Former BP CEO Warns "Sanctions Will Bite West" As US Gives Majors 14 Days To Wind Down Russian Activities

Tyler Durden's picture

For the past six months, even as Obama and the EU were laying harsher sanctions on the Kremlin, one group of companies had managed to sneak by unscathed and largely avoided being impacted by Russia's isolation by the West: the world's biggest E&P companies, as explained in detail over a month ago in "Exxon Drilling Russian Arctic Shows Sanction Lack Bite."

All that is about to change, because while sanctions until this moment had been largely intended to specifically allow energy companies to continue their status quo in Russia, as of this Friday, it is precisely the E&Ps that are being targeted, as we noted on Friday, and as Reuters follows up today, reporting that some of the world's largest companies, namely Exxon, Anglo-Dutch Royal Dutch Shell, Norway's Statoil and Italian ENI, will have to be put their Russian projects on hold:  to wit, the companies will have 14 days to wind-down activities.

From Reuters:

Projects now in jeopardy include a landmark drilling program by U.S. giant Exxon Mobil in the Russian Arctic that started in August as part of a joint venture with the Kremlin's oil champion Rosneft.

 

Now this and dozens of other projects that Rosneft and Gazprom Neft agreed with Exxon, Anglo-Dutch Royal Dutch Shell, Norway's Statoil and Italian ENI will have to be put on hold.

 

"Cutting off U.S. and E.U. sources of technology and services and goods for those projects makes it impossible, or at least extraordinarily difficult for these projects to continue...There are not ready substitutes elsewhere," a senior U.S. administration official told a briefing on Friday.

 

The companies will have 14 days to wind-down activities.

And just to make sure that there is once again major Obama administration-induced chaos, and thus yet another collapse in global trade, when it comes to the core covenant of capitalism, namely the sanctity of contracts from government intervention, Reuters cites a US official who said that "there is no contract sanctity."

Valery Nesterov from Russian state bank Sberbank, which was also sanctioned by the EU and the United States, foresaw serious complications. "What is really worrying are sanctions on tight oil. Russian companies haven't invested enough in research and technology. They were heavily relying on Western technologies and now it is simply too late," he said.

That may well be, but at the end of the day, Russia still has all the leverage in the long-run: "key among Russian tight oil reserves are the Bazhenov formations, which are located beneath existing mature west Siberian fields. They are estimated to contain as much as a trillion barrels of oil - four times the reserves of Saudi Arabia. Rosneft and Gazprom Neft are working on Bazhenov with Exxon and Shell.

"When we learnt about the first sanctions we decided to speed up work on all fronts to minimize the damage to the company," said a Rosneft source. Rosneft's chief Igor Sechin, a close ally of Putin, said earlier this month the company had approved a program to replace all Western technology in the medium-term.

But while expansion may or may not be hindered, and China certainly will have something to say about the expansion of Russian oil fields in the coming months - and bring its checkbook and smartest heads when it does - one thing that will certainly happen is that once again the West will prove too smart for its own good. 

Enter Tony Hayward, the infamous former CEO of BP (and current Chairman of Glencore) who may have been disgraced by his handling of the Macondo spill but his comments on how the Russian sanctions will play out, are spot on.

As the FT reported moments ago, "US and EU sanctions against Moscow are in danger of turning round and biting the west by constraining global oil supply and pushing up prices in coming years, the former chief executive of BP has warned."

Tony Hayward said that cutting off capital markets from Russia’s energy groups, which would eventually lead to less investment in Russian oil production, was likely to damage long-term supply. He said the US shale boom had obscured the growing risks to the world’s supply picture, but its effect would wear off, leaving the global economy dangerously exposed to potential disruptions in the flow of oil.

 

“The world has been lulled into a false sense of security because of what’s going on in the US,” Mr Hayward said in an interview with the Financial Times, referring to the shale boom that has driven a 60 per cent increase in US crude output since 2008. But he asked: “When US supply peaks, where will the new supply come from?”

But why worry: after all surely nobody in the Obama administration can possibly conceive that the 8000+ producing wells in the Bakken shale alone, up from 1000 in 2008, could possibly go dry at some/any point in the future...

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Sam Clemons's picture

Isn't the whole point to start a war?  I don't even see any point for the sanctions besides that.

blabam's picture

Blame Russia for Economic problems. Idiots-in-chief can point fingers at Putin thus postponing the great Lamppost party.

Keyser's picture

They want Putin to fire the first shot of WWIII... Justification for what is to come, be that as it may... 

ZerOhead's picture

Eventually he's going to tire of these games check the thermometer and begin to turn the big wheel on the valve clockwise until loud squeaking noises of surrender come from Europe...

knukles's picture

Here's the Real Deal
The West just made it impossible for a Western Company to do Biz in Russia.
If you do Biz in Russia you must do what?

Abandon it.
Obama just made a Gift of all Western Businesses on Russia to The Russian Oligarchs.

Fast times, Barack
Real swift

The Oligarchs get it and didn't even need to Expropriate of Nationalize the shit.  Obie Gave it to Them

Newsboy's picture

Blocking Arctic drilling with sanctions against oil majors operating in Russia for THIS reason is unassailable in the courts, and does conserve precious oil and CO2 for future generations, should the human species survive Ebola.

Brilliant(ish) really, if that's what they were trying for.

Real Estate Geek's picture

I sense a disturbance in the force.  Big Oil's probably rather pissed off at Big-Money & Big-MIC. 

Manthong's picture

PCR had an interesting thought..

“All Russian gas must be paid for in rubles”.

knukles's picture

Rubles
Rubles or Yuan
Rubles or Yuan or Gold
Or Rubles or Yuan linked to Gold.

Game Over

I been saying for months this was going to be the final "line in the sand" against which the West can do NOTHING

Winston Churchill's picture

The irony is the west pushed Putin into it.

He really didn't want to do it now , too much damage to his allies, but after six months

of prewarning its now,ready or not, fuck the petrodollar and the devil take the hindmost.

I still think it becomes official at the G20 meet in December.From now until then is going

to be an exciting ride.

Oracle 911's picture

I think is a bit other way around, because Putin and his clique want a strong independent sovereign Russia. They know the Western/US war pattern, so they prepared countermeasures beforehand and they waited to implement these measures and thus strengthen themselves.

Calmyourself's picture

"They are estimated to contain as much as a trillion barrels of oil - four times the reserves of Saudi Arabia." Well this for sure this cannot be true, this planet is running out of every resource, we are told this continuously,. U believe it, just like you should believe 8th century goat fuckers who cannot build an AK-47 are an existential threat we need to bomb them always and forever, right...   Watch the resource scarcers pivot on their birkenstocks to "ur killin Gaia"...

GMadScientist's picture

a) Just because it's there doesn't mean it will be any easier to extract than that crap in the shelf off of Brazil

b) Even 1 trillion barrels won't mean shit if 2B Chinese and Indians decide they wanna drive Hummers because they have little dicks too

Parrotile's picture

May as well be, seeing as sanctions are generally regarded as an "Act of War":

http://www.informationclearinghouse.info/article32910.htm

http://www.presstv.com/detail/2014/04/29/360604/us-sanctions-on-russia-act-of-war-paul/

http://www.lewrockwell.com/2014/03/no_author/sanctions-are-an-act-of-war/

But not according to Wikipedia, whose contributors regard them as "legal barriers to trade". http://en.wikipedia.org/wiki/Embargo

HOWEVER, the the rumblings ("Plans") within the US Administration to exclude Russia from the SWIFT mechanism would constitute an embargo, and under International Law, that IS regarded as a true "Act of War"; an act that would clearly and legally permit Russia to "point the finger" at the US and their allies, as instigators of any consequent formal conflict.

So, "The US Started it, Russia will finish it". Seems a good time to see how Russia has "finished" former conflicts . . . . .

Winston Churchill's picture

Depends if the history books are written in Russian or English.

For the cost of very little short term pain, Russia gets a lot of long term gain from this.

MasterOfTheMultiverse's picture

Right booboo, just like the 1990's sanctions on Iraq turned that country into an idyllic desert oasis. If sanctions hold up and Putin decides to follow the same policy as Saddam Hussein did, the real gain will be tens of thousands of Russians dead by starvation.

"But others argue that the fundamental reason Iraq is in such terrible shape is not Hussein's brutality but rather the comprehensive regime of economic sanctions that the United Nations Security Council imposed on Iraq for almost 13 years, sharply restricting all foreign trade. It was these sanctions, they claim, that brought this once rich country to its knees".

From: http://www.nytimes.com/2003/07/27/magazine/27SANCTIONS.html?src=pm&pagew...

blentus's picture

I bet you typed "sanctions" in Google, read 1st paragraph on first link and decided to enlighten us all with your knowledge.

 

Calmyourself's picture

One word sanction fan MOTM, CHINA..  They do not like us amd share a border with Putin, Iraq not so much.

MasterOfTheMultiverse's picture

China loves the US, it holds the most US treasuries of any country in the world. What has border sharing to do with it? Iraq shares a border with Saudi Arabia, world largest petroleum producer, not of much help during sanction time.

MasterOfTheMultiverse's picture

No, I actually did my homework, and it's not stated as fact but as one of possible outcomes based on past experiences, will add disclaimer next time for all the hypersensitive types op ZH. So enlighten us with your own analysis on this particular issue, i.e. trade/financial sanctions on Russia.

Calmyourself's picture

You did not do your homework you spewed, you cannot isolate economically the largest country in the world especially as it possesses the largest amount of world blood supply (oil).  We may try to control the world and yes we have the euro weenies by the balls but Asia and Russia have other ideas.. wake up..

MasterOfTheMultiverse's picture

Sure, Russia is large by surface, however Russia's GDP is hardly bigger than that of Italy. Regarding oil/gas reserves, it has less than 7% of the reserves of OPEC countries. If Russia would implode tomorrow, the world would continue to exist. They surely can be isolated, already planning to cover the cost of sanctions by targeting pension funds. Good luck with that! http://www.reuters.com/article/2014/09/15/russia-budget-crisis-idUSL6N0R...

Winston Churchill's picture

Look ar an atlas before you make an even bigger fool of yourself.

GMadScientist's picture

Try tens of thousands of Europeans dead from exposure.

booboo's picture

Sanctions rarely are a deterrent and are useless in changing behavior. What they do is allow time for market makers to place their bets on the crooked roulette table after the ball has dropped onto the colored number. They shake out the dumb money for the Croupier or the U.S. in this case and buy time and distract the sheep from the farmer corking them.

Angry White Dude's picture

Sanctions, like any other barrier to free trade (taxes, tarriffs, regulations, etc.) only divert the flow of commerce into pathways that ultimately circumvent the barrier. If there is a demand, it will be supplied.

joemayo's picture

http://mid.ru/brp_4.nsf/0/FEF8F7E49F212B9744257D510036F218

Russian Foreign Ministry on the statement by the President of the European Council Herman Van Rompuy on further EU restrictive measures against Russia

 

2111-11-09-2014

We have the following to say regarding a statement by President of the European Council Herman Van Rompuy on 11 September this year on the adoption of a new package of anti-Russian sanctions.

By taking this step, the European Union has made its choice against a peaceful settlement of the internal crisis in Ukraine, which all responsible forces in Europe should have supported instead.

Brussels and the leaders of the EU member-countries now need to give a clear answer to their citizens as to why they are putting them under the risk of confrontation, economic stagnation and unemployment.

Give the people a chance for peace.

 

11 September 2014
Jumbotron's picture

That red line on the shale play graph.......that's your Red Queen.

Midstyles's picture

my co-worker's step-aunt makes $76 /hour on the laptop . She has been fired from work for nine months but last month her payment was $16491 just working on the laptop for a few hours. Get More Information... www.payvalt.com

Angry White Dude's picture

So $76 / hour is the going rate for webcam porn these days?

Berspankme's picture

Neocons dont care, they just have case of red ass for russia. Rest is irrelevent

ZerOhead's picture

I really thought the NeoLibs would have backed the NeoCons off by now.

They had Russia with the hook in it's mouth... subserviant to US dollar hegemony with hundreds of billions of dollars of sovereignty crushing debt injected into it along with control of stategic oil producing asssets and then THIS shit keeps happening.

Either this is a brilliant Obama plan I can't even begin to figure out... the Russian are somehow tricking the US and Europe into leaving their assets alone... or we are being led by a pack of mentally deficient NeoCon nutcases.

Whoa Dammit's picture

My call is "We are being led by a pack of mentally deficient NeoCon nutcases."

Exxon, BP, etal. should just ignore the sanctions & the 2 week deadline. What's gonna happen to them if they do ignore the sanctions? Nothing. 

ZerOhead's picture

They should try it. Perhaps even sue the US under a WTO/GATT Tribunal for losses.

If not it's either Russia on it's knees or war.

Whoa Dammit's picture

Better yet, they should tell the US if they are forced to comply with the sanctions, they will shut down all of their US gas stations in 2 weeks, and that they will then wait another 2 weeks and see if there is still a government in the US. Nothing brings out pitchforks and torches in our country like lack of gasoline. 

booboo's picture

BP could still keep their gas stations open but board up the mega suger drink stations with a sign that states  "Closed Due to U.S. Sanctions." and watch the cities burn.

Joenobody12's picture

and then THIS shit keeps happening...."

This shit keeps happening because the objective of destroying Syria and Iran has not been met. Russia still stands in the way of Israel's divide and conquer crusade in the ME.

Obumpma is not very smart but he is no McCoccain or his boy friend Greaseham. Why then does he persist in provoking a confrontation with Russia ?  The military industrial complex is strong but to damage the business of big oil ? So what do we have left ? Mother Fucker ISRAEL. 

Watch how colonel Lawrence Wilkerson, former chief-of staff of Colin Powell explain how the Israeli lobby controls the decisioin-making structure in the BLACK house.

 http://www.youtube.com/watch?v=N294FMDok98

I wont be as upset if the zionist 's action did not affect my investment, my money, my family's bread and butter. 

Oracle 911's picture

Well fuck the EU and the US government.

Bossman1967's picture

Great sanctions ass wipes.

elegance's picture

Russia conventional oil has peaked (self admitted by Russia). This will actually bite. Problem is it will bite everybody...

straightershooter's picture

Sanctity of Contract...What a joke? Ever heard of " Force Majeure"....

 

"Respect my power" proclaimed by one BO..... The executive power came directly from divine...

emersonreturn's picture

ekm & tov were debating oil, banking, and the saudis on the Art C thread...and imho it feels like this set of sanctions plays somewhere through this.  neither  clear nor obvious but fascinating.

Peter Pan's picture

It is a pity that Europe is not taking the opportubnity to put the US in its place by unilaterally reversing all sanctions and letting the US realise thant is no longer hegemon anywhere except in its own mind.

All Europe has to do is negotiate a realistic, fair and lasting solution to the Ukraine crisis.

I never thought I would see the day that Russia would gain territory without firing a shot while America has never ceased firing shots and yet never been able to gain any territory or friends. Just enemies.

Envy of Russian resources and greed for control and profiting is what is driving all this and any pretence that this is about controlling the Russian threat of military expansion is a lot of hog wash.

DeliciousSteak's picture

Why do you think the bigger powers in Europe would have changed? They've been competing for influence amongst themselves for hundreds of years. Now they are at a direct confrontation with Russia. Do you just expect them to let Russia, a tiny economy, use its natural resource leverage to trample on them? No Sir, that's not how it works. They would rather be first in a small village in Gaul than second in Rome. Come what may, Russia will submit. If it takes until Putin is gone, so be it. 

Idaho potato head's picture

You obviously know nothing of the Russian world or it's mindset. Your wishful thinking will not happen even in the wests wildest dreams, Zbig be dammed.

Angry White Dude's picture

They've been vassal states of the U.S. for 70+ years (longer in some cases).

Fixed it for ya'.

Calmyourself's picture

NSA has portfolios on each and every one, their weaknesses and proclivities, they will sacrifice their children on a fire before their political careers..