(Bloomberg) -- Germany should brace for U.S. sanctions over the Nord Stream 2 gas pipeline project with Russia, signaling an escalation of economic conflict with Europe, according to an envoy of Chancellor Angela Merkel’s government.
Peter Beyer, the German government’s coordinator for trans-Atlantic relations, said in an interview with Bloomberg Television that an official in President Donald Trump’s administration told him at a meeting in Washington last week that sanctions related the Baltic Sea pipeline are likely.
“This is a further burden for the trans-Atlantic relationship,” Beyer said on Friday. Nord Stream is meeting resistance across the political spectrum in Washington, including in the U.S. Senate and House of Representatives as well as the White House, he said.
The sharpening U.S.-German conflict over Nord Stream 2, which would expand the direct flow of Russian natural gas to Germany, is adding to points of contention including trade, defense spending and the Iran nuclear accord. Merkel and President Vladimir Putin discussed the pipeline’s future during a meeting in Sochi, Russia, on Friday.
Ukraine Flow
Germany is prodding Russia to ensure that Nord Stream 2 doesn’t preclude gas transit through Ukraine, whose security is a key factor in U.S. criticism of the pipeline project.
“We view Nord Stream 2 as an industry project, but it has other implications,” Merkel said in Sochi alongside Putin. “So we need to discuss the question of what sort of guarantees can be offered to Ukraine in this context.”
Putin said transit through Ukraine would proceed as long as it’s economically viable.
The U.S. is stepping up opposition to Nord Stream 2, warning publicly that it could trigger sanctions. Sandra Oudkirk, U.S. Deputy Assistant Secretary of State for Energy Diplomacy, said in Berlin that U.S. concerns include security issues, raising the prospect that Russia could install undersea surveillance equipment in the Baltic.
U.S. action would put companies in Austria, France, Germany and the Netherlands at risk. Royal Dutch Shell (LON:RDSa) Plc, BASF SE’s Wintershall unit, Uniper SE, OMV AG and Engie SA are partners of Russia’s Gazprom (MCX:GAZP) PJSC in the project.
Fight for Interests
Beyer said the administration official, whom he didn’t name, pointed out that the U.S. has authority to sanction Nord Stream under legislation passed last year that targets Russian energy projects. The Countering America’s Adversaries Through Sanctions Act, or CAATSA, was a response to Russia’s intervention in Ukraine and its suspected U.S. election interference.
German Economy Minister Peter Altmaier, a Merkel ally, told ARD television the U.S. should expect that Europe “will define and fight for our economic interests,” including Nord Stream 2.
Beyer presented a grim picture of relations with the U.S., saying the combination of tensions with the Trump administration is taking a toll.
“It seems to be right now, in a very short period of time, everything comes together,” Beyer said in the interview. “And all taken together, it’s really a big burden for trans-Atlantic relations.”
(Updates with Merkel, Putin comments in sixth paragraph.)
