News analysis

EU caught in quandary of its own making

US plan for new sanctions on Russia alarms Europe although it was EU that first demanded such measures

European Union officials are meeting today to discuss the adoption of trade retaliation measures against the United States, should Washington go ahead with plans to impose new economic sanctions on Russia which Europeans fear will hurt the business interests of their firms.

But the looming dispute is deeply embarrassing for the EU. For it was none other than Europe which demanded tougher sanctions on Russia, only to protest now as the Americans are planning to do precisely that. And it was Europe which led the chorus of criticism against US President Donald Trump's threats of trade wars, exactly what the EU is contemplating now.

Both the EU and the US have imposed economic sanctions on Russia's financial, military and defence businesses since March 2014, when Russia annexed the Ukrainian peninsula of Crimea and was accused by Western governments of arming and supporting separatist rebels in other parts of Ukraine.

The sanctions are a complex layer of different legal measures, some hitting at the businesses of particular individuals connected to the Russian government, while others are directed at whole sectors of the Russian economy.

Still, leaders in Europe and the US pride themselves on the fact that, despite their complexity, the current Russia sanctions regime is potent because it rests on two core principles: close political coordination between US and European leaders, and a broad understanding that the vital economic interests of the nations on both sides of the Atlantic remain untouched. So, sanctions against Russian energy firms are limited, in order to take into account the Europeans' dependence on imports of Russian oil and gas.

The Europeans were the first to cry foul when US President Donald Trump hinted soon after his election that he wants to trade off the sanctions in return for Moscow's cooperation; one EU leader after another rushed to warn Mr Trump that lifting the sanctions, most of which have to be renewed every six months, would threaten decades of Western solidarity.

But now that Mr Trump is - for entirely domestic political reasons - embroiled in a similar battle with his own Congress over strengthening the sanctions regime against Russia, the Europeans are complaining that the sanctions debate has gone too far.

A key concern for Europe is that the future sanctions framework as currently crafted by the US Congress will restrict the ability of oil and gas companies to partner with Russian ones. And because of the integrated nature of the global energy business, should the new Congressional sanctions be enforced, European oil and gas companies run the risk of being caught by its provisions.

Most threatened by the new US Congressional moves is the so-called Nord Stream2 Project, a gigantic natural gas pipeline which crosses the Baltic Sea from Russia to Germany and is planned to be operational by the end of the decade; German energy companies locked into this joint venture with Russia could well find themselves sanctioned.

EU officials initially hoped that the US Senate will water down the provisions of the new sanctions Bill to take their fears into account. But that has not happened, and alarm in Europe is growing; Mr Markus Beyrer who heads Business Europe, the EU's main business lobby, warns that the US sanctions "would mainly hit the EU, its citizens and its companies".

In reality, the EU Commission - the Union's executive body - has only a handful of measures it could take to safeguard the continent's interests.It could ask for a declaration from the US administration that the powers which the White House will have to punish companies trading with Russia won't be used against European concerns; President Barack Obama provided such a promise in 2014.

The Commission may also invoke its so-called "Blocking Statute" regulation adopted two decades ago which is intended to prevent US sanctions from having an effect in Europe when they concern business deals which do not directly involve American companies. And if all fails, the EU could undertake retaliatory measures against US trade.

In reality, EU officials are likely to stay their hand for now, hoping desperately to avoid a trade spat with Washington. And a number of EU member states - particularly the former communist nations of Eastern Europe which fear Russia's dominance of the energy sector - may actually like the possibility that a joint gas venture with Moscow is now imperilled.

Still, it's hard to avoid noticing the irony of the current situation. For it is the Europeans - and not Mr Trump - who seem to be "going soft" on Russia. And it's Europe which now appears to be contemplating trade disputes.

A version of this article appeared in the print edition of The Straits Times on July 26, 2017, with the headline 'EU caught in quandary of its own making'. Print Edition | Subscribe