29 MAY 2022 | WWW.LAWYER-MONTHLY.COM ARBITRATION, RUSSIAN SANCTIONS AND THE SPECTRE OF SOVEREIGN DEFAULT (Europe gets nearly 40% of its natural gas and 25% of its oil from Russia), Germany suspended the certification of Nord Stream 2, the $11 billion natural gas pipeline, leading the Swiss-based company behind Nord Stream 2 (a wholly owned subsidiary of Russian state company Gazprom) to fire all of its 106 local employees. According to energy commentators, halting Nord Stream 2 could lead to investorstate arbitration under the Energy Charter Treaty. The Nord Stream 2 project has already seen ECT claims arising out of the EU gas Directive Amendment of 2019 that impacted new gas transmission lines. That same year, Gazprom’s subsidiary took action against the EU itself for breach of the ECT, alleging that the project had been disadvantaged as a result of the new onerous rules. Incidentally, in line with the widespread refusal of law firms to represent For example, Vitol Group, the world's top independent oil merchant, will reportedly cease trading Russian crude oil and products by the end of 2022 and will not enter into any new Russian crude and product transactions. Italy's Eni announced its withdrawal from the Blue Stream pipeline between Russia and Turkey, Shell and Exxon are pulling out of Sakhalin projects, BP is abandoning its stake in Rosneft and Norway's Equinor also plans to exit Russia. In contrast, Hungarian Prime Minister Viktor Orban has rejected calls to suspend a $14 billion expansion of Hungary’s Paks nuclear plant conducted by Rosatom (which is itself now being considered for additional US sanctions). Some foreign businesses may argue that it is no longer tenable for them to continue performance of contracts in light of the political environment and the growing sanctions regime. Indeed, it is likely that similar issues as those raised by the COVID-19 pandemic will arise, namely claims of forcemajeure, illegality, frustration and impossibility of performance. However, not every business withdrawal is sanctionsrelated and Russian businesses may well invoke arbitration clauses to recover losses from any contractual breaches. Russian clients, the counsel team in the 2019 ECT claim has recently ceased to act in the Nord Stream 2 arbitration and the tribunal has suspended those proceedings at the claimant’s request. The current situation resembles the Vattenfall case: after the German Parliament imposed the phasing out of nuclear power, Germany suspended the certification of two nuclear power plants of the Swedish stateowned energy company, resulting in its filing of a €7 billion ECT arbitration (ultimately settling for €1.4 billion). Just as Nord Stream 2 illustrates the possibility of Russian-owned companies bringing arbitration claims against foreign states, Russian businesses have legal options in response to foreign partners who have ceased doing business in and with Russia. Some foreign businesses may argue that it is no longer tenable for them to continue performance of contracts in light of the political environment and the growing sanctions regime.