By Timothy Gardner, Andrea Shalal and Steve Holland

WASHINGTON (Reuters) -The Biden administration waived sanctions on the company behind Russia’s Nord Stream 2 gas pipeline to Germany and its chief executive, Secretary of State Antony Blinken said on Wednesday, a move decried by critics of the project in Congress.

A State Department report sent to Congress concluded that Nord Stream 2 AG and its CEO, Matthias Warnig, an ally of Russian President Vladimir Putin, engaged in sanctionable activity. But Blinken immediately waived those sanctions, saying that it was in the U.S. national interest.

The decision came as the Biden administration seeks to rebuild ties with Germany, after relations deteriorated under Republican former President Donald Trump. The waivers have no specific end date, but can be rescinded by the secretary of state.

The State Department imposed sanctions on four Russian ships, including the Akademik Cherskiy, which began pipe-laying for the project in Danish waters in April. It also imposed the measures on five other Russian entities, including the Russian Marine Rescue Service.

“Today’s actions demonstrate the administration’s commitment to energy security in Europe, consistent with the President’s pledge to rebuild relationships with our allies and partners in Europe,” Blinken said in a release, issued as he met with Russian Foreign Minister Sergei Lavrov in Iceland for an Arctic Council conference.

President Joe Biden, a Democrat, has opposed the $11 billion project that would take Russian gas from the Arctic to Germany, saying it is a bad deal for Europe. The United States is an exporter of natural gas to Europe in the form of LNG, but Russian gas is cheaper.

Washington fears Russia could use Nord Stream 2 as leverage to weaken European Union states by increasing dependency on Moscow.

STOPPING PIPELINE IS A ‘LONG SHOT’

Russia’s state energy company, Gazprom, and its Western partners are racing to finish the pipeline to send natural gas under the Baltic Sea. The project, now about 95% complete, would bypass Ukraine, depriving it of lucrative transit fees and potentially undermining its struggle against Russian aggression.

A U.S. official conceded that stopping the project would be difficult but that Washington would keep trying. “We inherited a pipeline that was over 90% complete and so stopping it has always been a long shot,” the State Department official said.

At the rate it is being constructed, Nord Stream 2 will be finished before the end of the year, if not sooner, analysts said.

U.S. lawmakers from both parties who oppose the project said the sanctions did not go far enough, as Russia could likely continue work.

Senator Jim Risch, the senior Republican on the Senate Foreign Relations Committee, said the waivers will be “a gift to Putin that will only weaken the United States’ leverage in the lead up to the impending Biden-Putin summit.”

Biden “should do everything possible to accomplish what the Trump administration failed to do for four years: stop the completion of the Nord Stream 2 pipeline for good,” said Senator Bob Menendez, a Democrat and chair of the committee.

Yuriy Vitrenko, the new CEO of Ukraine’s state-owned energy company, Naftogaz, said Nord Stream 2 is Russia’s “most malign and dangerous geopolitical project” and that Ukraine would ask Washington to fully apply its laws and impose sanctions to stop the pipeline.

U.S. officials hope the waiver will give time for discussions with Germany on potential negative effects of the pipeline and provide some leverage to deepen cooperation on broader issues, such as the pandemic, climate change, the economic recovery and dealing with China and Russia.

The waiver also “provides space for diplomatic engagement with Germany to address the risks that a completed pipeline would pose to Ukraine and European energy security,” the State Department official told reporters.

Germany has been pressing for the United States to drop its opposition to the project, arguing that the overall relationship was too important to sacrifice over what Berlin has described as a commercial project.

“We see this as a constructive step, which we are happy to further discuss with our partners in Washington,” German Foreign Minister Heiko Maas told reporters.

Russian officials signaled on Wednesday that waivers could help mend Washington’s fraught ties with Moscow.

(Reporting by Andrea Shalal, Timothy Gardner and Steve Holland in Washington, Sabine Siebold in Berlin and Humeyra Pamuk in Reykjavik; Additional reporting by Patricia Zengerle; Writing by Susan Heavey; Editing by Steve Orlofsky and Peter Cooney)

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