Duh, obviously that code branch is used only for unicode paths:

  >>> open('/tmp/t\nest', 'w')
  <open file '/tmp/t
  est', mode 'w' at 0x7f6f0f3dd9c0>
  >>> open(u'/tmp/t\nest', 'w')
  <open file u'/tmp/t\nest', mode 'w' at 0x7f6f0f3dda50>

There does not seem to be something similar in http://docs.python.org/c-api/string, so I guess one would have to create intermediary objects to decode str to unicode, transform with unicode-escape and convert back to str.