Despite sanctions, ExxonMobil (XOM) starts drilling in Russia. Putin cheers.

Russian president calls ExxonMobil a 'model of cooperation' for its partnership with Rosneft in the face of Western sanctions against the Russian oil company. The energy giants are drilling Russia's first well in the arctic Kara Sea, an area with huge reserves of oil and gas.

Alexei Druzhinin/Presidential Press Service/RIA-Novosti/AP
Russian President Vladimir Putin watches a video-bridge with Rosneft CEO Igor Sechin and Glenn Waller, ExxonMobil's lead manager in Russia Saturday, Aug. 9, 2014. US oil giant Exxon Mobil began drilling for oil in Russia's Arctic on Saturday.

U.S. oil giant ExxonMobil began drilling in Russia's Arctic on Saturday, despite Western sanctions imposed on its Russian partner Rosneft, and was hailed by Russia's president as an model of "cooperation".

Although U.S. sanctions over the crisis in Ukraine are not designed to halt joint projects by Russian and U.S. companies, they nevertheless aim to starve Rosneft of dollar financing and ban access to modern technology.

"Today, commercial success is driven by efficient international cooperation," Vladimir Putin told Rosneft CEO Igor Sechin and Glenn Waller, ExxonMobil's lead manager in Russia, on a videoconference call from his Black Sea residence in Sochi.

"Businesses, including Russian and foreign companies, perfectly realize that and despite certain current political difficulties, pragmatism and common sense prevail, and we are pleased to hear that," he said.

Exxon brought a rig from Norway to drill Russia's first well in the Kara Sea and its move will be seen as a vote of confidence in Rosneft, run by a close ally of Putin's, Igor Sechin, who has also had sanctions imposed on him by Washington.

"We of course welcome this approach (to cooperate) and are from our side are open to expand our cooperation," Putin said.

"I am convinced that the joint projects between Rosneft, Exxon Mobil and other companies will benefit our national economies, will contribute to strengthening the global energy situation," he said.

Waller, who spoke Russian, said the company was keen to keep working in Russia.

"Our cooperation is a long-term one," he said. "We see big benefits here and are ready to work here with your agreement."

The United States and the European Union have introduced sanctions, from asset freezes and visa bans for businessmen and officials thought close to Putin, to limits on access to Western capital for Russian state banks over what Western powers say is Moscow's role in the Ukraine crisis.

Moscow has responded by banning food imports from the United States, European Union, Australia,Canada and Norway, with Prime Minister Dmitry Medvedev threatening further counter-sanctions if the West presses ahead with more penalties. 

As reported last month by the Monitor's David Unger, the West's current sanctions don't hit Russia's current oil and gas production, which could limit Russian exports to Europe

Russia, after all, produces about 30 percent of the natural gas Europe burns to run its power plants and heat its homes. The country’s state-run oil company, Rosneft, accounts for more than 4 percent of the world’s oil, at a time when violence in Iraq, Libya, and elsewhere threaten global supply.

It’s why this week’s energy sanctions largely sidestep Russia’s current oil and gas output, opting instead to limit energy technology critical to its future.  

“The intention of the oil technology licensing restrictions is not to affect current oil production or Russian sales right now, but it does have and will have a cumulative impact on development of future fields, particularly the exotic fields -- Arctic, deep sea, and shale,” A senior administration official said in a White House background briefing Tuesday. “And the impact of these restrictions will grow over time.”  

Advanced extraction techniques like hydraulic fracturing, horizontal drilling, and ultra-deepwater exploration have unlocked new sources of oil and gas in the US. Russia has made progress on doing the same in Siberia and the Arctic, but it relies on Western firms like BP and ExxonMobil for technology and expertise. This week’s sanctions aim to cut off that transfer of knowledge.  

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