Commentary
For every ruble allocated to social policy, health, and education in 2027, double that amount is earmarked for the army, the police, and the security services.
Alexandra Prokopenko
{
"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 Endowment for International Peace
- Who Is Funding Russia’s War in the 2027 Budget?
- The U.S. Has Weapons in Space. Now What?Commentary
The acknowledgment has sparked fears of a new arms race with China and Russia.
Chris O’Meara
- What Canada Knows About American PowerPaper
Smaller powers cannot go it alone, but Canadian history shows that integration with the United States will not always be benign.
Paul Samson
- Taking the Pulse: Can the EU Stare Down China on Trade?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.
- Trump Had the Chance to Address U.S.-China AI Safety. He Threw Xi a Party Instead.Commentary
The summit may be remembered as a fatal blunder, when Washington, Beijing, and the AI industry collectively chose ceremony over action.
Jeffrey Prescott
