Russia sanctions carve out will help some energy companies

By Dino Grandoni, The Washington Post - July 24, 2017
A barrel with a sign "Lukoil" is seen in the tundra area in Nenets Autonomous District, Russia, November 26, 2016. Picture taken November 26, 2016. REUTERS/Sergei Karpukhin
A barrel with a sign “Lukoil” is seen in the tundra area in Nenets Autonomous District, Russia. A new sanctions carve out gives U.S. energy companies more leeway in participating in projects that include sanctioned Russian companies. (Sergei Karpukhin / Reuters)

While President Donald Trump criticized over the weekend the “phony” investigation into his campaign’s contacts with Russian officials while running for office, Congress struck a deal to finally punish Russia for the alleged meddling in the 2016 presidential election.

But it was a bit of a rough road to reach that compromise. The main speed bump: U.S. oil and gas firms’ objections to the codification of sanctions issued by President Barack Obama in 2014. By turning what were executive orders into law, Trump would not be able to undo sanctions against Russia without congressional approval.

[Exxon fined for Russia sanctions violations under Tillerson]

The compromise between leaders in the Senate, where the bill passed with an overwhelming 98-2 majority, and the House, where the sanctions package stalled, was welded with a carve-out for U.S. oil and gas interests.

Here’s the deal: The bill, if passed and signed into law, would restrict U.S. firms from partnering with sanctioned Russian firms on projects in which those Russians owned at least a 33 percent stake.

What it means: On its face, the compromise bill would give certain joint ventures the greenlight, while stopping others.

For example, BP would be good to go ahead with a big offshore natural gas project in the South Caspian Sea of Azerbaijan, a former Soviet state. Lukoil, BP’s Russian partner on the project, owns only a 10 percent stake in developing that gas field so the deal would not be covered under the new sanctions legislation.

The language of the bill also “ensures that it didn’t affect a major pipeline used to transport oil from Kazakhstan through Russia to Ukraine” in which Chevron is a co-investor, according to CNN.

But it seems that ExxonMobil’s stalled co-venture to drill in the Arctic Ocean and Black Sea may remain that way. The sanctioned state-owned firm involved in that deal, Rosneft, has a two-thirds stake in the project.

(Caveats to this rule of thumb abound: We haven’t seen the text of the bill yet. Plus, whether it’s sanctions issued by legislation or executive order, it’s the Treasury Department that determines which Russian firms fall on the sanctions list.)

What the White House says: The message from Trump’s recently shaken-up press shop is muddled, to say the least. Freshly minted White House press secretary Sarah Huckabee Sanders said Sunday morning on ABC that the president supports the compromise bill. But almost simultaneously, the new White House communications director, Anthony Scaramucci, told CNN that the president “hasn’t made the decision yet to sign that bill one way or the other.” (“My bad,” Scaramucci later told the New York Times when asked about his comments. “Go with what Sarah is saying as I am new to the information.”)

Meanwhile: Members of the European Union, who have hounded Trump’s seemingly cozying up to Russian President Vladimir Putin, voiced reservations about potential “unintended consequences” of the unilateral effort to sanction Russia through legislation.

“This impact could be potentially wide and indiscriminate, including when it comes to energy sources diversification efforts,” the European Commission said in a statement over the weekend.

In particular, Germany appears worried its domestic firms partnering with Russia’s Gazprom on the new Nord Stream 2 pipeline, which would deliver Russian gas to Eastern Europe, would be swept up in the sanctions.

So strangely enough, by signing a bill punishing Russia, Trump may be able to simultaneously needle another foil of his on the international stage, German Chancellor Angela Merkel.

According to the office of House Majority Leader Kevin McCarthy, R-Calif., the vote for the sanctions bill is set for Tuesday.