Despite sanctions, Europeans continue doing business with Russian energy companies

Not too long ago, President Donald Trump signed sweeping Russian sanctions legislation that included a Russia-to-Germany gas pipeline called Nord Stream II. If you build it, a Russophobic congress said, the Treasury department can come knocking and warning you of hefty fines. Forbes reports in its article Remember Those Funny European Sanctions Against Russia? that Germany and Austrian government officials panicked. Their private companies like Wintershall and OMV are funding Nord Stream II, a sister pipeline to the already existent Nord Stream I under the Baltic Sea. Russia's Gazprom says they proposed the second line when it became clear that Ukraine had no interest in using its pipelines to ship Gazprom's natural gas into the European Union anymore. It used to be Russia's main route in.

In 2014, Russia and Ukraine went through a bitter divorce and the U.S. and its copy cats in Europe slapped Russian energy companies and its biggest banks with sanctions. This summer, Democrats teamed up with Never Trumpers to punish Trump for daring to call for a detente with Vladimir Putin. Sanctions were upgraded and extended to sanction doing business with Russian energy firms worldwide, codifying them into law so Trump cannot remove them on his own. Nord Stream II was put in the cross-hairs.

But like that old Warner Bros. "wascally wabbit" Bugs Bunny, congress is like Elmer Fudd, shooting and missing one crafty critter that seems to quite skilled at dodging one bullet after the next.

Despite three years of sanctions against Russian energy companies, Europeans have continued doing business with their Russian counterparts, while many U.S. firms have been sidelined.

Nord Stream II AG, the consortium operator of the pipeline, has now received financing from five European companies in the amount of 324 million euros, according to the IFRS Foundation report. "In July 2017, a subsidiary of Nord Stream II AG raised capital from partner firms Wintershall, OMV, Shell, Engie and Uniper in the amount of 324 million euros under a long-term financing agreement concluded between the parties in April 2017," the accounting watchdog said.

The financing comes before U.S. sanctions were implemented, making it harder for these companies to back away from the project now. That means more money will find its way into Nord Stream II unless Trump pulls the trigger and sends Treasury to collect its kill fee. Enforcing sanctions against Gazprom's European partners is at the discretion of president, but most Europeans consider Trump to be unpredictable.

Dmitri Marinchenko, director of Fitch Ratings in London, thinks sanctions will slow the project as the Europeans have to pine over legal documents and stay in tune with the shifting winds of Washington. "In my opinion, Germany has a certain degree of doubt about building Nord Stream on time," he told Russian newswire Tass recently.

German government officials are taking a more cautious stance because they know that they will ultimately be the ones left paying for fines. Germany wants that pipeline built and will likely offer those companies some sort of insurance against sanctions. Nord Stream II gives them more control over European natural gas flows, making Germany like the new Ukraine for Russian gas transit into the highly lucrative European gas market. Marinchenko thinks there will be more clarity in terms of funding and timelines next year.

Nord Stream II is a 758 mile pipeline that will have the carrying capacity to deliver 55 billion cubic meters per year. Gazprom CEO Alexei Miller recently reiterated that the pipeline will be up and running in 2019. Gazprom's partners are supposed to provide 50% of the construction cost, which will eventually total 9.5 billion euros.