Thoughts on this morning’s story in @handlesblatt. Paywalled, but the headline is that the new US administration has apparently made a starting offer to the German government toward a deal on Nord Stream 2. https://www.handelsblatt.com/politik/deutschland/transatlantischer-konflikt-nord-stream-2-usa-stellen-bedingungen-fuer-sanktionserlass-besonders-an-deutschland/26872184.html

With apologies cc @ASabadus @agata_loskot @kirstenwestpha1 @AmbDanFried @JohnEdHerbst @MarcoSiddi @thierry_bros @wjakobik @MarcoGiuli @ominodelgas @ntsafos @ConStelz @BLSchmitt @stevenerlanger @v_madalina @katyafimava @ira_joseph @anna_b_mikulska @IvanTkachev1 @S_Pagung 2/x

There are details here about a “package solution” which are vague and which will evolve. But basic idea is to mitigate in advance any possible harmful effects Nord Stream 2 could have, while Germany separately provides support for a Ukrainian transition to hydrogen. 3/x

As I have argued, the only negative impact of Nord Stream 2 would be (1) somewhat less gas transit revenue for Ukraine, eventually, and (2) maybe higher TTF/CEGH differentials, if *and only if* gas transit through Ukraine terminates completely after 2024. https://twitter.com/LaurentRuseckas/status/1291742707589828609?s=20

These impacts are easy to mitigate. Extend Gazprom’s binding, enforceable commitment to use Ukrainian transit beyond 2024. Or work toward some version of Yuriy Vitrenko’s idea that Gazprom auction significant quantities of gas at Ukraine’s eastern border. 5/x

German support for a Ukrainian hydrogen transition is a great idea. Clearly there’s a deal to be struck here in which everyone wins (excepting commentators for whom Nord Stream 2 is no longer a pipeline but a symbol of what they don’t like about the EU-Russian relationship). 6/x

About the possible new Biden administration approach. First, there seems to be a recognition of the point I am making above: Any actual real-world negative impact of Nord Stream 2 with regard to energy security and gas markets will be minor, and easily mitigated 7/x

https://twitter.com/LaurentRuseckas/status/1356739673528422400?s=20 fixing my thread here, sorry!!!

2nd, there seems to be a willingness to take a risk, one that exists b/c of the symbolic weight with which NS2 is now freighted. A certain US Senator -- a man well known for his principled support of democratic principles & commitment to truth and facts -- will raise a stink. 8/x

But why take on this issue at all? Is the Biden administration “soft on Russia?” Here it’s important to keep in mind: This is not about Russia at all, but rather about US-German relations and US sanctions overreach, and it seems that the new administration may get this. 9/x

Even the Trump admin, which strongly opposed NS2 both practically and rhetorically, stopped short of imposing extraterritorial sanctions on project subcontractors (at least until 19 Jan 2021), as it could have done at any time after CAATSA 2017. Why? Because . . . 10/x

. . . it is a bad idea for the US to use its jurisdiction over US dollar clearing to dictate what are ultimately minor details of energy policy to its European allies, while patronizingly casting this as “protecting Europe’s energy security.” 11/x

We now know, since Sen. Cruz has told us, that he was personally responsible for getting these sanctions into the “must-pass” NDAA 2 years running. This entailed getting some committee chairs and ranking members in both chambers, plus leadership, not to raise an objection. 12/x

Given the nonfactual framing of the sanctions as “stopping the flow of money to fund Putin’s aggression” – ahem, funds from Russian gas that transits Ukraine or Poland ends up in exactly the same place – what member of the US Congress would raise an objection? 13/18

How does this look from Germany? It is one thing if the US executive branch uses sanctions to impose policy preferences on the EU (as in the case of JPCOA withdrawal). Not great, obviously, but at least you have diplomatic channels to discuss the issue. 14/18

But in this case we have Congress, and ultimately really one determined Senator, using the nuclear weapon of US jurisdiction over dollar clearing to impose extraterritorial sanctions by air-dropping language into an unrelated omnibus bill 15/18

From the European perspective, this is a terrible precedent. I would note that EU has started the process of developing a Carbon Border Adjustment Mechanism which is sure to elicit some negative sentiments among some members of Congress. 16/18

It will be interesting to see how this all plays out, or indeed if it plays out. I make no predictions but: it is easy to see Ukraine coming out of this with benefits more significant than the temporary extra revenue it would receive if Nord Stream 2 were blocked. 17/18

For those who think (or pretend to think) that the Biden admin’s policy toward Russia should be defined by how it deals with a specific case of Congressional overreach - sanctions intended to micromanage routes for Russian gas supply to Europe – sorry, I got nothing. 18/18 x