Despite sanctions, Russia remains global energy player

Despite sanctions, Russia remains global energy player

Sanctions may have damaged the Russian energy sector, but Russian energy diplomacy is still scoring goals and helping Russia to retain its global power status. By seeking out alternative markets – often in overlooked countries – Russia is seeking to diversify its export portfolio to counter sour relations with the EU.

In the past year, many Russian energy companies and their executives (including the oil giants Roseneft, Gazprom Neft and Novatek) found themselves on American and European sanction lists. Yet despite sanctions and the attendant heavy financial losses imposed on the country’s energy sector, Russia continues to pursue a robust energy diplomacy.

This is particularly true in the case of China, which recently obtained a prominent place in Russia’s energy strategy following the worsening of ties with Moscow’s traditional European markets.

Seeking alternative markets

Russia and China signed several major energy contracts over the course of last year, including the agreement on the construction of two pipelines – worth around $700 billion – from Eastern and Western Siberian gas fields. In addition, Russia has overtaken Saudi Arabia as the largest exporter of crude oil to China, reaching 930,000 barrels per day in May 2015.

On the European front, Russia is working hard to repair the damage caused by the events in Ukraine, and in particular to find a good alternative to the failed Southern Stream pipeline. The much-disputed project was clearly a victim of high politics, but Gazprom might find a solution with the Turkish Stream option that would bring natural gas to Turkey and Europe through a gas hub situated in in the European part of Turkey.

Moreover, in June, Moscow signed a $2 billion contract with the Greek leftist government to build a South European Pipeline as an extension of the Turkish Stream. The project is expected to be fully operational by 2019, and has already seen critical stances from both the US and the EU.

Russia key player in Balkans

The Russian energy offensive does not end on the shores of the Aegean Sea — both Macedonia and Serbia are more than eager to participate in the Turkish Stream project. This enthusiasm is fuelled by both nations respective economic and political woes, traditional closeness to Russia, and difficulties in joining the EU and NATO.

The Russian energy presence in the Balkans through the ownership of energy infrastructure also brings unease to the West. This is particularly obvious in Serbia, where Gazprom controls the majority of the Serbian energy sector through the Serbian oil company NIS.

Russian companies also control more than 70% of Bulgaria’s oil products market, as well as practically the entire refinery sector in Bosnia and Herzegovina. In 2014, the Croatian oil company INA was also reportedly a potential target for acquisition by Gazprom, provoking a diplomatic action from the State Department.

In Africa, Russian investments span from establishing a joint venture with the Nigerian government to explore the country’s gas fields, to building four nuclear power plants with the assistance of the Russian state-owned nuclear giant Rosatom. A similar deal is agreed with South Africa on the fringes of the recently held BRICS summit; the two countries agreed the construction of six nuclear power plants worth up to $80 billion.

On the other side of the globe in Latin America, Russia is continuing to build its influence. It recently agreed to a $14 billion E&P deal with Venezuela, and a subsequent $5 billion loan to help boost the Venezuelan national oil company PDSVA’s production, and in April the Argentinian state-owned energy company YPF and Gazprom signed a clearly politically-motivated memoranda of cooperation to develop shale formation in Patagonia.

Considering heightened tensions between Russia and the West, and Moscow’s increased global ambitions, it is hardly surprising that the Kremlin is eager to find allies, soften diplomatic isolation and establish a counter-balancing income flow in the wake of sour relations with the EU. This is likely to continue, as Russia, with its vast resources and technology know-how, is well suited to continue to use energy as a powerful geopolitical tool.

About Author

Ante Batovic

Ante was previously a lecturer in International History at the University of Zadar where he specialised in Cold War and East European history. He was also a visiting fellow at the LSE IDEAS centre and the fellow of the Robert Schuman Foundation in the European Parliament. He holds a master’s degree in Global Politics from the London School of Economics and a PhD from the University of Zadar.