Slick Oil: Business as Usual for Russia and the West?

August 25, 2014 | Konstantin Avramov and Anna Guryanova

While most observers have been talking about the variety of Western sanctions towards Russia, the American oil giant ExxonMobil quietly launched its Arctic partnership project with the Russian state oil company Rosneft.

The current drilling project in Kara Sea had been under negotiation for over a year, and over the next decade could become the most promising partnership in the oil industry, earning between $6 and $18 billion for Exxon and up to $36 billion for Rosneft. Despite all the sanctions and bans triggered by the Ukrainian crisis, the project has continued unchecked. Even as the president and CEO of Rosneft was personally sanctioned by the US Government on July 16, the two energy giants move forward with their cooperation as though nothing had happened.

There are other examples of Russia-West cooperation amid sanctions on both sides. At the end of June, Russia’s state gas monopoly Gazprom signed a deal with Austria’s gas company OMV to build the Austrian part of Russia’s South Stream project that will supply gas to Central and Eastern Europe bypassing Ukraine. On Monday, Rosneft and Norwegian Statoil began drilling in the Norwegian waters of the Barrens Sea.

This business as usual amidst what many are calling a “New Cold War” raises a number of questions. Western sanctions were designed to put financial pressure on Russia by denying Russian companies access to Western financing. The energy sector is already feeling the pressure: Rosneft recently asked the Russian government for a $42 billion dollar loan. Yet these recent deals are signaling that it is business as usual for Russian and Western energy companies. Norwegian salmon–no, Norwegian oil–yes.

The energy sector is not the only area prone to foreign policy surrealism. France is still on track to sell Russia two state-of-the-art Mistral helicopter carriers worth $1.6 billion dollars. And in an even more bizarre twist, Ukrainian companies are still supplying Russia with parts for military planes, helicopters, and rockets, even though the official governmental position is that Russia is supplying weapons to the Ukrainian separatists, whom Kiev considers “terrorists.”

These are indeed very mixed signals that point to the fact that globalization/corporatization is in fact working. And despite very serious disagreements in foreign policy, neither Russia nor the West want a total economic war, realizing there will be no winners.