Inside Russia’s relationship with Rosneft and Venezuela
It has been claimed by many a political observer that
Russian President Vladimir Putin’s main strategic tactics are confusion,
disinformation and chaos. All is not usually as it seems when the former KGB
intelligence officer is involved – either directly or behind the scenes. This
is pretty transparent when it concerns electoral interference or
state-authorised cyberattacks against foreign powers, but things are subtler
when it comes to Russia’s business environment.
Much like many of the world’s other markets, Russia’s
corporate landscape contains both state-owned enterprises and private
companies. At times, though, the line between the two is blurred. Rosneft is
known around the world as one of the energy industry’s biggest players,
operating in 25 countries and responsible for six percent of global oil
production, but the extent to which it operates to serve the interests of the
Russian president is difficult to say with certainty.
Until recently, Rosneft’s relationship with the Kremlin was
relatively well understood. Through a holding company – Rosneftegaz – Russia
owned more than 50 percent of Rosneft’s capital. In March, however, that
changed, with the Russian state announcing it had reduced its stake in Rosneft
to below a majority standing. The reasons are likely to be connected to
Russia’s support of Venezuela and the probability of this leading to US
sanctions. But whether or not Russia’s Rosneft divestment will have the desired
result remains to be seen.
The connections between Rosneft and the Kremlin run deep.
Igor Sechin has been CEO at the oil firm since 2012, but he previously held
several political positions, including serving as a mayoral aide to Putin and
as Russia’s deputy prime minister. He is an imposing figure, described
variously as the “scariest man on Earth”, the “grey cardinal of the Kremlin”
and “Darth Vader” by Russian media. Putin and Sechin have been pictured together
numerous times, with the pair’s close relationship enabling Sechin to make bold
business moves that would perhaps have seen other business leaders removed.
One risky decision has been Sechin’s support for Venezuela,
which has had significant ramifications for both Rosneft and Russia. The
reasons for such support go back a long way: in the late 2000s, the Russian
Government was busy trying to convince other countries to recognise the
independence of Abkhazia and South Ossetia, two breakaway states in Georgia. In
2009, then Venezuelan President Hugo Chávez agreed to do so, and promptly
received $2bn (€1.82bn) in loans to purchase Russian arms. Other agreements
between the countries soon followed.
The close relationship between Sechin and Venezuela has
continued into the presidency of Nicolás Maduro, with the Russian state and
Rosneft listed among a small group willing to lend funds to the beleaguered
South American country. But the decision to keep the alliance going may have
seen Sechin overreach: in February, the US imposed sanctions on a Rosneft
subsidiary for dealing in Venezuelan crude, with shares in the Russian oil firm
declining as a result.
“As the primary broker of global deals for the sale and
transport of Venezuela’s crude oil, Rosneft Trading has propped up the
dictatorial Maduro, enabling his repression of the Venezuelan people,” US
Secretary of State Mike Pompeo said in a statement. “Maduro has destroyed
Venezuela’s institutions, economy and infrastructure, while enriching himself
and his cronies, through his abuse of state power and his welcoming of malign
support from Russia, as well as from Cuba, Iran and China.”
In March, the US struck again by sanctioning another Rosneft
subsidiary for operating in Venezuela. Given the difficult circumstances
Rosneft finds itself in regarding broader developments in the oil market, it
may be time for Russia to reassess its relationship with Maduro’s regime.
Slippery customers
Following the US sanctions, it seemed as though Rosneft was
willing to cut Venezuela loose; on March 28, the company unexpectedly announced
that it had completed the sale of its assets in the South American nation to an
unnamed organisation owned entirely by the Russian Government. In exchange,
Rosneft received 9.6 percent of its own shares, ensuring that, for the first
time, the Russian state would not own a controlling share of the oil firm.
Although the sanctions were not referenced directly in the
statement announcing the divestment, Rosneft has undoubtedly been affected by
the measures: shortly after Washington announced the sanctions, Chinese oil
firm Sinochem declared that it would not buy oil from Rosneft, denting Russia’s
ambitions of gaining a larger share of the Chinese market.
But exactly how much distance is being placed between
Rosneft, the Russian state and Venezuela is difficult to say. After being
rather coy about the sale, Rosneft confirmed that the unnamed government entity
that had bought its Venezuelan assets was a newly created company called
Roszarubzhneft. Some have described the move as a sham divestment – not
entirely without precedent.
In 2018, Russia used the state-backed Promsvyazbank to
create a new banking vehicle that would support the defence sector following US
sanctions against domestic arms producers. In fact, Russia has had plenty of
opportunities to discover the best ways of mitigating the impacts of
international sanctions.
“Since 2014, US and EU sectoral sanctions have restricted
Rosneft’s access to deep-water, Arctic offshore and shale technologies,” Nigel
Gould-Davies, Senior Fellow for Russia and Eurasia at the International
Institute for Strategic Studies, told European CEO. “Sechin has been under
personal sanction since 2014. ExxonMobil was fined $2m [€1.82m] for contracts
it signed with Sechin in this role. Last December, a US district court in Texas
overturned this fine on the grounds that US Treasury guidance was not clear
that personal sanctions on Sechin also prohibited dealings with Rosneft.”
It all adds up to a bewildering situation, with multiple
stakeholders present in different markets and bureaucratic manoeuvrings having
huge financial impacts. What’s more, this is all occurring against the backdrop
of a huge worldwide fall in the value of oil, which will also need to be
factored into Rosneft’s next decision.
Putin on appearances
For now, though, attention will focus on the US and what it
decides to do in light of Rosneft’s divestment of its Venezuelan assets. In
April, US Special Representative for Venezuela Elliott Abrams suggested the
sanctions on Rosneft could be lifted, but cautioned that further analysis would
be required first.
While the US decides, Russia and Rosneft have plenty to keep
them occupied, including historically low oil prices and deciding whether
production cuts should be pursued. It’s an area that has seen Russia in
conflict with OPEC.
“With regard to ongoing issues related to oil supply cuts,
much depends on the scale of the oil demand shock and the ability of OPEC+
members to coordinate a further response if needed,” Gould-Davies explained.
“Russia’s initial rejection of supply cuts in March, which triggered a brief
price and market war with Saudi Arabia, has left it badly placed to play a
leading role.”
Rosneft executives have events occurring closer to home that
demand their attention, too. After settling another pricing dispute, Rosneft
was Belarus’ biggest supplier of crude in April. Sechin and the Belarusian
President Aleksandr Lukashenko had met earlier in the year to help improve
energy relations between the two parties.
Turning back to Venezuela, Maduro has praised Russian
support for his country even following the Rosneft divestment. This makes it
unlikely that Russia will turn its back on the South American country entirely,
even if – on paper, at least – Rosneft is no longer involved. Just as it’s not
clear whether Rosneft still has a stake in Venezuela, it remains difficult to
say in what capacity Russia will continue to support the South American state.
As always with Russia, confusion is the only thing that can be guaranteed.
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