U.S. Sanctions on Russia less than expected

CONNOR BURKE
BUSINESS CORRESPONDENT

The sanctions against Russians were less than expected, sending oil and gas companies scrambling.

The U.S. and Europe issued a new round of sanctions Tuesday in an effort to pressure Russia to cease their ever-increasing military activity in Ukraine. The Wall Street Journal reports that the U.S. has imposed asset freezes and travel bans against seven Russian government officials and businessmen as well as 17 Russian companies. Restrictions on high-technology trade with Russia that could benefit its defense companies were also announced. The European Union followed suit, blacklisting 15 Russian and Ukrainian businessmen. In a CNN report, the EU stated that the 15 blacklisted individuals “undermine or threaten the territorial integrity, sovereignty and independence of Ukraine,” however, the sanctions were not as harsh as anticipated and Russian stocks rallied in response. Sanctions largely avoided Russia’s largest industries of energy, banking and the military, due to a fear of economic spillover into Europe, where there is heavy dependence on Russia’s oil and gas. The Obama administration did warn that further diplomatic and economic sanctions to broader sectors such as banking, with or without the support of Europe, could be enacted if Russia’s destabilizing influence in Ukraine continues. EU Foreign Policy Chief, Catherine Ashton echoed this sentiment, saying that if necessary, the EU “will look at possible additional individual measures,” according to CNN.

One of the seven people facing sanctions from the U.S. is Igor Sechin, the head of state-controlled oil giant Rosneft. Oil company BP plc is left particularly exposed, as it owns a 19.75 percent stake in the company. The company accordingly saw its stock fall one percent on Monday in anticipation of Tuesday’s sanctions against Rosneft. BP reiterated their commitment to Russia as a long-term investment but they will face a very delicate situation as they seek to work within the limits of the economic sanctions imposed on Russia.

However, BP is not the only energy company invested in Russia. Exxon Mobile Corporation signed a deal in 2011 with Rosneft to hunt for oil in Russia’s Arctic seas and shale in western Siberia, a deal that has the potential to become very profitable for both sides. Royal Dutch Shell PLC is another company vulnerable to Russian sanctions, as it has a small stake in a joint venture with Rosneft on an oil pipeline. The Wall Street Journal also named trading giants Xstrata PLC, Vitol Group and Trafigura Beheer BV as having exposure to Rosneft via long-term oil supply deals. Investors in Russian oil and gas should be weary if Russia further escalates the situation in Eastern Ukraine, because the U.S. and Europe have made it clear that sanctions to Russia’s massive energy sector remain a possibility.

Contact the writer:
connor.burke@scranton.edu

Leave a Reply

Your email address will not be published. Required fields are marked *