Gazprombank found itself under Washington sanctions
How US pressure creates conditions for the concentration of power in the Russian energy sector
The US Treasury Department has imposed sanctions on Russia’s Gazprombank, an institution closely linked to the state monopoly Gazprom. It is through Gazprombank that financial flows from gas exports pass, ensuring the existence of the Putin regime and helping Moscow obtain funds to continue the war in Ukraine.
“Ukrainian Energy” has figured out how this sanction track has hit Gazprom’s positions and what trends that have emerged in the Russian oil and gas sector under the pressure of sanctions restrictions determine its prospects.
Another financial trap
Gazprombank was added to the US sanctions lists at the end of November, along with more than 50 other Russian international banks. All of them service foreign accounts of businesses working in the interests of the Kremlin. The Office of Foreign Assets Control (OFAC, a division of the US Treasury Department) called this decision a “radical action” taken to increase pressure on the “Russian military machine”.
In addition to Gazprombank, Washington also sanctioned six of its foreign branches in five countries: GPB International (Luxembourg), GPB Financial Services Hong Kong (Hong Kong), GPB Financial Services and GPB-DI Holdings Limited (Cyprus), Gazprombank Switzerland (Switzerland) and GPB Africa and Middle East Pty (South Africa).
“Gazprombank is a channel through which Russia purchases military equipment for its war against Ukraine. The Russian government also uses Gazprombank for combat payments to its soldiers, as well as compensation for the families of soldiers killed in Putin’s brutal war against Ukraine,” the US Treasury Department argued in support of its decision.
According to Nikkei Asia, the Biden administration has informed its G7 allies of its intentions in advance.
Gas Policy
Sanctions against Gazprombank, which serves as the largest settlement bank in agreements to supply Russian gas to Europe, were introduced by the United Kingdom, Australia, Canada, and New Zealand during 2022. The United States held back until the last moment so that EU countries could continue to buy blue fuel under contracts with Gazprom in the face of the energy crisis.
At the same time, the Russian monopoly has taken action to increase tension in the gas market. After the Kremlin launched a large-scale war of aggression against Ukraine, Gazprom was used as one of the instruments of Putin's aggression on the economic front in Europe. Despite the conditions stipulated by the current contracts, the Kremlin-backed company decided to abandon payments for gas in dollars or euros and switch to payments exclusively in rubles through special accounts in Gazprombank.
Some of Gazprom's partners in the EU then rejected this proposal, as they found options to abandon Russian gas by switching to purchases from alternative suppliers. This was done, for example, by PGNiG (Poland), Shell (Netherlands), and Gasum (Finland). There were also foreign companies to which Gazprom refused to supply gas even despite their agreement to switch to rubles in settlements. Indicative in this context was the example of the German Uniper, which for a long time occupied the role of Gazprom's largest client in Germany. Two weeks after paying for the contract in rubles, the Russian monopoly stopped all business with it, despite long-standing special relations.
Around pro-Russian interests
Over the past three years, Europe has managed to reduce its dependence on Russian gas. While in 2021 the country generally provided over 45% of European gas demand, in June 2024 its share decreased to 18%.
Diversification of supplies from Norway, the US and other countries helped. Therefore, cooperation with Gazprom does not seem to be critically important for the region. Currently, only two countries continue to directly purchase gas from the company under long-term contracts - Hungary and Slovakia. Therefore, US sanctions came as an unpleasant surprise to them. Now they are forced to hurry to find a way to make payments to Gazprom under sanctions pressure.
American restrictions are likely to create problems. In imposing sanctions against Gazprombank, the US Treasury Department set December 20 as the deadline by which businesses must stop cooperating with this Russian institution and its network abroad.
Turkey, which transports Russian gas via the TurkStream pipeline and is seeking to become a gas broker, has also expressed its dissatisfaction and disappointment with the US decisions. “If the sanctions against Gazprombank are not lifted, it will have very serious consequences for Turkey,” the country’s Energy Minister Alparslan Bayraktar admitted.
He is seeking to get Washington to ease restrictions on Gazprombank so that Ankara can continue its profitable business of reselling Russian natural gas to Europe. However, last year, China failed to agree on an exclusive license from the US Treasury Department to purchase liquefied gas produced under Novatek's flagship Arctic LNG-2 project, despite being a shareholder. In November 2023, the project was hit with US sanctions, which ultimately led to its halt in October this year.
Criticism of the US restrictions on Gazprombank has also come from Budapest. Hungarian Foreign Minister Peter Szijjarto called them a "threat to energy security." But he believes that Turkey's lobbying efforts in Washington will be successful and the country will be able to continue purchasing Russian gas, which will reach it through Turkey.
In parallel, Gazprom is preparing to stop gas transit to Europe via Ukraine on December 31 of this year, when the contract for transportation services with the state holding company Naftogaz Group expires. According to Bloomberg, this is the base scenario in the plans of the Russian monopoly, which have yet to be approved by top management.
“In the context of escalating tensions in Ukraine, the question of whether gas transit will continue on January 1 is becoming a political decision. Moscow says it is ready to continue gas supplies, but Kiev wants to deprive Russia of the opportunity to receive income,” the agency concludes.
Conditions for Gazprom’s bankruptcy
The Russian Central Bank has recognized American sanctions against Gazprombank and 50 financial institutions involved in hydrocarbon trading as one of the main drivers of instability in the foreign exchange market. In recent days, the ruble has lost 11% against the dollar and euro. Gazprom’s financial prospects are also disappointing. The value of its shares has collapsed to $1 from a peak of over $8 apiece.
“The reason for this failure lies in the political decision of one person – Vladimir Putin, who staged a full-scale invasion of Ukraine. That is why Gazprom is rapidly falling into bankruptcy, transforming from the leader of the energy market, as previously seen in the Kremlin, into a collector company that will beat off gas debts from grandmothers and grandfathers somewhere in the Russian hinterland,” said independent energy expert Gennady Ryabtsev. He considers Gazprom’s business to be extremely politicized and far from quality corporate governance. “Therefore, it is not surprising that Gazprom’s total exports now amount to only 50 thousand cubic meters per year, and not approaching 200 thousand cubic meters, as it was before the war against Ukraine,” the interlocutor of “Ukrainian Energy” emphasized.
Estimates by the Ukrainian KSE Institute confirm that under the pressure of sanctions, Russian oil and gas companies have found themselves in an extremely difficult situation.
In particular, Russia has lost its main natural gas market in Europe. Experts predict that “attempts to use gas flows as leverage have not yielded the desired result, which has led to Gazprom’s first losses since 1999 and the unlikely restoration of gas supplies to Europe for many years.”
The KSE Institute’s calculations are also disappointing for the Russian oil industry, which is the main source of financing the war against Ukraine. Experts note that Russia lost $78.5 billion from oil exports compared to the scenario without the introduction of sanctions (from December 2022 to June 2024). Monthly losses reached their highest point of $8.6 billion in January 2023 after the introduction of the embargo and price restrictions by the EU. However, since mid-2023, losses have stabilized at $2.8 billion per month.
The reason is that in response to the sanctions, Russia has invested approximately $8.5 billion in building up a tanker fleet that is not subject to sanctions. A significant part of this expenditure fell on the period from Q4 2022 to Q2 2023, and as of Q1 2024, the shadow fleet numbered 435 vessels.
Nationalization to the rescue
The economic difficulties that resulted from the strong sanctions pressure from the West have opened up opportunities for the largest reallocation of assets in the energy sector in Russia since the collapse of the Soviet Union. Numerous publications in Western media will testify to this. Among them is a recent article in The Wall Street Journal (WSJ), in which the publication, citing sources close to Moscow, reported on a plan to merge the assets of the largest oil companies into a single national mega-corporation.
The resulting company could become the world's second-largest oil producer (after Saudi Aramco), and its production would exceed the volumes of the American Exxon Mobil three times.
"The successful implementation of the idea would strengthen Vladimir Putin's control over global energy markets and Russia's wartime economy," the WSJ notes.
The plan calls for state-owned Rosneft to absorb Gazprom Neft, a subsidiary of Gazprom, and independent oil company Lukoil. All of them are subject to US sanctions. The new giant corporation is expected to be better able to withstand Western sanctions that hamper exports and hinder the implementation of new major oil and gas projects. In addition, the concentration of management of powerful oil assets in one hand is intended to “prepare Russia for a possible thaw” in economic relations with the West when the fighting in Ukraine ends. The return of Donald Trump to the White House after his victory in the US presidential election makes such a scenario quite likely.
However, rumors of asset consolidation have not yet been officially confirmed.
In response to the WSJ publication, Rosneft’s press service distributed a statement through Reuters, in which it denied the company’s intentions to absorb most of the Russian oil sector and called the dissemination of information about them an attempt to portray the company’s head, Igor Sechin, as an “influential person.”
In addition, the described intentions, they say, do not correspond to “any reasonable business logic.”
However, the denial of rumors does not mean that the merger of energy assets and their nationalization is a fantastic scenario. Especially now, when the West is tightening sanctions on Russia, and its oil and gas resources, which until recently were in demand on foreign markets, are being displaced by alternative suppliers. Under such restrictions, maximum concentration and centralized management of resource flows becomes a rather tempting idea.
Svitlana Dolinchuk, specially for “Ukrainian Energy”
