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US Treasury says sanctions are biting Russian upstream oil, natural gas investment

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US Treasury says sanctions are biting Russian upstream oil, natural gas investment

Washington DC — US sanctions are limiting important investment in Russia's upstream needed for expanding the country's oil and gas production capacity, a Treasury Department official is expected to tell Congress later Tuesday.

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Sigal Mandelker, under secretary for terrorism and financial intelligence, will tell the Senate Banking Committee that US sanctions imposed after Russia's military intervention in Ukraine in 2014 have had measurable impacts, according to her prepared testimony.

Foreign direct investment into Russia has fallen 5% since 2013, with direct investment from the US falling 80%. The sanctions have blocked hundreds of millions of dollars in Russian assets in the United States, and state-owned banks and other entities likely face higher financing costs because of Treasury's ban on debt purchases, she said in the prepared remarks.

"Russia is taking note of these impacts," Mandelker said.

Mandelker will tell the committee that while Russia's "malign activities" continue, Moscow's "adventurism" has been checked by the knowledge that the US can bring more economic pain through additional sanctions.

The Trump administration has sanctioned 217 Russian-related individuals and entities, including oil company Surgutneftegaz and power company EuroSibEnergo, since January 2017. Targets include heads of major state-owned banks and energy firms, and some of Putin's closest associates.

Mandelker will say that Treasury shares Congress' resolve to counter Russian malign activity.

"As companies across the globe work to distance themselves from sanctioned Russian persons, our actions are imposing an unprecedented level of financial pressure on those supporting the Kremlin's malign agenda and on key sectors of the Russian economy," she said in the prepared remarks.

Russia's natural resources ministry said in a report Friday that US sanctions have limited new gas project development in the country, especially from offshore and at hard-to-extract fields.

Russian producers had previously reported coping well with US sanctions that limited access to Western financing and technology for new Arctic, deepwater and shale projects. The measures have forced some international drillers out of joint ventures in those areas, stalling or delaying progress in their development.

"In 2016-17, not a single significant field has been launched, gas-producing companies have focused their attention on working at projects that had already been launched," the ministry said.

--Meghan Gordon,

--Edited by Daniel Lalor,