RUSSIA

    Rosneft CEO Igor Sechin’s speech last week was notable for several reasons. This was Sechin’s second major public appearance after the Kremlin’s invasion of Ukraine; the first had been in June at the St. Petersburg Economic Forum. The two speeches were similar, featuring an overview of global politics and energy based on several familiar themes. Sechin again emphasized the decline of the West driven by American hegemony and short-sighted energy transition. He prophesized that the euro, the Japanese yen and the UK pound would “burn in the flames of the crisis.” And he not only heaped praise on India and China but also predicted that Taiwan would “return to its native harbor,” triggering a protest from Taiwan’s Foreign Ministry.

    More interesting, in our view, were Sechin’s statements about foreign partnerships and the outlook for Rosneft’s projects. On the first, he discussed at length BP’s track record as Rosneft’s partner, the high returns that BP generated on its investments in Russia, and what he described as the continued presence of BP as Rosneft’s “shadow partner.” He once again mentioned the dividend payable to BP for the second half of 2021 that was deposited in a special account that he said his “friends from BP” could access.

    This part of Sechin’s speech was delivered with a mix of bitterness and nostalgia. In recent private meetings, he repeatedly complained about Rosneft’s former Western partners and what he saw as their baseless and abrupt withdrawal from Russia. Followed by the exodus of Rosneft’s Western executives, the termination of partnerships with international energy companies was a big blow to Sechin’s personally. His vision of himself as a global energy figure must have been shattered as his access to the West was cut off. As an illustration of his constraints, the conference he spoke at used to be held in Verona, Italy but was transplanted to Baku, Azerbaijan, this year.

    highlights

    • Rosneft CEO Igor Sechin’s speech in Baku last week featured a rambling geopolitical overview as well as a discussion of Rosneft’s partnership with BP.
    • In private and in public, Sechin has expressed regret over the abrupt withdrawal of Rosneft’s international energy partners from Russia. Like President Vladimir Putin, he seems to have a delusional expectation that Western energy firms will soon return to the country.
    • Sechin has also expressed commitment to Rosneft’s Vostok Oil project, which, in our view, will not be implemented on the grandiose scale that the company has envisioned.  

    Sechin also apparently believes that Western investors will return to Russia’s energy sector in the not-too-distant future, in line with President Vladimir Putin’s thoughts. Speaking at the Valdai forum last week, Putin intimated that foreigners are not leaving Russia forever: “They are selling their companies to [their] management for one dollar, whispering in their ear, ‘We are out for a bit, we’ll soon be back.’” At a time when the Kremlin has prohibited firms from “unfriendly” states from disposing of their Russian subsidiaries without special authorization from Putin, these statements come off as delusional.

    Another noteworthy comment from Sechin concerned Rosneft’s projects. He mentioned the completion of the Kharampur gas project, in which BP participated, which would enable Rosneft to boost gas production by 11 bcma. He did not have anything to say about the need for this extra gas, however, given the glut of gas in the domestic market as a result of Gazprom’s severance of ties with most of its European consumers.

    As far as Vostok Oil is concerned, Sechin talked as if project implementation were in full swing, though on closer look, the information that he provided does not enable one to assess the project’s true status. In our view, Vostok Oil will not be implemented on the grandiose scale that Rosneft has envisioned, but neither will it be canceled, as that would be tantamount to admitting that Western sanctions against Russia are effective. Sechin will continue to insist that Vostok Oil is moving along, paying particular attention to formal figures such as cargo transportation through the Northern Sea Route (NSR).


    personality of the week

    Yuriy Trutnev  

    Deputy Prime Minister, Presidential Representative to the Far Eastern Federal District. At a recent meeting of the State Arctic Commission that Trutnev chaired, he expressed concern that cargo transit through the Northern Sea Route (NSR) has been declining this year. In the meantime, state funding for Arctic development will be cut by about a third in the 2023 federal budget, from 11bn roubles to 7bn roubles (about $112mn) – a tiny amount given the scale of infrastructure development and social projects that the government has been discussing.

    Although Trutnev has enjoyed strong ties with Putin and has a reputation as a forceful and demanding figure, his management of the Arctic Commission has been a failure. The commission is one of the multitude of institutions that have an Arctic mandate, and it notably lacks any decision-making powers. Trutnev has been unable to accumulate influence in the Arctic arena. The commission that he heads has widely been dismissed as a talking shop, and his claims that the NSR will rival the Suez Canal have been derided even in pro-government media.

    Trutnev, 66, has had a low-key presence this year. His access to Putin has been curtailed following the invasion of Ukraine. Notably, Trutnev has rarely talked about the invasion directly and has immersed himself in the daily matters of the Far East economy.