INCREDIBLE RUSSIA SANCTIONS
FT - For western officials looking for signs that Russia is struggling under the weight of US and EU sanctions, Exxon Mobil's admission this month that it is pulling out of a $500bn deal with the Kremlin's biggest oil company Rosneft is a welcome victory.
But it is an exception to the rule.
Since Washington, Brussels and a handful of other western allies began imposing sanctions on Russia in 2014 in response to Moscow's invasion and secession of Ukraine's Crimea peninsula, the country's most important industries have largely carried on unscathed.
Oil and gas production is growing and the economy is steady, in a blow to western governments that hoped a painful reaction would force the Kremlin to the negotiating table. It is a potential lesson to the UK government as it weighs further retaliation after blaming Moscow for the attempted murder, via a nerve agent, of former spy Sergei Skripal in a small English cathedral city.
"[To those who] introduced restrictions and sanctions that are illegal from the standpoint of international law aiming to restrain our nation's development . . . I will say this: everything you have tried to prevent through such a policy has already happened. No one has managed to restrain Russia," President Vladimir Putin said in his annual address to the country's top lawmakers and officials this month.
Targeted sanctions that restrict certain individuals from travelling or conducting business in the US have impeded business ties. But broader restrictions designed to cripple the country's oil, gas and defence industries by strangling their access to technology and finance have largely failed to live up to expectations.
Russia's oil production rose to a 30-year high last year of 10.98m barrels a day, while annual gas production hit its highest level ever. That is despite sanctions that directly target the energy industry, which accounts for about 40 per cent of Moscow's tax revenues.
"Resilience to the sanctions has been very high. Currently, we see no serious consequences," said Tatiana Mitrova, director of the Skolkovo Energy Centre in Moscow. "It came as a big surprise to many."
While some analysts have pointed to Russia's brief recession in 2015 and 2016 as proof of the sanctions' impact, that slowdown was driven mainly by the collapse in the oil price and commodity markets.
US sanctions legislation passed last year unnerved some investors and Moscow's elite, who saw potential curbs on foreign buyers of Russian debt or deeper restrictions for Russian banks as painful for businesses.
But the overwhelming majority of Russian executives say that they are carrying on as normal.
"Of course, as an illegal, unfair way of economic competition, we have learnt how to work in the right way [in response to sanctions], and we will learn how to work against such further decisions," said Alexei Likhachev, chief executive of Rosatom, Russia's state-controlled nuclear power monopoly.
There have been some victories for the west. Even though the Trump administration has not yet imposed any sanctions in line with the new US legislation, the US state department said last month that the passage of the new law had itself deterred "north of $3bn" worth of arms sales by Russian companies to third countries.
While some energy projects, such as Exxon and Rosneft's tie-up, have been abandoned, others, such as shale drilling projects in Siberia, have only been postponed.
Russia has found new ways, and new friends, to help it work around the sanctions regime. Cash from Chinese banks and investors has arrived to offset the withdrawal of European and US banks, while a deepening relationship with Saudi Arabia and its oil company Saudi Aramco is seen by Moscow as a way to continue developing technology for the energy industry that was previously supplied with US partners.
Yamal LNG, a flagship liquid natural gas project in the Arctic, was set for collapse after western banks withdrew in 2016, but was ultimately funded by $12bn of Chinese finance. This winter it began shipping its first cargoes, some of which went to the US and Britain.
In recent days Moscow has threatened to respond in kind if the UK moves to step up its sanctions regime.
Theresa May, the UK prime minister, announced the expulsion of 23 Russian diplomats on Wednesday but faced demands to do more.
"Any threat to take 'punitive' measures against Russia will meet with a response. The British side should be aware of that," the country's embassy in London said.
BP, which owns close to 20 per cent of Rosneft, is the UK's biggest investor in Russia, while about 600 British businesses have operations in the country. More than three dozen Russian companies are listed on the London Stock Exchange.
Experts say the true impact of western sanctions against Russia could take more than a decade to be felt, given the long-term investment cycle of oil and gas companies, and the uncertain future for many of Russia's biggest revenue-producing energy fields.
"To say that sanctions do not work is wrong. They work, but in a different way. There has been no immediate result, but there could be problems in the future," said Ms Mitrova. "The desire of those who drew up these sanctions was a message: we are taking away your future . . . and that is what we see in all our models."
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IMF - Output grew by 3.8 percent in 2017, underpinned by a resilient non-hydrocarbon sector, with robust implementation of GCC-funded projects as well as strong activity in the financial, hospitality, and education sectors. The banking system remains stable with large capital buffers. Growth is projected to decelerate over the medium term.
IMF - Higher oil prices and short-term portfolio inflows have provided relief from external and fiscal pressures but the recovery remains challenging. Inflation declined to its lowest level in more than two years. Real GDP expanded by 2 percent in the first quarter of 2018 compared to the first quarter of last year. However, activity in the non-oil non-agricultural sector remains weak as lower purchasing power weighs on consumer demand and as credit risk continues to limit bank lending.