Russian Energy Still Reigns as Tsar on the International Market

When one thinks of the Russian Federation, several things come to mind: vodka, long winters, and oil. While the signature drink and climate of Russia will always be mainstays, after 2014 it appeared to many that Russian oil might no longer be a force in the world. However, despite efforts from the European Union (EU) and the United States (US) to subdue Russian energy after the 2014 Crimean Crisis through sanctions, the country’s energy sector continues to possess a strong presence on the international market. This is evidenced by its partnerships with nonwestern allies, notably China, Venezuela and India, as well as its expansion into technological improvements, such as liquified natural gas (LGN), in its oil refining processes.

 

Crimea is a peninsula which Russia annexed from Ukraine in March of 2014, prompting the “Crimean Crisis,” which took place after the highly contested 2014 Ukrainian Presidential election. In the midst of the chaos taking place in Kiev in its aftermath, armed pro-Russian troops stormed the Crimean parliament building and declared Crimea an independent nation. These troops called for a referendum which declared that the people of Crimea wished to be part of the Russian Federation. The international community responded negatively to the results as illegitimate. Despite the backlash, Russia annexed Crimea, prompting international response through sanctions.

 

After the sanctions levied against Russian oil and natural gas firms Lukoil, Gazprom, Rosneft and Novatek went into effect, the Russian economy was rocked to its core. Although Putin reformed much of the economy in the early 2000s, Russia was still very much dependent on oil, and sanctions from two of the biggest oil consumers in the world proved a significant detriment. However, Russia has bounced back from these sanctions by fostering economic relationships with non-western allies.

 

Venezuela emerged as a key international investment opportunity for Russia. Venezuela is a country rich with oil reserves. However, it is currently experiencing an economic crisis and is also at odds with the United States, after a recent presidential election in which incumbent Nicolas Maduro was declared the victor. To stimulate its oil production, Russia has agreed to invest $5 billion in the petroleum industry. State oil company Rosneft has also agreed to lend $1.5 billion in cash to Venezuela, with Venezuela utilizing its stake in the energy company Citgo as collateral.

 

Russia is also forging closer energy ties with another emerging superpower in the world, The People’s Republic of China. Reuters reported that Rosneft signed an agreement with the state controlled ChemChina to supply up to 2.4 million tons of oil to the chemical company over the course of the one-year deal. Such a short deal signifies it could be a test to determine if the two nations have the potential to establish a strong relationship in the energy sector.

 

This partnership with China is important to Russia because China, like Russia, is classified as an emerging economy. Even more so China is currently engaged in a trade war with the United States and is actively looking for new trade partners, like Russia, in order to mitigate economic damage. This is significant because it appears that just as the U.S. created rift with Russia through sanctions, the trade war is now doing the same with China. Russia and China are now united due to alienation by the United States and will continue to foster a stronger alliance.

To the south, India has started importing large amounts of Russian LNG. A twenty-year deal between Indian state-owned GAIL and Gazprom for up to 2.5 million tons of LNG a year. This deal is significant since it is the first long term energy deal between the two nations. India has also invested in Russian oil with Indian firm ONGC Videsh developing a petroleum gas plant in Russia’s Tomsk region. The new energy deals are a part of an effort on both countries part to increase trade activity between the two nations, further demonstrated by the recent Indian purchase of a new air defense system from Russia.

 

Much like China and Russia, India is an emerging economy. Russia can reap huge benefits from investing in India’s energy sector. As nations in North America and Europe continue to be hostile to Russia, one can expect Russia to seek out stronger alliances with its Southeastern neighbors, as demonstrated by its energy deals with China and India.

 

Beside the multitude of bilateral trade agreements and foreign investment, Russia appears also to be exerting influence on OPEC. Russia is currently spearheading the “+” group of the new OPEC+. This new group is the original OPEC plus non-OPEC members such as Russia, Mexico, Azerbaijan and Kazakhstan.

 

The creation of the OPEC+ group provided Russia with greater power to influence how oil prices are formed. Recently as reported by CNBC, Russia and OPEC agreed to cut oil production by 1.2 million barrels per day (bpd). The Russian Federation, however, has been slow to implement the cuts, exporting a record 11.4 million bpd in December, while Saudi Arabia cut their output by 450,000 bpd.

 

Even if Russia does begin to adhere to the production cuts, Moscow only promised to reduce production by a maximum of 60,000 bpd, while the Saudis agreed to cut production by 900,000 bpd. This proves that Russia, a nation not a member of OPEC, is exerting a large amount of influence over the organization. With OPEC taking the brunt of the agreed oil production cuts and Russia stating they would like to keep the relationship temporary. Russia is coming out on top, benefitting from increased oil prices due to OPEC production cuts, while only having to sacrifice a small amount of its own production.

 

Meanwhile, Russia has also been investing in its own domestic technologies. Recently President Putin announced the creation of Russia’s first liquified natural gas floating storage container. This opens up the potential for Russia to start exporting natural gas through tankers. The development of the storage container is significant because natural gas is typically transported by pipelines. However, the new container allows greater freedom in the transportation of natural gas in its liquid form, allowing Russia to ship the commodity almost anywhere by sea.

 

This development has captured the attention of Japan’s Saibu Gas, who has expressed interest in a joint partnership with Russian natural gas producer Novatek. This joint partnership would expand the market for Russian natural gas to most of Southeast Asia, furthering expanding the dominance of Russian energy in the area.

 

Russia will continue to foster relationships with countries at odds with the United States as they have proven successful in their quest to remain a dominant force on the international energy market. Whether or not Russia will continue to exert influence over OPEC remains to be seen. If Russia is able to gain energy dominance at the expense of Saudi Arabia, one can expect conflict between the two nations. Despite efforts from the United States and the European Union to suppress the presence of Russian energy, Russia remains a major player on the international stage and will continue to increase their presence in the future.