Yesterday, the U.S. Treasury issued increased sanctions against Russia. These newest sanctions target three banks: Bank of Moscow, Russian Agricultural Bank, and VTB Bank OAO. Additionally, the European Union will issue additional sanctions this week that will cut off financing, stop the exporting of some goods, and halt the export of specific military technologies.
While the sanctions may not seem immediately harsh or shocking — as they quite carefully avoid striking into Russia's gas sector — they do put the oil sector in a predicament. Because certain technologies can no longer be exported, offshore and deep sea drilling will be affected. This specifically targets the state-owned oil giant Rosneft, which is currently engaged in an oil deal with ExxonMobil in the Arctic Sea, that could potentially generate 9 billion barrels.
Still, Rosneft officials seem surprising calm and collected in the face of these sanctions. Their leader, CEO Igor Sechin, was already personally sanctioned, though this did not affect Rosneft's ability to do business in the United States. Yet Rosneft's chairman of the board Alexander Nekipelov has told the press he believes business will continue as usual with ExxonMobil. Exxon is the crown jewel of oil in the U.S., and has had close ties with Kremlin in the past. (That's CEO Rex Tillerson, pictured above with Sechin and Vladimir Putin in 2012.)
"Exxon relations with Rosneft are a deep cooperation designed for decades. However, if the US adopts legal measures, Exxon might be forced to stop or suspend cooperation or sharply restrict it," explained Nekipelov. Even more boldly, he said, "As far as we know, Exxon does not have plans to stop cooperation with Rosneft, and we hope the situation will not go that far."
The Wire reached out to ExxonMobil to confirm this sentiment. However, Exxon had little to say, replying only, "We don’t have any comment on the media reports. We are assessing the impact of the sanctions."
While the sanctions are certainly more harsh than we have seen in the past, Nekipelov believes they still cannot effectively halt the oil sector in Russia. "The sector is strong enough and will overcome the difficulties. Sanctions do not mean an immediate stop in any processes, the work will go on."
Oil prices were up only slightly on Wednesday morning. Nymex WTI crude oil futures were up just under 0.5 percent, or 49 cents, to $101.45 per barrel. Analysts at Commerzbank offered one explanation for the tiny jump, "There is very little chance of Russia responding to the West’s sanctions by curbing its oil shipments since the country is too heavily reliant on the revenues generated by the oil export business."
We could see oil jump a bit higher, but not just because of deceased shipments. Because the sanctions also target long term investments, this lack of investment could also affect prices, pushing them up over time.
This article is from the archive of our partner The Wire.