Low Oil Price 'Multiplies the Force of Russian Sanctions': US Ambassador

The US sanctions against Russia have been more effective thanks to the low global price of oil, said Ambassador Dan Fried, Coordinator for Sanctions Policy at the US Department of State. They were imposed in the summer of 2014, following the secession of Crimea from Ukraine which was perceived as a coup organised by Russia's premier, Vladimir Putin.

And they will remain in place until the terms of the Minsk II agreement, which aims to end the war and restore the borders between Ukraine and Russia, have been met. 

But he also said there had been collateral damage, with foreign investors in the country hit.

“If the price of oil were $140/barrel, the oil technology sanctions would be more impactful and more powerful, the financial sanctions less impactful, and the overall balance would have been somewhat less powerful sanctions – so I'll acknowledge that,” he said at a talk given early March at Columbia University's Center on Global Energy Policy.

However, he said this was not to the benefit of US producers, who have also been hit “reasonably hard.”

Among them is ExxonMobil, which was planning to work with state-controlled Rosneft in the Kara Sea offshore Russia. Using imported technology, the two partners struck a very large oilfield a few weeks before sanctions were imposed, and they plugged and abandoned the well soon after.

European companies have also been hit: as a result of the sanctions. The French company Total, for example, is not allowed to bring in its technology to develop the giant Bazhenov shale prospect; and funding for the Yamal LNG project, of which it owns 20%, has taken longer to put together and relies on Chinese financing. It is also a shareholder in Novatek, the project's operator, which is on the sanctions list. Not on the list however is Gazprom, whose gas is essential for European demand. Last year it accounted for a record 31% of the region's demand.

In his remarks, Fried offered his assessment on the impact of the sanctions on Russia and addressed the topic of energy security and the degree to which Europe remains dependent on Russia for its energy supplies. 

Fried said the US sanctions regime against Russia enjoyed support from a very large number of states and that they could create the conditions under which they could eventually be removed.

Conditions for removal

If the pressures on the Russian economy mount he says, the US holds firm, and if the Ukrainians maintain the current macroeconomic stability they've gained, and they work through their current political problems, and continue the reforms, none of which is guaranteed, then time begins to work in favour of the West in terms of sanctions. Minsk diplomacy, he adds, must also be emphasised.

“We and the Europeans have agreed that we will hold sanctions in place until the Minsk [agreement] is fulfilled, meaning the international border be restored; we've all agreed that we will work on Minsk hard.”

Still, he was quick to emphasise that the present situation is not a “win”.

“You don't 'win'; you do relatively well or, if things are slipping away, you're doing relatively poorly. Now, we're doing relatively well, which is as good as it gets,” he said.

Western solidarity

Fried opined that the solidarity of the G7 nations, the US and Europe in particular, caught many in Russia off guard. “We think – we're not sure – that they were not expecting this degree of solidarity.” This, he said, is in contrast to the lack of western solidarity over the war in Iraq.

According to Fried, Europe deserves some credit for remaining onboard, with France and Germany maintaining pressure, but the ceasefire in Ukraine, he says, is not being honoured by the Russian side; in light of that, meanwhile, Ukraine is having trouble modifying its constitution.

Now, the US sanctions, he said, have recently been extended to individuals, which may be an indication of where the West stands on sanctions (and their renewal).

European energy security

As to how Europeans now see their energy security vis-a-vis Russia, he noted that US policy on the issue had been relatively consistent through the administrations of US presidents Bill Clinton, George W Bush all the way to that of Barack Obama. “The US has sought to work with Europe to lessen Europe's dependence on Russian energy and, particularly, gas supplies to weaken Russian leverage to use that gas supply for political purposes and has enjoyed some success, and this has been a cooperative venture. Three administrations working in the same direction, many of the same assumptions and people.”

This demonstrated, he said, the US non partisan cooperation on strategic issues.

“Ten years ago the Europeans were still debating whether this could actually work – whether you could, in fact, continue to purchase gas from Russia because they need to, but at the same time diversify sources and proliferate gas conduits so that the shutdown of no one pipeline could cause you to have a major crisis.”

Interconnection, diversification

Referring to gas interconnections among European countries, he recalled a metaphor that a Hungarian energy company official had told him, that European states were developing “capillaries” - smaller pipelines from western Europe to the east – “so that if somebody steps on an artery we don't have a heart attack.”

At the same time, Fried said, there is ongoing work on diversification of sources: “US LNG will come online, other sources: North Africa, maybe in the future Mediterranean. The massive increase in US domestic production affects markets even if we don't export gas; we use domestic gas and import less.”

The strategic picture of gas, he said, has been shifting over the past 10 years, mostly to the benefit of the West, a “tectonic shift” that received no attention until it had happened.

Drew Leifheit