Commentary
The European Commissioner for Trade is headed to China. But after President Xi’s bridge-building visit to Washington, can a more isolated EU overcome Beijing’s stranglehold on critical raw materials? Who will blink first?
Rym Momtaz, ed.
{
"authors": [
"Mikhail Krutikhin"
],
"type": "commentary",
"centerAffiliationAll": "",
"centers": [
"Carnegie Endowment for International Peace",
"Carnegie Russia Eurasia Center"
],
"collections": [],
"englishNewsletterAll": "",
"nonEnglishNewsletterAll": "",
"primaryCenter": "Carnegie Russia Eurasia Center",
"programAffiliation": "",
"programs": [],
"projects": [],
"regions": [
"Russia"
],
"topics": [
"Economy",
"Trade",
"Climate Change",
"Foreign Policy"
]
}
Source: Getty
Commentary
A Mixed Blessing?
The effect of the new sanctions on the Russian oil and gas industry might be very sensitive while at the same time saving large sums of money on projects with impossibly long payback prospects. Either way, Western governments are now doing basically what the Russian leader always wanted, staying away from Russia’s oil and gas.
By Mikhail Krutikhin
Published on Jul 31, 2014
The effect of the new sanctions on the Russian oil and gas industry might be very sensitive. Limited access to advanced technologies will impede or derail Russian projects of developing reserves on the continental shelf—particularly in Arctic seas. Domestic companies have not mastered such technologies and have next to no experience in offshore upstream ventures.
Many of these technologies cannot be replicated by the Russians, even though many government officials keep saying the national industries can be upgraded quickly to get on without any foreign assistance.
Partnerships may fall apart if the sanctions are imposed fully. Rosneft, for example, will be unable to build its LNG plant on Sakhalin Island and explore reserves in the Kara and Black Seas without the assistance of ExxonMobil. There will be awkward moments for such partners of Russian government-controlled companies as Shell, Statoil and Total as they begin closing down their offices in Russia.
The most powerful blow will be dealt to Russia’s expensive projects by the impossibility to borrow foreign cash on a long-term basis.
For Gazprom, it could be a mixed blessing. If the company cannot raise funds to finance its politicized and commercially non-viable projects, it might be told by the Kremlin to drop the ideas of building the Power of Siberia pipeline or the LNG plant in Vladivostok. Huge amounts of money would be saved for the national economy rather than wasted on projects with impossibly long payback prospects.
Unfortunately, this is probably but a dream. The Russian leadership has never stopped at such trifles and launched uneconomical projects regardless of their negative value just to make ‘friendly’ contractors happy. In this case, the missing funds would be taken from social programs—or taxes would be raised, or…
Paradoxically, the decision of the Western governments to restrict their companies’ participation in the Russian oil and gas industry, and prevent banks from lending money to Gazprom or Rosneft, is essentially a continuation of a process launched by Vladimir Putin in 2008. It was the Russian president who initiated a series of xenophobic bills that restricted international companies’ access to mineral licenses, large-scale projects and any form of equality with domestic players in this business. It was a very heavy blow on the industry. Today, Western governments are doing basically what the Russian leader wanted them to do, staying away from Russia’s oil and gas.
Mikhail Krutikhin is a partner at the independent RusEnergy consulting agency.
About the Author
Mikhail Krutikhin
Carnegie does not take institutional positions on public policy issues; the views represented herein are those of the author(s) and do not necessarily reflect the views of Carnegie, its staff, or its trustees.
More Work from Carnegie Europe
- Taking the Pulse: Can the EU Stare Down China on Trade?
- Separable, not Separate: Governing Europe’s Collective DefenseArticle
European NATO countries are wrestling with the possibility of U.S. disengagement from the alliance. With the continent’s security increasingly uncertain, governments must restore the credibility of their collective defense.
Hans-Dieter Lucas, Adam Thomson, Pierre Vimont
- How Le Pen Benefits from the Stalemate in UkraineCommentary
The domestic impacts of how long it is taking to end the war in Ukraine have pushed the French electorate to the political extremes and compromised the country’s diplomatic capacity.
Rym Momtaz
- The Denmark-Greenland-U.S. Agreement Needs to Stand the Test of TimeCommentary
The new U.S.–Denmark–Greenland agreement will help Washington exert political, economic, and financial dominance under the guise of security. Yet, it acknowledged Copenhagen’s and Nuuk’s sovereignty on the island.
Marc Pierini
- A Black Sea Truce Is About Global Food Security, TooCommentary
A summer of escalation in the Black Sea has hurt Ukraine economically and is exacerbating world food security. A truce is needed—as is a broader reframing of Europe’s Ukraine strategy.
Thomas de Waal
