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Western Firms Find Loophole In Russia Sanctions

American sanctions against Russia’s energy industry aim to limit the latter’s ability to develop shale reserves, which inadvertently makes them less effective political tools, according to the results of a new investigation by Reuters.

U.S. sanctions against Moscow in 2014 worked to “impede Russia’s ability to develop so-called frontier or unconventional oil resources,” the Treasury Department said. The measures, which were enacted as a political reaction to the Crimean annexation, targeted projects that would allow fracking initiatives to penetrate Russian markets. At the time, Russian majors depended on Western technology to use the technique at all.

But Norway’s Statoil and British Petroleum are willing and able to work with Rosneft to develop unconventional resources on Russian land without fear of backlash from American regulators. This is because the measures explicitly prohibit any aid to Russia in progressing “shale reservoirs,” without banning cooperation on other oil sources.

Piggybacking on the American language, the EU banned any project “located in shale formations by way of hydraulic fracturing,”

In a 2013 report on a project near the Volga River, Statoil had suggested it would assist Russia in shale oil ventures in the area. After the U.S. and EU sanctions went into effect, the company clarified that the aim of the project was to tap into “limestone” reserves instead, making the project compliant with the terms of the sanctions.

Related: The Only Way OPEC Can Kill U.S. Shale

Norway and Russia are also partnering on exploration in the Arctic, where they share some offshore oil and gas deposits, with Statoil working together with Rosneft and Lukoil to explore these.

Last year, Gazprom agreed to buy 38.5 percent in the Norwegian business of Austrian oil and gas producer OMV, but according to a Reuters report from the time, the government was trying to get Gazprom to lower this to 25 percent. No news on the deal has been announced since.

By Zainab Calcuttawala for Oilprice.com

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