The West is prepared to threaten Russia’s oil future

Obsession
Energy Shocks
Obsession
Energy Shocks

The US and Europe are on the brink of threatening the heart of the Russian economy: its oil industry. New sanctions would cut off Russia’s access to the technology required to drill its richest new fields.

In a scoop, Bloomberg reports the sanctions would bar companies like ExxonMobil, Shell, and BP from using their resources—such as advanced drills and experts—to work in the Russian Arctic and Bazhenov, an enormous Siberian oilfield.

Neither the US nor Europe have decided whether to proceed, but a European decision could come as early as today, according to the report. If Europe goes ahead with the new penalties, the US would match them. The report couldn’t be independently verified. ExxonMobil did not respond immediately to an email.

Russia produces roughly 10.5 million barrels of oil a day. It is the country’s most valuable export by far, and finances about 45% of the state budget. That production would not be imperiled by the sanctions. But starting around the end of the decade and in the early 2020s, production from its current fields will begin to dip steeply, and Russia will need to start bringing new fields on line to maintain the same rate of output. It is this future oil output that the new sanctions would hamper.

Russian president Vladimir Putin himself has been escalating the tension with the West even as there are reports of Russian troops leaving Ukraine soil. In a test today, Russia fired a nuclear-capable intercontinental missile called the Bulava. Given the timing, the test seemed intended to remind outsiders of Moscow’s advanced nuclear capability.

The US and Europe have already slapped sanctions on Russia’s future oil-drilling capacity, but have left latitude for ExxonMobil to continue its plans to drill in the Arctic and Bazhenov. The new sanctions, if enacted, appear fashioned to halt all work.

If the last few months are an indication, Putin would be unlikely to fold his cards if the new sanctions are put in place, despite the harm to the Russian economy. Instead, he will seek out ways to push up the brinksmanship further.

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