The Senate recently passed, and the House is considering, broad legislation that would expand the scope of sanctions against Russian energy firms. While responding forcefully to Russia’s bad behavior is certainly warranted, the bill as currently written could, in at least one instance, inadvertently undercut the U.S. strategy to diversify European gas supply away from Russian sources.
Expanding sanctions to include any projects involving Russian energy companies could seriously undermine the Southern Gas Corridor, which would deliver 10 billion cubic meters of Caspian gas to Europe per year. It has been a long-held bipartisan goal of U.S. policy to promote the development and export of Caspian gas resources to Europe to enhance European energy security and mitigate reliance on Russia as a single source gas supplier. Major achievements towards this goal include development of the Shah Deniz gas field and associated pipeline systems, which will dramatically improve security of supply in the region.
However, progress in achieving the Southern Gas Corridor, which would bring Caspian gas to European markets, could be seriously undermined by the broad purview of the legislation currently under consideration.
While the US should celebrate the Southern Gas Corridor as a successful example of European supply diversification and a major contributor to energy security, the current sanctions bill would instead punish the project because of the 10 percent participation of Lukoil, a Russian energy firm, in the Shah Deniz consortium. Lukoil is a private, publicly-traded company and its leadership includes two American and one British member of its board of directors. More importantly, its stakes in the project are far from controlling.
Recent history provides a useful precedent for how to resolve this dilemma. In 2012, a carve out was included in the Iran sanctions legislation exempting the Shah Deniz consortium from sanctions that otherwise could have been applied due to the minority participation of NICO, a subsidiary of the Iranian National Oil Company. The exemption was reaffirmed in the FY 2013 National Defense Authorization Act. NICO, like Lukoil, holds a 10 percent stake in Shah Deniz.
This exemption was granted because of the recognition that the unintended application of sanctions to the Shah Deniz project would defeat years of U.S. policy. The same argument is even more relevant to the Southern Gas Corridor, as this project reinforces the overall intention of the legislation.
Punishing Russia where they feel it most — the energy sector — for transgressions in Ukraine and meddling in the U.S. presidential election is wholly appropriate. However, the bill would be more effective in achieving that goal if it did not inadvertently punish the Southern Gas Corridor. It has been demonstrated that scalpel-like precision can be utilized to minimize unintended consequences in crafting legislation — it is critical that the U.S. Congress do so again now. Don’t throw the baby out with the bathwater!
Ambassador Richard Morningstar is the founding director and chairman of the Atlantic Council’s Global Energy Center. He also served as the U.S. ambassador to Azerbaijan, U.S. ambassador to the European Union, special adviser to the president and secretary of State for Caspian Basin energy diplomacy, and special envoy for Eurasian Energy.
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