US sanctions hits Russia’s oil kingpin

The US has imposed sanctions on the kingpin of Russia’s oil industry in a move that could have serious consequences. The US Treasury blacklisted Igor Sechin, chairman of Russia’s top oil producer Rosneft and a former KGB official from the inner circle of Russian president Vladimir Putin. He is thought to be the mastermind of the Kremlin’s energy strategy and Russia’s second most powerful man.

Officials in Washington say they have an arsenal of “sectoral sanctions” in reserve that could cripple the Russian economy by hitting banking system, oil and gas, and the mining industry, if Mr Putin sends Russian tanks across the border into eastern Ukraine. 

This could be painful since Rosneft has $52bn of debt that must be rolled over, largely in dollars. The foreign capital market is effectively shut. This may force the company to repay debt from cash flow, cutting back on investment plans. 

Oil is a better target for the White House because it generates the lion’s share of Russia’s state budget, yet a loss of Russian supply in Europe can be replaced in part from sources around the world – including the US strategic petroleum reserve, if need be. New crude is also coming on stream from Iraq and Libya. 

Igor Sechin defiant

In a statement reported by the privately-owned Russian news agency Interfax, Sechin was defiant on the US sanctions assuring Rosneft’s shareholders and partners that “effectiveness” and “cooperation” would not be affected by the sanction. 

Sechin began his carrier as a Portuguese and French specialist, serving the KGB in Africa. He joined Putin’s team at the St Petersburg’s mayoral offices in the early 1990s, later taking charge of Russia’s energy policies as his mentor rose to power.  He built Rosneft with assets that were in effect seized from Yukos, the oil empire once controlled by Mikhail Khodorkovsky before he crossed political swords with Putin and ended up in a Siberian prison. That alone has made Sechin a particular target for the White House. 

BP and Shell exposed

It is unclear whether BP’s chief executive, Bob Dudley, can continue to sit on Rosneft’s board if Sechin remains in control. US persons are generally prohibited from dealing with anybody on the sanctions black list. Mr Dudley is an American citizen. 

The move by Washington creates a legal and political tangle for BP, which owns 19.75 percent of Rosneft’s shares under a legacy deal from the TNK-BP venture. The beleaguered British oil group is once again trying to put the best face on its disastrous misadventures in Russia. 

It is unclear whether BP could continue to operate in the United States or even carry out its global business smoothly if it continued to be a Rosneft shareholder with Sechin still in charge, yet it would be difficult to find buyers for a holding worth $12.5bn in the midst of a crisis. 

The US Treasury is also eyeing some form of sanction against Gazprombank, the financial arm of the gas monopoly Gazprom. This would greatly complicate Shell’s joint operations with Gazprom at Sakhalin Island and in the Arctic, though this would depend on the exact wording and how the US Securities and Exchange Committee chose to enforce it. 

Both BP and Shell said they remain committed to their long-term investments in Russia but are monitoring the situation closely. 

Rosneft is the world’s biggest traded oil company, producing 2.5m barrels a day and paying $75 billion a year in taxes to the Russian state. 

Frank Uzuegbunam