The threat of sanctions for the US$11 billion Nord Stream 2 pipeline operator is brewing, which may prevent European insurance companies from providing insurance for this politically sensitive project that transports Russian natural gas directly to Germany.
The energy giant Gazprom, backed by the Kremlin, leads the consortium. Despite strong opposition from the United States and some European countries, the consortium built pipelines under the Baltic Sea-in the geopolitical struggle for influence in the region Bypass Ukraine.
The United States strengthened its sanctions on companies related to the project last week, and the German energy regulator temporarily suspended its certification process this month. It stated that the Swiss consortium behind the pipeline must form a German department to show that it has sufficient funds and is independent of Gazprom.
“Until the situation becomes more stable, I don’t think any insurance company will use a barge pole to touch this project,” said Leigh Hansson, a partner at the law firm Reed Smith.
The United States and some European opponents of the North Stream 2 project said that this will make Europe too dependent on Russian natural gas, allowing Moscow to expand its political, economic and military influence. But other governments say that as natural gas prices soar and the threat of blackouts is imminent, ensuring energy supply is critical.
Concerns about the new sanctions led Europe’s top insurance companies AXA and Zurich, and reinsurance company Munich Re to withdraw from the building’s insurance business this year. Without insurance, pipeline operators may also incur costs due to damage, delays, or litigation, and find it more difficult to obtain loans.
Earlier this year, the Biden administration waived sanctions on pipeline operating companies, which theoretically enabled non-U.S. companies to provide financing and insurance, and Germany has agreed that if Russia uses energy as a weapon in its relations with Ukraine, it will Take action.
But lawyers and political risk analysts said the possibility of sanctions has increased because the build-up of troops on the Ukrainian border has intensified fears of a Russian invasion.
Moscow refuted the remarks about Russia’s new attacks as inflammatory, but NATO and the United States warned Russia on Tuesday that it would pay a “high price” for military aggression.
A spokesperson for the Nord Stream 2 operating company in Switzerland stated that “all construction, operations and other activities of our company are covered by appropriate insurance.” The company did not comment on its contract partners.
Gazprom declined to comment on Nord Stream’s insurance.
The lawyer said that in the absence of a European insurance company, the project can use Russian entities. Konstanta, a Russian insurance company-now renamed RNCB Insurance-has been sanctioned.
RNCB Insurance did not immediately respond to a request for comment.
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European insurance companies, such as those operating in the Lloyd’s insurance market in London, could theoretically cover this pipeline, said its chief executive John Neal.
“We have participated in the North Creek project before, and of course we can ensure its construction,” Neal said, adding: “We need to respect sanctions very much.”
Lloyd’s of London declined to comment further.
Joachim Winning, CEO of Munich Re, told Reuters that it is not currently participating in Nord Stream 2 due to sanctions.
Zurich said it would not comment on potential or existing customer relationships, but emphasized that it attaches great importance to sanctions compliance. AXA declined to comment.
Allianz, Europe’s largest insurance company, said it was unable to comment on customer relations, but a spokesperson said that the German company had “very thoroughly complied with all sanctions.”
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After the construction is completed, the pipeline’s own insurance will prevent property damage, business interruption, and the liability of directors and senior staff.
But Rose Denton, head of international trade at Astor Law Firm, said the delay in approval may slow the arrangement.
Experts say that a major risk is that the United States may expand sanctions on European companies in a short period of time.
According to Nigel Kushner, chief executive of London law firm W Legal, the United States is known for imposing sanctions on strategies that exacerbate NATO and the West.
“Almost every time the United States responds, it has increased sanctions,” he said.
“Who would jump into something and fund something and provide support for something because of the risk of sanctions?
“Insurers are very cautious, and I think they will remain silent.”
