Kremlin-controlled oil company Rosneft has recently signed a deal with BP to search for new deposits of oil and gasoline in the Arctic waters off Russia's Northeastern coast, according to a recent WSJ article. The deal gives BP a 9% share in Rosneft. Revenues from oil sales currently account for roughly half of the country's budget, but their old fields are declining.
In terms of modernization, Russia trails behind, but they require revenue to catch the country up, revenue that will hopefully be provided by projects such as the one planned for the Arctic ocean. But what will BP get out of this venture? Hopefully a growth in credibility.
BP has recently come under criticism from the Western front for their Eastern European deal, but have defended themselves by arguing that the deal will allow them to "take advantage of a changing business landscape," according to this Guardian article from January. Western critics worry that this is a sign that BP is turning their back on interests in the United States, but Chief Executive Bob Dudley assures that the company remain committed to the US.
But what will this mean for the current Russian economy, which has experienced a downturn lately due to the drying up of oil fields in Siberia? This deal, in conjunction with a $3.8 billion venture with Pepsi, will hopefully bolster confidence in the Eastern European country's economy and bring about long term investments from outside investors. Foreign investors can bring about more efficient management, increase technology and spur growth. These two deals could bring about the kickstart Russia needs for modernisation, ideally improving Russia's rather poor track record in foreign direct investment (Russia and India Report).
Posted by Elizabeth Hope
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