Date first published: 29/7/2021

Key sectors: oil and gas

Key risks: sanctions; policy uncertainty; economic


Risk development

On 21 July Berlin and Washington signed an agreement to allow the completion of Nord Stream 2 (NS2), the highly controversial gas pipeline project from Russia to Germany worth US$9.5bln. Nord Stream 2 AG, wholly owned by Russia‘s state-owned Gazprom and financially back by German, French and Dutch energy companies amongst others, has been on the receiving end of sanctions from the US since its conception amid efforts to end its construction.

Why it matters

Despite NS2’s likely completion, there remains underlying long-term sanctions risks and policy uncertainty due to the vague and non-binding results of the agreement. Domestic pressure in Washington and Berlin will strongly oppose aspects of the deal, seeing it as a failure of US President Joe Biden’s administration, and a threat to European energy security. Ukraine will continue to oppose the project, as Kiev stands to lose US$2.5bln in gas transit fees once NS2 is completed and Russian energy flows are diverted away. Furthermore, the issue could mean long-term damage and distrust for Washington’s relations with Kiev and other other Eastern European states opposing the project.


Throughout 2019 and 2020, US sanctions have targeted companies involved in the construction of the project. In December 2019, the Dutch-Swiss offshore services group Allseas pulled out of the project citing US sanctions pressure. Whilst Gazprom responded by using its own pipe-laying vessels, further companies began to drop out of construction, and the project was halted for 15 months. In March 2021, Gazprom ignored US sanctions pressure, and announced that construction would officially continue.

By July, the first line of NS2 was completed, and only 40 km remains of the second. Completion is anticipated for end-August, and a period of up to three months is expected for routine testing. US attempts over the last two years to sanction the project into collapse failed to materalise. Realising those efforts to sanction the project to extinction had failed, Biden’s administration waived new sanctions on Nord Stream 2 AG in May, and indicated that discussions would open with Berlin.

The July agreement produced several key outcomes. Firstly, Germany agreed it will sanction Russia in response to any coercive energy diplomacy from Moscow, including a push for the EU to sanction energy exports directly, and the US retains its freedom of action to impose additional sanctions in such an event. Secondly, the US and Germany will invest in a US$1bln green fund to promote green investment in Ukraine, and aid its energy transition from Russian energy dependency. Finally, Berlin agreed to negotiate with Gazprom to extend its transit contract with Kiev up to 10 years after the current one expires in 2024.

Risk outlook

Despite the results of the agreement, the statements are non-binding and vague. It remains unclear what form further sanctions could take against the pipeline, and there is no certainty that Berlin can extend Kiev’s transit agreement, particularly as September Bundestag elections could result in a new coalition. It is unclear how financial certification of the project can take place after Norwegian certification provider DNV GL withdrew from the project over sanctions pressure in January. Furthermore, Berlin and Washington did not agree on how either side interpret the security risk surrounding NS2. With the agreement failing in its convictions, the risk of sanctions will continue to cloud the project for the long-term.