Russian energy investments amid sanctions

Russian energy investments amid sanctions

By Sonny Atumah

Economic uncertainties are situations that nobody can predict or guarantee. Such uncertainties may be from situations of sanctions or threats of them. Sanctions are penalties imposed by one or several states on another state to persuade or compel that state to amend its behaviour, or for strategic reasons. Sanctions might be imposed after a breach of international law such as military aggression, the abuse of human rights, or in retaliation for unfair trading practices. Sanctions can involve either military action or the interruption of normal trading practices; a boycott on imports from, or an embargo on exports to the offending state; suspension of financial aid; and freezing a country’s overseas assets.

In the last four years the United States and its EU allies have continually imposed sanctions on Russia which has been accused of backing countries allegedly threatening world peace and stability. It has been the case of muscle flexing reminiscent of the cold war era that never led to and would not lead military action because both the United States and Russia have nuclear energy codes. Again, the gas industry, space technology and nuclear energy are excluded from sanctions. So proxy wars are waged outside their territories. Analysts say the effect of any Syria-related matter seem to have lost its edge for oil prices after the air strikes carried out by the U.S., the UK, and France in April, failed to spark what many worried would be World War 3.

The recent sanction on Russia was for its support of Syrian President Bashar Assad, accused of using chemical weapons on the rebel groups in Syria.  Russia was first accused of backing the eastern Ukraine separatists that formed Crimea in 2013.  Others are issues related to the Iran nuclear deal. Some believe the sanctions imposed on Russia following its invasion of Ukraine in 2013 have not done much to slow the Russian oil sector; investors are however panicky about prospects for unfettered exploration and production.  There are Americans who believe that Russia should be ‘punished’ for interfering in the 2016 presidential elections and launching cyber attacks against American energy companies.

Who are the victims of sanctions is the question as the value of sanctions would continue to be debated because the requirement for wide participation will always be difficult to meet. The United States and EU sanctions were on the Russian state energy, arms and finances. Russian state banks have been excluded from raising long-term loans in the EU, exports of dual-use equipment for military use in Russia are banned, future EU-Russia arms deals are banned and the EU will not export a wide range of oil industry technology. The three major state oil firms targeted are Rosneft, Transneft and Gazprom Neft, the oil unit of gas giant Gazprom, or Lukoil among others.

Sanctions often affect people of the offending state more than its government. In the midst of sanctions imposed on Russia, Western leaders do not want to treat Russia as an international pariah. The sanctions are not on President Vladimir Putin, because they would want to meet him to resolve issues of Iran and North Korea. Experts have strong views that economic sanctions can be thought of as the modern day equivalent to besieging a town to starve the people into submission. The US sanctions have affected the people, economy and companies of of Russia’s richest businessmen who are associates of Putin and have influence on Kremlin policies.

Sanctions also affect the citizens of the imposing states, who may not be able to obtain the goods they want or cannot sell their products. Russia is a big market for Western consumer goods. German exports to Russia are the highest in the EU. Germany gets more than 30 percent of its oil and gas from Russia. Italy is also highly dependent on Russian energy and some of Russia’s former Soviet bloc neighbours rely 100 percent on its gas deliveries. Possibly that is the reason sanctions have not been very effective.

Another thought that crude oil production is up and natural gas exports to Europe are increasing meant a declining oil reserves that needs further development. Experts say Russia would need as much of the oil and gas it now produces to markets as quickly as possible. With further development threatened for lack of requisite equipment and technology in Deep Ocean drilling, expert projection is that the spate of sanctions could hit Russia oil companies hard in the early 2020s excepting its pipeline projects like Nordstream 2 and Turkstream are completed.

The sanctions imposed on Russia’s energy sector may prevent it from access to equipment and technology for unconventional exploration and production of oil and gas exploration in deep water and in the offshore area north of the Arctic Circle. With President Donald Trump making global energy dominance his priority, joint oil production by deploying hydraulic fracturing with American companies in Russia’s offshore shale development may become a mirage.


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