U.S. sanctions in Europe may hurt global energy industry

Imposing sanctions is not the most effective way to secure Europe’s natural gas supply against external coercion, according to a new study from Rice University’s Baker Institute for Public Policy. Instead, the authors recommend investing more in the continent’s natural gas infrastructure.

Gabriel Collins, the Baker Botts fellow in energy and environmental affairs, and Anna Mikulska, nonresident fellow in energy studies at the Baker Institute, argue that America’s foreign and energy security policy – particularly in Europe – has become overly reliant on sanctions. That ultimately undermines core policy goals, they argue, because it incentivizes adversaries to adapt and it alienates key U.S. diplomatic and security partners in Europe.

“Sanctions aim to punish and isolate in order to push the target countries toward less destructive paths,” they wrote. “This works in some cases, but generally speaking, it will likely be more effective – and far more sustainable – to shape certain countries’ actions by leveraging market forces.”

Sanctions are politically attractive because they “do not put servicemen and women in harm’s way,” according to the paper. “And they can be rapidly implemented through executive authority, allowing for the White House to use them as a political signaling mechanism without needing to incur the time and effort necessary to obtain congressional support.

“But convenience of use risks clouding our strategic thought process and emphasizing the act of hammering on apparent ‘nails’ rather than thinking critically about the structure U.S. policymakers are building for today, much less five, 10 or even 20 years from now,” the authors wrote.

The U.S. and its major European partners are currently in a high-stakes diplomatic standoff over a natural gas import project from Russia, the nearly completed Nord Stream 2 gas pipeline running from Russia to Germany under the Baltic Sea. A July 2020 update to the U.S. State Department’s public guidance on the Nord Stream 2 and TurkStream pipeline projects subjects them to sanctions – a move the European Union has denounced as a violation of international law.

Historically, gas infrastructure in Central and Eastern Europe has overwhelmingly relied on Russia, a dependency Moscow uses for strategic leverage. Collins and Mikulska argue that immediate infrastructure buildup and supplier diversification is crucial before meaningful market liberalization can take place – and that now is the time for action, because many of the long-term supply contracts between Russia’s state-controlled gas operation Gazprom and Central and Eastern European customers are expiring in the early- to mid-2020s.

“Over the next decade, Central and Eastern Europe offer particularly fertile ground for interested countries to partner with the United States and more fully implement gas geoeconomics policies that enhance energy security, solidify market liberalization and also reduce emissions by maximizing the use of clean-burning natural gas,” they wrote. “All three items are – or should be – core U.S. policy interests and can be advanced at an affordable capital cost.”

Greater U.S. support for more infrastructure would ensure that European markets continue to diversify and contribute to “closing the rift between the European West and the post-Soviet world,” according to the paper.

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