Not long ago the Kremlin evidently believed that extending its forward policy into the lands separating it from key rivals – from the United States in particular – by aligning itself with the Chavez/Maduro dictatorship in Venezuela, and doing so through its control over Russian oil producers, was a low cost option. The United States, however, with nothing to lose boldly raised the ante. The imposition of U.S. sanctions on Rosneft and its subsidiary TNK for dealing in Venezuelan oil dealt a heavy blow to the Russian company, particularly after the oil price war launched by Saudi Arabia against Russia. And Rosneft got caught in a vise. Its share price on the London market fell off a cliff on 4 March, dropping by more than half in two weeks.
The price war came about because the Saudis wanted to reduce production and raise prices. The Russians refused. So the Saudis began dumping oil on the international market to demonstrate who held the whip hand. The oil price has now dropped perilously close to a level below cost of production for the Russians, certainly in the most difficult fields. All Russian oil producers are feeling the strain. West Texan Intermediate stands at just over 25 dollars a barrel and Brent at close to 28, despite Washington buying extensively to fill up strategic reserves; not least because the world economy is in the doldrums, as one can see from the main indicator of international shipping, the Baltic Dry Index. In these circumstances something had to give.
Eight hours ago the liberal economic newspaper Vedomosti announced that Rosneft is leaving the Venezuelan market and liquidating its holdings one way or another, including selling shares to the Russian Government, which got it into this mess in the first place. The terse explanation given was that Rosneft is a multinational company and its shareholders would not accept anything less. Indeed, more than one third of the shares are owned by B.P. and Qatar QH Oil Investments; so Rosneft has presumably had little choice in the matter.
This is a significant victory for the White House and serves as a salutary lesson for the Kremlin that, as in relations with Turkey, it should take care to assess the real balance of power locally and internationally before committing itself to propping up weak and unpopular dictatorial régimes. As the world economy continues to dive, President Putin’s room for manoeuvre will continue to diminish.