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US ELECTION: Sanctions likely to dominate US-Russia energy links post election

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US ELECTION: Sanctions likely to dominate US-Russia energy links post election

Highlights

Biden win could see sanctions pressure decline in mid-term

US imports of Russian oil, involvement in Sakhalin 1 to continue

Russia says ready to work with either candidate

Moscow — Analysts expect sanctions to continue to dominate US-Russia energy links after the November election, with some forecasting that a Joe Biden administration could be more likely to drive an improvement in relations in the medium term.

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Introduced in 2014, sanctions have had a significant impact on Russia-US energy relations. They have forced Russian oil companies to freeze some cooperation projects, and blocked access to certain sources of financing, as well as technology used in Arctic offshore, deepwater and shale oil production.

Although political mistrust continues to fuel new sanctions proposals, core areas of energy cooperation have continued. Russia continues to ship oil to the US and Exxon remains operator of the Sakhalin 1 project. Most recently the US and Russia were key players in talks to stabilize global oil markets in response to the coronavirus pandemic earlier this year.

Additional coverage: 2020 US Elections

Analysts expect practical considerations to continue to determine US sanctions policy, regardless of who wins the next presidential election, but the two candidates could mean different energy cooperation scenarios in the medium to long term.

Trump impact

The Trump presidency has been transformative for sanctions policy, with accusations of Russian interference in the 2016 presidential election, and suspicions over Trump's relationship with Russia sparking several new proposals. Russian President Vladimir Putin said Oct. 7 that decisions were taken on new sanctions or expansion of existing ones on 46 occasions during the current administration's term of office.

Some analysts expect this trend to continue if Trump is reelected, with further pressure likely to mount on the Nord Stream 2 pipeline, which has been a key target in recent months. Russian companies' ability to become majority stakeholders in energy projects abroad could also be curtailed if existing proposals come into force.

"As long as Trump remains in the White House, the threat of new sanctions and more egregious sanctions against Russia will remain," Chris Weafer, founding partner of consultancy Macro-Advisory, said.

There have also been positive developments in Russia-US energy links during the Trump administration, including talks over stabilizing global oil markets in response to the coronavirus pandemic.

Putin said Oct. 7 that this cooperation has developed "quite well".

"This is because the United States is interested, of course, in maintaining a certain stability, in ensuring the work of its oil companies, and so on," he said. "And we managed to achieve a really good joint result."

Putin has said Russia is willing to work with any future US president.

Biden opportunity

If Joe Biden were to win the election, some analysts forecast that there could be an initial push to increase sanctions, utilizing some of the proposals currently in Congress. In the medium to long term the desire for harsher sanctions may wane, however.

"I strongly believe that as we go through a Biden administration the relationship will become more normal, and in particular that catalyst for Congress to keep targeting Russia, which is Donald Trump in the White House, will be removed," Weafer said.

AmCham Russia president and CEO Alexis Rodzianko said he sees little difference between the two candidates in terms of their approach to Russia.

"My view is that there's not going to be that much difference between this administration and a potential democratic administration in terms of Russia and Russia policy, with the one possibility that the democrats have a little more flexibility because they don't have the albatross of doubts about their connections to the Russians," he said.

"I don't see any immediate trigger that would push for more energy sanctions, if anything... there are opportunities for cooperation," he said. "Both the US and Russia have an interest in a stable orderly market for oil and gas."

Existing cooperation

Energy cooperation that is not covered by existing sanctions is likely to be unaffected by the November election.

This includes ExxonMobil's role as operator of the Sakhalin 1 project, which produced around 200,000 b/d of oil between January and September.

Practical considerations are also likely to prevent the introduction of wide-ranging sanctions affecting Russian energy exports under either administration.

"Refineries in the US on the Gulf Coast that have been cut off from Venezuelan oil because of sanctions against Venezuela have no other choice for supplying the same quality of oil at the best price; Russia is top of that list," Weafer said. "They are not prohibited from buying Russian oil under current sanctions, so commercially that's what makes sense. That's not going to change."

Russian exports of crude oil to the US in 2019 jumped 83% year on year to 134,010 b/d. Oil products exports rose 28% to 386,000 b/d last year, according to the US Energy Information Administration.