Elisabeth Braw is a resident fellow at the American Enterprise Institute.
In his inauguration speech, U.S. President Joe Biden pledged that America would once again lead by example — a statement welcomed by many on the other side of the Atlantic after four years of Donald Trump.
But when it comes to American sanctions against the controversial gas pipeline Nord Stream 2, the example the United States is setting might be one that comes back to bite it.
Earlier this week, news of American sanctions against Nord Stream 2 — which is being laid under the Baltic Sea by a Russian-led consortium — prompted global insurer Zurich to announce it will no longer insure its construction, throwing a major spanner in the works.
You might think this was a point scored by Washington against a project it argues would make Europe dependent on Russian energy. In truth, it’s not such a slam dunk. The trouble with this sanctions strategy — which may continue, as Secretary of State nominee Antony Blinken has said the Biden administration opposes the pipeline — is that other countries may well start using it against American firms.
Insurance companies are not easily shaken. At the right price, most things can be insured, no matter how complex or risky. But sanctions are different. Even the most daring underwriters won’t take on a client under sanctions, as doing so exposes the insurer itself to liability.
That is why Washington’s sanctions on the ship laying the final, complex parts of the pipeline and on its owner could prove to be crippling: Only a very small number of specialized ships can do the work, and without that final 2.6-kilometer construction Nord Stream 2 is pointless.
The project now faces the defection of not just one insurer but possibly the complete loss of insurance. Norton Rose, a leading law firm, has warned that “companies involved in the Nord Stream 2 or TurkStream projects should evaluate their potential risk under these expanded and potential future sanctions.”
European allies have already voiced their displeasure about the U.S.’s approach.
In the wake of the last round of U.S. sanctions in 2019 — which caused a one-year delay to the construction — the European Commission stated that the European Union it does not recognize them and considers them “contrary to international law.” Last August, 24 of the EU’s 27 member states told the U.S. government they were “deeply concerned” about the sanctions. Responding to Washington’s latest move, Germany — which considers the pipeline a straightforward business matter — declared itself disappointed.
There are historical echoes in this. When, in 1982, Ronald Reagan imposed sanctions on international companies involved with building a Soviet gas pipeline to West Germany, the move caused veteran diplomat George Ball to write in the New York Times: “The Reagan Administration’s frenetic efforts to obstruct the building of the Soviet-European natural-gas pipeline are marked by hypocrisy, self-deception and an astonishing ignorance of past experience.”
Today, too, there are signs Washington’s strategy may prove similarly ignorant.
Regardless of one’s views on Nord Stream 2, unilateral sanctions are a dangerous tool — even in the hands of a mighty power like America — because any other country can decide to use the very same tool.
Western decisionmakers often believe that they represent the good side, while the other side is evil and nefarious. That feeling is often justified. The Trump administration — and the Biden administration — truly believe that Nord Stream 2 will increase Russian coercive power.
But what if China decides it wants to punish America by imposing sanctions on a few of its companies? Beijing has already demonstrated it is willing to coerce Western firms. Late last year, it imposed punitive tariffs on Australian wine as a way of punishing the Australian government.
In fact, as Gary Clyde Hufbauer and Euijin Jung of the Peterson Institute for International Economics point out, Beijing anticipated Trump’s conflation of foreign policy and trade and has taken to abusing international trade for foreign policy purposes.
Given the latest move, if China at some point decides to announce it will impose sanctions on American firms because it disagreed with U.S. policy, Washington could rage. But it would quickly find that it has already ceded the high ground. The insurance industry, in turn, would see no choice but to cancel the firms’ coverage.
In 1982, when Reagan imposed his sanctions, the Soviet Union was economically mediocre and China even more so. Today, America desperately needs its allies if it’s to counter truly nefarious Chinese and Russian actions. It’s foolish to alienate those allies while at the same time giving China — and any other country — an excuse to use yet another tool of aggression.
In his confirmation hearing, Blinken told the Senate Nord Stream is a “bad idea.” That’s an opinion shared by many. Let’s hope though that Blinken and others won’t overdo American swagger by continuing Trump’s solo sanctions.
Such punishment may smell of victory, but it opens the door to actions that could seriously hurt both the U.S. and its allies. The rules-based international order matters in the world of business too.
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