By Amy Harder And William Mauldin
WASHINGTON--The U.S. is close to imposing the toughest round of
energy sanctions so far on Russia, measures that could also hit
Western companies like Exxon Mobil that are working with Russian
state-controlled oil companies.
The sanctions, which the European Union is expected to match,
would ban energy companies from working with Russia on future oil
exploration in the Russian Arctic, deep seas and shale rock
formations, according to a U.S. official.
The sanctions wouldn't affect current oil production, but could
imperil the future of existing partnerships, including a deal
between Exxon Mobil Corp. and OAO Rosneft, the Kremlin-controlled
oil giant, to drill in the Arctic Ocean.
Previous sanctions banned only the export of technology that
could be used in such projects. Other companies potentially
impacted include BP PLC and Royal Dutch Shell PLC.
"It'll deny them some contracts for sure, but it hurts Russia a
lot more, " the U.S. official said, referring to Western energy
companies. "This puts their future economic growth in danger."
The U.S. official cautioned that the deal isn't final and may
not ever be adopted, depending in part on actions by the EU and
whether the cease-fire that took effect Friday between pro-Russia
separatists and Ukraine holds.
A spokeswoman for the Treasury Department, which takes the lead
on U.S. sanctions, declined to comment.
Elizabeth Rosenberg, a former Treasury official who helped
implement sanctions on Iran's oil industry, said that such a move,
if enacted, "would be extremely significant and would directly
impact a number of Western companies that partner with Russian
companies."
To offset declining output from older traditional wells,
Russia--one of the world's biggest oil-producing countries--is
seeking to develop oil fields that are difficult to reach, which
often requires cooperation with Western companies.
"The Russian companies that would be affected by this are large
companies that generate substantial revenue for the Russian
government, and they require partnership with Western companies for
technology and access to capital," said Ms. Rosenberg, who is now a
senior fellow at the Center for New American Security, a
Washington-based think tank.
Exxon spokesman Alan Jeffers declined to say how the new
sanctions could affect his company. "We are assessing the
sanctions," Mr. Jeffers said by email. "It is our policy to comply
with all laws."
A Rosneft spokeswoman declined to comment.
Exxon and Rosneft are drilling now in the Kara Sea before
October, when ice will make the Arctic waters unnavigable. The
Arctic exploration Exxon and Rosneft are doing, if successful,
wouldn't generate meaningful production for years.
Exxon shares fell sharply in aftermarket trading when the news
initially broke on Wednesday, though settled at a loss of .06%, to
$96.81.
The EU this week approved this new round of sanctions against
Moscow, which includes these energy sanctions, but it has held off
enacting them while Kiev works with Moscow on a solution to end
fighting with separatists in Ukraine's eastern regions.
A meeting Wednesday in Brussels ended without agreement; EU
officials were to reconvene Thursday.
Some countries, including Finland, Slovakia and Cyprus, are
arguing that there has been an improvement in the situation in
Ukraine since the cease-fire, and that the bloc should wait to see
how it evolves. Others such as the U.K., Germany and Poland argue
the EU should enact the sanctions as promised but lay out clear
conditions under which they could be rolled back.
"The issue is now to publish them and therefore enforce them,"
German Chancellor Angela Merkel told the lower house of parliament
in Berlin earlier in the day.
Italian Foreign Minister Federica Mogherini, soon to become the
EU foreign policy chief, said in Brussels that the issue may have
to go back to EU leaders before a final decision can be made.
The U.S., EU and other Western countries have imposed sanctions
on Russia this year after Moscow moved to annex Ukraine's Crimea
region. Officials in the U.S. and other countries say Russia's
military is participating in fighting inside Ukraine, a charge the
Kremlin denies.
The latest sanctions would increase the concerns of business
groups that worry that the U.S. efforts to punish Moscow are
starting to hurt the prospects of global firms significantly.
Business groups also worry that stricter sanctions will lead
Russians to reject Western brands, doing long-term harm to
consumer-focused firms that aren't directly affected by the
sanctions and aren't facing retaliation from Russian officials.
Russia, which has a much smaller, less diversified economy
compared with the U.S. and EU, has threatened to respond
asymmetrically to the next round of sanctions, perhaps by banning
Western flights over its territory, which would hit European
airlines and U.S. freight firms.
U.S. officials say they're working hard to minimize any
boomerang effect of the sanctions. Many of the restrictions so far
have targeted Russian companies' access to global financial
markets, dominated U.S. lenders and others that use the dollar.
According to documents reviewed by The Wall Street Journal, the
latest EU sanctions, which haven't been implemented, would further
limit the international financing of three Russian energy firms:
OAO Gazpromneft, the oil arm of Russia's natural-gas giant;
pipeline operator OAO Transneft and Rosneft.
Five state-controlled banks, including giants OAO Sberbank and
VTB Group, would also face tighter EU restrictions that cut their
ability to borrow in Europe to 30 days, from 90 days in a previous
round of sanctions.
The U.S. is expected to match the EU with similar financial
restrictions.
"The United States is finalizing measures to both deepen and
broaden our sanctions across Russia's financial, energy, and
defense sectors," State Department spokeswoman Marie Harf said
Tuesday. "We're making our decisions on our own timeline but
obviously coordinating very closely" with the EU.
Lynn Cook
, Daniel Gilbert and Laurence Norman contributed to this
article.
Write to Amy Harder at amy.harder@wsj.com and William Mauldin at
william.mauldin@wsj.com