In a move that has drawn criticism from the White House and the international community, Exxon Mobil Corp. and BP — two of the world’s largest petroleum companies — have separately signed agreements to strengthen their ties with Rosneft, the Russian state-owned oil company. Both agreements were made despite the American and European sanctions imposed on Russia and on Rosneft CEO Igor Sechin.
This situation underlines a key consideration in the debate about sanctions against Russia: Europe is starved for energy and Russia sits on a major concentration of natural gas and oil.
In April, the United States froze the American-held assets of seven Russian individuals — Oleg Belavencev, Russian envoy to Crimea; Sergey Chemezov, director general of Rostec; Russian Deputy Prime Minister Dmitry Kozak; Evgeniy Murov, a Russian Army general; Chairman of the State Duma Committee on International Affairs Aleksei Pushkov; Sechin, Rosneft CEO; and Vyacheslav Volodin, first deputy chief of staff of the presidential executive office — and instituted restrictions on exports to Russia that could expand or improve Russian military capabilities.
The U.S. also prohibited American dealings with 17 companies associated with the targeted individuals, but Rosneft was not included on this list.
While the Russian responses to the sanctions have ranged from mild amusement to threats of reciprocation, the effectiveness of the sanctions is up for debate. While many U.S. politicians have said the restrictions did not go far enough, the European Union — which is dependent on Russian energy — has indicated that it will delay implementation of further sanctions against Russia in light of Moscow indicating that it is ready to cooperate with Petro Poroshenko, the Ukrainian assumed president-elect.
So far, the EU has established sanctions against 83 individuals and two companies. The leaders of the European Commission have indicated that they would impose a third round of sanctions against Russia should the Kremlin interfere with the Ukrainian election.
The Western sanctions have put the oil giants in an uncomfortable situation. BP, for example, owns 19.7 percent of Rosneft, making a complete severance of ties impossible. Additionally, as Russia’s shale and remote oil formations in the Arctic and Siberia are being explored and developed, the economic incentives for Western oil companies to stay out of Russia are rapidly growing weaker. A number of oil companies — Total, Lukoil, Statoil, Royal Dutch Shell, BP and Exxon Mobil — have moved to secure Russian oil contracts prior to the September deadline for Russian tax breaks for “difficult oil” projects.
At last week’s St. Petersburg International Economic Forum — where many energy contracts, including the $300 million contract between BP and Rosneft, were signed — Russian President Vladimir Putin emphasized the importance of Western companies continuing to invest in Russian energy.
Putin called on the energy leaders to “move to new areas, often hard to access, or increase production at old fields … and develop reserves that were traditionally considered economically less efficient and hard to reach.”
“The challenges in the energy sector are clearly of global nature, and we can only meet them together, by means of co-operation. It is important that this is exactly what the major companies are doing,” he continued.
Meanwhile, Rosneft is an active petroleum processor in the U.S. As of August 2011, Rosneft and Exxon Mobil have partnered to look for oil on the Arctic shelf in the Kara Sea. In exchange for Exxon Mobil’s participation in the project, Rosneft has been granted access to and participation in Exxon Mobil oil fields in Texas and the Gulf of Mexico.
The sanctions against Russia were introduced in protest of Russia’s seizing of the Crimean Peninsula and its military presence in Eastern Ukraine following the deposition of Russian-supporting Ukrainian President Viktor Yanukovych after the Euromaidan protests.
Russia maintains that Western Ukraine’s position of moving toward the policies and support of the EU and NATO would destabilize the regional political and economic ecosystem and politically isolate Russian-speaking Ukrainians. Russia also asserts that the Euromaidan protests were triggered by Western interference and through undue pressure from Washington and Brussels.
Washington has not yet released an official response to the Western oil companies continuing to do business with the Kremlin, but one oil executive that attended the conference in St. Petersburg said the White House had “given us a really hard time” about attending.