THE OIL FACTOR I/ RUSSIA: SANCTIONS AS A LETHAL WEAPON AGAINST RUSSIA …

EODE/ 2016 08 21/

GEOPOLITICS/ with Forbes/

 « Getting teach by the enemy is a duty and an honor »

– General Haushofer, German geopolitician

(father of the concept of « continental Bloc »).

 * Russia is one of two major oil producing countries to have felt the brunt of Western economic sanctions.

* How long will sanctions remain in place?

That depends on who you ask and on Russia’s future geopolitical developments …

Russia is one of two major oil producing countries to have felt the brunt of Western economic sanctions. Iran, who suffered for years under Western sanctions due to Tehran’s nuclear ambitions, emerged from sanctions in January, but not unscathed. Years of crippling sanctions took a toll on the Islamic Republic’s finances, a situation that the country is still trying to recover from as it continues to ramp up oil production in an effort to reach pre-sanction output levels of 4 million barrels per day (bpd).

PRESS REVIEW/ FORBES:

PROLONGED SANCTIONS RIP INTO RUSSIA, CAUSING ANGST FOR PUTIN

Excerpts :

“As Iran continues to increase oil production, it is effectively playing the role of spoiler in global oil markets awash in supply amid a price plunge that has changed the global oil industry. However, Iran’s sanction problems are quickly fading while Russia’s have no end in sight. Since Russia’s annexation of Crimea in March, 2014, the U.S. and EU have also leveled sanctions against Russia several times, tightening restrictions on major Russian state banks and corporations, including blacklisting dozens of Russian officials and firms, including energy firms. Three major state oil firms have been targeted: Rosneft , Transneft and Gazprom Neft, the oil unit of gas giant Gazprom.

Russian banks and Gazprom’s ability to secure long term funding in U.S. dollars were also blocked. The U.S. and EU also banned exports of services and technology to Russian state oil firms engaged in Arctic and deep-water and unconventional oil and gas exploration and production.

SANCTIONS STILL HITTING RUSSIAN ENERGY PROJECTS

Sanctions have hit Russian energy companies hard, especially its longer term projects. In late April, independent Russian energy companies Lukoil and Novatek , told attendees at the annual IHS CERAWeek energy conference in Houston that they were feeling the sting of the sanctions. “We feel the impact of sanctions, but we need some time for Russia and the industry to adjust,” said Lukoil CEO and founder Vagit Alekperov. One Novatek project, the massive $27 billion Yamal LNG project to be built in the Russian Arctic, has suffered considerable setbacks. Prohibited from securing financing in U.S. dollars, it scrambled for at least  a year in search of funds and finally turned to Chinese banks, which are more expensive and less flexible than Western funding.

Moreover, when Russia’s oil production starts to decline, new oil discoveries will be needed while lack of access to Western technology for offshore drilling will have repercussions for Russia’s oil industry for years to come. Unable to replace  declining production, Moscow’s’ state coffers will also decline. As much as half of the offshore and fracking technology used by Russia comes from the West.

LOW OIL PRICES ALSO TAKE A BITE

Oil prices, which have tumbled from $107 per barrel in July 2014 to the mid to high $40s level now, have also caused considerably angst in Russia. Around half of Moscow’s state revenue is derived from oil and natural gas exports, though Moscow claims a much lower figure. Budget problems from low oil prices have also caused Moscow to try selling large stakes in its state-controlled energy companies. In late June, Russian media reported that the Russian government was considering selling 19.5 % of its shares ($10 billion) in oil major Rosneft to China and India.  Last week, however, Russia was forced to delay its privatization of Rosneft as it waits for oil prices to improve.

Russia’s oil exports have been helped to some degree by the massive devaluation of the Russia ruble, whose 20% loss against the dollar last year was added to a nosedive of 44% the previous year. Though a weak currency hurts Moscow, it makes Russian oil exports cheaper. In late June, Russian President Vladimir Putin tried to persuade the EU to not renew sanctions, but to no avail. A week later, the EU extended sanctions in connection with the ongoing conflict in eastern Ukraine. They are in effect until January 31, 2017, then will be reviewed again.

Now the question is: just  how long will sanctions remain in place? That depends on who you ask and on Russia’s future geopolitical developments and finally, how the West continues to respond. On Tuesday, Chris Weafer, a senior partner at economic and political analysis firm Macro-Advisory, told CNBC that “Crimea-related sanctions will stay indefinitely because clearly Crimea is not going to go back (to Ukraine) as far as the Russians are concerned”.”

* See on FORBES:

Prolonged Sanctions Rip Into Russia, Causing Angst For Putin

http://www.forbes.com/sites/timdaiss/2016/08/19/prolonged-sanctions-rip-into-russia-causing-angst-for-putin/#3c5c8144c2f6

EODE / GEOPOLITICS

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