Russia’s High Risk Global Oil Strategy, by Vanand Meliksetian

Russian oil companies are rushing in where western oil companies fear to tread. From Vanand Meliksetian at oilprice.com:

The energy industry is highly sensitive to U.S. sanctions due to the petrodollar being the single most important currency in global trade. Washington is able to exert significant influence by limiting access to the dollar through its financial institutions. Russia is especially exposed to Washington’s ire as a significant part of its governments’ coffers are filled by revenues from its oil and gas sector. In recent years, Russian companies have been increasing their activities in several unstable countries where the U.S. has imposed sanctions. This tactic from Russia comes with huge opportunities but also a significant amount of risk.

The level of this risk is illustrated by the absence of western oil companies in these areas as they are accountable to their shareholders. Privately held companies also struggle to operate in these areas due to their reliance on international financial markets and the difficulty with carrying out due diligence. Venezuela and Iran are prime examples of oil rich areas that are struggling under U.S. sanctions.

At the same time, absence of many major western oil companies in unstable regions is one of the reasons why Russian companies, both majority state-owned and privately held organizations, have got involved. Limited competition strengthens the position of Russian firms during negotiations. The host countries face a predicament in many cases as they have to choose between a bad deal or no deal at all.

A prime example of this is Moscow’s involvement in Iran, which has been ongoing for years. Even during the years of sanctions due to Tehran’s nuclear program, Russia was able to strike a barter deal where Iranian oil was exchanged for other products. This deal bypassed the international financial system and sanctions. Even now when the U.S. has unilaterally withdrawn from the Iran Nuclear Deal and is about to reinstate sanctions, Moscow and Iran are intensifying cooperation.

Days before the Helsinki summit and the meeting of Presidents Putin and Trump, Iranian officials struck a deal in Moscow for an investment of $50 billion in the oil and gas sector. While western firms are reluctant to continue doing business in Iran, let alone increase cooperation, Russian firms are seizing the opportunity to boost their portfolio with even more Middle Eastern assets.

To continue reading: Russia’s High Risk Global Oil Strategy

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