As World Leaders Discuss Russian Sanctions, BP and Rosneft Sign $2 Billion Deal
Today, European Union leaders met to sign a historic agreement for free trade with Ukraine and discuss further sanctions against Russia. British Petroleum and Rosneft, Russia's national oil company, also announced that they reached a deal: a five-year, $2 billion deal.
Thus far, sanctions have been only against individual officials, which make a statement more than anything else. They do not prevent companies from doing business with Russia. The nature of any further sanctions would be economic, hitting Russia where it hurts.
Russia's big business is oil and they haven't been shy about the global power of their energy market. While Europe and the United States debate whether or not to further sanctions into the economic realm, the oil industry is taking a very strict "business as usual" approach. Rex Tillerson traveled to Moscow to speak on a World Petroleum Congress panel aside Rosneft's Igor Sechin (who is sanctioned) earlier this month, regardless of government officials opposing the trip. Business lobbies in the U.S. have also said they would oppose economic sanctions against Russia, worried they would affect American jobs and revenue streams.
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Sechin issued a brief statement earlier this week about the potential negative impact of further sanctions against Russia on Germany's economy. Rosneft has signed some impressive deals worldwide recently, especially in the regions looking to sanction their homeland. Rosneft is pursuing a multi billion dollar drilling deal with Cuba's national oil company, they have started drilling on a $900 billion Arctic deal with Exxon and now, they have signed a long term deal with B.P.
The deal with B.P. is instrumental not only because of its size, 12 million tons for around $2 billion, but because of its longevity. Rosneft will supply B.P. with oil and oil products over the next five years. What is more, Rosneft has demanded prepayment. The prepaid amount will be at least $1.5 billion, the majority of the total deal. In the event of economic sanctions, $1.5 billion dollars essentially disappear. B.P. will throw around all of the weight it has in Washington to prevent this from happening.
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The exact pricing is being worked out now and deliveries on the contract are set to begin in July. B.P. C.E.O. Bob Dudley has made a strategic business and political move, though he told reporters, "I am working here with Rosneft. It's business between the companies. I don't comment on personal sanctions." Sechin offered a similar comment, praising the quality of oil, stability and profitability of the agreement rather than the political risk.
Rosneft is making it extremely difficult for the U.S. to issue economic sanctions against Russia. Their deals are large, long term and extremely lucrative. With this B.P. deal, U.S. officials have another big reason to avoid economic sanctions.
This article was originally published at http://www.thewire.com/business/2014/06/as-world-leaders-discuss-russian-sanctions-bp-and-rosneft-sign-2-billion-deal/373624/
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