The seven oligarchs include Oleg Deripaska, an aluminum magnate who had past business dealings with Paul Manafort, Trump's former campaign chairman, who has been indicted by Special Counsel Robert Mueller on money-laundering charges.

Many of the targets are individuals and businesses with ties to Russia’s energy sector, including those linked to state-owned Gazprom. The senior administration officials said the goal was to hit those who have benefited financially from Putin’s position of power.

Although CEO of Gazprom Alexei Miller said he was proud of having been included on a new US sanctions list and that the company’s policies were right, the undeniable fact is that such sanctions would affect Gazprom's future policies. Furthermore, the US sanctions on Russia could affect gas transactions between Russia and European nations.

Political Game with Gas

US sanctions against Russia's energy industry are not new and have already existed. In 2017, the US enforced sanctions to make it harder for Russia to build two gas export pipelines to Europe. The targets were the pipelines to Germany and Turkey, Nord Stream 2 and TurkStream, which are crucial to increasing Russia's market share in Europe.

In 2016, the US increased its liquefied natural gas (LNG) exports to Europe; however, US share of Europe's gas market is 6% only. A major obstacle to development of US markets in Europe emanates from the European governments' 34% dependence on Russia.

Since gas imports from Russia cost European nations much lower, they are reluctant to replace them with US gas. The US's final objective sought in the imposition of sanctions on Russia's energy is to put a squeeze on Russia's gas exports to European countries and then sell its own gas at a much higher gas to European nations. The issue was first announced in 2014 by then US President Barack Obama in a meeting with the European Union heads of state. By that time, the US government announced that it would be able to supplant the entire Russian gas exports to Europe thanks to the pace of American shale gas production.

The US is killing two birds with one stone; first and foremost, it is reducing Russian gas exports to Europe aimed at undermining Moscow's position in Europe, and second, it is trying to make European nations dependent on its own energy in a bid to contain the EU on the long-term. That is why some European nations are reluctant to see US increase its presence in the European markets.

However, the Americans are trying their best to enforce economic punishments on Russia to delay the completion of Nord Stream 2 and TurkStream pipelines and they have to some extent proven to be successful. Rainer Seele, CEO of Austrian OMV which is a partner in the pipeline projects, has said that the American sanctions have caused challenges to Nord Stream 2, noting that financing 70% of the project costs was impossible. Despite financial problems, Russia is willing to complete the projects. That would increase Gazprom's accumulated debts and may even pose challenges to the payment of dividends to stakeholders.

Challenges and Restrictions

Gazprom is supplying more than one-third of Europe's natural gas needs. That has turned Europe into Russia's biggest and most profitable market with $37 billion revenue in 2017.The US sanctions against Russia's gas giant would pose a challenge to the prospects of future presence of this gas producer company in European markets.

The EU's willingness to diversify its sources of energy supply and reduce dependence on Russia is among important issues which would assist the US in realizing its objectives of supplanting gas. The accelerating factor here is the upward trend of US production. According to International Energy Agency (IEA) estimates, the US has potential to become a leading LNG producer in mid-2020s. Nonetheless, replacing Russian gas with US gas faces a variety of challenges: First of all, it is noteworthy that increasing gas recovery from shale structures will require exorbitant costs. That is why big companies like Royal Dutch Shell and BP have reduced their involvement in shale gas production due to cost ineffectiveness. Second, the price of US gas export to Europe is an important factor. If Europe's gas imports price exceeds the price of Russian gas there would be less willingness for such replacement.

The third point is that such a trend requires development of ports in European countries in order to receive natural gas vessels arriving from the US. In fact, preparing necessary infrastructure for new LNG terminals to lead LNG tankers to similar LNG terminals in European ports is an important factor. Furthermore, there is not still a sufficient number of LNG carriers to carry LNG to markets in Europe, and providing such facilities would take a long time.

Due to such restrictions, Gazprom has so far ignored the US threat to rival it in Europe, merely accusing the US of politicizing EU economic interests through imposing sanctions and targeting pipeline projects. In other words, in light of existing restrictions and challenges, Gazprom has not reacted negatively to various US sanctions.

Meanwhile, there are two significant issues regarding the future of Western sanctions against Russia's energy sector:

First of all, unlike the US which is not directly dependent on Russia's energy, European nations depend on oil and gas imports from Russia. This issue may give rise to discrepancies between Europe and the US in the future.

The second point is that although countries like Britain insist on the toughening of economic sanctions on Russia, some European nations that depend more on Russia's energy favor more flexible interaction and avoiding tensions in their relations with Moscow, which could widen the gap within the European bloc.

However, the Americans are trying their best to, regardless of all challenges and restrictions; go ahead with their objective of restricting Russia's energy exports to Europe.

US sanctions against Gazprom indicate that Washington is seeking to shut down or slow down the process of construction and completion of Gazprom-led gas projects, particularly regarding energy transfer pipelines to Europe.

by Shuaib Bahman

Courtesy of Iran Petroleum