Putin Caps a Turnaround Year as Rosneft Deal Beats Sanctions

EghtesadOnline: As the U.S. and Europe try to isolate Russia with sanctions, Vladimir Putin just managed to oversee one of the biggest investments in the global energy industry this year.

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10 December 2016

The surprise $11 billion sale of shares in oil giant Rosneft PJSC to Qatar’s sovereign wealth fund and Glencore Plc caps a 2016 that’s only gotten better for the Russian president as the political tide moved in his favor. A rebellion against the mainstream swept admirer Donald Trump to the U.S. presidency, saw Britain vote to leave the European Union and undermined other leaders who backed the measures against Russia, Bloomberg reported.

“It’s possible that Trump and Brexit have changed the relationship to sanctions,” Alexey Chesnakov, a former Kremlin political aide, said by e-mail after the deal was announced.

It’s been a remarkable turnaround for Putin’s fortunes in stark contrast to the leaders who penalized Russia over its involvement in the Ukrainian conflict.

The year began with Putin in confrontation with Turkey over the shooting down of a Russian warplane, deadlocked with other oil producers over a plan to bolster prices and stung by the refusal of foreign banks to take part in a bond sale. Putin since patched up relations with Turkey’s Recep Tayyip Erdogan, reached a landmark agreement with OPEC last week to cut production, and traders are betting that Russian bonds will reap the benefit of better relations with a Trump White House.

Assad Ally

The involvement of Qatar in the Rosneft deal may also help him reinforce Russia’s role in the Middle East, where Putin intervened to support Syrian President Bashar al-Assad, according to Elena Suponina, a senior analyst at the Institute of Strategic Studies, which advises the Kremlin.

Despite the Gulf State’s opposition to Assad, it may have set a precedent for strengthening economic ties with “the biggest deal with the Arab world in modern Russian history,” she said.

That’s not to say the sanctions imposed over the 2014 seizure of Crimea and the conflict in eastern Ukraine had no effect. Coupled with a collapse in oil prices, Russia was pushed into its longest recession in two decades and its finances were crippled. The 10.2 billion-euro agreement for a 19.5 percent stake in Rosneft helps Putin to plug a hole in the Russian budget.

The U.S. is “reviewing” the Rosneft deal to determine if it violates sanctions, U.S. Special Envoy Amos Hochstein said on Bloomberg Television. While the agreement is “not what we were hoping for” when implementing the penalties, it’s “not necessarily” one to block, he said, adding that the U.S. is also discussing the deal with European officials.

Putin’s Politics

Trump has said he may recognize the annexation of Crimea, while the EU is struggling to maintain unity in the face of pressures from nationalist and populist groups.

They already upended the political careers of U.K. Prime Minister David Cameron and Italy’s Matteo Renzi. France’s 2017 presidential elections may provide further evidence that events are moving in Putin’s favor, with front-runner Francois Fillon promising to seek better ties with Russia. Incumbent Francois Hollande, who backed the sanctions over Ukraine, isn’t running.

In the meantime, 2016 rounds out nicely for Putin. He personally guided Russia’s commitment to reduce crude output, which underpinned OPEC’s first agreement to cut production in eight years and lifted prices. Then came Rosneft and longtime ally Igor Sechin, its chief executive officer.

The deal “only became possible thanks to your personal contribution,” Sechin told Putin when he announced the agreement on state television late Wednesday in Moscow.

Peter Grauer, the chairman of Bloomberg LP, the parent of Bloomberg News, is a senior independent non-executive director at Glencore.