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Trump might say 'America first' as a reason to end sanctions on Russia

Trump and Putin to chat on the phone this weekend

President Donald Trump could lift sanctions against Russia over the conflict in Ukraine by himself — and may justify doing so by saying that he is putting America first.

Trump is expected to discuss the sanctions when he speaks by phone with Russian President Vladimir Putin on Saturday, White House aide Kellyanne Conway said in a television interview Friday. The White House also announced that Trump has separate calls with the leaders of Germany and France, two U.S. NATO allies that support sanctions on Russia.

"We'll see what happens," Trump said regarding Russia sanctions at a press conference on Friday. "As far as the sanctions, it's very early to be talking about that, but we look to have a great relationship with all countries, ideally."

The U.S. sanctions, imposed through executive order by President Barack Obama, can be lifted by Trump's pen — without the vote of Congress — if he so wishes, experts said. It's not clear whether his intention is to lift sanctions right away, but Trump's first official discussion with Putin could lay the groundwork for removal.

People said Trump will never remove the sanctions on Russia. Of course he will. It's a leveling of the playing field for U.S. corporations.
Helima Croft
head of global commodities research, RBC

"People said Trump will never remove the sanctions on Russia. Of course he will. It's a leveling of the playing field for U.S. corporations," said Helima Croft, head of global commodities research at RBC. The sanctions against Russia hurt that country's energy industry and make it harder for Russia to raise capital. Getting rid of the sanctions is a major priority for Russian President Vladimir Putin.

U.S. companies, including Exxon Mobil, were forced to drop activities in Russia if they were in new areas of development, such as Arctic drilling and Russian shale. But Croft explained that European companies, under separate European Union sanctions, were allowed to continue work on existing projects while being barred only from new ones.

Based on Trump's rapid-fire execution of orders in his first week, such as directing the construction of a wall on the Mexican border, experts say it's possible he could move toward lifting sanctions against Russia. He could do so without the consent of European allies, which have sanctioned Russia separately.

"Clearly, he really wants this relationship to work. I have some sympathy in the sense the U.S. relationship with Russia has been very badly damaged, and a lot of that has Obama to blame," said Ian Bremmer, president of global political consultancy Eurasia Group.

Trump has been moving toward lifting the sanctions already. "He has so many of his speaking points aligned with those of the Kremlin, around Crimea, Ukraine, around Syria, around American exceptionalism and values," Bremmer said.

Trump also seems bent to to move forward without gaining agreement from historic allies in Europe. "If I were advising Trump, I would want him to be coordinating with Merkel and others who were steadfast allies ... I think he's made up his mind on this," said Bremmer.

Trump is renouncing American exceptionalism, in not telling other countries what to do.
Ian Bremmer
president, Eurasia Group

"I guess what we've been learning about Trump is that he actually does what he said he was going to do. The problem is the sanctions were imposed for what the Russians did in Ukraine and Crimea. The Germans have worked hard to keep this together, as the French president has," said Professor Angela Stent, director Center for Eurasian, Russian and East European Studies at Georgetown University. "This would send a message to Russia that it can get away with it, but it undermines the European Union's efforts to hold Russia accountable."

Obama first imposed sanctions after Russia invaded Crimea, claiming it to be part of Russia. "It's the Europeans who did it much later when the (Malaysian) airline was shot down over Ukraine," Stent said.

Bremmer expects Trump to move forward regardless of prevailing sentiment Europe, where nationalist candidates stand to gain ground in several elections this year. In France, Marine Le Pen has gained in polls. She says she wants to get rid of the euro currency.

"Germany is the country that's in the most vulnerable position because of Trump, compared to most of the American allies. Europe is getting weaker. He likes Brexit, says other countries should leave. Germany is the country most interested in maintaining a strong Europe, and Trump is undermining (Merkel). Trump is renouncing American exceptionalism, in not telling other countries what to do," said Bremmer.

At the same press conference where Trump spoke on Friday, British Prime Minister Theresa May was forthright in saying that sanctions against Russia should continue until Russia conforms agreements designed to reduce fighting in Ukraine.

Bremmer believes Trump will move forward quickly. But other experts say Trump may ease sanctions slowly — and therefore less visibly — rather than tossing them out right after taking office.

Critics have called out Trump for praising Vladimir Putin, whom U.S. intelligence concluded was personally involved in trying to undermine last year's U.S. presidential election and help get Trump elected. Rex Tillerson, Trump's candidate for Secretary of State who just retired as CEO of ExxonMobil, and has strong personal links to Moscow and his former company has billions at stake in Russia.

Trump initially refused to accept intelligence community findings that Russian officials intentionally meddled in the U.S. election by hacking into Democratic National Committee computers. Trump has since vowed to make the U.S. more secure from cyber espionage, but has said nothing about punishing Russia.

There is also another consideration. Tillerson has yet to be approved by the Senate. Tillerson was questioned by Congress on his feelings about Russia. One strategist said Trump may not lift sanctions right away because of the Tillerson vote, expected next week.

Cars pass by a billboard showing US President-elect Donald Trump and Russian President Vladimir Putin placed by pro-Serbian movement in the town of Danilovgrad on November 16, 2016.
Savo Prelevic | AFP | Getty Images

Exxon has one of the most high-profile projects that was disrupted by sanctions, an Arctic drilling deal with Rosneft. The joint venture with Russian state-controlled oil giant was to explore and produce fossil fuels in Arctic waters, and it represents a big part of Exxon's potential future production growth. The sanctions were imposed in 2014, and Exxon said in a filing after the sanctions were put in place that its "maximum before-tax exposure to loss from these joint ventures" totaled $1 billion through the end of 2015.

Russian projects were able to find some other funding sources, including China. Rosneft recently raised funds by selling an $11 billion stake to Qatar and Glencore.

If the sanctions are lifted, Croft said the knee jerk reaction in the oil market would likely be a decline in prices just because of the prospect of more supply. Under the sanctions, Russia actually was able to increase its oil production, and the decline in the ruble actually helped producers by keeping production costs lower.

Croft said the move in oil prices would be temporary, since the new supply from Russia would not be immediate, and Russia is part of a producers group, with OPEC, that has agreed to cut back production to keep oil prices at a higher level.

A gale of Russian shale

If the sanctions are lifted, one area of immediate interest would be in the potential for Russian shale. The Bazhenov Shale formation in the West Siberian basin is believed to hold massive reserves of tight oil — which can be reached by U.S.-pioneered technology that Russia can't access because of the sanctions — and that could be one of the first places companies might want to invest.

"Russian oil production has been strong, and it's actually increased until the OPEC deal. It could mean a renewal of Western investment in Russian oil, in the new areas in terms of tight oil, Arctic and offshore," said Daniel Yergin, vice chairman of research firm IHS Markit. "The taste for big expensive long term projects is a lot lower today than it was when the sanctions were imposed. One area that is very interesting is tight oil in Russia."

Tight oil has been much cheaper to extract through horizontal drilling than deep water projects. "There's a debate about how prolific it is," said Yergin, who said the Bazhenov by all signs is a huge reserve and would take a while to develop.

"If the analysis of U.S. shale is used, it could be very significant. I think all these development take time, and it takes a lot of experience to determine all of these resources and how to recover it. Certainly it would be a whole new horizon for Russian oil," he said.

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