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US energy sanctions on Russia must thread the needle

May 15, 2014

Russia’s resurgent geopolitical power is dependent on it’s vast energy wealth.  That makes the Russian energy sector a juicy target for policies aimed at punishing Russian machinations in Ukraine.

However, America’s European allies are dependent on Russia as their primary energy source.  That creates a dilemma – how to get European support for meaningful sanctions that won’t end up hurting themselves as much or more as the intended targets?

The US is trying to thread the needle by targeting Russia’s energy future while keeping its current productivity intact.   Although it remains a major exporter, Russia’s reserves of conventional oil are in steady decline.  However, as reported here in the past, Russia has immense shale reserves.  Shale oil has resuscitated the US oil industry (oil production in the US hit a 26 year high last year and the Energy Information Agency projects continued growth to a 40 year high next year).  No other nation has been able to leverage their shale resource as effectively as the US, and Russia needs access to US experience and technology if they want to similarly extend their own energy industry.

Therefore, the Atlantic allies are crafting sanctions that will prohibit participation in Russian shale (and Arctic) energy development by Western companies.  Of course, there is nothing preventing the Kremlin from retaliating by squeezing current exports to the allies, anyway.  It would end up just being a test of wills.  And, so far, Putin has demonstrated ownership of much more of that particular resource as well.

Russia's vast but untapped shale resources

Russia’s vast but untapped shale resources

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