Disquiet On The Russian Front

In August, when last we visited the Russian Front in export control news, we noted that recent US and EU sanctions – as evidenced by Rosneft’s having to ask Vladimir Putin for a $42 billion bailout – had effectively halted long-term Western investment in Russia’s efforts to develop deepwater and Arctic shelf oil reserves to offset declines in the productivity of Russia’s online fields.

Among a number of significant September developments on the Russian Front, the Commerce Department’s Bureau of Industry and Security added five Russian energy companies – including Rozneft, Gazprom and Lukoil – to BIS’s “Entity License”.  This means that US persons, including US-based multi-national oil companies, may no longer transfer items that are “subject to the Export Administration Regulations” or related services to any of those Russian companies for use in development of deepwater/Arctic  reserves without a BIS license, which BIS presumptively will deny.

In turn, this appears to mean that US companies like Exxon – perhaps especially Exxon – must now shut down their developmental drilling operations in Russia.  I say “especially Exxon” because, just last month, Exxon – in partnership with Rosneft – began drilling an exploratory well in the Kara Sea, a beautiful but forbidding environment to the north and east of Finland.

This development is reportedly a pet project of Putin, himself, which may be why American officials have been quoted as saying, anonymously of course, that our government’s intention here is, indeed, to shut down Exxon’s operations in the Kara Sea.  If so, one commentator is probably right in observing that this “will infuriate the Kremlin.”

Of course, the Obama Administration’s apparent willingness to infuriate Exxon is also notable.  Perhaps this president isn’t quite as weak-kneed as he sometimes seems.  Obama also deserves props, comparatively at least, because contemporaneous European Union sanctions, purportedly to the same effect, do not apply to contracts entered into prior to September 14, 2014.  By contrast, Obama has given Exxon et al. fourteen days to wind down their Russian operations.

Of course, these sanctions will not hurt Russia much in the short term, because developments like the Kara Sea are unlikely in the best of circumstances to generate significant revenues for ten to twenty years.  But Russia’s economy is already in fairly steep recession.  So current sanctions must be forcing Russian policy savants to wonder whether adventures in Ukraine are unduly mortgaging the country’s oil-and-gas-dependent future.

An additional irony:  Arctic ice melt – caused by the global warming that is caused in turn by our global reliance on fossil fuels – is the sine qua non that makes it feasible, for the first time, for countries like Russia and companies like Exxon even to consider drilling in places like the Kara Sea.  When will we ever learn?





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