II, has been especially critical of the project. The US State Department, meanwhile, defended its policy of US shipments of liquefied natural gas to Poland as a way for Poland to diversify its energy imports. Here, the lines between different policy domains become blurred. It is not clear how the export of American LNG to the European energy market is related to the conflict in Ukraine. Mixing signals of economic pressure on Russia with commercial interests of US energy companies risks further obfuscating whatever little is left of the Minsk objectives.

Other EU leaders have been adamant in their criticism of this new proposed sanctions policy. A joint German-Austrian statement on the June Senate sanctions bill reads:

“The draft bill of the US is surprisingly candid about what is actually at stake, namely selling American liquefied natural gas and ending the supply of Russian natural gas to the European market. The bill aims to protect US jobs in the natural gas and petroleum industries.”

It emphatically adds (verbatim): “Europe’s energy supply network is Europe’s affair, not that of the United States of America!”

The publicly vented anger at US unilateral sanctions threatens to erode the common transatlantic position on Russia sanctions that was generated by the conflict in Ukraine. On a positive note, however, the rift may help to trigger a substantive debate about the strategic purpose of Russia sanctions. EU and US sanctions are being upheld until Russia changes its policies in a way that would justify the lifting of sanctions. Until EU and US administrations continue to stick to their official rhetoric on the link between sanctions and the Minsk agreement, the policy changes expected are not clearly spelt out.

Adopting sanctions out of actionism is easy, coming up with clear preconditions and mechanisms for their lifting is not.


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