Undeterred by a new round of Western sanctions on Russia over Ukraine early this week, the world's leading energy firms are moving ahead with major oil and gas projects in Russia. EU and US sanctions targeting individuals and ancillary companies have given American and European firms little reason to change course on ventures that could yield billions in new resource flows, largely in Russia's coveted Arctic region.
Moscow, in turn, has little reason to react. With the continued backing of BP, ExxonMobil, Royal Dutch Shell, and others, the Kremlin can feel better about its economic outlook. It's why some in Washington and Brussels have called for more aggressive measures that target entire energy companies, or even the industry as a whole, which makes up about half of the Russian government's revenues.
The White House continues to threaten broader sanctions, but has opted for an incrementalist approach, hoping to resolve a tense situation without resorting to drastic measures. A wholesale end to energy trade between Russia and the West would devastate Russia's economy and boomerang back on a global business community just beginning to emerge from the 2008 Great Recession. It would also eliminate much of the economic interdependency that has kept both sides from ratcheting up tensions even further.
"[W]e have at our disposal additional, even more powerful sanctions, including the ability for the Secretary of the Treasury to identify for sanctions certain sectors of the Russian economy, such as financial services or energy, and to sanction individuals and entities determined to operate in those sectors," a senior administration official said in a background briefing on Ukraine Monday. "We have not yet done so, and our preference is for the Russians to abide by their commitments in the Geneva agreement and deescalate the situation. But no one should forget that the President has put in place a sanctions program that gives us these tools."
Washington fired its sternest warning shot yet Monday by including Igor Sechin, head of Russia's state-owned oil giant Rosneft, as part of the expanded sanctions. That could mean trouble for BP, which has a 19.75 percent stake in Rosneft. The sanctions won't limit business deals between the two companies, but it could curtail direct interactions between Mr. Sechin and BP's American chief executive Bob Dudley. The British energy firm appeared unfazed by the news.
"Our commitment to Rosneft is a long-term one," Mr. Dudley told investors Tuesday during a presentation on BP's first-quarter report. "Our relationship continues to grow and we believe that it will have significant benefits for both Rosneft and BP."
Shares of BP stock were up nearly 3 percent to $50.51 on the New York Stock Exchange midday Tuesday. BP’s share of Rosneft oil and gas production made up nearly a third of BP's total oil and gas production in the first three months of 2014. Last year, BP's share of Rosneft profits was $2.8 billion.
BP isn't the only Western energy company with ties to Rosneft. On Monday, Rosneft's board of directors approved the development of two oil fields on the Arctic shelf jointly with US oil giant ExxonMobil. It's part of a broader effort to tap Russian Arctic formations large enough to contain more than 9 billion barrels, according to Bloomberg, valued at more than $900 billion at today’s prices.
Netherlands-based Royal Dutch Shell has a 27.5 percent stake in a major liquefied natural gas (LNG) plant majority owned by Russia's state-controlled gas company Gazprom. In February, the two companies agreed to a plan for expanding the LNG plant, which increases Russia's access to growing Asian markets. Earlier this month, Shell chief Ben van Beurden assured Russian President Vladimir Putin the first round of sanctions had not affected the company's plans to expand in Russia.
"We are very keen to grow our position in the Russian Federation," Mr. van Beurden said, as reported by Reuters. "We look forward with anticipation and confidence on a very long-term future here in Russia."