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Zainab Calcuttawala

Zainab Calcuttawala

Zainab Calcuttawala is an American journalist based in Morocco. She completed her undergraduate coursework at the University of Texas at Austin (Hook’em) and reports on…

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Is The Trump Administration About To Rescue The Russian Economy?

As oil prices continue their slow uphill climb and the global energy community reenters exploration mode, the Russian economy has much to gain from new American leadership that seems lenient on oil sector sanctions.

On Tuesday, Representative Charlie Dent from Pennsylvania became the fourth Republican lawmaker to back a bill limiting newly inaugurated President Donald Trump’s ability to pull back sanctions against Russia.

The legislation would require Trump to seek congressional approval before reducing or removing the punitive measures that are currently in place to punish Moscow for its support of Syrian President Bashar Al Assad’s murderous regime, the forced annexation of Crimea and now also for organized cyberattacks against American institutions in the months leading up to the 2016 presidential elections.

In order to modify these imposed sanctions, the President would need to certify to Congress that the government of Russia has stopped the activities that warranted the sanctions in the first place,” a press release from the Trump critic states. Even with support from House Democrats, the bill seems unlikely to pass.

In the time since European and American sanctions against Russia began, the target country’s economy has struggled. One month before President Barack Obama’s 2014 sanctions against key Russian politicians and companies became active, the ruble held a value of 2.8 cents. Currently, it’s worth a mere 1.7 cents – a 39 percent drop. Related: Why A Weaker Dollar Won’t Boost Oil Prices

These are all choices that the Russian government has made,” Obama said in March 2014 on the White House Lawn as he announced the targeted sanctions as punishment for Moscow’s takeover of Ukrainian Crimea. “Because of these choices, the United States is today moving, as we said we would, to impose additional costs on Russia.”

But the correlation between the timing of the sanctions and the decline of the Russian economy does not prove causation. The disastrous consequences of the oil price drop, which occurred just a few months after Obama’s sanctions kicked in, had a greater effect on the massive petrostate that any other single geopolitical event.

Moscow’s long-term national budgets projected oil revenues based off of a $100+ Brent barrel, but, at some points in 2016, prices hovered around just $30. Russia’s biggest oil and gas companies – Gazprom, Lukoil and Rosneft – have been hemorrhaging cash and liquidating billions in assets.

Since November, an international agreement to cut oil production has caused barrel prices to inch upwards. If compliance to the plan negotiated by the Organization of Petroleum Exporting Countries (OPEC) remains high, 2017 may be a year of Russian recovery.

As President Vladimir Putin’s interest in Libya peaks, Secretary of State Rex Tillerson’s coy attitude towards trade restrictions forbidding American oil companies from engaging their Russian counterparts has become increasingly relevant.

Trump tapped Tillerson while he served as CEO of ExxonMobil – a company that lost approximately $1 billion when the 2014 sanctions took hold. The American oil major had to pull out of a project in the Arctic Kara Sea it planned to carry out in partnership with its Russian counterpart, Rosneft.

During his Senate confirmation hearings, Tillerson complained that actions against Russia “disregarded American interests” and insisted that the U.S. maintain “open and frank dialogue” with Moscow to “establish a strong deterrent” to future geopolitical shenanigans Putin may currently be considering. Related: Non-OPEC Compliance Rate Rises To 60%

"We always encourage the people who are making those decisions to consider the very broad collateral damage of who are they really harming with sanctions and what are their objectives and whether sanctions are really effective or not," he added, suggesting the current bans would be better lifted.

Exxon’s Arctic Kara Sea ventures and those similar to it are more important now than they have been over the past three years. The narrow profit margins these projects carry made them commercially unviable during the last 2.5 years of historically low oil prices.

The market recovery does not only mark the return of the Russian economy, but also of Putin and his cronies’ exploration motivations.

On the sidelines of this month’s National Prayer Breakfast, Trump told Western-allied former Ukrainian Prime Minister Yulia Tymoshenko that he would not lift sanctions until Russia pulled out of Crimea.

But the recent resignation of national security advisor Michael Flynn – who had been hand delivered a sealed proposal to abandon Russian sanctions – and Tillerson’s ambivalence on the punitive measures, shows that Trump is surrounded by policy makers that could steer him towards reversing Obama’s economic retaliation.

The new president’s recent disavowal of the United States’ longstanding position in support of the two-state plan regarding the Israel-Palestine conflict shows that, indeed, anything is possible in this new phase of American foreign policy, edited in favor of business interests.

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As the leader of the free world, the president and the policies he pushes act as guides to foreign businesses and governments who seek to engage the U.S. in related or unrelated matters. For example, even after Western nations lifted sanctions against the Iranian oil sector in January 2016, then-Secretary of State John Kerry had to issue several statements and meet with foreign leaders personally to assure them that their corporations would not face backlash from the U.S. if they resumed business with Iranian companies.

Though Trump’s international unpopularity – especially with Europeans - may stymie the salience of his foreign policy arguments, the American economy is still the largest in the world and, as always, money talks.

The soft power of the United States along with its promise of military protection – which has also become uncertain as Trump pedals doubts regarding the North Atlantic Treaty Organization’s financial viability - keeps its allies from getting too close to Russia and most former Soviet republics. Dismantling the status quo would pave the way for a world order tilted to favor Moscow in new oil ventures and spheres of political influence.

By Zainab Calcuttawala for Oilprice.com

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Leave a comment
  • JACK MA on February 23 2017 said:
    Do you actually believe this stuff you are writing. In your heart of hearts, you must have real insights although to speak them or to write them would probably get you thrown out of the club. Russia is invited into Syria and it is the USA that is dropping bombs and invading with no declaration of war at least 7 counties in the ME. Syria is a Sunni - Shia pipeline war. You know this. I laughed good when I read this so thank you for that. IMHO
  • J P DeCaen on February 23 2017 said:
    It might benefit Exxon to lift sanctions but it will drop crude prices so how does that benefit the rest of the US industry?. Also, US defense spending will have to increase to offset refreshed Russian military budgets.
  • Lee James on February 24 2017 said:
    The U.S. knows it is best to leave the Mid-East. But we're (along with most of the rest of the world) still hooked on oil, and Russia and the Shia army may be a problem with continued delivery. Russia has a cool style that appeals to our President, but Russia is totally on Russia's side. "Russia first."

    Best to reduce world dependency on other people's oil. And, does one's own oil totlly do the job, now and in the future?

Leave a comment




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