FOCUS: US aims new sanctions at Russian energy (and Iran's too?)
| DOI | http://doi.org/10.1111/oet.12493 |
| Date | 01 August 2017 |
| Published date | 01 August 2017 |
FOCUS
US aims new sanctions at Russian energy (and Iran’s too?)
For a number of years the EU,in alliance with the US, has
beentryingtoreduceitsrelianceonRussiaforitsenergy.
Last year, Russia accounted for 36% of Europe’s imports
of crude oil and 44% of its rened product imports. In
thesameyear,itprovided40%ofEuropeanimportsof
pipeline gas and 35% of its total gas imports. In 2014,
the EU began to impose a range of s anctions as a protest
against Russia’s involvement in Ukraine aer Ukraine’s
pro-Russian government was overthrown and replaced
byonesupportingtheEU.esanctionsdidnottar-
get the trade in oil and gas directly, but they did impose
restrictions on providing nance for energy projects in
Russia. e US meanwhile stopped US companies tak-
ing part in a number of upstre am ventures in Russia and
imposed controls on the provision of nance and tech-
nology to energy projects there.
e idea in cases of both the US and the EU was to
damage the Russian economy by rest ricting its ability
to export its oil and gas. e US has very little energy
trade with Russia , and what little it does have has hardly
changed since 2013, the last full year before sanctions
over Ukraine began. e main impact on Russia’s energ y
trade was therefore expected to be on its exports to
Europe. In particular, sanctions were seen as helping
Europe to reduce its dep endence on Russia for its oil and
gas. In 2013, Russia supplied38% of Europe’s oil imports;
last year, however, it was still 38%.
New, tougher sanctions
In the absence of any real short-term damage to Russia’s
energy trade, the US Congress voted in July for a new
and much tougher package of sanctions on Russia and
its energy industries. ese new measures include ban-
ning US rms from investing in Arctic and deep-water
energy projects and shale oil schemes where Russian
companies have a shareholding of 33% or more, or
have a controlling stake. e bill also allows the US
President to impose sanct ions on companies involved in
the nancing or building of pipelines designed to export
Russian oi l and gas.
e new US measures have far more potential impact
onEuropeandEuropeanrmsthantheydoontheUS
and its companies, and Europe’s political leaders have
raised protests against the Congressional bill. One large
European project in the ring-line is the proposal for
a 5.3 bn cfd gas pipeline called Nord Stream 2, which is
designed to carry Russian gas directly to Germany under
the Baltic Sea, and there is an implied threat to other
pipelines that are intended to supply Southern Europe
with gas from Russia.
It is clear from speeches made in Congress in sup-
port of the sanctions bill that the US has an ulterior
motive for wanting Europe to reduce the volume of gas
it imports from Russia. US production of natural gas
has risen sharply in recent years. In the decade to 2016,
for example it increased by nearly 40%, from 52.8 to
72.5 bn cfd, largely than ks to the production of shale gas.
is has helped to pro duce a surplus of gas i n parts of
the US which has, in turn,driven down domestic whole-
sale prices. US gas prices averaged $2.46 permn BTU in
2016, compared with a UK average of $4.69 and Ger-
many’s $4.93 per mn BTU [1].
US gas producers see the remedy for their low price
as lying in exports. Pipeline exports are restricted to
Canada and Mexico, wheregas prices are also low, which
leaves liqueed natural gas (LNG) as the only other
option: butoversupplied LNG markets mean that further
US exports ofLNG will almost certainly haveto be at the
expense of other gas exporters. It should also be noted
that Iran has ambitious plans to expor t LNG in the near
future,andit,too,hasbeenaddedtothelistofcountries
to be sanctioned under the bill just passed by Congress.
Both Russia and Iran are exporters of oil as well. e
US imports no oil from Iran; but does import both
crudeoilandrenedproductsfromRussia.ExistingUS
sanctions have had little eect on these since they were
imposed in 2014. US imports of Russian crude actually
rose between 2013 and 2016, from 45,000 to 88,000 bpd.
Russian product exports to the US fell over the same
period, but this was largely the result of a rise of nearly
900,000 bpd in US renery throughput rather than as a
reaction to sanctions. Crude and products together fell
by only 24,000 bpd, or 5%, b etween 2013 and 2016.
e EU Commission has expressed concern that EU
rms could be targeted by the proposed new US sanc-
tions, for example for helping to nance Russian energy
projects such as gas pipelines, and has suddenly become
solicitous about the EU’s energy security in the event
that one or more Russian gas exp ort pipelines might not
be built as a result of US sanctions (having up to now
declared that the EU was too dependent on Russia for
itsgas).Russiahasjoinedinthechorusaboutdelaysto
pipeline projects but is also pursuing a long-term aim of
future energy schemes eastwards rather than westwards.
Legacy projects
Russia still has projects on the drawing board that are
a legacy of its original trade focus on Europe. It is an
important supplier of both oil and gas. Oil exports go
viaanexportpipelinesystemthatwasestablishedinthe
Soviet era as par t of the Council for Mutual E conomic
Assistance (CMEA, or Comecon), which was set-up in
1949 as a trading bloc consisting of the USSR and its
© 2017 John Wiley& Sons Ltd
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