Plan B: Chinese Investments May Help Russia Under New US Sanctions

On Wednesday, United States President Donald Trump signed into law a new batch of sanctions against Russia, Iran and North Korea. In particular, the law stipulates sanctions against Russia's defense, intelligence, mining, shipping and railway industries and restricts dealings with Russian banks and energy companies. Risks for Nord Stream 2

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© AFP 2017/ HOW HWEE YOUNG

In addition, the US will continue to oppose the implementation of the Nord Stream 2 gas pipeline project, citing the alleged adverse impact it exerts on the energy security of the European Union.

Experts say that the bill is likely to affect five Russian-European joint projects, including Nord Stream, Nord Stream 2, Turkish Stream, the Caspian Pipeline Consortium and Baltic LNG.

However, the sanctions will have only a partial effect on the majority of the projects.

According to Igor Yushkov, a leading expert with the National Energy Security Fund, the new sanctions directly threaten only two projects, namely Nord Stream 2 and the second leg of Turkish Stream.

“Since all necessary equipment has already been purchased, what the projects now need is investments,” he told Sputnik.

In particular, Nord Stream 2 risks facing difficulties with funding.

“A total of 9.5 billion euros ($11.2 billion) has been unveiled for the construction of Nord Stream 2 under bank guarantees from the side of Gazprom’s western partners,” Dmitry Marunich, co-chair of the Fund for Energy Strategies, told Sputnik.

Moreover, the sanctions may also affect the technological side of the project, including pipe-laying works.

“Only a few companies can do underwater pipe-laying works and all of those companies are in the West,” he added.

Can Europe Take On US Ambitions?

The new US sanctions have faced serious criticism from the European Union, which has vowed to take measures to defend its interests.

“We are ready … We must defend our economic interests, including vis-a-vis the United States, and we shall do that,” European Commission President Jean-Claude Juncker told the NDR radio broadcaster.

However, Moscow expects concrete steps from its European partners, including either adopting a law protecting European companies from the US sanctions or ignoring them and imposing responsive measures, according to Gevorg Mirzayan, the associate professor at the department of political sciences at the Finance University under the Russian Government.

“The ability of the US judicial system to punish European companies for the sake of American interests has always been a headache for Brussels. Due to the ongoing political crisis in the US, Europe now has a rare chance to deliver a firm response to Washington and find a new balance in trans-Atlantic relations,” Dmitry Ofitserov-Belsky, an expert in international studies and associate professor at the Higher School of Economics University, said.

However, experts doubt that Brussels will go so far, challenging Washington’s global ambitions.

“If the EU adopts a law countering the US sanctions this would challenge the global application of American laws, hence a challenge against Washington’s role as a global political leader,” Yushkov said.

Mirzayan noted that some European countries may try to bypass sanctions or threaten the US with countermeasures, but what would be more realistic is contesting the restriction in international organizations, in particular in the World Trade Organization (WTO).

Chinese Question

Some Russian experts suggest that Russia should consider reaching out to its eastern partners, first of all, China.

“As for the energy sector, Chinese companies have many of the technologies that Western companies have,” Yushkov pointed out.

However, the question is whether Chinese companies want to invest in Russia. On the one hand, Beijing stands for cooperation and partnership relations with Moscow.

Meanwhile recently there have been a series of publications in Chinese state-run media outlets, calling for the establishment a global market instead of deeper cooperation with particular countries and regions.

At the same time, The Global Times reported in July that the new US sanctions would push Russia and China closer, especially in trade and infrastructure.

“The US and EU believe in imposing sanctions on Russia, but the costs and benefits of such a move are different, especially since Russia remains the main energy exporter.  The sanctions would further hamper economic exchanges between Russia and the EU, which may convince Russia to look to the East,” Bai Ming, a research fellow at the Chinese Academy of International Trade and Economic Cooperation under the Ministry of Commerce, told the newspaper.

In terms of cooperation between Russia and China, the energy sector looks very promising.

“Energy is the priority interest for the Chinese. The majority of their investments to Russia are in the energy sector,” Yuri Tavrovskiy, a prominent expert in Chinese studies, told Sputnik.

At the same time, it is clear that Chinese companies do not want to be under sanctions in the US market which they see as much more important than the Russian market.