U.S. sanctions set to slow Rosneft's dollar debt, not oil deals

Thu Jul 17, 2014 1:49am EDT
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By Joshua Schneyer and Edward McAllister

NEW YORK (Reuters) - President Barack Obama aimed a direct blow at Russia's economic heart on Wednesday with sanctions on Rosneft, the flagship oil giant that generates more than 4 percent of the world's crude and over 8 percent of the country's GDP.

But in a change of tack from previous similar efforts, the measures were narrowly tailored to slowly starve the state-run energy firm of U.S. dollar funding, not bar it from doing business with oil buyers such as BP or stymie multibillion-dollar ventures with firms like ExxonMobil, experts say.

The sanctions against key parts of the Russian energy and financial industry were intended to serve notice to Moscow that its refusal to curb violence in eastern Ukraine has consequences.

In announcing the sanctions, which also hit No. 2 natural gas producer Novatek as well as two banks and eight defense firms, the Treasury Department said U.S. companies were only prohibited from engaging in any "new debt of longer than 90 days maturity or new equity" with the energy firms and banks.

The measures would not freeze the Russian firms' assets "nor prohibit transactions with them beyond these specific restrictions," the Treasury Department said. That marked a change from many earlier measures that effectively shut down a sanctioned firm's ability to do any business with U.S. entities.

The result is likely to be an increase in the cost of financing for Rosneft, which has grown increasingly reliant on pre-financing oil supply deals with firms including Glencore and BP. It may need to seek out new banks for loans, and could eventually slow investment in new projects.

But it will not "directly affect or limit Russia’s oil exports the way that sanctions on Iran were designed to do," said Gary Hufbauer, expert on economic sanctions at the Peterson Institute for International Economics in Washington, DC.

Washington has long barred U.S. companies from investing in Iran, and more recently has imposed sanctions that have halved its oil exports over Tehran's nuclear program.   Continued...

The logo of Russia's top crude producer Rosneft is seen at the company's headquarters, behind the Kremlin wall, in central Moscow May 27, 2013.  REUTERS/Sergei Karpukhin