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In a previous article on Oilprice, I questioned whether western sanctions imposed on Russia were being regularly breached by E.U. and Asian companies, noting that sanctions only work if all countries unite behind them.

In June, the Financial Times reported that only one year after being imposed, the sanctions are eroding. It seems that government and business policies are pulling in opposite directions, despite the sanction regime being clear on the activities that are banned, as explained by Forbes:
"Last July ('14), the E.U. banned its companies from signing any new financing deals with Russia. In September, the E.U. placed even more restrictions on Russia's access to E.U. capital markets. The sanctions state that individuals and corporations from the E.U. are banned from providing loans to five major Russian state-owned banks, including Sberbank and VTB Bank, and the three state owned energy companies, of which Gazprom tops the list.

The September sanctions, which went into effect on the 12th of that month, said that companies could no longer provide services related to the issuing of financial instruments, including broker relationships.

In addition, certain services necessary for deep water oil exploration and production, arctic oil exploration or production and shale oil projects in Russia were also banned."
Much of the mainstream financial news also began picking up on the 'sanction-busting' story, pointing out that many NATO tied governments did not regard Russian sanctions as an obstacle to doing business with Russian energy companies.

Forbes notes that, as a result of sanctions, western oil companies that were once dominant in Russia are now being replaced by European and Asian companies. The article stated that ExxonMobil was "kicked out of Russia" because of sanctions, and was forced to cap a major Arctic discovery in the Kara Sea, where it had spent some 3/4 of a billion dollars, as part of a joint venture with Rosneft.

ExxonMobil has 10 joint ventures in Russia with the state-owned firm Rosneft, but all of those have been shelved due to the sanctions.

European Union (EU) business and political leaders tend to question the validity of sanctions more than those in U.S., because sanctions have a much greater negative economic impact in the Europe. On the question of energy policy and Russia, clear differences are emerging within the EU, as well as between the EU and U.S.

One example of these differences arose over Iran sanctions, where the EU has recently voted to prolong its suspension of sanctions, until nuclear negotiations are completed.

"European companies are finding ways and are certainly freer to do business than their U.S. counterparts," James Henderson, senior fellow at the Oxford Institute for Energy Studies, told the Financial Times. "U.S. companies are going to be hugely disadvantaged as we go forward because E.U. sanctions are not retroactive and U.S. ones are."

It remains an open question as to whether China and India's multibillion dollar loans to Russia and their current joint energy ventures with Rosneft were a direct circumvention of western sanctions, with both Rosneft and its Chairman sanctioned. That also raises questions as to whether the sanctions themselves are creating unfair trade advantages for 'busters.'

These potentially sanction busting deals were announced at the St. Petersburg Economic Forum:

- BP buys 20% of Rosneft-owned oil reserves in E.Siberia, in a $700 million deal, creating new Asian-bound oil partnership
- Rosneft and Indian state-run Oil and Natural Gas Corp signed long-term deals.
- Gazprom and Royal Dutch Shell are building a global alliance
- Gazprom signed an agreement with the Greek government to pursue its Turkish Stream Pipeline
- Gazprom signed a 300 million euro loan with Unicredit Bank of Austria
- Gazprom held discussions with Engie (formerly GDF Suez) over gas pipelines to France

The capper came at the St. Petersburg Economic Forum, where the Saudis arrived, offering to be a full-fledged finance partner in Russia's energy development, in exchange for Russian nuclear expertise and military arms. Two weeks later, the Saudis raised the bet with a five-year, $10 billion investment in Russia's agriculture, retail, and real estate sectors.

It is one thing to see Russia replace the West with China as client, partner, and financier of energy development; it's quite another to see Russia swap western finance for Middle Eastern finance, sourced from one of the West's strongest allies. That is likely to cause major concerns in western banking circles.

For the investment community, there was another sign at the Forum of the way the investment wind may be blowing. Jim Rogers, an American multi-billionaire investor and former partner of George Soros's Quantum Fund, announced that he was investing in Russian assets precisely because "...they are the most hated in the world."

The famous American contrarian has recently accepted a Board of Director's Seat at PhosAgro, a Russian fertilizer company, where he is also a major stakeholder.

Some six months after sanctions were imposed, the U.S. Secretary of State visited the Kremlin for private talks with Putin, which were widely interpreted as an attempt to ease international tensions over Ukraine. After the St. Petersburg Forum, the first telephone conversation between Presidents Obama and Putin took place, breaking an eighteen month silence.

As tensions ease, and the news becomes more focused on issues like Greece, rather than Ukraine, sanctions vigilance seems to be eroding. There are also signs emerging that some U.S. analysts are beginning to question the western narrative on Russia's actions in Ukraine. One example comes from a senior analyst at, one of the most widely respected U.S. strategic intelligence newsletters. Senior Analyst Lauren Goodrich argued in a June 29 video on Stratfor's website that the U.S. is actually the one making antagonizing moves while Russia is merely responding:

"The way that the American media has put it out there is that Russia is being the aggressor (in Ukraine), and instead we're seeing Russia be very reactive instead. NATO starts to build up, then Russia starts to build up. The United States helps support the revolution that took place in Ukraine this past year, Russia then takes Crimea and goes into eastern Ukraine. So it really is a reaction to what is taking place out of the United States and out of NATO."

All of this suggests that official government sanctions may continue a good deal longer, while the EU and Asian business community increasingly ignores them. That is likely to result in increased government pressure from the U.S. business community to enable its companies to compete on and equal plane with their EU and Asian peers. This growing dichotomy between the U.S. and EU/Asia is unlikely to be long lasting, as their respective governments seek ways to avoid embarrassment in their respective business communities.

As stated by Chris Weafer, founding partner at Macro-Advisory, a Moscow consultancy, "Goods and services which in theory are subject to sanctions, in reality do not appear to be. Companies seem to be working around it. There is obviously a very big blind eye being turned" by some western governments.... "I think the basic message is if you're not blatant about it you're fine."

A U.S. State Dept. representative may have let the truth slip out when he described the reaction of the State Dept. to questions from U.S. companies about attending the St. Petersburg Economic Forum. "If you tell us you're going, we'll probably order you not to, but if you go and don't tell us, we'll probably do nothing," he said.