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2 August 2016 2 August 2016 Dr. Aurélie Bros Research Fellow at the Higher School of Econo- mics in Moscow D r. Tatiana A. Mitrova Research Officer, Center on Global Energy Poli- cy, Columbia University Abstract projects both from a technological and Yamal LNG has been discussed since the mid- financial perspective and what will be the 2000s. It used to be a French-Russian project Russian response to this challenge? From the in nature, since Total and Novatek were the Russian perspective, Yamal LNG is not just majority shareholders. In 2014, in response an economic stake, it has also become a to the annexation of Crimea and the crisis in political issue. As a result of the sanctions the eastern Ukraine, Western countries imposed project was put out of the traditional an array of commercial and sectorial international project finance market and has sanctions targeting Russia’s financial faced challenges concerning the supply of key services and energy sectors, as well as equipment. The more negotiations have defence and related materials. This paper dragged on with European Financial explores the following questions: how do Institutions, the more the Russians have sanctions impact American-European and turned to alternative options in Asia. European-Russian relations? What responses does U.S. law extraterritoriality incite from Résumé European countries with strong economic ties with Russia? Are European energy Yamal LNG est discuté depuis le milieu des companies doing business in the Russian années 2000. Le projet était de fait un projet energy field suffering under sanctions? Last franco-russe dans le sens où Total et Novatek but not least, how dependent is Russia on en étaient les actionnaires majoritaires. En Western support to carry out its energy 2014, en réponse à l'annexion de la Crimée et à la crise dans l'est de l'Ukraine, les pays issues pertaining to American-European and occidentaux ont imposé une série de sanctions European-Soviet relations. It is highly likely commerciales et sectorielles qui ciblent les that U.S. sanctions forced the Soviet Union to secteurs des services financiers et de l’énergie, restructure its economic ties with Western ainsi que la défense et les matériels connexes. Europe in order to diminish the impact of Cet article explore les questions suivantes : possible future actions by the West. However, comment les sanctions influencent-elles les Western European countries, such as France relations américano-européennes et russo- and West Germany, refused to support U.S. européennes ? L’extraterritorialité du droit sanctions, inasmuch as it would have états-unien provoque-t-elle des réponses de la acknowledged the extraterritoriality of U.S. part des pays européens qui ont de forts liens law, which they perceived as a violation of économiques avec la Russie ? Les entreprises their sovereignty. At that time, some Soviet du secteur de l’énergie qui opèrent en Russie commentators perceived the U.S. decision as pâtissent-elles des sanctions ? Jusqu’à quel “inter-capitalist economic warfare” due to the point la Russie est-elle dépendante du soutien fact that the sanctions might have had serious occidental sur le plan financier et techno- consequences for European economies and logique pour mener à bien ses projets ? Du companies.2 In the USSR, the situation also point de vue russe, Yamal LNG ne revêt pas opened up the debate on Soviet dependence seulement un caractère économique : il est on new technology from the West. aussi porteur d’une forte dimension politique. In 2014, in response to the annexation of Suite aux sanctions, le projet a été exclu du Crimea and the conflict in eastern Ukraine, marché traditionnel de financement des the U.S., the European Union (EU), and other projets internationaux et a rencontré des défis Western countries imposed an array of pour la fourniture d'équipements clés. Plus les commercial and sectorial sanctions targeting négociations traînent avec les institutions Russia’s financial services and energy sectors, financières européennes, plus les Russes se as well as defence and related materials. It tournent vers des options alternatives en Asie. seems that history is repeating itself prima facie. It is no surprise that the energy sector has been targeted. Russia remains one of the largest oil and gas producers in the world with 12.4 percent of global oil supply and Introduction 16.2 percent of the global gas production in When the United States got wind of the 2015.3 Russia depends on oil and natural gas construction of a Siberian gas pipeline which industry taxes for approximately 50 percent of was slated to be built by Western firms in its federal budget, and the country’s gross order to link Soviet gas fields to Western domestic product is about 25 percent linked to Europe, it imposed unilateral economic energy. Energy revenues do constitute the sanctions on Soviet gas pipeline construction bulk of Russia’s revenues. Sanctions in 1981. It was no surprise that the United essentially consist of asset freezing, financial States initiated sanctions in the energy sector and investment restrictions, and a ban on the since the Soviet Union turned into a petro- sale of new drilling equipment and technology state when oil prices spiked during the 1970s1, and restriction to deep-water (i.e. more than and oil and gas revenues began to play a 152 meters) and other unconventional drilling, crucial role in the Soviet economic such as Arctic exploration projects. The development from that time on. Sanctions following equipment is on the banned list: called into question the concept of the détente drilling units, horizontal drilling equipment, era peace-through-trade strategy, as it offshore drilling rigs to be used in the Arctic, deteriorated the political environment and software for hydraulic fracturing, remotely considerably weakened economic ties. It is of note that Western Europe tended to see trade 2. Marshall L. Brown Jr. (1984) Soviet Reaction to the interdependence with the USSR as a fairly U.S. Pipeline Embargo: the Impact on Future Soviet Economic Relations With the West, Maryland Journal positive factor. of International Law, Volume 8, Issue 1, Article 6 Sanctions were lifted in November 1982. http://digitalcommons.law.umaryland.edu/mjil/vol8/ iss1/6 While they did not achieve the desired effect of 3. BP (2016) Statistical Review of World Energy, stopping the project, they raised a number of London. http://www.bp.com/content/dam/bp/pdf/energy- 1. Gustafson Thane (2012) Wheel of Fortune. The economics/statistical-review-2016/bp-statistical- Battle for Oil and Power in Russia, Harvard University review-of-world-energy-2016-full-report.pdf Press, Cambridge. operated underwater vehicles, high pressure the Russian energy sector hard. Nevertheless, pumps, drill pipes and casing, equipment for one can observe some structural changes and industrial purification of natural gas and a new trends underway leading to a partial number of other units. As a result, many of the reshaping of projects. The main aim of this projects which were under development in study is to analyse this gradual overhaul and cooperation with Western majors are frozen.4 the consequences arising from the current Although the 1981 and 2014 sanctions differ situation by scrutinizing the flagship Yamal widely, they raise analogous questions. How LNG project. This mega-project is for natural do sanctions impact European-Russian and gas production, liquefaction and marketing of American-European relations? Does U.S. law the South-Tambeyskoye natural gas field extraterritoriality provoke responses from located in the northeastern part of the Yamal European countries with strong economic ties peninsula (in Russia’s Yamalo-Nenets with Russia? Are European energy companies Autonomous Okrug). The full project includes involved in the Russian energy field suffering three trains with an overall capacity of 16.5 under sanctions? Last but not least, how million metric tons (mmt) per year, and a field dependent is Russia on Western support to production potential of 27 billion cubic meters carry out its energy projects from a (Bcm) of natural gas per annum. The Final technological and financial perspective? Investment Decision was signed in 2013 and the first train should be operational by the end Theoretically sanction-induced financing of 2017, while the full capacity is scheduled to constraints coupled with low energy prices be reached around 2020. could lead to delays in long and medium-term key projects such as Yamal LNG – the crux of In this paper we attempt to first analyse the this study –, and cause irreparable harm to rationale behind the Yamal LNG project prior the Russian economy in the not too distant to the adoption of Western sanctions against future. Nevertheless, it would be mistaken to Russia. The second part highlights the consider that Russia has only a limited ability application and the scope of sanctions in the to respond to Western sanctions in kind. In energy field, and the way they negatively order to weather the storm, energy companies impact the financing of Yamal LNG by involved in this project have been introducing new risks that FIs cannot take. In restructuring their ties to financial institutions the final part, we will examine the way (FIs) which have participated in financing this Novatek, with the support of the Russian Russian large-scale project hitherto with a state, is looking for alternative financing view to diminishing the impact of possible methods to complete the project on time. future actions by the West. On the one hand, the Russians have to secure the necessary Rationale and objectives of Yamal funds to proceed with capital-intensive projects and find new credit lines. This is a LNG before the sanctions major challenge, the outcome of which will A project led by OAO Novatek: short significantly impact Russian-Asian relations.
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