Crimea: Putin's War for Oil and Gas?

Sunday’s New York Times may have fitted the final piece into the puzzle of what Vladimir Putin’s costly Ukrainian landgrab is really about: offshore oil and gas. Putin has portrayed himself as a man with a mission, namely to protect ethnic Russians from an increasingly oppressive Ukrainian government. But that’s the story for domestic consumption, including the Russian Orthodox Church. In annexing Crimea, the Russians can also claim ownership of—or at any rate, control over—an enormous area of the Black Sea and the Sea of Azov, off the Crimean shoreline, and with them their underwater resources.

Recent offshore exploration elsewhere in the Black Sea has shown it to be potentially rich in fossilized fuel. A Russian official told the Times the offshore factor was irrelevant to the dispute with Ukraine, but the fact is that with the annexation of Crimea, Russia has claim to 200 extra nautical miles from the Crimean coast under the 1982 UN Law of the Sea Treaty, with exclusive right to explore and exploit the area’s potentially huge oil and natural gas resources.

The prospect of a Russian oil grab received little attention in mainstream media coverage of the Ukrainian crisis, or for that matter in the hours of discussion by experts and analysts. But Putin’s action deprives Ukraine of more than Crimea; it deprives Kyiv of its plans to become less dependent on Russian oil and liquid gas supplies, and free of the political pressure that has come with that dependence.

Ukraine’s state-owned Chornomornaftogaz had agreements with the Exxon Mobil and Royal Dutch Shell to explore that specific offshore quadrant. According to US and European petroleum sources, Chornomornaftogaz already owned—alone or with partners—13 offshore platforms in the Black Sea and the Sea of Azov; and one of the first acts of the Crimean Parliament following the referendum had been to nationalize oil and gas production.

As a result of the turmoil, Ukraine’s foreign partners in the energy field backed off. On March 19th, Royal Dutch Shell pulled out, saying it had decided to divert attention and capital to “other opportunities in our world projects portfolio.” And a senior Exxon Mobil executive said its agreement with Ukraine “is on hold due to current circumstances.” For Western firms, those circumstances could include future US and European sanctions, and other efforts to ratchet up pressure on Russia. 

Western countries have challenged the legality of Putin’s annexation of Crimea, and by extension any related Black Sea claims, but the Times quotes a Romanian newspaper as saying that Russia’s other Black Sea neighbors besides Ukraine—Georgia, Turkey, Romania, and Bulgaria—are less likely to challenge Russian offshore operations “in order to avoid an open conflict.”

According to Offshore magazine, exploratory drilling in the Russian sector of the Black Sea near Novorossiysk, east of Crimea—by Exxon Mobil, no less—has made encouraging finds, and test drilling in the Romanian sector has also showed promise. So the Russians could be sitting on new reserves to offset declining supplies from Siberia.

Photo Credit: www.kremlin.ru.

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