Iran Should Learn from U.S. Sanctions on Russia

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Iran Should Learn from U.S. Sanctions on Russia

Anwar Altaqi – Esam Aziz

Compared to the oil sanctions set to kick in November 4 on Iran, the U.S.sanctions on Russia are a gentle punch.

Yet, Russia’s oil sector is indeed suffering because of Washington’s penalties. As became clear during a Congressional hearing August 21st, Washington’s official sources indicate that sanctions on Russia have affected investment in Russian oil and gas exploration projects. The U.S. Under Secretary of Treasury for Terrorism and Financial Intelligence Sigal Mandelker said Russia’s ability to increase its oil and gas production is almost curtailed after the recent U.S.sanctions. The U.S. Congress is considering imposing additional sanctions on Russia’s energy sector.

Senators and witnesses who provided testimony discussed the impact of the sanctions. Senator Mike Crapo (R-ID), the Chairman of the Senate Committee on Banking, Housing, and Urban Affairs that held one of the hearings, said that if Russian President Vladimir Putin doesn’t change his behavior, sanctions would “likely remain in place until he’s no longer in power and Crimea is returned.”

In the last year and a half, the U.S. administration has sanctioned 217 Russian-related individuals and entities for a broad range of activities. The administration has also introduced prohibitions on the provision of goods, services, and technology in support of certain energy projects in Russia. “Building on sanctions implemented since 2014, the impacts of our Russia-related sanctions are felt far beyond the targeted entities and persons,” Mandelker said, noting that “in the energy sector, our sanctions have limited important investment in exploratory energy projects needed to help grow Russia’s oil and gas production capacity.”

Mendelker said that total foreign direct investment into Russia has declined more than 5 percent since 2013, while U.S. investment there has plunged by 80 percent since then. “Russia is taking note of these impacts. Though Russia’s malign activities continue, we believe its adventurism undoubtedly has been checked by the knowledge that we can bring much more economic pain to bear using our powerful range of authorities — and that we will not hesitate to do so if its conduct does not demonstrably and significantly change,” the Treasury under secretary noted.

Obviously, the Russians are trying to downplay the impact of sanctions. According to a Russia-based analyst, the “bill from hell” of hard-hitting sanctions against Russia that U.S. senators introduced earlier this month is unlikely to have a wide-ranging impact on Russia’s oil industry, because Russian firms now rely almost entirely on domestic and Chinese banks for funding, and have lessened their dependence on Western drilling technology.

But this is simply not true. It was Russia’s own natural resources ministry that admitted that the sanctions had hampered natural gas project developments in the country. In a report about Russia’s oil and gas resources and their development for the period 2016-2017, the ministry said that sanctions against Russian oil and gas companies that limit the flow of foreign investment, new technologies, and equipment for the sector complicate the development of new projects in Russia, especially in offshore areas and in hard-to-extract resources. In the period 2016-2017, not a single significant gas project was launched, while gas firms focused instead on working at already operational projects, the Russian ministry said in its report. Gas production at firms Novatek and Lukoil dropped in 2016 compared to 2015, due to the sanctions against those companies, the report said.

Then, the sanctions moved to the oil transportation sector. The United States imposed additional punishment on this sector on August 21st. These new sanctions included two Russian shipping companies and six vessels it said were involved in the transfer of refined petroleum products to North Korean vessels, in violation of United Nations restrictions.The U.S. Treasury identified the shipping firms as Vladivostok-based shipping companies Primorye Maritime Logistics Co Ltd (Primorye) and Gudzon Shipping Co LLC (Gudzon). It also named six Russian-flagged vessels: Bella, Bogatyr, Neptun, Partizan, Patriot, and Sevastopol.

In addition to the “example” that Iran should remember when it defies the global community, the U.S. sanctions on Russia have a direct impact on Tehran. A joint Russian-Chinese project in Iran to produce considerable amount of natural gas will advance slower now as it encounters difficulties in transferring funds and collecting investments.

The U.S.sanctions on Russia imposing a ban on exporting certain “sensitive” goods and technologies, which will take effect later this month, may be a bitter pill for the Russian oil producers to swallow, as the 11-million-barrel a day industry is heavily reliant on foreign drilling and refinery equipment. Earlier this month, Nikolai Patrushev, secretary of Russia’s Security Council and close ally of President Putin, called the dependency “a serious problem,” as cited by Interfax.

In principle, U.S. sanctions on Russia are comparable to the sanctions on Iran, However, in size and magnitude, the U.S. sanctions on Iran are wider and more profound.