Yevgeny Pozhidayev: Why is U.S. turning Europe upside down?

As U.S. Congress passes another package of anti-Russian sanctions (Bill S.722) affecting oil and gas sector, President Donald Trump, “whose reputation was blurred with Russian ties,” can hardly oppose it, even if he wants to do it.

At first sight, quite unexpectedly the new sanctions were opposed “by European partners.” Jean Claude Juncker said: “The U.S. bill could have unintended unilateral effects that impact the EU's energy security interests.” “This is why the Commission concluded today that if our concerns are not taken into account sufficiently, we stand ready to act appropriately within a matter of days. America first cannot mean that Europe's interests come last."

As far as one can understand, the pretext of the situation is much more serious and global than it may seem.

From the viewpoint of Washington, EU sponges off U.S. Deficit of the United States in the trade with EU has increased since 2009 due to ECB’s tougher policy. While U.S. stimulated demand injecting dollars into economy, Europe cut spending. Keynesian practice of “helicopter money” works as long as you are able to somehow protect your domestic market. Import taxes in EU were higher initially than in U.S. and there were non-tariff barriers within the “Greater European Wall”. As a result, a unique chain of relations has developed between the three economic centers. EU has unfavorable balance of trade with China, actually subsidizing Washington’s most dangerous rival but paying for its own “Chinese” consumption subsidizing it with favorable balance of trade with U.S. Eventually, Washington pays Beijing twice: for itself and Europe.

Brussels keeps saving on military spending and do not chose to increase annual defense outlays to 2 percent of its gross domestic products by 2024. U.S. pays more than 70% of NATO total military outlays. Actually, potential military outlays go to Beijing and Moscow.

U.S. awakened and understood that “this is no way to live” yet long ago, but ideas “to scale back its geopolitical ambitions” © are still perceived there as an attempt to break principles. The problem of American “hawks” is that they still live in a very alternative economic reality. We are not in 1980s now. Anyway, the “new” ideas in Washington are, in fact, quite old. Trump is in the White House not because he is a marginal, but because he is a mainstream radical.

The previous administration also tried to make EU increase defense outlays. The idea to revise trade relations with Europe is not new either. The notorious “Transatlantic Partnership” was the previous attempt, but it prompted a “local revolt.” The free trade area with U.S. as it is (without reservations) is disastrous for EU’s economy - U.S. has too many “natural” advantages. Besides, the negotiation process started amid transfer of European businesses to U.S. and judicial and administrative pressure (with heavy fine sanctions) on European business by the U.S. system.

Nonetheless, U.S. should do its outmost to either push through equal trade rules or make EU an offer that is hard to resist i.e. selling something very expensive to it to outrun Moscow.

Gas would be a very good idea. Strange though it may seem, sanctions against Gazprom go in one package with dismantling the Iran nuclear deal (Pentagon Chief Mattis said no normalization with Iran is possible unless power is changed in that country) and pressing Qatar. It is no secret that Qatar supports not only “moderate” terrorists approved by U.S. Department of State and CIA, but also HAMAS in Gaza. They did it to spite Iran. However, it was the very case when excessive helpfulness makes for misery.

One of the provisions in Bill S.722 reads: “the United States Government should prioritize the export of United States energy resources in order to create American jobs, help United States allies and partners, and strengthen United States foreign policy.” U.S. is known to plan export of 45 billion cubic meters of liquefied gas annually by 2020, with the minimum price for exporters being $245 per 1,000 cubic meters of gas. Last year, they sold just 0.5 billion cubic meters of liquefied gas at much lower price.

Meantime, the scales of the existing and idling infrastructures on both shores of the Atlantic boggle the mind. One can get an impression that it was built for a long-term, severe confrontation of Moscow and European gas consumers.

There is certain simultaneousness in America’s economic and military planning. They need to sell at least as much gas as they can recover using the existing capacities. To do it, they just need to block alternative suppliers and make EU buy their gas.

A brilliant plan, but are several problems. First, EU does not want to buy it for the price they offer.

Second, long-term supply of LNG is fraught with costly and unsuccessful energy balance for U.S. European sanctions do not cover the gas sector – European companies not only proceed with their old projects, but also plan to start new ones, while American companies had to keep aloof.

Third, looking at Ukraine, one can easily imagine what kind of “marketing actions” can be taken there to boost LNG sales.

Fourth, the Bill is prepared so that it can impose sanctions on any country and contains no reservations allowing finishing or at least scaling down work normally. Actually, European companies fall under sanctions almost automatically.

Fifth, the bill openly suggests Germany to pay for America’s failed investments in gas production.

Whether that diplomatic masterpiece aimed to lead Donald Trump to foreign policy failure is a question of secondary importance.

It is essential that humble Europe has finally started showing signs of independence. It is not for nothing. First, U.S. is trying to turn upside down the chain of trade relations so comfortable for Europe. Second, Europe is more than able to ensure its own security.

This “independence” has well-defined bounds. Trade war with U.S. is extremely unfavorable to Europe, and to Germany, first of all. Moscow-Berlin “strategic axis” cannot damage Transatlantic ties, in principle.

Technically it means:

First, sanction on Gazprom will be imposed anyway.

Second, everything is much more serious than it may seem, and the American LNG will be sold to Europe by all means possible and sanctions are the ONLY comfortable option to do it.

Third, Germany may surrender and accept Nord Stream-2 projects at any moment.

Forth, it still resists.

Anyway, scandals between Europe and U.S. are practically inevitable in the mid-term outlook.

Yevgeny Pozhidayev for EADaily