Congress Must Fix Flawed Russia Sanctions Bill

In its efforts to punish Russia for meddling in our democracy, Congress is considering a sanctions bill that would expand sanctions against Russia. We should applaud these efforts. However, the bill also includes language that would damage the U.S. economy — not Russia’s — and our ability to lead globally as an energy producer and exporter.

The Senate passed the sanctions bill last month by a wide margin of 98-2, so now it’s up to the House of Representatives to change the language before passing this badly needed bill. The current language would prohibit any and all U.S. companies from doing business with any enterprise that is, or has connections to, a Russian energy firm.

As a former U.S. ambassador to Azerbaijan, I’ve seen firsthand how we help our economy grow by exporting goods and services abroad and supporting U.S. companies develop energy resources in the global market while simultaneously pushing back against hostile actors like Iran and Russia, particularly in the surrounding Caspian Sea region.

Abundant oil and gas in Azerbaijan and Kazakhstan, in particular, attracted American investment to those countries, while our targeted sanctions against Russia and Iran have limited their ability to exert economic influence in these former Soviet states.

This legislation, however, has the unintended consequences of harming U.S. economic interests while perversely encouraging Russian and even Iranian energy interests. Without our European friends applying the same sanctions to their firms that we are applying to ours, unilateral sanctions such as these benefit European competitors as well.

There are four flaws in this legislation that must — and should —  be corrected:

  • First, the section of the legislation prohibiting U.S. energy firms from participating in oil and gas projects globally damages US commercial and other interests. Prohibiting participation in Russian-based projects makes sense in the context of sanctions designed to change Russian behavior regarding its aggression in Ukraine. The logic fails when this is applied say in offshore Africa or Brazil projects where U.S. and Russian firms could have separate exploration blocks in the same field but required by the host government to cooperate. Even a minimal Russia involvement would trigger sanctions, forcing U.S. companies out of such developments and opening up an opportunity for Russian, Chinese or even European competitors.
  • Second, absent grandfather provisions, consortia like Kazakhstan’s Tengiz gas field would be at risk. Currently, the Tengiz consortium is 75 percent owned by two U.S. companies, 20 percent owned by Kazakhstan, and 5 percent owned by a Russian company. It could not operate under the proposed legislation even though the production sharing agreement requires all companies to cooperate and the Russian share is minimal. We would force American companies to pull out of places like Tengiz. Russian and Chinese companies could easily swoop in to buy up the rest of the project, further cementing Kazakhstan within their grasp. It would also remove an important element of US foreign policy interest in that important Central Asian country.
  • Third, not only damaging U.S. oil and gas production globally, this sanctions legislation would harm pipeline consortia that transport oil and gas from the Caspian region to vital allies in Europe already over-dependent on Russian energy sources. According to Politico, BP — a major owner and operator of Azerbaijan’s Shah Deniz gas field, and of the six-partner (one of whom is Lukoil with a 10 percent share) pipeline necessary to move Azerbaijani gas to the European market — is concerned this legislation would harm the Caspian pipeline project. Lukoil’s minimal share in this development would be enough under the proposed legislation to trigger sanctions and hamper flows of this strategically important alternative source of gas to the European market.
  • Finally, the sanctions would damage U.S. non-energy firms as well. Companies such as GE, Boeing, Proctor & Gamble, John Deere, and a subsidiary of Caterpillar are active in Azerbaijan. Popular American hotel chains like Marriott, Hilton, and Hyatt have 5-star properties in the Azeri capital, Baku. All of these businesses sell their products and services to customers from many countries that live and work in Azerbaijan, including Russians. If this sanctions legislation applied, US businesses would lose Russian customers, hurting manufacturing and service jobs we need here at home. This fallout would not just occur in Azerbaijan, either. The same thing would happen around the world, from Europe to Asia to Africa. Our competitors — energy and non-energy alike — would cheer. That is not the intent of the legislation, but it is a consequence of not being clear about the targets of the legislation and examining the actual outcomes of non-targeted sanctions.

Congress must not allow Russia the opportunity to expand its economic influence at the expense of the U.S. economy. The current sanctions bill must be carefully rewritten to ensure that the U.S. can compete and win against Russian, Chinese, and other competition all around the world. Remove the untargeted global sanctions, grandfather existing production and pipeline projects, define a share of a Russian company’s stake in a new project that would trigger sanctions, do no harm to U.S. business operating outside Russia in normal commercial operations.

Ambassador (Ret.) Richard D. Kauzlarich is co-director of the Center for Energy Science and Policy and adjunct professor at the Schar School of Policy and Government, George Mason University. He served as U.S. Ambassador to Bosnia and Herzegovina from 1997 to 1999 and to Azerbaijan from 1994 to 1997.

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