‘China won’t ride to Russia’s rescue’

PODCAST: With special guest Samuel Merlin, head of energy at Hannam & Partners

“[China] is a notoriously difficult negotiator and counterpart because the more power they get the harder they negotiate. If Russia really thinks that’s a great place to align itself with I think it’s going to be up for a rude awakening, because China is just orders of magnitude bigger than Russia.”

Listen again to Samuel Merlin, partner and head of energy at investment bank Hannam & Partners, talking on yesterday’s podcast about the severe economic and geopolitical fallout facing Russia from its shock invasion of Ukraine.

Samuel said Western sanctions are likely to stymie foreign direct investment into Russia’s energy sector for decades. Interestingly, this includes Chinese banks because these have wide international syndicates backed by capital from global sources that can’t invest in sanctioned entities.

We covered a broad range of high-level topics, first taking stock of Russia’s apparent military failure in Ukraine. In the absence of Western political will for confrontation, the current stalemate situation could drag on as the Kremlin thrashes around for an outcome it can spin as a victory — regardless of the humanitarian cost.

This is pushing Western powers ever closer towards more drastic economic measures, putting vital flows of Russian gas into Europe at greater risk of a partial or outright EU ban or perhaps retaliatory cut-off by Moscow.

Samuel explained in some detail how the departure of Western expertise from Russia will hinder the next wave of highly complex Siberian oil and gas projects, creating an opportunity for alternative exporters. But the outlook for North American producers to replace lost Russian barrels is complicated, even as Europe stumbles deeper into energy crisis.

This 46-minute conversation is worth listening to in full if you want to understand the immediate and longer-term impacts of sanctions on financial flows in the energy sector.

Here are a few hand-picked highlights:

• ‘Russia knows the West wants to avoid conflict so is pushing the envelope militarily’ — 2 min

• ‘Russia sanctions are bifurcating the oil market’ — 1 min

• ‘Russia will struggle to develop its energy resources without Western help’ — 2 min

• ‘Sanctions will hurt Russia for decades, no matter how soon war ends’ — 2 min

• ‘War in Ukraine reveals need for a more pragmatic energy transition’ — 1 min

• ‘Policy flip-flops stymie long-term energy investments’ — 1 min 20s

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Thanks for reading and listening, have a great week.

Seb