It’s not every day that the U.S. Senate is accused of haste in pushing through legislation that, in the end, turns out to be in need of remedial action. Historically, that’s been the House’s job. But the more we learn about the negative implications of the Russia sanctions bill, which sailed through the Senate earlier this summer by a vote of 98-2, the clearer it becomes that the House will need to play the role of “cooling saucer” to prevent a few loosely written provisions in the bill from scalding the U.S. economy.
The bill, as currently written, would make it illegal for any U.S. company to engage in any activity — whether in Russia, which is reasonable; or off the coast of Brazil, which is not — where a Russian energy company is involved in any capacity. And it’s not just America’s oil companies that are at risk here and asking for some common sense to be injected into this process, contrary to the narrative being spun up by House and Senate Democrats. The current language has the potential to affect a wide variety of industries – up and down the global energy, manufacturing, and engineering value chain.
Imagine an offshore rig as a small industrial city, one that leverages and depends upon virtually all sectors of the U.S. (and global) economy to function properly. Who makes these cities run? Let’s start with major industrial giants like GE, which even before its recent acquisition of Baker Hughes, was actively involved in nearly all facets of the energy exploration and development business. Chemicals companies make the lubricants needed to keep the literally millions of moving parts on a rig operating smoothly. IBM, Microsoft and others provide the software used to monitor and direct the rig’s vital control systems. Insurance companies underwrite policies for workers and the companies themselves. Food and beverage companies feed the hundreds of men and women who cycle in and out. U.S. shipping, transport, and logistics firms ferry people and products safely back and forth to production sites worldwide.
Wherever Russian energy companies – including global giants like Gazprom, Rosneft, and Novatek – own even the smallest stake, that otherwise negligible presence could have the potential under this legislation to block U.S. enterprises from getting involved in that project at any level. Jobs, dividends, and economic activity that would have gone to Americans would instead go to Chinese and Russian firms, which will find themselves operating in a market suddenly devoid of their greatest competition – all thanks to an act of our own Congress.
And we’re not just talking about U.S. companies potentially being cut-out of exciting new projects in Brazil, either. Consider the case of Vietnam, where the United States and Russia have competed for influence since the Cold War. A number of oil and gas discoveries have been made in recent years in the waters off the coast of that country, especially in a large basin called the Nam Con Son.
Rosneft, a sanctioned Russian oil company, controls a 32.67 percent stake in the 230-mile long pipeline that connects fields offshore to terminal and storage facilities onshore. If this bill were to pass, even a U.S. company that had 100 percent ownership of an offshore project in this basin, and used only American companies for its supplies and services, could be forced to build its own redundant pipeline and terminal facilities just to avoid using one of which a Russian company happens to be a minority owner. Obviously, the costs of doing something like that would be prohibitive; the de facto result would be a ban on U.S. companies doing business there.
And again, this would harm not just oil companies, but the hundreds of other contractors, suppliers, and vendors on which they rely to bring these big, international projects to fruition.
There are dozens of other examples to consider. In Kazakhstan, where Russia has extensive influence, U.S. companies control 75 percent of the massive Tengiz field; Russian firms control just five percent. Will this legislation force U.S. companies to abandon that basin?
In Mozambique, U.S. firms are leading the way in building broad international consortia to develop and market that country’s enormous offshore natural gas reserves. Rosneft is an established player there already, along with dozens of other firms. If we were to exit, the show would go on — we just wouldn’t be there to reap any of the benefits. But don’t worry: Russia, China and others will be more than happy to claim our share.
Thankfully, in a bill that’s 117-pages long, the fix that’s required to avoid shooting ourselves in the foot, while keeping intact both the spirit and substance of the underlying policy regime, isn’t all that difficult. It shouldn’t be all that contentious, either. It’s time for the roles to be reversed and the House to step up to serve as a moderating influence – not in defense of Russia, but in support of the United States.
Thomas J. Pyle is president of the Institute for Energy Research and former head of the Department of Energy transition team under the Trump administration.
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