Energy Diplomacy

Sanctions Won’t Change Russia, Good Business Deals Will

  • Why it matters

    Why it matters

    At a time when political mistrust is being sown on all sides, every step toward rapprochement is important.

  • Facts

    Facts

    • ExxonMobil recently forged a billion-dollar deal with Russia’s Rosneft.
    • Rosneft’s chairman Igor Sechin is a close political ally of Russian President Vladimir Putin.
    • The BASF subsidiary Wintershall is collaborating with Russian natural gas giant Gazprom.
  • Audio

    Audio

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Workers walking at the Rosneft Achinsk oil refinery in Siberia. Source: Reuters
Workers walking at the Rosneft Achinsk oil refinery in Siberia. Source: Reuters

 

The oil industry has had some very bad experiences with sanctions. Long-time players in the sector remain painfully aware of the consequences of a 1973 embargo launched by the Organization of the Petroleum Exporting Countries (OPEC) against its own customers. Oil prices exploded and triggered a global recession – the first since the end of the Second World War – as the use of oil as a political weapon ignited an economic wildfire.

OPEC learned its lesson, but what about the United States and the European Union?

Despite the horrible historical precedent created by the oil embargo 40 years ago, agitators on both sides of the Atlantic Ocean are demanding even tougher sanctions against the energy giant Russia in the wake of its aggressive actions in eastern Ukraine. The reckless have prevailed, particularly in the United States, where attack, intervene or isolate have been part of the American foreign policy arsenal for many years, even at the cost to its own economy.

Yet against this backdrop, American oil giant ExxonMobil is making a high profile political statement by joining with Russian oil giant Rosneft to build a billion-dollar oil platform project in the Arctic, a deal which took on an even more political dimension when Russian President Vladimir Putin officially opened construction via a video link. Mr. Putin was clearly demonstrating that economic pragmatism – at least in the energy sector – had priority in the Kremlin despite the conflicts raging in the Ukraine.

ExxonMobil has made it clear that it will continue to work with oil and natural gas producers in Russia, which it affirmed during the 21st World Petroleum Congress in Moscow in June. The U.S. company and Rosneft already are working together off the East Russian island of Sakhalin. ExxonMobil’s actions are a poke in the eye to the sanction policies favored in Washington. Igor Sechin, executive chairman of Rosneft and a close political ally of Mr. Putin, has even been placed on the sanctions list by U.S. President Barack Obama.

The growing cooperation between the two companies as seen by the new Arctic project illustrates ExxonMobil’s open defiance to American foreign policy.

This opposition is important. People engaging in good business don’t shoot at each other.

The West should not try to isolate Russia, but should instead emulate ExxonMobil.

Washington has succumbed to the fallacy that boycotts will force Moscow to ease tensions in the Ukraine crisis. Yet the ineffectiveness of such methods should be well known by Americans from the bad old days of the Cold War. Consider the boycott of the 1980 Olympic Games in Moscow. The United States and a large number of Western nations including West Germany boycotted the games to punish the then Soviet Union both economically and politically for its invasion of Afghanistan, but in the final analysis, the boycott helped only the hardliners in Moscow.

The West should not try to isolate Russia, but should instead emulate ExxonMobil. Russia is extremely dependent on the billions generated by the sale of oil and natural gas to the West. Europe urgently needs the oil deliveries if it doesn’t want to freeze next winter.

At a time when political mistrust is being sown on all sides, every step toward rapprochement is important. For example, the BASF subsidiary Wintershall Holding is collaborating with Russian natural gas giant Gazprom in building the South Stream gas pipeline through the Black Sea. And the Vienna-based oil technology company CAToil confirmed in its forecast Monday that it does not consider itself affected by the E.U. sanctions and will continue working closely with and investing in its close relationship with Russia despite heavier penalties passed in July.

The U.S. government has no problem with its sanctions policies. America has gone from being an energy importer to an energy exporter, thanks to the environmentally controversial but economically important shale gas and oil excavation. Lower energy prices have resulted in an unprecedented reindustrialization of the country. From this strong position, it’s easy for Washington to seek conflict with Moscow.

But that does not make U.S. actions correct. ExxonMobil is showing a better way forward.

The author is Handelsblatt’s correspondent in Vienna. He can be reached at siebenhaar@handelsblatt.com

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