Russian arm-twisting has consequences

Russia may have scored a gas victory over Belarus a few minutes to midnight on New Year’s Eve, but its use of similar blackmail tactics in getting its hands on the huge Sakhalin-II gas project in eastern Russia is earning the country a financial slap on the wrist. In mid-December, Russia strong-armed Shell into selling ...

599443_gazprom_logo5.gif
599443_gazprom_logo5.gif

Russia may have scored a gas victory over Belarus a few minutes to midnight on New Year's Eve, but its use of similar blackmail tactics in getting its hands on the huge Sakhalin-II gas project in eastern Russia is earning the country a financial slap on the wrist. In mid-December, Russia strong-armed Shell into selling its majority stake in Sakhalin, where two major fields under development are estimated to hold more than 1 billion barrels of crude and 500 billion cubic meters of natural gas, to Gazprom, the state-owned energy giant.

But Russia's fondness for re-nationalization means the European Bank for Reconstruction and Development will likely reject a $300 million loan to the Sakhalin project. From the FT

[F]ormally walking away from the largest energy project in Russia would be considered a snub to the Kremlin and its policy of taking control over private sector assets.

Russia may have scored a gas victory over Belarus a few minutes to midnight on New Year’s Eve, but its use of similar blackmail tactics in getting its hands on the huge Sakhalin-II gas project in eastern Russia is earning the country a financial slap on the wrist. In mid-December, Russia strong-armed Shell into selling its majority stake in Sakhalin, where two major fields under development are estimated to hold more than 1 billion barrels of crude and 500 billion cubic meters of natural gas, to Gazprom, the state-owned energy giant.

But Russia’s fondness for re-nationalization means the European Bank for Reconstruction and Development will likely reject a $300 million loan to the Sakhalin project. From the FT

[F]ormally walking away from the largest energy project in Russia would be considered a snub to the Kremlin and its policy of taking control over private sector assets.

Still, the FT admits that the loan would have been of mostly “symbolic” value given that much of the development on the project is already complete. So it’s not a complete loss for the Russians, even if it is bad for business.

The biggest losers? Environmentalists, who relied on the bank to keep standards on the project in check. Russia cynically played the environmental card when it wanted Shell to hand over its controlling interest last year, threatening the company with a shut-down over alleged environmental damage, which the government had previously ignored. Now, as the Russian saying goes, the goats are guarding the cabbage.

Carolyn O'Hara is a senior editor at Foreign Policy.

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