The US Treasury blacklisted Igor Sechin, the mastermind of the Kremlin’s energy strategy and Russia’s second most powerful man
Russian President Dmitry Medvedev (L) speaks with Vice Premier Igor Sechin at an opening ceremony of the supply gas pipeline for Petropavlovsk-Kamchatsky, the regional capital of Russia's Pacific Kamchatka peninsula, in Sobolevo
Russian Prime Minister Dmitry Medvedev (left) and Igor Sechin Photo: AFP
By Ambrose Evans-Pritchard
The US has tightened the noose yet further on the Russian economy, imposing sanctions on the kingpin of Russia’s oil industry in a move that could have serious consequences.
The US Treasury blacklisted Igor Sechin, chairman of Russia’s top oil producer Rosneft and a former KGB official from the inner circle of Russian president Vladimir Putin. He is thought to be the mastermind of the Kremlin’s energy strategy and Russia’s second most powerful man. It also targeted his deputy.
Rosneft is the world’s biggest traded oil company, producing 2.5m barrels a day and paying $75bn a year in taxes to the Russian state. The move by Washington creates a legal and political tangle for BP, which owns 19.75pc of Rosneft’s shares under a legacy deal from the TNK-BP venture.
Market reaction to the news was muted. Rosneft’s shares fell to a 10-month low in Moscow, while yields on its benchmark 2022 bond spiked to a record high, but damage was light by the end of the day.
Russia’s MICEX index of equities rallied as the package of US sanctions was dismissed as thin gruel by traders. The list excluded major banks, instead targeting 17 corporate bosses, companies and political operatives at the Kremlin, as well as an export ban on hi-tech defence goods.
State-owned lender Sberbank jumped 5.5pc. “The sanctions were not as bad as had been rumoured or feared. It is clear that the US and EU are divided,” said Chris Weafer, from Macro Advisory in Moscow.
Officials in Washington say they have an arsenal of “sectoral sanctions” in reserve that could cripple the Russian economy by hitting banking system, oil and gas, and the mining industry, if Mr Putin sends Russian tanks across the border into eastern Ukraine.
Yet the market calm may be deceptive. Mr Weafer said the risk is slow suffocation for “several years” as foreign banks retreat and investment is shelved, with an erosion in oil revenues gradually undermining investor faith.
While Rosneft itself was not placed on the black list, it may nevertheless be constrained if US regulators deem that Mr Sechin has decisive control over the company, or even if he tries to run it at arms length.
Washington has a number of stealth measures it can use to tighten the screws. Officials say that the US Treasury could quietly pressure the compliance divisions of US, European, and Asian banks to force their traders to liquidate holdings of Sberbank debt.
This could be painful since Rosneft has $52bn of debt that must be rolled over, largely in dollars. The foreign capital market is effectively shut. This may force the company to repay debt from cash flow, cutting back on investment plans.
Norway’s Statoil said it is suspending its joint drilling in the Arctic High North with Rosneft, though it cited other reasons for the action. Exxon Mobil also has major investment plans in the Artic that could quickly become a political hot potato.
It is unclear whether BP’s chief executive, Bob Dudley, can continue to sit on Rosneft’s board if Mr Sechin remains in control. The Treasury statement said that “US persons are generally prohibited from dealing with” anybody on the sanctions black list. Mr Dudley is an American citizen.
For now the beleaguered British oil group is once again trying to put the best face on its disastrous misadventures in Russia. “We are committed to our investment in Rosneft, and we intend to remain a successful, long-term investor in Russia,” said a spokesman.
The US Treasury dropped plans to place Gazprom chief Alexei Miller on the black list after pleas from Germany and other EU countries alarmed by possible disruptions of gas supplies. It also spared the company’s financial arm, Gazprombank.
Oil is a better target for the White House because it generates the lion’s share of Russia’s state budget, yet a loss of Russian supply in Europe can be replaced in part from sources around the world – including the US strategic petroleum reserve, if need be. New crude is also coming on stream from Iraq and Libya.
A top administration official said the US and EU are working together to ensure that targets are picked in such a way that frontline EU allies are not left bearing the full brunt of the consequences.
The mood in Europe has hardened since the capture of international observers from the OSCE, now held as hostages by pro-Russian activists. “A number of Europe capitals are looking very hard at sectoral sanctions in response to the egregious treatment of these observers. These guys were paraded on television like POWs forced to make a statement to the press. There is broad belief that they have also been abused in captivity,” said the official.
Rosneft is Russia’s biggest oil producer, accounting for a quarter of the country’s total output. It already has plans to sell 500,000 barrels a day to China and this could be raised if Rosneft to switch its strategic priority to the Asia. The question is whether Beijing would wish to come to the rescue with funding and investment, given its own fears about Uighur separatists in Xinjiang trying to break up China’s borders.
Mr Sechin began his carrier as a Portuguese and French specialist, serving the KGB in Africa. He joined Mr Putin’s team at the St Petersburg’s mayoral offices in the early 1990s, later taking charge of Russia’s energy policies as his mentor rose to power.
He built Rosneft with assets that were in effect seized from Yukos, the oil empire once controlled by Mikhail Khodorkovsky before he crossed political swords with Mr Putin and ended up in a Siberian prison. That alone has made Mr Sechin a particular target for the White House.