The Ukraine crisis may be inadvertently working towards environmental conservation in the Arctic. On Friday, the US government ordered American companies to cut off exports to Russian oil exploration within 14 days, stymying Exxon Mobil’s plans to start drilling in the Kara Sea. These new measures are aimed at closing loopholes that allow oil companies to keep operating in the area, and they’re the latest in a series of sanctions imposed on Russia in an effort to halt President Vladimir Putin’s support of separatists in Ukraine.
Earlier this summer, Exxon, with its Russian partner Rosneft, started drilling in the Kara Sea – the body of water between the northern coast of European Russia and the Novaya Zemlya island chain. The US Treasury is putting a stop to this, saying that American companies engaged in such activities have until September 26th to “wind down applicable transactions with these entities.” In addition to Rosneft, the American sanctions preclude transfers of technology, goods and services to the Russian energy companies Gazprom, Gazprom Neft, Lukoil and Surgutneftegas.
American officials say the new sanctions should not affect Exxon’s current day-to-day oil production. And even if they do, Russia isn’t a meaningful contributor to the company’s bottom line. But the sanctions could, particularly if they last for an extended period, damage the oil giant’s relationship with Russia, impacting the company’s growth strategy. The Kara Sea project in the Arctic Ocean is a central piece of Exxon’s effort to gain new reserves and replace production lost in aging fields and in countries like Venezuela that have grown unfriendly to Western oil companies.
The prolonged crisis in the Ukraine and resulting sanctions have weighed heavily on the Russian economy. But the country’s cash-rich energy industry so far has shown few signs of a slowdown. Barclays forecasts that Russian oil production would decline by a mere 20,000 barrels a day in 2015 — a drip in a 90 million barrel a day world market. But it added that they would “throw a wrench” into plans to expand the Sakhalin fields. The ban on technology transfers could cripple a sweeping plan by Russia to move from declining Siberian fields to ones offshore in the Arctic Ocean, newly accessible because of the thawing sea ice from global warming. Without Western investment, Russia’s energy future may be in jeopardy.