US threatens to block Nord Stream 2 pipeline startup if Russia invades Ukraine

The Biden administration signaled Dec. 7 it was prepared to block the startup of the Nord Stream 2 gas pipeline and impose new and harsh economic sanctions that could target the energy sector in the event of a Russian military escalation into Ukraine.

US President Joe Biden told Russian President Vladimir Putin during a roughly two-hour video call Dec. 7 that the US and European allies would "respond with strong economic and other measures in the event of military escalation," the White House said in a statement.

Additional restrictions on Russia's energy sector and access to the SWIFT financial system could be among those options, analysts said.

US National Security Advisor Jake Sullivan did not go into detail about sanctions under consideration but said Nord Stream 2 represents leverage for the West.

"Gas is not currently flowing through the Nord Stream 2 pipeline, which means it's not operating, which means it's not leverage for Putin," Sullivan said during a White House briefing. "Indeed, it is leverage for the West because if Vladimir Putin wants to see gas flow through that pipeline, he may not want to take the risk of invading Ukraine."

Sullivan added that the penalties under consideration would go farther than sanctions imposed by the Obama administration in response to the 2014 invasion of Crimea. Those included restrictions on Arctic, deepwater and shale oil projects with Russian stakes.

"Things we did not do in 2014, we are prepared to do now," Sullivan said.

Iran talks

The Kremlin said that in response to Biden outlining new sanctions the US and allies would be ready to apply in the event of a further escalation, Putin "stressed that the responsibility should not be shifted onto Russia, since it is NATO that is making dangerous attempts to conquer Ukrainian territory and is building up its military potential at our borders."

"The leaders agreed to instruct their representatives to engage in focused consultations on these sensitive issues," the Kremlin said.

Biden and Putin also discussed the Iran nuclear talks and ransomware attacks.

On the Iran talks, the Kremlin said Putin "noted the importance of its full implementation within the initially agreed framework" and expressed hope for constructive negotiations.

Pipeline pressures

Cold weather and uncertainties around the startup of the 55 Bcm/year Nord Stream 2 gas pipeline to Germany have exacerbated volatility in European gas prices in recent months.

S&P Global Platts assessed the TTF day-ahead price at Eur89.40/MWh on Dec. 6, up more than 500% year on year. The contract hit a record high of Eur116.10/MWh on Oct. 5.

The US Senate is considering several proposals to harden the US stance against the Nord Stream 2 gas pipeline, after Biden issued a waiver to the pipeline developer in May to bolster US-European relations. Senators are trying to attach the tougher measures onto the annual military spending bill that must pass by the end of the year.

Nord Stream 2 was completed in September, but commercial operations have yet to start as operator, Gazprom-owned Nord Stream 2 AG, waits for regulatory clearance.

In November, the US State Department sanctioned Transadria and its work ship, the Marlin, involved in finishing Nord Stream 2. The US has now sanctioned eight entities and 17 ships involved with Nord Stream 2 under the Protecting Europe's Energy Security Act of 2019.

US reliance on Russian oil

The Biden-Putin talks also come as US dependence on Russian oil imports remain high and the White House is under pressure to moderate domestic pump prices.

Russia was the No. 3 oil supplier to the US in September, after Canada and Mexico, according to the latest US Energy Information Administration data. The US imported 630,000 b/d of Russian crude and fuel oil feedstocks in September, down from a record high of 848,000 b/d in June.

The US reliance on Russian oil has been driven by the economic recovery from the pandemic and US sanctions keeping Venezuelan heavy feedstocks off the market.