President Donald Trump has rejected Exxon Mobil waivers to operate in Russia, which it had asked for and received in 2015 and 2016. In 2012, the then CEO Rex Tillerson negotiated a deal with Rosneft, worth as much as $500 billion in joint investments, to explore deposits in the Black Sea, the Arctic and Russia’s Far East. «In consultation with President Donald J. Trump, the Treasury Department will not be issuing waivers to U.S. companies, including Exxon, authorizing drilling prohibited by current Russian sanctions», Treasury Secretary Steven Mnuchin said in a statement.
The United States and European Union imposed economic sanctions on Russia over Ukraine in 2014. U.S. companies frequently file license applications to the Treasury Department asking permission to undertake activities that would otherwise be barred by sanctions. The U.S. government weighs each application based on national security interests, the law and other factors.
European companies, under separate European Union sanctions, were allowed to continue to work on existing projects while being barred only from new ones. ENI, the Italian oil giant, plans to drill this year in the Black Sea, a largely untapped area with enormous oil reserve potential.
Last year, Norway's Statoil ASA drilled two wells in the Sea of Okhotsk at depths only slightly shallower than the 150-meter limit outlined by the EU. French energy company Total SA in late 2013 launched a giant natural-gas export project in Russia's Yamal Peninsula above the Arctic Circle. Russia now accounts for about a fifth of Total's reserves, according to Tudor Pickering Holt & Co. Italian companies continue to invest in Russia despite the sanctions.
Meanwhile, Exxon is not getting millions in potential profits from the abandonment of its Russia deal. The company sees itself as losing out to international oil rivals in Norway and Italy. At the time the sanctions were introduced, Exxon Mobil’s high-tech rig was already drilling in the Kara Sea, in an unfinished $700 million project that had yet to find oil. This is a clear loss for the company. Exxon Mobil discovered Pobeda – a major field with about 750 million barrels of new oil. It is one of the Arctic developments that Exxon Mobil has rights to work on should the sanctions be lifted. With the waiver request rejected, the company suffers another loss.
Exxon Mobil has long argued that it was being put at a disadvantage against some of its European competitors operating in Russia.
The decision to reject Exxon Mobil’s request apparently does not dovetail with the president’s election campaign promises to be business friendly. He wants to stem the wave of accusations related to his «Russia ties» and Exxon Mobil is seen as an axe not worth grinding. The event also illustrates that the anti-Russia policy does not serve American business interests. It’s hard to see how the decision to deprive an American company of access to lucrative deals and profits jibes with the «America first» policy.
The anti-Russia policy does not make the president more popular. According to the recent Fox News poll, Trump’s worst ratings are on Russia (40-52 percent). Only 18% see Russia as a major threat to the US.
The EU’s stance is more pragmatic because Europe has greater interests in developing cooperation with Moscow. It is easily explained by the growing demand for energy. Europe simple cannot satisfy its needs without Russia.
The idea of «a Europe of nation states, not ever closer union, based on free trade, friendship and co-operation’ has been floated. It becoming more attractive as the EU is facing an uncertain future. A European free trade area to provide free movement of persons, services, goods and capital – a purely economic association with no political and security structures – may serve as a viable alternative to the failed EU project. It could easily expand to encompass Russia and the members of the Eurasian Union stretching from Lisbon to Vladivostok. Russia's entry would not only be a boon for trade in the region, but it would also finally make Europe a true economic superpower with the largest market.
Despite the increased tensions and simultaneous crash in energy prices, Russia remains the EU’s fourth-largest trading partner and the EU continues to be Russia’s biggest trading partner. Russia supplies nearly all natural gas for many of the eastern members of the EU, as well as the bulk of Germany’s needs. As Germany continues to retire its nuclear and coal power plants, this link will only grow more important. If energy prices rebound, those trade figures will explode. Geographical proximity and historical ties cannot be discounted.
Germany, the European Union informal leader, played a key role in keeping the sanctions in force. This policy backlashed, coming with a hefty price tag. The volume of trade between the two countries dropped from 80 billion euros ($86 billion) in 2012 to 47 billion in the first 11 months of 2016. The German government faces pressure from business lobbies to resuscitate trade. Germany will hold elections in September. The voters know well that stable supplies of fuel and energy, in the first place, gas, will be crucial to further growth.
In April, an agreement was concluded on the second line of the Nord Stream gas project. It involves a group of European energy industry heavyweights – France’s Engie, Austria’s OMV, Dutch-British Royal Dutch Shell and Germany’s Uniper and Wintershall.
Russia is too important to allow the sanctions stand in the way of developing mutually advantageous ties. The Chancellor Angela Merkel visit to Moscow on May 2 is a strong diplomatic signal illustrating Germany’s readiness to engage diplomatically with Moscow before the G7 summit on May 26-27 and the G20 top level meeting in early July.