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I've written about Brazil pre-Lula and post-Lula and spent the last five years covering all aspects of the country for Dow Jones, Wall Street Journal and Barron's. Meanwhile, for an undetermined amount of time, and with a little help from my friends, I will be parachuting primarily into Brazil, Russia, India and China. But will also be on the look out for interesting business stories and investing ideas throughout the emerging markets.

Contact Kenneth Rapoza

The author is a Forbes contributor. The opinions expressed are those of the writer.

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Exxon's Russian Partner Rosneft Finally Hit With Sanctions

ExxonMobil’s Russian partner in the Kara Sea was finally hit with economic sanctions by both the U.S. and European Union on Friday as Moscow has shown its inability to cool anti-Kiev militants in eastern Ukraine.

Rosneft, Russia’s biggest oil state-owned oil company, was banned primarily from financial transactions within the United States, the U.S. Treasury Department laid out yesterday. The European Union’s sanctions were similar.  This latest round of sanctions now makes it more difficult for U.S., European and Russian companies to conduct business without first consulting a lawyer.

Exxon is spending over $700 million in a joint venture deal with Rosneft to drill for hydrocarbons in the cold Kara Sea in Russia’s Arctic Circle. That deal will face careful scrutiny by Treasury, if it is means to enforce sanctions on the true titan of Corporate America.

Russian oil companies have been in the cross-hairs of Washington and Brussels since March. That’s when Russia annexed the Crimean peninsula, once an autonomous region of Ukraine located in the Black Sea. Early sanctions targeted individuals — mostly wealthy businessmen believed to be funding or providing other forms of support for pro-Russia separatists in Crimea and, later, in Eastern Ukraine.

A second round of sanctions began targeting privately held companies and later this summer, Europe and the U.S. began punishing big banks and oil firms.  The U.S. banned the exchange of fracking technologies. The E.U. banned exports of equipment used for exploration and production.

It got worse on Friday. And now Exxon will be hard pressed to escape Washington’s latest punishment against the Russians.

Has the sun set on Exxon’s billion dollar joint venture with Rosneft in Russian waters?

This latest round targets all the major energy names in Russia. ExxonMobil, along with BP — a shareholder with a 20% stake in Rosneft — will be impacted. Just how remains unclear.

Exxon’s corporate office was unavailable for immediate comment on Saturday.  Exxon’s Moscow office was closed at the time this article was published.

Although the language of the sanctions against Rosneft stuck to financing, Treasury did impose full-sector sanctions that banned the export of goods, services and technology used in exploration and production of Russian deepwater, Arctic offshore, and shale projects “that have the potential to produce oil”.  This is smack dab in the middle of the Exxon-Rosneft wheelhouse.

It also impacts Gazprom, Gazpromneft, Lukoil, Rosneft, and Surgutneftegas.

Financial sanctions only apply to Novatek, Gazpromneft, Transneft, and Rosneft.

“The situation is getting very bad for Russian companies and for foreign subsidiaries in Russia,” said Andrey Goltsblat, head of the Moscow law firm of Goltsblat BLP. “Companies are afraid to break the sanctions. Everyone involved wants them to be removed.”

The language of the European and U.S. sanctions is not consistent, noted Barclays Capital analyst Michael Cohen in a commodities team research note to clients on Friday.  Each uses a different clause in describing deepwater. Europe specifies deep water oil while the U.S. refers to bans on deep water and Arctic oil exploration and production, and shale projects that have the potential to produce oil.

Cohen wrote, “the language adds uncertainty for companies involved in the production of both oil and gas in Russia.”

U.S. Senator John McCain, never one to hide his anti-Russia viewpoint, once referred to the country as one big gas station. That’s because the energy sector drives Russia’s economy and is responsible for its surpluses and high foreign exchange reserves of around $460 billion.

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