u.s.-russia economic relations: myths and realities · 2020-04-17 · october 2017 u.s.- russia...
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COVER PHOTO ADOBE STOCK
1616 Rhode Island Avenue NW
Washington DC 20036
202 887 0200 | wwwcsisorg
v++ISBN 978-1-4422-8035-9
Lanham bull Boulder bull New York bull London
4501 Forbes Boulevard
Lanham MD 20706
301 459 3366 | wwwrowmancom
A U T H O R
Vadim Grishin
Myths and Realities
A Report of the
CSIS RUSSIA AND EURASIA PROGRAM
US-RussiaEconomicRelations
O C T O B E R 2 0 1 7
Euml|xHSLEOCy280359z
The Man Pupu Nyor Rock Formations at the Northern Urals also known as Seven
Strong Man or Little Mountain of the God in the local tribe (Mansi) language
Blank
O C T O B E R 2 0 1 7
US- Russia Economic RelationsMyths and Real ities
AUTHOR
Vadim Grishin
A REPORT OF THE
CSIS RUSSIA AND EURASIA PROGRAM
Lanham bull Boulder bull New York bull London
594-71613_ch00_4Pindd 1 102017 403 PM
About CSIS
For over 50 years the Center for Strategic and International Studies (CSIS) has worked
to develop solutions to the worldrsquos greatest policy challenges Today CSIS scholars are
providing strategic insights and bipartisan policy solutions to help decisionmakers chart a
course toward a better world
CSIS is a nonprofit organ ization headquartered in Washington DC The Centerrsquos 220 full-
time staff and large network of affiliated scholars conduct research and analy sis and develop
policy initiatives that look into the future and anticipate change
Founded at the height of the Cold War by David M Abshire and Admiral Arleigh Burke CSIS
was dedicated to finding ways to sustain American prominence and prosperity as a force for
good in the world Since 1962 CSIS has become one of the worldrsquos preeminent international
institutions focused on defense and security regional stability and transnational
challenges ranging from energy and climate to global health and economic integration
Thomas J Pritzker was named chairman of the CSIS Board of Trustees in November 2015
Former US deputy secretary of defense John J Hamre has served as the Centerrsquos president
and chief executive officer since 2000
CSIS does not take specific policy positions accordingly all views expressed herein should
be understood to be solely those of the author(s)
copy 2017 by the Center for Strategic and International Studies All rights reserved
ISBN 978-1-4422-8035-9 (pb) 978-1-4422-8036-6 (eBook)
Center for Strategic amp International Studies Rowman amp Littlefield
1616 Rhode Island Ave nue NW 4501 Forbes Boulevard
Washington DC 20036 Lanham MD 20706
202-887-0200 | wwwcsis org 301 - 459 - 3366 | www rowman com
594-71613_ch00_4Pindd 2 102017 403 PM
III
Contents
iv Acknowl edgments
1 CHAPTER 1 | Introduction
4 CHAPTER 2 | Does Bilateral Economic Interaction Matter
11 CHAPTER 3 | Politics in the Driverrsquos Seat
15 CHAPTER 4 | Are the United States and Rus sia ldquoNatu ralrdquo Trading Partners
A Little Bit of History
19 CHAPTER 5 | Sector Analyses
41 CHAPTER 6 | Diversity and Constraints
47 CHAPTER 7 | Existing Trends and Future Scenarios
50 About the Author
594-71613_ch00_4Pindd 3 102017 403 PM
The author wishes to thank the participants of a draft paper discussion William Arnold Jack
Brougher Matthew Edwards Daniel Fried Andrew Kuchins Randy Levinas Gary Litman Jeff
Mankoff Cyrus Newlin Olga Oliker Ian Solomon Doug Stanglin and Angela Stent
This report is made pos si ble by the generous support of Car ne gie Corporation of New York
Acknowl edgments
Iv
594-71613_ch00_4Pindd 4 102017 403 PM
1
01
Introduction
A friend of mine a devoted connoisseur of bilateral economic relations with 30 years of experi-
ence in the field once noted that the hottest discussions about US- Russia ties occur at a time
when mutual trade is compressed into the value of a mathematical error This is exactly what is
happening now According to official statistics the value of US- Russia trade is about $20 billion
and is rolling back to the level of 20051 There is no doubt that a new set of sanctions recently
signed into law by the US president and currently being implemented will further hurt economic
interaction by reducing financial inflows limiting the transfer of technology and expertise and
dampening business confidence Many policymakers and experts have agreed that HR 3364
(Countering Amer i carsquos Adversaries through Sanctions Act2) by expanding and codifying US
sanctions targeting Rus sia opens a new cycle in bilateral relations This legislation which received
overwhelming bipartisan support creates a new economic and po liti cal framework on a bilateral
track Strong concerns expressed by President Donald Trump in his special statement about
ldquounconstitutional provisions of the ldquoflawed billrdquo3 cannot significantly limit its intended and
unintended consequences In its implementation it could have relatively broad margins of flexibil-
ity and leverage but requires the president to seek congressional approval before easing or termi-
nating sanctions against Rus sia or undertaking actions that would significantly modify US policy
toward Rus sia Additional observations regarding HR 3364rsquos pos si ble impact on US- Russia
interaction in par tic u lar industries can be found throughout this report but suffice it to say that it
will contribute to a broader curtailment of many pillars of economic cooperation for years ahead
1 US Census Bureau ldquoForeign Trade Trade in Goods with Rus siardquo Foreign Trade updated June 29 2017 https
wwwcensus gov foreign - trade balance c4621 html
2 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364 115th Cong (2017ndash2018) https www
congress gov bill 115th - congress house - bill 3364
3 Donald J Trump ldquoStatement by President Donald J Trump on the Signing of HR 3364rdquo White House Office of the
Press Secretary August 2 2017 https wwwwhitehouse gov the - press - office 2017 08 02 statement - president
- donald - j - trump - signing - hr - 3364
594-71613_ch01_4Pindd 1 102017 404 PM
US-Russia Economic Relations2
Escalating geopo liti cal tensions have continued to significantly define Rus siarsquos economic prospects
however the countryrsquos economic model exhausted itself long before the dramatic deterioration of
relations with the West Structural bottlenecks have seriously limited Rus siarsquos growth capacity even
during the previous period of high oil prices4
The purpose of this report is to assess what has gone wrong with the US- Russia equation by
analyzing it through the prism of a bilateral economic and po liti cal trajectory while keeping in
mind the structural constraints of the Rus sian economy It will attempt to answer the following
questions
bull Do bilateral economic relations matter
bull Are the United States and Rus sia ldquonatu ralrdquo or ldquounnaturalrdquo trading partners
bull What future scenarios can we expect
In the vast lit er a ture on US- Russia economic relations analy sis of developing trends in bilateral
commerce has always been accompanied by discussions around impor tant po liti cal and eco-
nomic matters particularly regarding US legislation and regulation5 Over several de cades the
most controversial issues concerned the granting of permanent normal trading status to Rus sia
through legislation that eliminated the Jackson- Vanik Amendment and Rus siarsquos accession to
the World Trade Organ ization (WTO) The Magnitsky Act signed into law in 2012 repealed the
Jackson- Vanik provisions but added legislation providing authority for the US government to
withhold visas and freeze assets of Rus sians thought to have been involved with human rights
violations and later imposed sanctions on Rus sia because of its involvement in the Ukrainian and
Syrian crises and its cyber- enabled activities6
Some have observed deficiencies in Rus siarsquos participation in the international division of labor
(reliance on the export of energy and metals) which ldquo canrsquot serve any more as a basis for further
expansion of the countryrsquos position in world markets including the US marketrdquo7 Unfortunately
such observations have not been accompanied by quantitative and qualitative analy sis of structural
constraints in the Rus sian foreign trade model Many authors limit their policy recommendations
for fostering bilateral economic relations to a requirement for a strong initial push from respective
governments the creation of business working groups and the extension of bilateral and multilat-
eral legal grounds for economic cooperation Such instruments proved to be useful in facilitating
4 International Monetary Fund (IMF) Rus sian Federation Selected Issues (Washington DC IMF 2016)
5 ldquoAmer i carsquos New Economic Sanctions May Hurt Rus siarsquos Recoveryrdquo Economist August 5 2017 Andrey Kortunov and
Olga Oliker eds A Roadmap for US- Russia Relations (Washington DC CSISRIAC 2017) https csis - prods3
amazonaws com s3fs - public publication 170815 _ KortunovOliker _ USRussiaRelations _ Web pdf E0bdGVHlxxYRAxhO
w8zJ9tbRGwdWjEgV Самуйлов CM Братерский MB ldquoКонгресс и торговые отношения США с Россиейrdquo [US
Congressrsquos role in the US- RF trade relations] США и Канада экономика политика культура 5 no 533 (May 2014)
6 Andrew Weiss and Richard Nephew ldquoThe Role of Sanctions in US- Russian Relationsrdquo (Task Force White Paper
Car ne gie Endowment for International Peace Washington DC July 11 2016)
7 Глущенко ЮН ldquoСостояние проблемы и перспективы сотрудничества России и США в экономической сфереrdquo
[Status prob lems and prospects of Russia- US economic cooperation] Проблемы Национальной Стратегии 21 no 6
(2013) 148ndash164
594-71613_ch01_4Pindd 2 102017 404 PM
Vadim Grishin 3
trade and investment during several reset cycles in bilateral relations starting in the 1990s but
they were only partially successful
Several papers and books although focused primarily on bilateral po liti cal agendas or sectorial
analy sis underline the importance of Rus sian domestic realities Dr Angela Stent in her ldquoLimits of
Partnershiprdquo notes that state control of the commanding heights in the Rus sian economy creates
significant deterrents for US private- sector entrance into the market8 Thane Gustafson in the
ldquoWheel of Fortunerdquo asserts that Rus siarsquos growing dependence on revenue from oil exports along
with its inefficient and often- corrupt management of industry is unsustainable9 Andrew Kuchins
in his ldquoElevation and Calibration A New Rus sia Policy for Amer i cardquo has quoted some experts who
believe that the weakened Rus sian economic position may over time contribute to some rap-
prochement with the West and emphasized lack of reforms as ldquoa key obstacle not only for Rus sian
economic recovery but also for improving ties with the Westrdquo10
In a recent joint task force report Eugene Rumer Andrew S Weiss and Richard Sokolsky argue
that the concept of developing stronger economic ties with Rus sia as a foundation for improved
diplomatic relations has not worked ldquoClinton Bush and Obama all placed high hope on trade as
an engine of better relations with Rus sia All were frustrated by the fact that the two countries are
for the most part not natu ral trading partnersrdquo11 On a dif er ent note the former US envoy to
Rus sia Michael McFaul has defended the achievements of a reset policy under the Barack Obama
administration emphasizing that bilateral trade reached a rec ord level in 2011 Nevertheless he
also stresses that it was a one- time accomplishment unlikely to be repeated12
Voices of those who believe that extensive economic ties can provide stability to broader po liti cal
interaction are weaker than ever in an environment of growing protectionism and adversarial rivalry
8 Angela Stent The Limits of Partnerships US- Russian Relations in the XXI Century (Prince ton NJ Prince ton
University Press 2014) 98
9 Thane Gustafson Wheel of Fortune The Battle for Oil and Power in Rus sia (London Harvard University Press 2012)
10 Andrew Kuchins Elevation and Calibration A New Rus sia Policy for Amer i ca (Washington DC Center on Global
Interests 2016)
11 Eugene Rumer Richard Sokolsky and Andrew S Weiss ldquoTrump and Rus sia The Right Way to Manage Relationsrdquo
Foreign Affairs 96 no 2 (MarchApril 2017)
12 Michael McFaul ldquoUS- Russia Relationsrdquo (lecture Institute for Public Diplomacy and Global Communications
George Washington University Washington DC March 3 2017) https wwwc - span org video 424811 - 1 former
- ambassador - michael - mcfaul - discusses - state - usrussia - relations
594-71613_ch01_4Pindd 3 102017 404 PM
4
02
Does Bilateral Economic Interaction Matter
Economic relations do not emerge out of a vacuum There are many variables that define the final
configuration of economic interactions such as a par tic u lar countryrsquos level of economic develop-
ment its business environment legal framework po liti cal climate (regime) culture and religion
history and tradition demography and geography as well as global and national economic cycles
An impor tant driver of trade relations for many economies has become participation in global and
regional trade agreements
As many studies and anecdotal evidence show bilateral economic cooperation should be sizable
and should relate to the economic growth of two countries in a way that afects their policy
interests Let us take as a reference point the BRICS countries1 a community of large emerging
economies which Rus sia belongs to Table 21 pres ents official data on US trade and investments
with BRICS states US- Russia trade in goods is disproportionally lowmdash235 times less than US
trade with China 33 times smaller than US trade with India and 28 times less than US trade
with Brazil The size of the US- Russia trade balance is comparable to the size of the US trade
balance with South Africa whose economy is almost four times smaller than Rus siarsquos If we add
trade in ser vices to the trade of goods the gaps increase significantly (Figures 21 and 22) The
diference is not only quantitative but also qualitative
The quality of trade relations can be mea sured by its diversity its share of high- tech components
resilience to economic shocks and its contribution to GDP growth On average a 10 percent
increase in a nationrsquos two- way trade relative to GDP increases GDP through a variety of channels
by at least 16 percent2
Bilateral trade and real GDP growth in the United States and Rus sia are practically uncorrelated
as shown in the summary output of multifactorial regression The coefficient of multiple determi-
nation (R Square) is close to 0 ( Table 22) At the same time the correlation of US exports to India
1 BRICS is the acronym for a select group of five developing economies Brazil Rus sia India China and South Africa
2 World Economic Forum Foreign Direct Investment as a Key Driver for Trade Growth and Prosperity The Case for a
Multilateral Agreement on Investment (Geneva World Economic Forum 2013) 11
594-71613_ch01_4Pindd 4 102017 404 PM
Vadim Grishin 5
Table 21 US Trade and Foreign Direct Investments (FDI) with China India Brazil South Africa and Rus sia 2016
China India Brazil South Africa Rus sia
Total Goods Trade 5786 677 565 13 203
Imports 4628 460 262 73 145
Exports 1158 217 303 55 58
Trade in Ser vices 696 472 317 47 na
Imports 161 268 68 17 na
Exports 535 203 249 30 na
US FDI 746 283 653 62 141
BRICS FDI in the United States
148 93 043 076 63
Supported Jobs in the United States (thousand)
911 197 308 50 84
Source United States Trade Representative (USTR) ldquoCountries amp Regionsrdquo accessed September 27 2017
https ustrgov countries - regions See US- China Trade Facts US- India Trade Facts US- Brazil Trade
Facts US- South Africa Trade Facts and US- Russia Trade Facts
201520142013
and China with the real GDP growth of these big Asian economies is significant (05) In the case of
Brazil the correlation is even higher (07) By contrast South Africarsquos small open economy is quite
sensitive to US imports from South Africa (043)3
In marked contrast to other BRICS countries Rus sia is a poor choice for export- oriented opera-
tions As a recent International Monetary Fund (IMF) study highlights Rus sia is an outlier a rare
exception among emerging market (EM) economies with virtually no preferential access to major
markets and little meaningful change over three de cades4 This complicates Rus siarsquos integration
into the global value chain (GVC) which became a significant driving force toward economic
development and trade for certain BRICS economies
3 IMF statistics authorrsquos computation
4 IMF Rus sian Federation Selected Issues IMF Country Report N17198 (Washington DC IMF July 2017)
594-71613_ch01_4Pindd 5 102017 404 PM
US-Russia Economic Relations6
Trade is closely connected with foreign direct investment (FDI) and both are parts of a complex
interaction known as international production sharing According to publicly available official data
US FDI in Rus sia was about $131 billion for 2013 and $295 billion for 2016 with the top industrial
sectors being software and IT ser vices financial ser vices chemicals metals coal oil and gas
and business ser vices5 If we take into account US investments made through Eu ro pean branches
of US companies and ofshore firms this number would easily triple Another component
that usually is not tracked by official statistics is reinvestments The American Chamber of
Commerce surveys in 2016 and 2017 which include this component draw a completely dif er ent
picture accumulated US corporate FDI in 90 large US companies working in Rus sia reached
5 US Department of Commerce International Trade Administration ldquoRussiamdash94- Foreign Direct Investment and
Portfolio Investment Statisticsrdquo Rus sia Country Commercial Guide July 7 2017 https wwwexport gov article
id=shyRussia - foreign - direct - investment - statistics
Figure 21 US Trade in Goods with China India Brazil Rus sia and South Africa Billion US$ 2016
Source USTR ldquoCountries amp Regionsrdquo See US- China Trade Facts US- India Trade Facts US- Brazil Trade
Facts US- South Africa Trade Facts and US- Russia Trade Facts
0
$50
$100
$150
$200
$250
$300
$350
$400
$450
$500
$550
$600
China India Brazil Russia South Africa
Exports
Imports
594-71613_ch01_4Pindd 6 102017 404 PM
Vadim Grishin 7
$8244 billion in 20176 The real level from our perspective is usually between official and private
estimations around $40 billon But even this cumulative figure is less than the US FDI in Brazil
and China
The American Chamber of Commerce surveys have also revealed other impor tant data Eighty-
five percent of US companies doing business in Rus sia entered its market 10 or more years ago
while 60 percent of them ldquolandedrdquo there 20 years ago or earlier Only one percent have started
operations over the last five years confirming an obvious fact entry into the Rus sian market is
challenging because of growing monopolism risks associated with the business climate and a
stagnating economy7
6 American Chamber of Commerce in Rus sia ldquoInvestment and Import to Rus sia 2nd Surveyrdquo (Prepared by GfK for the
American Chamber of Commerce in Rus sia Moscow May 2017) 12
7 Ibid 4
Figure 22 US Trade in Goods and in Ser vices with China India Brazil Rus sia and South Africa Billion US$ 2016
Source USTR ldquoCountries amp Regionsrdquo See US- China Trade Facts US- India Trade Facts US- Brazil Trade
Facts US- South Africa Trade Facts and US- Russia Trade Facts
0
$100
$200
$300
$400
$500
$600
$700
China India Brazil Russia South Africa
Trade in Services
Total Goods Trade
594-71613_ch01_4Pindd 7 102017 404 PM
US-Russia Economic Relations8
Rus sian direct investment position toward the United States declined from $215 billion in 2013 to
$83 billion in 2015 (Figure 23) Taking into account dif er ent channels and instruments the actual
volume of Rus sian investments in the United States made through ofshore Eu ro pean Canadian
and US companies may be several times greater than the available official data
Foreign investment in financial assets or foreign portfolio investment (FPI) should be included
even though Central Bank of Rus sia statistics indicate they were also quite low US investments in
equity were $345 million and in debt instruments were about $65 million in the fourth quarter of
20168 However these numbers do not reflect the real level of FPI Rus siarsquos stocks are incredibly
inexpensive while there has been impressive growth of US investments in short- term securities
and in foreign exchange (FX) operations (cash- and- carry trade) Rus sia was among the top per-
forming emerging markets in 2016 gaining 4744 percent in US dollars9 Nevertheless the gen-
eral capitalization of the stock exchange is tiny (less than 20 percent of GDP) comparable to the
capitalization of just one large US com pany such as Coca- Cola Many private sources believe that
the US FPI in Rus sia could be as high as several billion US dollars but a new set of sanctions
approved by President Trump on August 2 2017 if implemented could reverse those flows It is
still not clear whether the secretary of trea sury will prohibit participation in the oferings of Rus siarsquos
sovereign debt and the full range of derivative products A report on this subject should be sub-
mitted no later than 180 days after enactment of the law which means no later than Febru-
ary 2018 New legislation tightens prohibition on Rus sian financial companies already under
sanctions by limiting any new equity or debt with a maturity greater than 14 days (a provision that
8 Central Bank of Rus sia ldquoForeign Direct Investments in the Rus sian Federationrdquo accessed September 27 2017 www
cbr ru localization switchlanguage urlshy=shy news ampfromshy=shyru - ruamptoshy=shyen - gb
9 VanEck ldquoRus sian Stock Market Soars in 2016rdquo Seeking Alpha February 14 2017 https seekingalphacom article
4045602 - russian - stock - market - soars - 2016
Table 22 Summary Output of Regression Statistics (US Real GDP Rus sia Real GDP US- Russia Exports Imports and Total Trade)
Regression Statistics
Multiple R 0056445768
R Square 0003186125
Adjusted R Square minus0042123597
Standard Error 2616043923
Observations 24
Sources IMF statistics authorrsquos computation
594-71613_ch01_4Pindd 8 102017 404 PM
Vadim Grishin 9
previously allowed for 30 days) Similarly US persons are prohibited from taking on any new debt
that has a maturity greater than 60 days (previously it was 90 days) with Rus sian energy compa-
nies currently under sanctions10
According to the Trea sury Department Rus sia held $1029 billion in US Trea sury securities in
June 201711 Could Rus sia withdraw all its reserves from the United States and use this action as a
retaliatory mea sure Such a scenario is unlikely since there is no comparable safe- haven alterna-
tive to US dollars When Rus siarsquos US Trea sury holdings dropped 50 percent from $176 billion
(October 2010) to $90 billion (November 2011) the market did not notice12 Nevertheless Rus sian
authorities have announced they will decrease dependence on assets and payments in US dollars13
10 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364
11 US Department of Trea sury Major Foreign Holders of Trea sury Securities September 18 2017 http ticdata
treasury gov Publish mfh txt
12 Ibid
13 ldquoНовый виток санкций Россия откажется от доллараrdquo [A new round of sanctions Rus sia will abandon the dollar]
Газетару August 7 2017 https wwwgazeta ru business 2017 08 07 10821937 shtml
Figure 23 Rus sia Outward FDI Position United States Equities and Debt Million US$ 2009ndash2016
Source Central Bank of the Rus sian Federation External Sector Statistics Rus sian Direct Investments
Abroad accessed September 27 2017 https wwwcbr ru localization switchlanguage urlshy=shy news
ampfromshy=shyru - ruamptoshy=shyen - gb
$6000
$8000
$10000
$12000
$14000
$16000
$18000
$20000
$22000
2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 9 102017 404 PM
US-Russia Economic Relations10
Officially the country does not invest in the US stock exchange although some Rus sian oligarchs
have bought US corporate bonds and equities in large amounts The new sanctions law requires
the secretary of trea sury in consultation with the director of national intelligence and the secretary
of state to issue reports on Rus sian se nior po liti cal figures and oligarchs based on their closeness
to the Rus sian regime and their net worth as well as the exposure of key economic sectors of the
United States to Rus sian po liti cally exposed persons and parastatal entities including at a mini-
mum the banking securities insurance and real estate sectors14
Only three Rus sian companies are listed in the US exchanges
Overall the scale and scope of US- Russia economic interaction and business activity is much greater
than officially appreciated but not significant enough to be taken into consideration by policymakers
14 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364
594-71613_ch01_4Pindd 10 102017 404 PM
11
03
Politics in the Driverrsquos Seat
Bilateral economic relations depend to a great extent on global and national economic cycles
After the recent global financial crisis the US economy has shown surprisingly sustainable GDP
growth while the Rus sian economy was the most afected among BRICS countries by the turbu-
lence of a worldwide economic downturn in 2008ndash2009 and after a short- term rebound slipped
into stagnation (2012ndash2013) and then into full- scale recession (2014ndash2016) The countryrsquos eco-
nomic cycle however appears to be changing once again with the economy returning to a
pattern of growth albeit uneven and gradual (Figures 31 and 32) Even with sanctions still in place
conditions have improved as a result of the stabilization of Urals oil to an average annual price of
$419 per barrel in 2016 The gains were sparked in part by major crude producers agreeing to cut
production after hefty price drops in 2014 and 2015 Supported by easier financial conditions
higher oil prices and growing macro- stability Rus sia is heading toward a moderate growth rate
that is expected to reach 14 percent this year according to forecasts of the World Bank Group
(WBG) and the IMF1
Because of the significant role that politics plays in any bilateral interaction it is impor tant to
combine economic and po liti cal cycles applying a ldquoresetrdquo to bilateral economic cooperation in
addition to the po liti cal relationship I have compared po liti cal cycles and trade dynamics using the
following graphs ( Table 31 and Figure 33) These charts do not pretend to reflect with mathemati-
cal precision all shifts in the bilateral po liti cal relationship but rather attempt to visually align
impor tant economic and po liti cal moments to detect the efects of po liti cal events on the size of
bilateral trade
Figure 33 shows all pos si ble combinations economic trends at the intersection of po liti cal devel-
opments oppose or support each other in synchronization It is evident that po liti cal interference
1 International Monetary Fund Rus sian Federation Staff Concluding Statement of the 2017 Article IV Mission (Wash-
ington DC IMF 2017) World Bank Group From Recession to Recovery Rus sia Economic Report no 37 (Washington
DC World Bank 2017) http pubdocsworldbank org en 383241495487103815 RER - 37 - May26 - FINAL - with - summary
594-71613_ch01_4Pindd 11 102017 404 PM
US-Russia Economic Relations12
in bilateral business afairs in the early 2000s was less significant than in later years As result
growing po liti cal tensions from 2003 to 2008 did not dramatically afect bilateral economic inter-
action It is also easier to explain why 2011ndash2012 resulted in rec ord trade and investmentmdash a con-
sequence of very high oil prices GDP growth in both countries improved legislation after Rus siarsquos
accession to the WTO and the Obamandash Medvedev po liti cal reset From 2014 to 2016 a perfect
storm of developments added efficiency to Western sanctions and augmented the damaging
consequences of counter- sanction mea sures
Figure 33 also confirms that in times of reduced economic cooperation po liti cal pressures can
easily change bilateral economic trends Moreover business interests along with economic inter-
actions have a limited capacity to reverse the po liti cal mainstream
Figure 31 Economic Cycle 2014ndash2016
Source Authorrsquos evaluation of international financial institutions (IFI) data and sources from respective
countries
Sustainable Growth
Brazil
Negative Growth
Unstable Growth
Mexico
Descending Growth
Argentina
EU
US
Russia
Vietnam
China
594-71613_ch01_4Pindd 12 102017 404 PM
Vadim Grishin 13
Table 31 Po liti cal Cycles in Bilateral US- Russia Relations 1999ndash2016
2001ndash2002 The George W Bushndash Vladimir Putin Reset Rus sia supported ldquoglobal war on terrorismrdquo launched by the United States after 911 the SORT nuclear arms reduction treaty was signed by the United States and Rus sia and a successful business dialogue was developed that created the current structure of economic relations
2003ndash2008 Deterioration in bilateral relations brought on by the Iraq War Georgiarsquos ldquoRose Revolutionrdquo Mikhail Khodorkovskyrsquos arrest Ukrainersquos ldquoOrange Revolutionrdquo Kosovorsquos in de pen dence and the Georgian War
2009ndash2010 The Barack Obamandash Dmitry Medvedev Reset Rus sia served as a logistical hub for transportation and supply of US forces in Af ghan i stan United States and Rus sia signed the new START nuclear arms reduction treaty Rus sia backed tighter economic sanctions on Iran Rus sia gained access to the WTO after 18 years of negotiations
2011ndash2016 Deterioration in bilateral relations caused by the Ukrainian crisis which were followed by sanctions and counter- sanctions along with the Syrian crises and cyber- enabled activities
Source Authorrsquos evaluation of po liti cal and economic data
Note SORTthinsp=thinspStrategic Ofensive Reductions Treaty STARTthinsp=thinspStrategic Arms Reduction Treaty
Figure 32 Economic Cycle 2017ndash2019
Source Authorrsquos evaluation of IFI data and sources from respective countries
Egypt
VenezuelaEU
South Africa
Brazil
Russia
India
US
Descending Growth
Korea
China
Negative Growth
Unstable Growth
Sustainable Growth
594-71613_ch01_4Pindd 13 102017 404 PM
US-Russia Economic Relations14
Figure 33 US- Russia Trade Million US$ vs Po liti cal Cycle 2000ndash2016
Sources US Census Bureau ldquoTrade in Goods with Rus siardquo Foreign Trade last modified June 29 2017
https wwwcensus gov foreign - trade balance c4621 html (see data for 2000ndash2016) authorrsquos evaluation
of po liti cal and economic data
Orange Revolution
Khodorkovskys arrest
GeorgianWar
Bush- Putin Reset
Iraq War Global Financial Crisis
Obama-Medvedev Reset
Russias WTO accession
New START Treaty
A Pefect Storm the Ukranian Crisis Oil Prices Crashing
Sanctions and Counter-Sanctions
$3000
$8000
$13000
$18000
$23000
$28000
$33000
$38000
$43000
2000 2002 2004 2006 2008 2010 2012 2014 2016
594-71613_ch01_4Pindd 14 102017 404 PM
15
The current structure of US- Russia economic relations emerged in the early 2000s when the
model of trade and investment interaction took on a character similar to that which existed be-
tween the United States and developing economies US imports from Rus sia centered on com-
modities while technology along with food products lead American exports The primary
exception was that Rus sia supplied nuclear fuel including highly enriched uranium extracted from
nuclear weapons for US power plants and provided ser vices to the aerospace industry primarily
in satellite launches However both these exceptions can be explained as a legacy of the Soviet
past and not a harbinger of the future economic relationship (Figure 41)
In the last 15 years this trade structure has not changed significantly The only noticeable shift in
trade was a dramatic drop (to practically nothing) in exports of US agricultural products a result
of Rus siarsquos policy of import substitution and so- called counter- sanction mea sures it took in re-
sponse to US sanctions over the Ukraine crisis (Figure 42)
Promising new directions of cooperation in the IT sector and in engineering ser vices for the
aerospace industry appeared in the early 2000s1 but did not spill into other sectors and conse-
quently did little to renew economic cooperation on the whole The integration of Rus sian high-
tech ser vices into large- scale global production and value chains was constrained by the usual
culprits a lack of financial resources managerial experience skilled labor modern infrastructure
RampD investments and an adequate business environment High commodity prices incentivized the
restoration of an economic system centered on resource rents The leading role of oil and gas
extraction and transportation discouraged the development of a nonenergy sector that might
have created advanced and complex production and ser vices An import substitution policy could
not work efficiently in an economic environment plagued by the Dutch disease where currency
1 The Boeing Design Center was created in Moscow It consists of nearly 250 Boeing employees managing
a team of 1200 contract engineers from Rus sian and Ukrainian aerospace companies ldquoBackgrounder Boeing in
Rus siardquo Boeing last modified January 2017 http wwwboeing com resources boeingdotcom company key _ orgs
boeing - international pdf russia - cisbackgrounder pdf
Are the United States and Rus sia ldquoNatu ralrdquo Trading Partners A Little Bit of History
04
594-71613_ch01_4Pindd 15 102017 404 PM
US-Russia Economic Relations16
inflows (oil money) lead to ruble appreciation and render a countryrsquos production less competitive
During that time Rus siarsquos industry did not receive preferential access to larger markets and could
not expand its share in the global economy particularly because of its self- isolation from the
regional trade agreements (except for its participation in the Eurasian Economic Union with some
neighboring countries of the former Soviet Union) As a result neither import substitution nor
export- led strategy promoted growth and specialization in nonoil production A long- awaited
modernization and reallocation of resources from an inefficient nontrade sector to a trade sector
did not materialize
These limits were later augmented with sanctions and an extension of domestic restrictions on
cooperation with Western partners Importantly the rapid growth of state- monopoly structures in
the Rus sian economy over the past 15 years has created additional obstacles to the development
and diversification of US- Russia economic ties
Figure 41 US Imports from Rus sia US$ 2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2016)
Fish and shellfish 3
Crude oil 5
Fuel oil 37
Petroleum products other
8
Nuclear fuel materials
7
Chemicals-fertilizers 4
Steelmaking materials 5
Iron and steel mill products 4
Bauxite and aluminum 9
Other precious metals 4
Nonferrous metals other 1
Finished metal shapes 1
Synthetic rubber--primary
1
Spacecraftexcluding military
594-71613_ch01_4Pindd 16 102017 404 PM
Fig
ure
42
U
S E
xpo
rts
to R
us s
ia U
S$ 2
016
Sou
rce
US
Ce
nsu
s B
ure
au ldquo
Trad
e in
Go
od
s w
ith
Ru
s sia
rdquo (s
ee
dat
a fo
r 2
016
)
Bak
ery
pro
du
cts
Win
e b
eer
an
d r
elat
ed
pro
du
cts
New
spri
nt
Pla
stic
mat
eria
ls
Ch
emic
als-
fert
ilize
rs
Ch
emic
als-
ino
rgan
icC
hem
ical
s-o
rgan
ic
Ch
emic
als-
oth
erC
ott
on
fib
er c
loth
In
du
stri
al r
ub
ber
pro
du
cts
Min
eral
su
pp
lies-
man
ufa
ctu
red
Gen
erat
ors
acc
esso
ries
Ele
ctri
c ap
par
atu
s
Dri
llin
g amp
oilfi
eld
eq
uip
men
t Sp
ecia
lized
min
ing
Exc
avat
ing
mac
hin
ery
No
nfa
rm t
ract
ors
an
d p
arts
In
du
stri
al e
ng
ines
Fo
od
to
bac
co m
ach
iner
y M
etal
wo
rkin
g m
ach
ine
too
ls
Tex
tile
sew
ing
m
ach
ines
W
oo
d g
lass
p
last
ic
Pu
lp a
nd
pap
er
mac
hin
ery
Mea
suri
ng
tes
tin
g
con
tro
l in
stru
men
ts
Mat
eria
ls h
and
ling
equ
ipm
ent
Ind
ust
rial
mac
hin
es
oth
er
Ph
oto
ser
vice
ind
ust
ry m
ach
iner
y A
gri
cult
ura
l mac
hin
ery
eq
uip
men
t C
om
pu
ters
Co
mp
ute
r ac
cess
ori
es
Sem
ico
nd
uct
ors
Tel
eco
mm
un
icat
ion
seq
uip
men
t
Bu
sin
ess
mac
hin
es a
nd
eq
uip
men
t
Lab
ora
tory
tes
tin
g in
stru
men
ts
Med
icin
al e
qu
ipm
ent
Civ
ilian
air
craf
t e
ng
ines
eq
uip
men
t a
nd
par
ts
Rai
lway
tra
nsp
ort
atio
n
equ
ipm
ent
Ves
sels
exc
lud
ing
scr
ap
Co
mm
erci
al v
esse
ls o
ther
M
arin
e en
gin
es p
arts
Spac
ecra
ft e
xclu
din
g
mili
tary
Pas
sen
ger
car
s
new
an
d u
sed
Tru
cks
bu
ses
and
sp
ecia
l p
urp
ose
ve
hic
les
En
gin
es a
nd
en
gin
e p
arts
(c
arb
ure
tors
pis
ton
s r
ing
s
and
val
ves)
B
od
ies
and
ch
assi
s fo
r p
asse
ng
er c
ars
Au
tom
oti
ve t
ires
an
d t
ub
es
Oth
er p
arts
an
d a
cces
sori
es o
f ve
hic
les
Ap
par
el h
ou
seh
old
go
od
s -
text
ile
Ph
arm
aceu
tica
lp
rep
arat
ion
s
Furn
itu
re h
ou
seh
old
go
od
s
etc
R
ug
s
Cel
l ph
on
es a
nd
oth
er
ho
use
ho
ld g
oo
ds
ne
c
594-71613_ch01_4Pindd 17 102017 404 PM
US-Russia Economic Relations18
Figure 43 US Trade in Goods with Rus sia Million US$ 1992ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
Russian Financial Crisis
Oil price Increased from$2446 USD per barrel (2001)
to $9694 USD per barrel(2008)
Global Financial Crisis
Oil price high record in2011-2012
(more that $111 USD perbarrel)
Oil price crashed
$-
$5000
$10000
$15000
$20000
$25000
$30000
$35000
$40000
$45000
$50000
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia US Exports to Russia US-Russia Trade in Goods
No doubt po liti cal ups and downs add volatility to US- Russia trade Nevertheless Rus siarsquos eco-
nomic structure exhausted itself before the Ukrainian crisis and the recent Rus sian recession Its
limitations are not only due to some mistakes in policy or negative coincidences of circumstances
but rather to deeply rooted properties in the current bilateral trade model related to structural
issues in the Rus sian economy Structural constraints such as the weak enforcement of property
rights poor business regulation and nondiversified exports weighed on Rus sian trade with the
United States From this perspective the term ldquonaturalunnatural trading partnersrdquo does not ad-
dress the unused capacity of bilateral interaction or the real challenges that kind of interaction
faces It just adds metaphysical flavor to the very specific economic and po liti cal factors that
determine the US- Russia trajectory
Overall the outlines of bilateral trade (Figure 43) resemble the famous ldquoRus sian Mountainsrdquo that
were a pre de ces sor of the modern roller coaster icy hills supported by wooden constructionsmdash a
rigid and immobile structure that sooner or later would melt This unfortunately is what is hap-
pening to US- Russia trade cooperation now
594-71613_ch01_4Pindd 18 102017 404 PM
19
ARE LITTLE FISH REALLY SWEET
Low US- Russia economic interaction has at least two consequences First it limits the capacity of
policymakers to exploit trade as an instrument for geopo liti cal combat Even the question of a US
trade deficit which used to be a headache for many US trading partners has become so insig-
nificant in absolute terms (about $87 billion in 2016) that it seems hardly worth caring about
When the volume of trade between two countries becomes very small in absolute terms whether
a country is running a surplus or deficit is no longer relevant But it also renders another type of
confrontations (sometimes more dangerous) more likely since the two traders have little to lose
Second in an environment marked by low levels of bilateral trade both sides could incentivize (if
and when a desire for po liti cal rapprochement exists) the signing of new trade deals which are
elevated symbolically as a turning point in bilateral po liti cal relations (ie the sale of Boeings to
Rus sia or the delivery via tankers of Rus sian oil to US refineries) Sometimes markets themselves
pres ent ldquogiftsrdquo that can be capitalized on po liti cally US- USSR grain trade in the 1970s was one
such ldquogiftrdquo large sales of American grain to the Soviet Union helped US policymakers win favor
with the po liti cally impor tant American farming sector and permitted Soviet leaders to maintain
access to a dietary staple for the Soviet population
The strong 32 percent growth in value of US imports from Rus sia from January to May 2017
versus January to May 2016 ( Table 51) is an example of a development that has tempted officials
to pres ent it as a sign of positive change due to ldquogrowing business activitiesrdquo (this kind of statement
was heard before the bilateral summit in Germany in July 2017) although the reason for that leap
was evidently an increase in commodity prices (mainly of oilmdash see Table 52) and not a rise in
entrepreneurial interactions The primary beneficiaries of that upside rally have been two other
petro- economies Saudi Arabia and Venezuela ( Tables 53 and 54)
Sector Analyses
05
594-71613_ch01_4Pindd 19 102017 404 PM
US-Russia Economic Relations20
Table 51 US Imports from Rus sia Million US$ Januaryndash May 2016 vs Januaryndash May 2017
Year January February March April May Total
2016 9603 6871 11097 12257 10977 50805
2017 12215 10220 16979 13471 14147 67032
Change 271 487 530 99 289 319
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
Table 52 Change in Urals Crude Oil Prices US$ per Barrel Januaryndash May 2016 vs Januaryndash May 2017
Januaryndash May 2016 Januaryndash May 2017 Change ($) Change ()
3601 5129 1528 424
Source Ministry of Finance of the Rus sian Federation https wwwminfin ru ru ixzz4mMIZ7XtC
Table 53 US Imports from Saudi Arabia Million US$ Januaryndash May 2016 vs Januaryndash May 2017
Year January February March April May Total
2016 15114 9036 13555 10844 14679 63228
2017 19802 20298 21650 16211 19542 97503
Change 3101 12463 5972 495 331 542
Source US Census Bureau ldquoTrade in Goods with Saudi Arabiardquo Foreign Trade last modified June 29 2017
https wwwcensus gov foreign - trade balance c5170 html (see data for 2016ndash2017)
594-71613_ch01_4Pindd 20 102017 404 PM
Vadim Grishin 21
Table 54 US Imports from Venezuela Million US$ Januaryndash May 2016 vs Januaryndash May 2017
Year January February March April May Total
2016 6657 5560 7140 8007 7922 35286
2017 13041 10864 123500 11148 12243 59646
Change 9590 9540 7297 3923 5454 6903
Source US Census Bureau ldquoTrade in Goods with Venezuelardquo Foreign Trade last modified June 29 2017
https wwwcensus gov foreign - trade balance c3070 html (see data for 2016ndash2017)
Table 55 US Exports to Rus sia Million US$ Januaryndash May 2016 vs Januaryndash May 2017
Year January February March April May Total
2016 3628 3577 7298 4657 4947 24107
2017 3144 4277 5386 6670 4806 24283
Change minus133 196 minus262 432 minus29 minus07
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2016ndash2017)
At the same time US exports to Rus sia continue to stagnate ( Table 55) due to low levels of
consumption during a two-and- a- half-year economic crisis a deep ruble devaluation sanctions
and counter- sanctions
Given the very dif er ent economic structures and resource endowments of Rus sia and the United
States it is not surprising that US- Russia trade is asymmetric and oil driven (Figure 51) A
3 percent increase in Urals oil prices translates into a one percent increase in US import growth
from Rus sia Thus in 2016 every $10 increase in Urals crude oil added $15 billion to the value of
US imports or 11 percent to the total value of imports from Rus sia
OIL ADDICTION
Oil is a core pillar of US- Russia bilateral trade A bumpy ride in oil markets afects commerce
Nevertheless Rus sian oil exports to the United States in physical terms have been rather
594-71613_ch01_4Pindd 21 102017 404 PM
US-Russia Economic Relations22
sustainable Starting from 2005 average annual deliveries have been above 150 million barrels
(Figure 52) Crude and heating oil have dominated while petroleum products and liquefied petro-
leum gases have not (Figure 53) In 2011 oil exports peaked at 228 million barrels but declined to
159 million barrels in 2016mdash a drop of 30 percent Rec ord high shipments of Rus sian oil to the United
States coincided with an elevation in oil prices which made the subsequent decline in oil shipment
value between 2011 and 2016 (by about 72 percent as shown in Figure 54) seem more stark The
increase in price also raised the share of oil in Rus sian exports by 74 percent in 2011 (Figure 55)
The Rus sian share in total US oil imports was around 55 percent in 2011 and 43 percent in 2016
( Table 56) In the last five years the United States has relied exclusively on consumption of Rus sian
oil for the rough equivalent of one week out of the year (Figure 56)
It is unlikely that Rus sia can significantly increase its share of the US oil market and there is a real
possibility for a downward trend There are several reasons the historically high Rus sian hydrocar-
bon export threshold of 2011 will not soon if ever be surpassed
First US energy consumption will likely be flat According to the US Energy Information Adminis-
tration (EIA) demand for petroleum and other liquids in the United States will be about 35ndash36
quadrillion British thermal units (BTUs) with minimal variation over the next 25 years1
1 US EIA ldquoAnnual Energy Outlook 2017 with Projections to 2050rdquo January 5 2017 7ndash8
Figure 51 US- Russia Trade Growth () vs US and Rus sia Real GDP Growth () 1993ndash2016
Source IMF ldquoIMF Datardquo accessed September 27 2017 http wwwimf org en Data US Census Bureau
ldquoTrade in Goods with Rus siardquo
Note rGDPthinsp=thinspreal gross domestic product
Trade
USA rGDP growth
Russia rGDP growth
-60
-40
-20
0
20
40
60
80
100
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Gro
wth
All spikes in US-Russia trade have been connected with two main
variables volume and price of crude oil
594-71613_ch01_4Pindd 22 102017 404 PM
Vadim Grishin 23
Second the United States will become a net energy exporter between 2020 and 2030 in most
cases under dif er ent combinations of oil and natu ral gas prices GDP growth technological
breakthroughs and the availability of energy resources The role of oil imports will dramatically
fall2
Third oil price scenarios as described by the International Energy Agency (IEA) international
financial organ izations (IFIs) and many national agencies are very cautious and assume that even
by 2035 to 2040 oil prices will not to recover to the levels of 2011ndash20123
Fourth Rus sian oil production and export growth will be modest and driven by Asian economic
expansion and will comprise a decreasing share of Western markets4 According to forecasts from
2 Ibid 15ndash18
3 Ibid table 3 ldquoEnergy Prices by Sector and Sourcesrdquo World Bank World Bank Commodity Markets Price Forecasts
(Washington DC World Bank 2017) httpswwwworldbank org en research commodity - markets Organ ization of the
Petroleum Exporting Countries (OPEC) World Oil Outlook 2016 (Vienna OPEC 2016)
4 E D Belotskaia et al Global and Rus sian Energy Outlook 2016 (Moscow Energy Research Institute of the Rus sian
Acad emy of Science Analytical Center for the Government of the Rus sian Federation 2016) http acgov ru files
publication a 12767 pdf
Figure 52 US Imports from Rus sia Crude Oil and Petroleum Products Thousands of Barrels 1995ndash2016
Source US EIA ldquoUS Imports by Country of Origin Rus siardquo Petroleum amp Other Liquids September 13
2017 http wwweia gov dnav pet PET _ MOVE _ IMPCUS _ D _ NUS _ NRS _ MBBL _ M htm
0
50000
100000
150000
200000
250000
Date 1995 1996 1997 1998 199920002001200220032004200520062007200820092010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 23 102017 404 PM
US-Russia Economic Relations24
the Organ ization of the Petroleum Exporting Countries (OPEC) crude oil exports from Rus sia and
the Caspian region to the United States will dis appear by 20255
So why does the Rus sian Urals blend continue to be attractive for oil traders and US refineries
which could pro cess greater volumes of domestically produced lighter crude There are two main
reasons One is related to the preference of US high conversion refineries (the most sophisticated
in the world) to work with heavy oil blends produced by Canada Mexico Iraq Venezuela and
Rus sia Pro cessing heavy crude now is as profitable as pro cessing lighter crude The so- called
crack spreadmdash the diference between the cost of relatively cheap heavy crude oil and the final
price of value- added consumer products (diesel gasoline jet fuel and heating oil)mdash has become
the same as the refinery margins of light sweet crude6 This has primarily afected light oil produc-
ing countries such as Angola Algeria and Nigeria
5 OPEC World Oil Outlook 2016 306ndash309
6 ldquoHow Much for That Heavy Oilrdquo Oil Sands Magazine December 26 2015 https wwwoilsandsmagazine com
news 2015 12 26 how - much - for - that - heavy - oil
Figure 53 US Imports from Rus sia Oil and Petroleum Products US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$-
$25000000000
$20000000000
$15000000000
$10000000000
$5000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Liquefied petroleum gases
Petroleum products other
Fuel oil
Crude oil
594-71613_ch01_4Pindd 24 102017 404 PM
Vadim Grishin 25
Another factor afecting purchase of Rus sian oil is a new trend among oil companies for further
consolidation of scale and for integrating operations of upstream and downstream business7
There have been several waves of separation and unification of production transportation and
pro cessing in the last 50 years The current business cycle can be seen as an adaptation to a
period of low prices and oversupply Companies that buy andor produce oil in Rus sia most likely
prefer to transport and pro cess this oil in their own modern refineries in the United States At the
same time some of the newest refinery designs specifically for pro cessing heavy oils have been
built in Asia thus extending the choices of heavy oil producing countries
We should also consider that leading US and international oil traders along with oil producing
companies working with or owning US refineries frequently buy Rus sian oil on the open market
and have long- term contracts on Rus sian crude oil delivery Many Rus sian oil companies prefer to
pay for purchases or ser vices with their future production instead of cash creating situations of
ldquostickyrdquo oil imports that are difficult to replace The best- known example is an interaction between
7 ldquoEnergy and Utilities Sectorrdquo Roundtable Financier Worldwide December 2015 https wwwfinancierworldwide
com roundtable - energy - utilities - sector - dec15
Figure 54 US Imports of Oil and Petroleum Products from Rus sia vs Oil Prices Eu rope Brent Spot Price Free on Board (FOB) 1996ndash2017
Source US EIA ldquoUS Imports by Country of Origin Rus siardquo
0
20
40
60
80
100
120
140
0
5000
10000
15000
20000
25000
30000
Jan
-19
96
Jun
-19
96
No
v-19
96
Ap
r-19
97
Sep
-19
97
Feb
-19
98
Jul-
199
8D
ec-1
99
8M
ay-1
99
9O
ct-1
99
9M
ar-2
00
0A
ug
-20
00
Jan
-20
01
Jun
-20
01
No
v-2
00
1A
pr-
20
02
Sep
-20
02
Feb
-20
03
Jul-
20
03
Dec
-20
03
May
-20
04
Oct
-20
04
Mar
-20
05
Au
g-2
00
5Ja
n-2
00
6Ju
n-2
00
6N
ov-
20
06
Ap
r-2
00
7Se
p-2
00
7Fe
b-2
00
8Ju
l-2
00
8D
ec-2
00
8M
ay-2
00
9O
ct-2
00
9M
ar-2
010
Au
g-2
010
Jan
-20
11Ju
n-2
011
No
v-2
011
Ap
r-2
012
Sep
-20
12Fe
b-2
013
Jul-
20
13D
ec-2
013
May
-20
14O
ct-2
014
Mar
-20
15A
ug
-20
15Ja
n-2
016
Jun
-20
16N
ov-
20
16
USD
per
Bar
rel
Th
ou
san
d B
arr
els
US Imports from Russia of Crude Oil and Petroleum Products (Thousand Barrels)
Europe Brent Spot Price FOB (Dollars per Barrel)
594-71613_ch01_4Pindd 25 102017 404 PM
US-Russia Economic Relations26
Table 56 US Oil Imports All Countries vs Rus sia Thousand Barrels per Day 2011ndash2016
Years 2011 2012 2013 2014 2015 2016
All Countries 11436 10598 9859 9241 9449 10058
Rus sia 624 477 460 330 371 433
Share 546 450 467 357 393 431
Sources US EIA ldquoUS Imports by Country of Origin Total Crude Oil and Productsrdquo Petroleum amp Other
Liquids September 13 2017 wwweia gov dnav pet pet_move_impcus_a2_nus_ep00_im0_mbbl_m htm
authorrsquos computation
Figure 55 US Imports from Rus sia Share of Crude Oil and Petroleum Products Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
57
64
73
72
74
73
72
59
52 50
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
$40000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil and Petroleum Products
594-71613_ch01_4Pindd 26 102017 404 PM
Vadim Grishin 27
the Rus sian state mono poly Rosneft and commodity trading and mining giant Glencore which
along with energy and commodities com pany Vitol participated in a $10 billion prepayment
deal with Rosneft for crude supplies in 2013
There have been a number of ongoing transactions between the Rus sian oil industry and interna-
tional oil companies including several that top the list of importers of Rus sian oil to the United
States ( Table 57) In December 2016 Glencore participated in a controversial privatization opera-
tion purchasing in tandem with the Qatar sovereign wealth fund a 195 percent stake in Rosneft
which was on the US and EU list of sanctioned firms8 Glencore has also taken a blocking stake in
midsize oil producer RussNeft BP owns a 1975 percent stake in Rosneft Chevron holds a
15 percent interest in the 935- mile- long CPC9 pipeline which transports an average of 959000
barrels of crude oil per day including 76000 barrels daily from Rus sia10 ExxonMobil has formed
8 E Mazneva and I Arkhipov ldquoRus sia Sells $11 Billion Stake in Rosneft to Glencore Qatarrdquo Bloomberg December 7
2016
9 CPCthinsp=thinspCaspian Pipeline Consortium
10 ldquoRus sia Highlights of Operations and Business Portfoliordquo Chevron accessed October 3 2017 https wwwchevron
com worldwide russia
Figure 56 Share of Rus sian Oil in Total US Oil Imports Thousands of Barrels per Day 1972ndash2016
Source US EIA ldquoUS Imports by Country of Origin Total Crude Oil and Productsrdquo
2000
4000
6000
8000
10000
12000
14000
16000
US Imports of Crude Oil and Petroleum Products (Thousand Barrels per Day)
US Imports from Russia of Crude Oil and Petroleum Products (Thousand Barrels per Day)19
7319
7419
7519
7619
7719
7819
7919
80
198
119
82
198
319
84
198
519
86
198
719
88
198
919
90
199
119
92
199
319
94
199
519
96
199
719
98
199
92
00
02
00
12
00
22
00
32
00
42
00
52
00
62
00
72
00
82
00
92
010
20
112
012
20
132
014
20
152
016
594-71613_ch01_4Pindd 27 102017 404 PM
Table 57 Top Importers of Rus sian Oil to the United States Thousands of Barrels 2016
VALERO MARKETING amp SUPPLY CO 54590 3616
EXXONMOBIL OIL CORP 17087 1130
CHEVRON USA INC 15217 1008
BP WEST COAST PRODUCTS LLC 10130 671
GEORGE E WARREN CORP 7272 48
PAULSBORO REFINING CO LLC 6838 453
TESORO CORP 5097 338
VITOL INC 5084 337
PHILLIPS 66 CO 4726 313
TRAFIGURA AG 4360 289
PAR HAWAII REFINING LLC 3893 258
MOTIVA ENTERPRISES LLC 3041 205
SHELL US TRADING CO 2863 19
MARATHON PETROLEUM CO LLC 2475 16
ATLANTIC TRADING amp MARKETING 2099 14
FREEPOINT COMMODITIES LLC 1439 1
GLENCORE LTD 1284 85
BEST PETROLEUM CORP 967 64
ROLYMPUS US COMMODITIES GROUP LLC 822 6
HUNT CRUDE OIL SUPPLY CO 666 4
GULF OIL LP 658 4
Source US EIA ldquoUS Imports by Country of Origin Crude Oilrdquo Petroleum amp Other Liquids September 13
2017 httpswwweiagovdnavpetpet_move_impcus_a2_nus_epc0_im0_mbblpd_ahtm authorrsquos
computation
594-71613_ch01_4Pindd 28 102017 404 PM
Vadim Grishin 29
several joint ventures with Rosneft to undertake ofshore exploration in the Black Sea and the Kara
Sea in Siberia11
According to the Sanctions Act US persons are prohibited from exporting or reexporting goods
ser vices (except financial ser vices) and technology in support of exploration or production of new
deep- water Arctic ofshore or shale oil proj ects that involve designated Rus sian entities or other
entities in which such sanctioned persons have a controlling interest or a substantial noncontrol-
ling owner ship interest defined as not less than 33 percent (previously it was 50 percent) The new
law also authorizesmdash but does not requiremdash the imposition of so- called secondary sanctions
against non- US entities that engage in activities involving the construction maintenance or
expansion of Rus sian energy export pipelines with a fair market value of $1 million or more or an
aggregate fair market value during a 12- month period of $5 million12 This provision has raised the
concerns of some Eu ro pean countries particularly Germany As result the final language of the
law included wording about coordination of this issue with allies of the United States
Shipments of Rus sian oil to the United States could be afected by activity in the US refinery
industry In early 2017 Saudi Aramco bought the United Statesrsquo largest oil refinery in Port Arthur
(Texas) and it announced plans to send more of its own crude to that refinery13 Serious concerns
exist however regarding the future of three refineries and nine pipelines owned by Citgo a US
branch of the Venezuelan state com pany PdVSA which is balancing precariously on the edge of
default Under certain conditions in the event of PdVSA bankruptcy Rosneft could claim a stake of
up to 499 percent in Citgo Such a possibility has raised concerns among politicians and US
government officials with Trea sury Secretary Steven Mnuchin calling it a ldquonational security issuerdquo14
Tables 58 59 and 510 show allocations of Rus sian oil imports to major US refineries some of
which work exclusively on Rus sian crude a total of two to three months per year In total 150940
thousand barrels of Rus sian oil were refined in 2016
Figure 57 confirms a leading position of Texas and Louisiana among the US states receiving
Rus sian crude followed by New Jersey California Mississippi Washington Hawaii and Delaware
In a paradoxical way Texas has dis appeared from the list of states as a main destination of US
imports from Rus sia (Figure 58) because Rus sian crude is mostly delivered to Louisiana ports and
registered there by US Customs as an import from Rus sia After that it transports to refineries in
Louisiana and Texas
Overall the short- term business rationale behind the sustainability of US oil imports from Rus sia
cannot overcome strong headwinds in the US energy sector facing all oil importers which will
inevitably lead to a contraction of Rus sian oil exports to the United States in the foreseeable future
11 Exxon eforts to receive a special US Trea sury waiver to drill in sanctioned Rus sia failed in 2017
12 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364
13 Sarp Ozkan ldquoSaudi Aramcorsquos Port Arthur Refinery and the US Refinery Fleetrdquo Drilling Info May 11 2017
https infodrillinginfo com saudi - aramcos - port - arthur - refinery - us - refinery - fleet
14 Graham Kates ldquoTrea sury Secretary Rus siarsquos Citgo Deal a National Security Issuerdquo CBS News May 1 2017
http wwwcbsnews com news rosneft - citgo - steven - mnuchin - national - security
594-71613_ch01_4Pindd 29 102017 404 PM
US-Russia Economic Relations30
Table 58 Valerorsquos Refineries Pro cessing Rus sian Oil Thousands of Barrels 2016
Saint Charles Louisiana 29206 535
Corpus Christi Texas 20626 378
Wilmington California 4250 78
Total USA 54590 100
Source US EIA ldquoRefinery Capacity Reportrdquo January 1 2017
table 5 wwweia gov petroleum refinerycapacity table5 pdf
authorrsquos computation
Table 59 ExxonMobil Refineries Pro cessing Rus sian Oil Thousands of Barrels 2016
Baytown Texas 15037 88
Baton Rouge Louisiana 2046 12
Total USA 17083 100
Source US EIA ldquoRefinery Capacity Reportrdquo authorrsquos computation
Table 510 Chevronrsquos Refineries Pro cessing Rus sian Oil Thousands of Barrels 2016
Pascagoula Mississippi 12767 840
El Segundo California 2372 155
Saint Rose Louisiana 78 05
Total USA 15217 100
Source US EIA ldquoRefinery Capacity Reportrdquo authorrsquos computation
594-71613_ch01_4Pindd 30 102017 404 PM
Vadim Grishin 31
HEAVY METAL
Taken together US imports of metals and US imports of oil compose about 80 percent of US
total imports from Rus sia (Figure 59) Trade of metals like other commodities is strongly afected
by market price fluctuations Nevertheless metal imports from Rus sia have been fairly resilient to
market volatility and their average annual value has hovered at about $4 billion in the last five years
(Figure 510) This market resilience was forged at the end of the 1990searly 2000s when Rus sian
metal producers gradually modernized their plants adjusting quality of production to Western
standards and enhancing integration into global value and supply chains Some of them conquered
their share of the highly competitive US market struggling with peers from Canada and certain
BRICS countries (China India and Brazil) To attract additional resources all Rus sian large metal-
producing companies became public and were listed on stock exchanges chiefly the London Stock
Exchange (Severstalrsquo PAO Evraz MMK OAO Novolipetsk Steel Norilsk Nikel and TMK PAO) one
on the New York Stock Exchange (Mechel) and one on the Hong Kong Stock Exchange (Rusal)
Business logic pushed some of them to invest in the US metal- making industry which was hit
hard by crisis Later on some of those assets were sold (eg two US steel mills acquired by
Severstal in 2004 were purchased 10 years later by Steel Dynamics Inc and AK Steel Corp)
Figure 57 Share of US States Rus sian Oil Imports 2016
Source US EIA ldquoUS Imports from Rus sia of Crude Oil and Petroleum Productsrdquo Petroleum amp Other
Liquids September 29 2017 https www eia gov dnav pet hist LeafHandler ashx nshy=shyPETampsshy=shyMTTIM _ NUS
- NRS _ 1ampfshy=shyM authorrsquos computation
0
10
20
30
40
50
60
70
80
90
100
Maine
Massachusetts
Maryland
Connecticut
Georgia
Rhode Island
Virginia
Florida
New York
Alabama
Puerto Rico
Pennsylvania
Delaware
Hawaii
Washington
Mississippi
California
New Jersey
Louisiana
Texas
594-71613_ch01_4Pindd 31 102017 404 PM
Figure 58 US Imports from Rus sia by State Million US$ 2013ndash2016
Source US Census Bureau ldquoState and Metropolitan Area Trade Datardquo Foreign Trade last modified
October 2 2017 https wwwcensus gov foreign - trade statistics state
Alaska
Connecticut
Delaware
Hawaii
Louisiana
Maryland
North Dakota 0
$1000
$2000
$3000
$4000
$5000
$6000
2013 2014 2015 2016
Alabama
Alaska
Connecticut
Delaware
Hawaii
Louisiana
Maryland
Maine
Mississippi
Montana
North Dakota
Mississippi
Figure 59 US Imports from Rus sia Share of Oil and Metals Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
83
82
85
86
87
88
85
82
7375
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
$40000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil and Metals
594-71613_ch01_4Pindd 32 102017 404 PM
Vadim Grishin 33
Obviously the market dynamic of dif er ent metals varies (eg iron steel aluminum platinum and
nickel) Caps to increase their trade and production in a ldquored oceanrdquo global environment with
anemic demand is rather limited despite Figure 510 showing a spike of iron and steel imports
from Rus sia in 2014 and aluminum in 2016 Some opportunities may exist for Russian- owned steel
plants in the United States (such as NLMK) to participate in energy proj ects resumed under Presi-
dent Trump who has required that new pipelines use only American- made steel15
Rus sia occupies a special niche in the US market for titanium products a high- end metal indus-
try Twenty years ago a long- term contract was signed between Rus sian titanium producer
VSMPO- AVISMA and Boeing The Rus sian com pany entered the selective club of Boeing suppliers
for the manufacture of components and semi- finished products Since the signing of this contract
VSMPO has delivered more than 35 percent of all titanium placed on Boeing civil aircraft16 They
are hidden in the trade data in an import category for Civilian Aircrafts and Parts (Figure 511) At
the end of 2016 Boeing announced an extension of its framework agreement with AVISMA
15 E Scheyder C Ngai and T Sylvester ldquoAmerican Steel Unlikely to Get Keystone Boost Despite Trump Orderrdquo
Reuters January 27 2017 http wwwreuters com article usa - trump - pipeline - transcanada - idUSL1N1FH1ZD
16 A Kramer ldquoTitanium Fills Vital Role for Boeing and Rus siardquo New York Times July 5 2013 http wwwnytimes com
2013 07 06 business global titanium - fills - vital - role - for - boeing - and - russia html mcubzshy=shy3
Figure 510 US Imports from Rus sia Iron Steel Bauxite Aluminum Nickel Nonferrous Metals and Other Precious Metals and Materials US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
0
$6000000000
$5000000000
$4000000000
$3000000000
$2000000000
$1000000000
2007 2008 2009 2010 2011 20122013
20142015
2016
Finished metal shapes
Iron and steel advanced
Iron and steel products nec
Nonferrous metals other
Other precious metals
Nickel
Bauxite and aluminum
Iron and steel mill products
Steelmaking materials
594-71613_ch01_4Pindd 33 102017 404 PM
US-Russia Economic Relations34
through 2022 and additional investments in the construction of a new robotic plant in Titanium
Valley a special economic zone located in the Sverdlovsk region that will open in 2018 The pro-
cessing of titanium forgings in all Boeing civil aircraft will be performed there including 787s 737
MAXs and 777Xs17 The contract extension with AVISMA may add several hundred million dollars
in value to annual US imports from Rus sia
How can such heavy reliance on imports of Rus sian titanium exist during a period of rising geopo-
liti cal tensions The answer is straightforward VSMPO- AVISMA is a highly specialized natu ral
mono poly producing 45 percent of the worldrsquos aerospace titanium Only four other countries
smelt high- grade titanium in industrial quantities the United States Germany Japan and China
Overall global production capacity is limited while demand is growing The United States cur-
rently imports around 79 percent of all the titanium it consumes each year18
17 ldquoBoeing and VSMPO Avisma to Launch Second Joint Production Siterdquo Rus sian Aviation Insider December 22 2016
http wwwrusaviainsider com boeing - and - vsmpo - avisma - to - launch - second - joint - production - site
18 Jon Ostrower and Andy Pasztor ldquoBoeing United Technologies Stockpile Titanium Partsrdquo Wall Street Journal
August 7 2014 https wwwwsj com articles boeing - united - technologies - stockpiling - titanium - parts - 1407441886
Figure 511 US Imports from Rus sia Civilian Aircrafts and Parts US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
$200000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Parts-civilian aircraft
Civilian aircraft
594-71613_ch01_4Pindd 34 102017 404 PM
Vadim Grishin 35
The Sanctions Act authorizes the secretary of the trea sury (in a nonmandatory way) to impose
restrictions (without specifying them) against Rus sian state- owned entities operating in the railway
metals and mining sectors of the Rus sian economy Despite the commanding heights of Rus siarsquos
state sector owner ship in its economy (70 percent of GDP) the metal- producing companies have
remained mostly in private hands
NUCLEAR AFFAIRS
Historically owners and operators of the 104 commercial nuclear power reactors in the United
States have purchased more than 80 percent of their uranium from foreign countries Uranium
shipping from Rus sia accounted for about 13 percent of the 58 million pounds of uranium pur-
chased overseas in 201219 At the same time the Rus sian state- owned mono poly Rosatom ac-
counts for 20 percent of Kazakhstanrsquos uranium production (which in turn comprises 11 percent of
all US uranium imports) and 20 percent of US domestic uranium production capacity (with
owner ship of exploration tracts in Wyoming)20
Nuclear fuel and nuclear power continue to be po liti cally sensitive topics both in the United
States and Rus sia Bilateral cooperation in this sector (being surprisingly stable with imports of
nuclear fuel from Rus sia at a level of $1 billion annually in the last five years [Figure 512 and 513])
is under constant po liti cal and lobbying pressure and has been a source of several po liti cal scan-
dals21 Consequently upside risks in this area of interaction are minimal and downside risks are
much higher especially when we are seeing more decommissioning of nuclear plants in the
United States than new constructions The US EIArsquos 2017 Annual Energy Outlook assumes
that about 25 percent of the nuclear capacity now operating will be removed from ser vice
by 205022
WHY IS THE GRASS GREENER ON THE OTHER SIDE
The United States continues to significantly reduce imports of chemical fertilizers as domestic pro-
duction increases In 2016 the United States imported 13 percent less ammonia and 11 percent
less urea and UAN which is a liquid urea and ammonium nitrate fertilizer Rus sia accounts for
around 40 percent of UAN imported by the United States The United States canceled antidumping
duties on imports of ammonium nitrate and urea from Rus sia in 2016 but it did not prevent import
19 US EIA ldquoThe US Relies on Foreign Uranium Enrichment Ser vices to Fuel Its Nuclear Power Plantsrdquo Today in
Energy August 28 2013 https wwweia gov todayinenergy detail php idshy=shy1273
20 Colin Chilcoat ldquoDoes Rus sia Really Own 20 Percent of the USrsquo Uranium Reservesrdquo OilPricecom May 6 2015
http oilpricecom Alternative - Energy Nuclear - Power Does - Russia - Really - Own - 20 - Of - The - US - Uranium - Reserves
html
21 Michelle Ye Hee Lee ldquoThe Facts behind Trumprsquos Repeated Claim about Hillary Clintonrsquos Role in the Rus sian Ura-
nium Dealrdquo Washington Post October 26 2016
22 US EIA ldquoAnnual Energy Outlook 2017 with Projections to 2050rdquo 81ndash82
594-71613_ch01_4Pindd 35 102017 404 PM
Figure 512 US Imports from Rus sia Share of Oil Metals and Nuclear Fuel Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
87
86
90
90
90
91
88
86
7882
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals and Nuclear Fuel
Figure 513 US Imports from Rus sia Nuclear Fuel Materials US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$-
$200000000
$400000000
$600000000
$800000000
$1200000000
$1000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 36 102017 404 PM
Vadim Grishin 37
drops twice last year (Figures 514 and 515) According to forecasts UAN imports are expected to
decline further to 15 million tons this year down over 46 percent from 28 million tons imported
last year23 The downside trend in imports of fertilizers will likely continue because of oversupply
BIG FISH
US imports of fish and shellfish from Rus sia are best understood in comparison with US fish
exports to the Rus sian market which slipped to zero in August 2014 after Rus sia issued an order
banning certain agricultural imports from the United States (Figure 516) While the volume of US
supply was not very large it was impor tant because it broke up the monopolistic dominance of a
few vertically integrated Rus sian companies that have kept prices high by restricting the entry of
new producers Seeking to implement import substitution policies Rus sia has tried to reduce
exports as well as imports of fish and seafood products in the last couple of years This symmetri-
cal approach was intended to ldquocompensaterdquo for a decrease of fish products in the domestic
23 Deepika Thapliyal ldquoPotashCorp Forecasts Sharp Drop in US Nitrogen Imports in 2017rdquo ICIS News February 7
2017 https wwwicis com resources news 2017 02 07 10076734 potashcorp - forecasts - sharp - drop - in - us - nitrogen
- imports - in - 2017
Figure 514 US Imports from Rus sia Share of Oil Metals Nuclear Fuel and Fertilizers Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
90
93
92
93
94
95
92
91
85
86
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals Nuclear Fuel and Fertilizers
594-71613_ch01_4Pindd 37 102017 404 PM
Figure 515 US Imports from Rus sia Chemical- Fertilizers US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
S-
$200000000
$400000000
$600000000
$800000000
$1000000000
$1200000000
$1400000000
$1600000000
$1800000000
$2000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Figure 516 US Exports to Rus sia Fish and Shellfish US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$10000000
$20000000
$30000000
$40000000
$50000000
$60000000
$70000000
$80000000
$90000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Fish and shellfish
594-71613_ch01_4Pindd 38 102017 404 PM
Vadim Grishin 39
consumer market caused by Rus siarsquos import ban but it has failed As result the group most af-
fected by the self- imposed counter- sanctions were Rus sian consumers
With a significant drop in fish imports a devaluation of the ruble and inflationary pressures on
seafood prices yearly consumption of fish in Rus sia has declined precipitously In 2015 alone
fish prices increased 20 percent and consumption dropped to 14 kilograms per person24 from
22 kilograms in 201425 In 2016 food rose to 355 percent of house hold expenditure as a result of
increases in food prices26 This has pushed vertically integrated fishing monopolies to sell even
more of their catch abroad rather than deliver to the Rus sian Federation (Figure 517) Thus we
cannot exclude the possibility of further growth in US fish and shellfish imports from Rus sia on a
marginal scale
24 Александр Савельев ldquoПотребление рыбы в России упало до 14 кг на человекаrdquo [Fish consumption in Rus sia fell to
14 kg per person] Экономика Интерфакс January 28 2015 http wwwinterfax ru business 492038
25 Илья Шестаков ldquoПотебление рыбы в России снизилось на 10 процентов из- за роста ценrdquo [Fish consumption in
Rus sia dropped by 10 percent due to price increases] RNS March 8 2017 https rnsonline consumer - market
Potreblenie - ribi - v - Rossii - snizilos - na - 10 - iz - za - rosta - tsen - 2017 - 03 - 08
26 Zoya Sheftalovich and Christian Oliver ldquoRus siarsquos Boom (Farming) Economyrdquo Politico November 8 2016 http
wwwpolitico eu article russias - boom - farming - economy
Figure 517 US Imports from Rus sia Fish and Shellfish US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$50000000
$100000000
$150000000
$200000000
$250000000
$300000000
$350000000
$400000000
$450000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 39 102017 404 PM
US-Russia Economic Relations40
SPACE ODYSSEY
Among high- end products beyond the top five groups of goods imported from Rus sia cheap and
efficient Rus sian engines have been used to launch US rockets into space for about 16 years
(Figure 518) There was a serious po liti cal strug gle around a 2014 ban on the purchase of Rus sian
RD-180 rocket engines revealing the conflicting business interests of power ful high- tech companies
This restrictive mea sure was temporary and was quickly lifted because of significant cost impacts
and risks of disruption to launch schedules27 For the same reason the Sanctions Act does not autho-
rize ldquothe imposition of any sanction or other condition limitation restriction or prohibition that
directly or indirectly impedes the supply by any entity of the Rus sian Federation of any product or
ser vice or the procurement of such product or ser vice by any contractor or subcontractor of the
United States or any other entity relating to or in connection with any space launch conducted for
the National Aeronautics and Space Administration or any other nonndash Department of Defense
customerrdquo28
Nevertheless many experts believe that US domestic alternatives to replace Rus sian engines will
be viable in five to eight years
27 Ken Dilanian ldquoWhy Does the US Use Rus sian Rockets to Launch Its Satellitesrdquo NBC News updated November 15
2016 http wwwnbcnews com why - does - u - s - use - russian - rockets - launch - its - satellites - n588526
28 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364
Figure 518 Spacecraft Excluding Military US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 40 102017 404 PM
41
Diversity and technological complexity are the most vis i ble advantages supporting US exports to
Rus sia Three major groups of export goods include civilian aircraft engines and parts (Figure 61)
drilling and oil field equipment (Figure 62) and industrial machines and engines (Figure 63)
Despite sanctions against the transfer of advanced oil producing and pro cessing technologies the
realization of US drilling and oil field equipment in Rus sia is sustainable although some bilateral
proj ects have been frozen
Another category of goods that has demonstrated resilience is the phar ma ceu ti cal industry (Fig-
ure 64) because most drugs in Rus sia are imported (about 70 percent of the Rus sian phar ma ceu-
ti cal market in value) Import substitution policies have had only modest results in this industry
As confirmed by American Chamber of Commerce surveys US exports to Rus sia are closely
connected to US FDI 30 percent of total imports of US companies working in the Rus sian
market come from the United States (more than $2 billion in 2016) In other words about
40 percent of all US exports to Rus sia are related to a US corporate- sector business pro cess in
the country The major sectors of activity of these companies are energy and natu ral resources
(52 percent) manufacturing (17 percent) information and communications technology or ICT
(13 percent) retail (7 percent) automotive industry (6 percent) phar ma ceu ti cal production
(1 percent) professional ser vices (05 percent) and other (2 percent)1
Some obvious constraints on US exports to Rus sia have resulted from a reduction in demand A
deterioration of bilateral relations and implementation of sanctions and counter- sanctions have
directly or indirectly afected all businesses Figures 65 and 66 provide data regarding a dramatic
drop in the sale of US agricultural production in Rus sia with all other categories of exports in
goods showing big cuts as well (see Figures 67ndash69)
Exports of civilian aircraft engines and parts put the state of Washington in first place among
other states as a leading exporter to the Rus sian market (Figure 610)
1 American Chamber of Commerce in Rus sia ldquoInvestment and Import to Rus sia 2nd Surveyrdquo 13
Diversity and Constraints
06
594-71613_ch01_4Pindd 41 102017 404 PM
Figure 61 US Exports of Civilian Aircraft Engines Equipment and Parts to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
$2500000000
$2000000000
$1500000000
$1000000000
$500000000
$-
Figure 62 US Exports of Drilling and Oil Field Equipment US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
$40000000
$45000000
$50000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 42 102017 404 PM
Figure 63 US Exports of Industrial Engines to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Figure 64 US Exports of Phar ma ceu ti cal Preparations to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 43 102017 404 PM
Figure 65 US Exports of Meat and Poultry to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Meat poultry etc
$1000000000
$800000000
$600000000
$400000000
$200000000
$-
$1200000000
$1400000000
$1600000000
Figure 66 US Exports of Soybeans to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
$200000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 44 102017 404 PM
Figure 67 US Exports of Vehicles Engines and Parts to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Other parts and accessories of vehicles
Automotive tires and tubes
Bodies and chassis for passenger cars
Engines and engine parts (carburetors pistonsrings and valves)
Trucks buses and special purpose vehicles
Passenger cars new and used
$2500000000
$2000000000
$1500000000
$500000000
$-
$1000000000
Figure 68 US Exports of Medicinal Equipment to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 45 102017 404 PM
Figure 610 US Exports to Rus sia by States (2016 US$ Value) Million US$ 2013ndash2016
Source US Census Bureau ldquoState and Metropolitan Area Trade Datardquo
Iowa Kentucky
North Dakota
Oklahoma
South Carolina
Washington
0
$500
$1000
$1500
$2000
2013 2014 2015 2016
District of Columbia
Iowa
Kentucky
North Dakota
Oklahoma
South Carolina
Washington
Figure 69 US Exports of Excavating Machinery to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
$40000000
$45000000
$50000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 46 102017 404 PM
47
Upon reviewing the current trend in US- Russia economic relations we must acknowledge that
the existing trade model is obsolete and exhausted Imports are resource- oriented and reflect
constraints of the Rus sian economic structure while five groups of goodsmdash oil metals nuclear
fuels fertilizers and fishmdash make up more than 90 percent of total imports from Rus sia (Figure 71)
Each of these industries has a limited capacity for growth in the foreseeable future
Rus siarsquos core export to the United Statesmdash oilmdash will inevitably decrease in the mid- term under any
scenario The value and volume of Rus sian exports to the United States are open to global market
volatility and po liti cal pressures with limited hedging mechanisms
Overall US exports to Rus sia are unsustainable due to bilateral po liti cal tensions the whims of
commodity markets and changing domestic policies Sanctions and counter- sanctions have
created additional barriers particularly in finance banking high- tech energy and agro- business
According to the American Chamber of Commerce 69 percent of US companies working in the
country consider the impact of US sanctions against Rus sia on their business as negative At the
same time 60 percent of companies do not expect big changes in business relations between
Rus sia and the United States under Trump1 as the new law codifies existing sanctions fortifies
them and extends them to new sectors
Current US investments are low due to the weak rule of law in Rus sia a lack of property right
protections and proper contract enforcement high levels of statization and monopolization in the
economy a poor business climate outdated capital stock dependence on natural- resource
sectors and of course sanction and counter- sanction mea sures Bloated administrative compo-
nents created as risk mitigation instruments have also served as impediments The countryrsquos
institutional weakness low level of productivity bud get constraints and a declining inflexible
workforce will restrain future economic growth even if commodity prices recover Rus sian eco-
nomic policy will likely continue to be statist and protectionist relying mostly on import
substitutions
1 Ibid 11
Existing Trends and Future Scenarios
07
594-71613_ch01_4Pindd 47 102017 404 PM
US-Russia Economic Relations48
What scenarios can be expected in such a challenging environment
One probability (no peace no war) is based on the assumption that matters will not deteriorate
further and implementation of the Sanctions Act will be cursory This will cause relatively slow
degradation in the economic field with occasional flashes of activity in selected areas (eg closer
cooperation against Islamist terrorist groups in Syria)
A second worse case or critical scenario is the intensive and full- scale execution of current sanc-
tion legislation and even the imposition of new economic punitive and restrictive mea sures which
could incite asymmetric retaliatory actions and lead to the introduction of additional protectionist
policies This in turn could trigger a further escalation of mutual confrontation and could eventu-
ally destroy the fundamentals of the current bilateral trade system Rus sian leadership has charac-
terized the Sanctions Act as a declaration of a trade war that ends all hope for improving bilateral
relations2
2 Дмитрий Медведев ldquoПодписание президентом США нового санкционного закона против России создает несколько
последствийrdquo [The US Presidentrsquos signing of the package of new sanctions against Rus sia will have a few conse-
quences] Facebook August 2 2017 https wwwfacebook com Dmitry Medvedev posts 10154587161801851
Figure 71 US Imports from Rus sia Share of Oil Metals Nuclear Fuel Fertilizers and Fish Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
93
94
93
94
95
96
93
92
87
89
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals Nuclear FuelFertilizers and Fish
594-71613_ch01_4Pindd 48 102017 404 PM
Vadim Grishin 49
The best case and most favorable scenario looks less probable now It assumes the realization of
structural reforms in Rus sia in such a way that would adapt Rus siarsquos foreign policy to national
economic needs reduce confrontations with the West and make a concerted efort to integrate
Rus sian businesses into global supply and value chains A revitalization of the structural reform
agendamdash including eforts to diversify economic activities through de- monopolization and support
for SMEs a restructuring of the banking sector the creation of a vibrant business climate to foster
entrepreneurships and innovation the implementation of administrative and judicial reforms to
tackle red tape and endemic corruption and the reduction of state control over key sectors of the
economy via wide- spread privatization could kick- start the development of a nonoil economy and
improve long- term growth prospects Despite ongoing discussion of reform strategies deep
economic and po liti cal changes are extremely complicated over the next po liti calelectoral cycle
(2018ndash2024) particularly because of re sis tance of vested interests and growing commodity prices
The urgency to tackle structural shortcomings in natu ral resource- dependent economies usually
correlates with the price of those resources and the degree to which resource rents drive eco-
nomic activity However there may be marginal improvements in the efficiency of the current
economic system
Future US- Russia relations can be thought of through three pillars one pillar focuses on areas
where both countries maintain a competitive rivalry another looks at potential areas of interaction
under pres ent conditions a third pillar and one that has evaporated from the current bilateral
agenda concentrates on future cooperation Stronger economic ties could not only be a kind of
po liti cal shock absorber but contribute to the building of this future (particularly business contacts
aim to support future structural reforms) although po liti cal factors are depressing the prospects
for cooperation To escape deadlock it will be impor tant to establish the right balance between
politics and economics and create a model of collaboration within the framework of contention
594-71613_ch01_4Pindd 49 102017 404 PM
About the Author
Vadim Grishin PhD MBA has been involved in the reform pro cess in Rus sia as adviser to the
deputy prime minister of Rus sia in 1992ndash1993 and 2006ndash2010 He has extensive experience
working with the Bretton Woods Institutions He was the board member of the World Bank Group
and served as se nior adviser at the International Monetary Fund Currently he is a con sul tant to the
chief economistrsquos office of the International Finance Corporation and teaches the economics of
transition at Georgetown University in Washington DC
50
594-71613_ch99_4Pindd 50 102017 403 PM
Blank
COVER PHOTO ADOBE STOCK
1616 Rhode Island Avenue NW
Washington DC 20036
202 887 0200 | wwwcsisorg
v++ISBN 978-1-4422-8035-9
Lanham bull Boulder bull New York bull London
4501 Forbes Boulevard
Lanham MD 20706
301 459 3366 | wwwrowmancom
A U T H O R
Vadim Grishin
Myths and Realities
A Report of the
CSIS RUSSIA AND EURASIA PROGRAM
US-RussiaEconomicRelations
O C T O B E R 2 0 1 7
Euml|xHSLEOCy280359z
The Man Pupu Nyor Rock Formations at the Northern Urals also known as Seven
Strong Man or Little Mountain of the God in the local tribe (Mansi) language
Blank
O C T O B E R 2 0 1 7
US- Russia Economic RelationsMyths and Real ities
AUTHOR
Vadim Grishin
A REPORT OF THE
CSIS RUSSIA AND EURASIA PROGRAM
Lanham bull Boulder bull New York bull London
594-71613_ch00_4Pindd 1 102017 403 PM
About CSIS
For over 50 years the Center for Strategic and International Studies (CSIS) has worked
to develop solutions to the worldrsquos greatest policy challenges Today CSIS scholars are
providing strategic insights and bipartisan policy solutions to help decisionmakers chart a
course toward a better world
CSIS is a nonprofit organ ization headquartered in Washington DC The Centerrsquos 220 full-
time staff and large network of affiliated scholars conduct research and analy sis and develop
policy initiatives that look into the future and anticipate change
Founded at the height of the Cold War by David M Abshire and Admiral Arleigh Burke CSIS
was dedicated to finding ways to sustain American prominence and prosperity as a force for
good in the world Since 1962 CSIS has become one of the worldrsquos preeminent international
institutions focused on defense and security regional stability and transnational
challenges ranging from energy and climate to global health and economic integration
Thomas J Pritzker was named chairman of the CSIS Board of Trustees in November 2015
Former US deputy secretary of defense John J Hamre has served as the Centerrsquos president
and chief executive officer since 2000
CSIS does not take specific policy positions accordingly all views expressed herein should
be understood to be solely those of the author(s)
copy 2017 by the Center for Strategic and International Studies All rights reserved
ISBN 978-1-4422-8035-9 (pb) 978-1-4422-8036-6 (eBook)
Center for Strategic amp International Studies Rowman amp Littlefield
1616 Rhode Island Ave nue NW 4501 Forbes Boulevard
Washington DC 20036 Lanham MD 20706
202-887-0200 | wwwcsis org 301 - 459 - 3366 | www rowman com
594-71613_ch00_4Pindd 2 102017 403 PM
III
Contents
iv Acknowl edgments
1 CHAPTER 1 | Introduction
4 CHAPTER 2 | Does Bilateral Economic Interaction Matter
11 CHAPTER 3 | Politics in the Driverrsquos Seat
15 CHAPTER 4 | Are the United States and Rus sia ldquoNatu ralrdquo Trading Partners
A Little Bit of History
19 CHAPTER 5 | Sector Analyses
41 CHAPTER 6 | Diversity and Constraints
47 CHAPTER 7 | Existing Trends and Future Scenarios
50 About the Author
594-71613_ch00_4Pindd 3 102017 403 PM
The author wishes to thank the participants of a draft paper discussion William Arnold Jack
Brougher Matthew Edwards Daniel Fried Andrew Kuchins Randy Levinas Gary Litman Jeff
Mankoff Cyrus Newlin Olga Oliker Ian Solomon Doug Stanglin and Angela Stent
This report is made pos si ble by the generous support of Car ne gie Corporation of New York
Acknowl edgments
Iv
594-71613_ch00_4Pindd 4 102017 403 PM
1
01
Introduction
A friend of mine a devoted connoisseur of bilateral economic relations with 30 years of experi-
ence in the field once noted that the hottest discussions about US- Russia ties occur at a time
when mutual trade is compressed into the value of a mathematical error This is exactly what is
happening now According to official statistics the value of US- Russia trade is about $20 billion
and is rolling back to the level of 20051 There is no doubt that a new set of sanctions recently
signed into law by the US president and currently being implemented will further hurt economic
interaction by reducing financial inflows limiting the transfer of technology and expertise and
dampening business confidence Many policymakers and experts have agreed that HR 3364
(Countering Amer i carsquos Adversaries through Sanctions Act2) by expanding and codifying US
sanctions targeting Rus sia opens a new cycle in bilateral relations This legislation which received
overwhelming bipartisan support creates a new economic and po liti cal framework on a bilateral
track Strong concerns expressed by President Donald Trump in his special statement about
ldquounconstitutional provisions of the ldquoflawed billrdquo3 cannot significantly limit its intended and
unintended consequences In its implementation it could have relatively broad margins of flexibil-
ity and leverage but requires the president to seek congressional approval before easing or termi-
nating sanctions against Rus sia or undertaking actions that would significantly modify US policy
toward Rus sia Additional observations regarding HR 3364rsquos pos si ble impact on US- Russia
interaction in par tic u lar industries can be found throughout this report but suffice it to say that it
will contribute to a broader curtailment of many pillars of economic cooperation for years ahead
1 US Census Bureau ldquoForeign Trade Trade in Goods with Rus siardquo Foreign Trade updated June 29 2017 https
wwwcensus gov foreign - trade balance c4621 html
2 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364 115th Cong (2017ndash2018) https www
congress gov bill 115th - congress house - bill 3364
3 Donald J Trump ldquoStatement by President Donald J Trump on the Signing of HR 3364rdquo White House Office of the
Press Secretary August 2 2017 https wwwwhitehouse gov the - press - office 2017 08 02 statement - president
- donald - j - trump - signing - hr - 3364
594-71613_ch01_4Pindd 1 102017 404 PM
US-Russia Economic Relations2
Escalating geopo liti cal tensions have continued to significantly define Rus siarsquos economic prospects
however the countryrsquos economic model exhausted itself long before the dramatic deterioration of
relations with the West Structural bottlenecks have seriously limited Rus siarsquos growth capacity even
during the previous period of high oil prices4
The purpose of this report is to assess what has gone wrong with the US- Russia equation by
analyzing it through the prism of a bilateral economic and po liti cal trajectory while keeping in
mind the structural constraints of the Rus sian economy It will attempt to answer the following
questions
bull Do bilateral economic relations matter
bull Are the United States and Rus sia ldquonatu ralrdquo or ldquounnaturalrdquo trading partners
bull What future scenarios can we expect
In the vast lit er a ture on US- Russia economic relations analy sis of developing trends in bilateral
commerce has always been accompanied by discussions around impor tant po liti cal and eco-
nomic matters particularly regarding US legislation and regulation5 Over several de cades the
most controversial issues concerned the granting of permanent normal trading status to Rus sia
through legislation that eliminated the Jackson- Vanik Amendment and Rus siarsquos accession to
the World Trade Organ ization (WTO) The Magnitsky Act signed into law in 2012 repealed the
Jackson- Vanik provisions but added legislation providing authority for the US government to
withhold visas and freeze assets of Rus sians thought to have been involved with human rights
violations and later imposed sanctions on Rus sia because of its involvement in the Ukrainian and
Syrian crises and its cyber- enabled activities6
Some have observed deficiencies in Rus siarsquos participation in the international division of labor
(reliance on the export of energy and metals) which ldquo canrsquot serve any more as a basis for further
expansion of the countryrsquos position in world markets including the US marketrdquo7 Unfortunately
such observations have not been accompanied by quantitative and qualitative analy sis of structural
constraints in the Rus sian foreign trade model Many authors limit their policy recommendations
for fostering bilateral economic relations to a requirement for a strong initial push from respective
governments the creation of business working groups and the extension of bilateral and multilat-
eral legal grounds for economic cooperation Such instruments proved to be useful in facilitating
4 International Monetary Fund (IMF) Rus sian Federation Selected Issues (Washington DC IMF 2016)
5 ldquoAmer i carsquos New Economic Sanctions May Hurt Rus siarsquos Recoveryrdquo Economist August 5 2017 Andrey Kortunov and
Olga Oliker eds A Roadmap for US- Russia Relations (Washington DC CSISRIAC 2017) https csis - prods3
amazonaws com s3fs - public publication 170815 _ KortunovOliker _ USRussiaRelations _ Web pdf E0bdGVHlxxYRAxhO
w8zJ9tbRGwdWjEgV Самуйлов CM Братерский MB ldquoКонгресс и торговые отношения США с Россиейrdquo [US
Congressrsquos role in the US- RF trade relations] США и Канада экономика политика культура 5 no 533 (May 2014)
6 Andrew Weiss and Richard Nephew ldquoThe Role of Sanctions in US- Russian Relationsrdquo (Task Force White Paper
Car ne gie Endowment for International Peace Washington DC July 11 2016)
7 Глущенко ЮН ldquoСостояние проблемы и перспективы сотрудничества России и США в экономической сфереrdquo
[Status prob lems and prospects of Russia- US economic cooperation] Проблемы Национальной Стратегии 21 no 6
(2013) 148ndash164
594-71613_ch01_4Pindd 2 102017 404 PM
Vadim Grishin 3
trade and investment during several reset cycles in bilateral relations starting in the 1990s but
they were only partially successful
Several papers and books although focused primarily on bilateral po liti cal agendas or sectorial
analy sis underline the importance of Rus sian domestic realities Dr Angela Stent in her ldquoLimits of
Partnershiprdquo notes that state control of the commanding heights in the Rus sian economy creates
significant deterrents for US private- sector entrance into the market8 Thane Gustafson in the
ldquoWheel of Fortunerdquo asserts that Rus siarsquos growing dependence on revenue from oil exports along
with its inefficient and often- corrupt management of industry is unsustainable9 Andrew Kuchins
in his ldquoElevation and Calibration A New Rus sia Policy for Amer i cardquo has quoted some experts who
believe that the weakened Rus sian economic position may over time contribute to some rap-
prochement with the West and emphasized lack of reforms as ldquoa key obstacle not only for Rus sian
economic recovery but also for improving ties with the Westrdquo10
In a recent joint task force report Eugene Rumer Andrew S Weiss and Richard Sokolsky argue
that the concept of developing stronger economic ties with Rus sia as a foundation for improved
diplomatic relations has not worked ldquoClinton Bush and Obama all placed high hope on trade as
an engine of better relations with Rus sia All were frustrated by the fact that the two countries are
for the most part not natu ral trading partnersrdquo11 On a dif er ent note the former US envoy to
Rus sia Michael McFaul has defended the achievements of a reset policy under the Barack Obama
administration emphasizing that bilateral trade reached a rec ord level in 2011 Nevertheless he
also stresses that it was a one- time accomplishment unlikely to be repeated12
Voices of those who believe that extensive economic ties can provide stability to broader po liti cal
interaction are weaker than ever in an environment of growing protectionism and adversarial rivalry
8 Angela Stent The Limits of Partnerships US- Russian Relations in the XXI Century (Prince ton NJ Prince ton
University Press 2014) 98
9 Thane Gustafson Wheel of Fortune The Battle for Oil and Power in Rus sia (London Harvard University Press 2012)
10 Andrew Kuchins Elevation and Calibration A New Rus sia Policy for Amer i ca (Washington DC Center on Global
Interests 2016)
11 Eugene Rumer Richard Sokolsky and Andrew S Weiss ldquoTrump and Rus sia The Right Way to Manage Relationsrdquo
Foreign Affairs 96 no 2 (MarchApril 2017)
12 Michael McFaul ldquoUS- Russia Relationsrdquo (lecture Institute for Public Diplomacy and Global Communications
George Washington University Washington DC March 3 2017) https wwwc - span org video 424811 - 1 former
- ambassador - michael - mcfaul - discusses - state - usrussia - relations
594-71613_ch01_4Pindd 3 102017 404 PM
4
02
Does Bilateral Economic Interaction Matter
Economic relations do not emerge out of a vacuum There are many variables that define the final
configuration of economic interactions such as a par tic u lar countryrsquos level of economic develop-
ment its business environment legal framework po liti cal climate (regime) culture and religion
history and tradition demography and geography as well as global and national economic cycles
An impor tant driver of trade relations for many economies has become participation in global and
regional trade agreements
As many studies and anecdotal evidence show bilateral economic cooperation should be sizable
and should relate to the economic growth of two countries in a way that afects their policy
interests Let us take as a reference point the BRICS countries1 a community of large emerging
economies which Rus sia belongs to Table 21 pres ents official data on US trade and investments
with BRICS states US- Russia trade in goods is disproportionally lowmdash235 times less than US
trade with China 33 times smaller than US trade with India and 28 times less than US trade
with Brazil The size of the US- Russia trade balance is comparable to the size of the US trade
balance with South Africa whose economy is almost four times smaller than Rus siarsquos If we add
trade in ser vices to the trade of goods the gaps increase significantly (Figures 21 and 22) The
diference is not only quantitative but also qualitative
The quality of trade relations can be mea sured by its diversity its share of high- tech components
resilience to economic shocks and its contribution to GDP growth On average a 10 percent
increase in a nationrsquos two- way trade relative to GDP increases GDP through a variety of channels
by at least 16 percent2
Bilateral trade and real GDP growth in the United States and Rus sia are practically uncorrelated
as shown in the summary output of multifactorial regression The coefficient of multiple determi-
nation (R Square) is close to 0 ( Table 22) At the same time the correlation of US exports to India
1 BRICS is the acronym for a select group of five developing economies Brazil Rus sia India China and South Africa
2 World Economic Forum Foreign Direct Investment as a Key Driver for Trade Growth and Prosperity The Case for a
Multilateral Agreement on Investment (Geneva World Economic Forum 2013) 11
594-71613_ch01_4Pindd 4 102017 404 PM
Vadim Grishin 5
Table 21 US Trade and Foreign Direct Investments (FDI) with China India Brazil South Africa and Rus sia 2016
China India Brazil South Africa Rus sia
Total Goods Trade 5786 677 565 13 203
Imports 4628 460 262 73 145
Exports 1158 217 303 55 58
Trade in Ser vices 696 472 317 47 na
Imports 161 268 68 17 na
Exports 535 203 249 30 na
US FDI 746 283 653 62 141
BRICS FDI in the United States
148 93 043 076 63
Supported Jobs in the United States (thousand)
911 197 308 50 84
Source United States Trade Representative (USTR) ldquoCountries amp Regionsrdquo accessed September 27 2017
https ustrgov countries - regions See US- China Trade Facts US- India Trade Facts US- Brazil Trade
Facts US- South Africa Trade Facts and US- Russia Trade Facts
201520142013
and China with the real GDP growth of these big Asian economies is significant (05) In the case of
Brazil the correlation is even higher (07) By contrast South Africarsquos small open economy is quite
sensitive to US imports from South Africa (043)3
In marked contrast to other BRICS countries Rus sia is a poor choice for export- oriented opera-
tions As a recent International Monetary Fund (IMF) study highlights Rus sia is an outlier a rare
exception among emerging market (EM) economies with virtually no preferential access to major
markets and little meaningful change over three de cades4 This complicates Rus siarsquos integration
into the global value chain (GVC) which became a significant driving force toward economic
development and trade for certain BRICS economies
3 IMF statistics authorrsquos computation
4 IMF Rus sian Federation Selected Issues IMF Country Report N17198 (Washington DC IMF July 2017)
594-71613_ch01_4Pindd 5 102017 404 PM
US-Russia Economic Relations6
Trade is closely connected with foreign direct investment (FDI) and both are parts of a complex
interaction known as international production sharing According to publicly available official data
US FDI in Rus sia was about $131 billion for 2013 and $295 billion for 2016 with the top industrial
sectors being software and IT ser vices financial ser vices chemicals metals coal oil and gas
and business ser vices5 If we take into account US investments made through Eu ro pean branches
of US companies and ofshore firms this number would easily triple Another component
that usually is not tracked by official statistics is reinvestments The American Chamber of
Commerce surveys in 2016 and 2017 which include this component draw a completely dif er ent
picture accumulated US corporate FDI in 90 large US companies working in Rus sia reached
5 US Department of Commerce International Trade Administration ldquoRussiamdash94- Foreign Direct Investment and
Portfolio Investment Statisticsrdquo Rus sia Country Commercial Guide July 7 2017 https wwwexport gov article
id=shyRussia - foreign - direct - investment - statistics
Figure 21 US Trade in Goods with China India Brazil Rus sia and South Africa Billion US$ 2016
Source USTR ldquoCountries amp Regionsrdquo See US- China Trade Facts US- India Trade Facts US- Brazil Trade
Facts US- South Africa Trade Facts and US- Russia Trade Facts
0
$50
$100
$150
$200
$250
$300
$350
$400
$450
$500
$550
$600
China India Brazil Russia South Africa
Exports
Imports
594-71613_ch01_4Pindd 6 102017 404 PM
Vadim Grishin 7
$8244 billion in 20176 The real level from our perspective is usually between official and private
estimations around $40 billon But even this cumulative figure is less than the US FDI in Brazil
and China
The American Chamber of Commerce surveys have also revealed other impor tant data Eighty-
five percent of US companies doing business in Rus sia entered its market 10 or more years ago
while 60 percent of them ldquolandedrdquo there 20 years ago or earlier Only one percent have started
operations over the last five years confirming an obvious fact entry into the Rus sian market is
challenging because of growing monopolism risks associated with the business climate and a
stagnating economy7
6 American Chamber of Commerce in Rus sia ldquoInvestment and Import to Rus sia 2nd Surveyrdquo (Prepared by GfK for the
American Chamber of Commerce in Rus sia Moscow May 2017) 12
7 Ibid 4
Figure 22 US Trade in Goods and in Ser vices with China India Brazil Rus sia and South Africa Billion US$ 2016
Source USTR ldquoCountries amp Regionsrdquo See US- China Trade Facts US- India Trade Facts US- Brazil Trade
Facts US- South Africa Trade Facts and US- Russia Trade Facts
0
$100
$200
$300
$400
$500
$600
$700
China India Brazil Russia South Africa
Trade in Services
Total Goods Trade
594-71613_ch01_4Pindd 7 102017 404 PM
US-Russia Economic Relations8
Rus sian direct investment position toward the United States declined from $215 billion in 2013 to
$83 billion in 2015 (Figure 23) Taking into account dif er ent channels and instruments the actual
volume of Rus sian investments in the United States made through ofshore Eu ro pean Canadian
and US companies may be several times greater than the available official data
Foreign investment in financial assets or foreign portfolio investment (FPI) should be included
even though Central Bank of Rus sia statistics indicate they were also quite low US investments in
equity were $345 million and in debt instruments were about $65 million in the fourth quarter of
20168 However these numbers do not reflect the real level of FPI Rus siarsquos stocks are incredibly
inexpensive while there has been impressive growth of US investments in short- term securities
and in foreign exchange (FX) operations (cash- and- carry trade) Rus sia was among the top per-
forming emerging markets in 2016 gaining 4744 percent in US dollars9 Nevertheless the gen-
eral capitalization of the stock exchange is tiny (less than 20 percent of GDP) comparable to the
capitalization of just one large US com pany such as Coca- Cola Many private sources believe that
the US FPI in Rus sia could be as high as several billion US dollars but a new set of sanctions
approved by President Trump on August 2 2017 if implemented could reverse those flows It is
still not clear whether the secretary of trea sury will prohibit participation in the oferings of Rus siarsquos
sovereign debt and the full range of derivative products A report on this subject should be sub-
mitted no later than 180 days after enactment of the law which means no later than Febru-
ary 2018 New legislation tightens prohibition on Rus sian financial companies already under
sanctions by limiting any new equity or debt with a maturity greater than 14 days (a provision that
8 Central Bank of Rus sia ldquoForeign Direct Investments in the Rus sian Federationrdquo accessed September 27 2017 www
cbr ru localization switchlanguage urlshy=shy news ampfromshy=shyru - ruamptoshy=shyen - gb
9 VanEck ldquoRus sian Stock Market Soars in 2016rdquo Seeking Alpha February 14 2017 https seekingalphacom article
4045602 - russian - stock - market - soars - 2016
Table 22 Summary Output of Regression Statistics (US Real GDP Rus sia Real GDP US- Russia Exports Imports and Total Trade)
Regression Statistics
Multiple R 0056445768
R Square 0003186125
Adjusted R Square minus0042123597
Standard Error 2616043923
Observations 24
Sources IMF statistics authorrsquos computation
594-71613_ch01_4Pindd 8 102017 404 PM
Vadim Grishin 9
previously allowed for 30 days) Similarly US persons are prohibited from taking on any new debt
that has a maturity greater than 60 days (previously it was 90 days) with Rus sian energy compa-
nies currently under sanctions10
According to the Trea sury Department Rus sia held $1029 billion in US Trea sury securities in
June 201711 Could Rus sia withdraw all its reserves from the United States and use this action as a
retaliatory mea sure Such a scenario is unlikely since there is no comparable safe- haven alterna-
tive to US dollars When Rus siarsquos US Trea sury holdings dropped 50 percent from $176 billion
(October 2010) to $90 billion (November 2011) the market did not notice12 Nevertheless Rus sian
authorities have announced they will decrease dependence on assets and payments in US dollars13
10 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364
11 US Department of Trea sury Major Foreign Holders of Trea sury Securities September 18 2017 http ticdata
treasury gov Publish mfh txt
12 Ibid
13 ldquoНовый виток санкций Россия откажется от доллараrdquo [A new round of sanctions Rus sia will abandon the dollar]
Газетару August 7 2017 https wwwgazeta ru business 2017 08 07 10821937 shtml
Figure 23 Rus sia Outward FDI Position United States Equities and Debt Million US$ 2009ndash2016
Source Central Bank of the Rus sian Federation External Sector Statistics Rus sian Direct Investments
Abroad accessed September 27 2017 https wwwcbr ru localization switchlanguage urlshy=shy news
ampfromshy=shyru - ruamptoshy=shyen - gb
$6000
$8000
$10000
$12000
$14000
$16000
$18000
$20000
$22000
2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 9 102017 404 PM
US-Russia Economic Relations10
Officially the country does not invest in the US stock exchange although some Rus sian oligarchs
have bought US corporate bonds and equities in large amounts The new sanctions law requires
the secretary of trea sury in consultation with the director of national intelligence and the secretary
of state to issue reports on Rus sian se nior po liti cal figures and oligarchs based on their closeness
to the Rus sian regime and their net worth as well as the exposure of key economic sectors of the
United States to Rus sian po liti cally exposed persons and parastatal entities including at a mini-
mum the banking securities insurance and real estate sectors14
Only three Rus sian companies are listed in the US exchanges
Overall the scale and scope of US- Russia economic interaction and business activity is much greater
than officially appreciated but not significant enough to be taken into consideration by policymakers
14 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364
594-71613_ch01_4Pindd 10 102017 404 PM
11
03
Politics in the Driverrsquos Seat
Bilateral economic relations depend to a great extent on global and national economic cycles
After the recent global financial crisis the US economy has shown surprisingly sustainable GDP
growth while the Rus sian economy was the most afected among BRICS countries by the turbu-
lence of a worldwide economic downturn in 2008ndash2009 and after a short- term rebound slipped
into stagnation (2012ndash2013) and then into full- scale recession (2014ndash2016) The countryrsquos eco-
nomic cycle however appears to be changing once again with the economy returning to a
pattern of growth albeit uneven and gradual (Figures 31 and 32) Even with sanctions still in place
conditions have improved as a result of the stabilization of Urals oil to an average annual price of
$419 per barrel in 2016 The gains were sparked in part by major crude producers agreeing to cut
production after hefty price drops in 2014 and 2015 Supported by easier financial conditions
higher oil prices and growing macro- stability Rus sia is heading toward a moderate growth rate
that is expected to reach 14 percent this year according to forecasts of the World Bank Group
(WBG) and the IMF1
Because of the significant role that politics plays in any bilateral interaction it is impor tant to
combine economic and po liti cal cycles applying a ldquoresetrdquo to bilateral economic cooperation in
addition to the po liti cal relationship I have compared po liti cal cycles and trade dynamics using the
following graphs ( Table 31 and Figure 33) These charts do not pretend to reflect with mathemati-
cal precision all shifts in the bilateral po liti cal relationship but rather attempt to visually align
impor tant economic and po liti cal moments to detect the efects of po liti cal events on the size of
bilateral trade
Figure 33 shows all pos si ble combinations economic trends at the intersection of po liti cal devel-
opments oppose or support each other in synchronization It is evident that po liti cal interference
1 International Monetary Fund Rus sian Federation Staff Concluding Statement of the 2017 Article IV Mission (Wash-
ington DC IMF 2017) World Bank Group From Recession to Recovery Rus sia Economic Report no 37 (Washington
DC World Bank 2017) http pubdocsworldbank org en 383241495487103815 RER - 37 - May26 - FINAL - with - summary
594-71613_ch01_4Pindd 11 102017 404 PM
US-Russia Economic Relations12
in bilateral business afairs in the early 2000s was less significant than in later years As result
growing po liti cal tensions from 2003 to 2008 did not dramatically afect bilateral economic inter-
action It is also easier to explain why 2011ndash2012 resulted in rec ord trade and investmentmdash a con-
sequence of very high oil prices GDP growth in both countries improved legislation after Rus siarsquos
accession to the WTO and the Obamandash Medvedev po liti cal reset From 2014 to 2016 a perfect
storm of developments added efficiency to Western sanctions and augmented the damaging
consequences of counter- sanction mea sures
Figure 33 also confirms that in times of reduced economic cooperation po liti cal pressures can
easily change bilateral economic trends Moreover business interests along with economic inter-
actions have a limited capacity to reverse the po liti cal mainstream
Figure 31 Economic Cycle 2014ndash2016
Source Authorrsquos evaluation of international financial institutions (IFI) data and sources from respective
countries
Sustainable Growth
Brazil
Negative Growth
Unstable Growth
Mexico
Descending Growth
Argentina
EU
US
Russia
Vietnam
China
594-71613_ch01_4Pindd 12 102017 404 PM
Vadim Grishin 13
Table 31 Po liti cal Cycles in Bilateral US- Russia Relations 1999ndash2016
2001ndash2002 The George W Bushndash Vladimir Putin Reset Rus sia supported ldquoglobal war on terrorismrdquo launched by the United States after 911 the SORT nuclear arms reduction treaty was signed by the United States and Rus sia and a successful business dialogue was developed that created the current structure of economic relations
2003ndash2008 Deterioration in bilateral relations brought on by the Iraq War Georgiarsquos ldquoRose Revolutionrdquo Mikhail Khodorkovskyrsquos arrest Ukrainersquos ldquoOrange Revolutionrdquo Kosovorsquos in de pen dence and the Georgian War
2009ndash2010 The Barack Obamandash Dmitry Medvedev Reset Rus sia served as a logistical hub for transportation and supply of US forces in Af ghan i stan United States and Rus sia signed the new START nuclear arms reduction treaty Rus sia backed tighter economic sanctions on Iran Rus sia gained access to the WTO after 18 years of negotiations
2011ndash2016 Deterioration in bilateral relations caused by the Ukrainian crisis which were followed by sanctions and counter- sanctions along with the Syrian crises and cyber- enabled activities
Source Authorrsquos evaluation of po liti cal and economic data
Note SORTthinsp=thinspStrategic Ofensive Reductions Treaty STARTthinsp=thinspStrategic Arms Reduction Treaty
Figure 32 Economic Cycle 2017ndash2019
Source Authorrsquos evaluation of IFI data and sources from respective countries
Egypt
VenezuelaEU
South Africa
Brazil
Russia
India
US
Descending Growth
Korea
China
Negative Growth
Unstable Growth
Sustainable Growth
594-71613_ch01_4Pindd 13 102017 404 PM
US-Russia Economic Relations14
Figure 33 US- Russia Trade Million US$ vs Po liti cal Cycle 2000ndash2016
Sources US Census Bureau ldquoTrade in Goods with Rus siardquo Foreign Trade last modified June 29 2017
https wwwcensus gov foreign - trade balance c4621 html (see data for 2000ndash2016) authorrsquos evaluation
of po liti cal and economic data
Orange Revolution
Khodorkovskys arrest
GeorgianWar
Bush- Putin Reset
Iraq War Global Financial Crisis
Obama-Medvedev Reset
Russias WTO accession
New START Treaty
A Pefect Storm the Ukranian Crisis Oil Prices Crashing
Sanctions and Counter-Sanctions
$3000
$8000
$13000
$18000
$23000
$28000
$33000
$38000
$43000
2000 2002 2004 2006 2008 2010 2012 2014 2016
594-71613_ch01_4Pindd 14 102017 404 PM
15
The current structure of US- Russia economic relations emerged in the early 2000s when the
model of trade and investment interaction took on a character similar to that which existed be-
tween the United States and developing economies US imports from Rus sia centered on com-
modities while technology along with food products lead American exports The primary
exception was that Rus sia supplied nuclear fuel including highly enriched uranium extracted from
nuclear weapons for US power plants and provided ser vices to the aerospace industry primarily
in satellite launches However both these exceptions can be explained as a legacy of the Soviet
past and not a harbinger of the future economic relationship (Figure 41)
In the last 15 years this trade structure has not changed significantly The only noticeable shift in
trade was a dramatic drop (to practically nothing) in exports of US agricultural products a result
of Rus siarsquos policy of import substitution and so- called counter- sanction mea sures it took in re-
sponse to US sanctions over the Ukraine crisis (Figure 42)
Promising new directions of cooperation in the IT sector and in engineering ser vices for the
aerospace industry appeared in the early 2000s1 but did not spill into other sectors and conse-
quently did little to renew economic cooperation on the whole The integration of Rus sian high-
tech ser vices into large- scale global production and value chains was constrained by the usual
culprits a lack of financial resources managerial experience skilled labor modern infrastructure
RampD investments and an adequate business environment High commodity prices incentivized the
restoration of an economic system centered on resource rents The leading role of oil and gas
extraction and transportation discouraged the development of a nonenergy sector that might
have created advanced and complex production and ser vices An import substitution policy could
not work efficiently in an economic environment plagued by the Dutch disease where currency
1 The Boeing Design Center was created in Moscow It consists of nearly 250 Boeing employees managing
a team of 1200 contract engineers from Rus sian and Ukrainian aerospace companies ldquoBackgrounder Boeing in
Rus siardquo Boeing last modified January 2017 http wwwboeing com resources boeingdotcom company key _ orgs
boeing - international pdf russia - cisbackgrounder pdf
Are the United States and Rus sia ldquoNatu ralrdquo Trading Partners A Little Bit of History
04
594-71613_ch01_4Pindd 15 102017 404 PM
US-Russia Economic Relations16
inflows (oil money) lead to ruble appreciation and render a countryrsquos production less competitive
During that time Rus siarsquos industry did not receive preferential access to larger markets and could
not expand its share in the global economy particularly because of its self- isolation from the
regional trade agreements (except for its participation in the Eurasian Economic Union with some
neighboring countries of the former Soviet Union) As a result neither import substitution nor
export- led strategy promoted growth and specialization in nonoil production A long- awaited
modernization and reallocation of resources from an inefficient nontrade sector to a trade sector
did not materialize
These limits were later augmented with sanctions and an extension of domestic restrictions on
cooperation with Western partners Importantly the rapid growth of state- monopoly structures in
the Rus sian economy over the past 15 years has created additional obstacles to the development
and diversification of US- Russia economic ties
Figure 41 US Imports from Rus sia US$ 2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2016)
Fish and shellfish 3
Crude oil 5
Fuel oil 37
Petroleum products other
8
Nuclear fuel materials
7
Chemicals-fertilizers 4
Steelmaking materials 5
Iron and steel mill products 4
Bauxite and aluminum 9
Other precious metals 4
Nonferrous metals other 1
Finished metal shapes 1
Synthetic rubber--primary
1
Spacecraftexcluding military
594-71613_ch01_4Pindd 16 102017 404 PM
Fig
ure
42
U
S E
xpo
rts
to R
us s
ia U
S$ 2
016
Sou
rce
US
Ce
nsu
s B
ure
au ldquo
Trad
e in
Go
od
s w
ith
Ru
s sia
rdquo (s
ee
dat
a fo
r 2
016
)
Bak
ery
pro
du
cts
Win
e b
eer
an
d r
elat
ed
pro
du
cts
New
spri
nt
Pla
stic
mat
eria
ls
Ch
emic
als-
fert
ilize
rs
Ch
emic
als-
ino
rgan
icC
hem
ical
s-o
rgan
ic
Ch
emic
als-
oth
erC
ott
on
fib
er c
loth
In
du
stri
al r
ub
ber
pro
du
cts
Min
eral
su
pp
lies-
man
ufa
ctu
red
Gen
erat
ors
acc
esso
ries
Ele
ctri
c ap
par
atu
s
Dri
llin
g amp
oilfi
eld
eq
uip
men
t Sp
ecia
lized
min
ing
Exc
avat
ing
mac
hin
ery
No
nfa
rm t
ract
ors
an
d p
arts
In
du
stri
al e
ng
ines
Fo
od
to
bac
co m
ach
iner
y M
etal
wo
rkin
g m
ach
ine
too
ls
Tex
tile
sew
ing
m
ach
ines
W
oo
d g
lass
p
last
ic
Pu
lp a
nd
pap
er
mac
hin
ery
Mea
suri
ng
tes
tin
g
con
tro
l in
stru
men
ts
Mat
eria
ls h
and
ling
equ
ipm
ent
Ind
ust
rial
mac
hin
es
oth
er
Ph
oto
ser
vice
ind
ust
ry m
ach
iner
y A
gri
cult
ura
l mac
hin
ery
eq
uip
men
t C
om
pu
ters
Co
mp
ute
r ac
cess
ori
es
Sem
ico
nd
uct
ors
Tel
eco
mm
un
icat
ion
seq
uip
men
t
Bu
sin
ess
mac
hin
es a
nd
eq
uip
men
t
Lab
ora
tory
tes
tin
g in
stru
men
ts
Med
icin
al e
qu
ipm
ent
Civ
ilian
air
craf
t e
ng
ines
eq
uip
men
t a
nd
par
ts
Rai
lway
tra
nsp
ort
atio
n
equ
ipm
ent
Ves
sels
exc
lud
ing
scr
ap
Co
mm
erci
al v
esse
ls o
ther
M
arin
e en
gin
es p
arts
Spac
ecra
ft e
xclu
din
g
mili
tary
Pas
sen
ger
car
s
new
an
d u
sed
Tru
cks
bu
ses
and
sp
ecia
l p
urp
ose
ve
hic
les
En
gin
es a
nd
en
gin
e p
arts
(c
arb
ure
tors
pis
ton
s r
ing
s
and
val
ves)
B
od
ies
and
ch
assi
s fo
r p
asse
ng
er c
ars
Au
tom
oti
ve t
ires
an
d t
ub
es
Oth
er p
arts
an
d a
cces
sori
es o
f ve
hic
les
Ap
par
el h
ou
seh
old
go
od
s -
text
ile
Ph
arm
aceu
tica
lp
rep
arat
ion
s
Furn
itu
re h
ou
seh
old
go
od
s
etc
R
ug
s
Cel
l ph
on
es a
nd
oth
er
ho
use
ho
ld g
oo
ds
ne
c
594-71613_ch01_4Pindd 17 102017 404 PM
US-Russia Economic Relations18
Figure 43 US Trade in Goods with Rus sia Million US$ 1992ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
Russian Financial Crisis
Oil price Increased from$2446 USD per barrel (2001)
to $9694 USD per barrel(2008)
Global Financial Crisis
Oil price high record in2011-2012
(more that $111 USD perbarrel)
Oil price crashed
$-
$5000
$10000
$15000
$20000
$25000
$30000
$35000
$40000
$45000
$50000
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia US Exports to Russia US-Russia Trade in Goods
No doubt po liti cal ups and downs add volatility to US- Russia trade Nevertheless Rus siarsquos eco-
nomic structure exhausted itself before the Ukrainian crisis and the recent Rus sian recession Its
limitations are not only due to some mistakes in policy or negative coincidences of circumstances
but rather to deeply rooted properties in the current bilateral trade model related to structural
issues in the Rus sian economy Structural constraints such as the weak enforcement of property
rights poor business regulation and nondiversified exports weighed on Rus sian trade with the
United States From this perspective the term ldquonaturalunnatural trading partnersrdquo does not ad-
dress the unused capacity of bilateral interaction or the real challenges that kind of interaction
faces It just adds metaphysical flavor to the very specific economic and po liti cal factors that
determine the US- Russia trajectory
Overall the outlines of bilateral trade (Figure 43) resemble the famous ldquoRus sian Mountainsrdquo that
were a pre de ces sor of the modern roller coaster icy hills supported by wooden constructionsmdash a
rigid and immobile structure that sooner or later would melt This unfortunately is what is hap-
pening to US- Russia trade cooperation now
594-71613_ch01_4Pindd 18 102017 404 PM
19
ARE LITTLE FISH REALLY SWEET
Low US- Russia economic interaction has at least two consequences First it limits the capacity of
policymakers to exploit trade as an instrument for geopo liti cal combat Even the question of a US
trade deficit which used to be a headache for many US trading partners has become so insig-
nificant in absolute terms (about $87 billion in 2016) that it seems hardly worth caring about
When the volume of trade between two countries becomes very small in absolute terms whether
a country is running a surplus or deficit is no longer relevant But it also renders another type of
confrontations (sometimes more dangerous) more likely since the two traders have little to lose
Second in an environment marked by low levels of bilateral trade both sides could incentivize (if
and when a desire for po liti cal rapprochement exists) the signing of new trade deals which are
elevated symbolically as a turning point in bilateral po liti cal relations (ie the sale of Boeings to
Rus sia or the delivery via tankers of Rus sian oil to US refineries) Sometimes markets themselves
pres ent ldquogiftsrdquo that can be capitalized on po liti cally US- USSR grain trade in the 1970s was one
such ldquogiftrdquo large sales of American grain to the Soviet Union helped US policymakers win favor
with the po liti cally impor tant American farming sector and permitted Soviet leaders to maintain
access to a dietary staple for the Soviet population
The strong 32 percent growth in value of US imports from Rus sia from January to May 2017
versus January to May 2016 ( Table 51) is an example of a development that has tempted officials
to pres ent it as a sign of positive change due to ldquogrowing business activitiesrdquo (this kind of statement
was heard before the bilateral summit in Germany in July 2017) although the reason for that leap
was evidently an increase in commodity prices (mainly of oilmdash see Table 52) and not a rise in
entrepreneurial interactions The primary beneficiaries of that upside rally have been two other
petro- economies Saudi Arabia and Venezuela ( Tables 53 and 54)
Sector Analyses
05
594-71613_ch01_4Pindd 19 102017 404 PM
US-Russia Economic Relations20
Table 51 US Imports from Rus sia Million US$ Januaryndash May 2016 vs Januaryndash May 2017
Year January February March April May Total
2016 9603 6871 11097 12257 10977 50805
2017 12215 10220 16979 13471 14147 67032
Change 271 487 530 99 289 319
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
Table 52 Change in Urals Crude Oil Prices US$ per Barrel Januaryndash May 2016 vs Januaryndash May 2017
Januaryndash May 2016 Januaryndash May 2017 Change ($) Change ()
3601 5129 1528 424
Source Ministry of Finance of the Rus sian Federation https wwwminfin ru ru ixzz4mMIZ7XtC
Table 53 US Imports from Saudi Arabia Million US$ Januaryndash May 2016 vs Januaryndash May 2017
Year January February March April May Total
2016 15114 9036 13555 10844 14679 63228
2017 19802 20298 21650 16211 19542 97503
Change 3101 12463 5972 495 331 542
Source US Census Bureau ldquoTrade in Goods with Saudi Arabiardquo Foreign Trade last modified June 29 2017
https wwwcensus gov foreign - trade balance c5170 html (see data for 2016ndash2017)
594-71613_ch01_4Pindd 20 102017 404 PM
Vadim Grishin 21
Table 54 US Imports from Venezuela Million US$ Januaryndash May 2016 vs Januaryndash May 2017
Year January February March April May Total
2016 6657 5560 7140 8007 7922 35286
2017 13041 10864 123500 11148 12243 59646
Change 9590 9540 7297 3923 5454 6903
Source US Census Bureau ldquoTrade in Goods with Venezuelardquo Foreign Trade last modified June 29 2017
https wwwcensus gov foreign - trade balance c3070 html (see data for 2016ndash2017)
Table 55 US Exports to Rus sia Million US$ Januaryndash May 2016 vs Januaryndash May 2017
Year January February March April May Total
2016 3628 3577 7298 4657 4947 24107
2017 3144 4277 5386 6670 4806 24283
Change minus133 196 minus262 432 minus29 minus07
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2016ndash2017)
At the same time US exports to Rus sia continue to stagnate ( Table 55) due to low levels of
consumption during a two-and- a- half-year economic crisis a deep ruble devaluation sanctions
and counter- sanctions
Given the very dif er ent economic structures and resource endowments of Rus sia and the United
States it is not surprising that US- Russia trade is asymmetric and oil driven (Figure 51) A
3 percent increase in Urals oil prices translates into a one percent increase in US import growth
from Rus sia Thus in 2016 every $10 increase in Urals crude oil added $15 billion to the value of
US imports or 11 percent to the total value of imports from Rus sia
OIL ADDICTION
Oil is a core pillar of US- Russia bilateral trade A bumpy ride in oil markets afects commerce
Nevertheless Rus sian oil exports to the United States in physical terms have been rather
594-71613_ch01_4Pindd 21 102017 404 PM
US-Russia Economic Relations22
sustainable Starting from 2005 average annual deliveries have been above 150 million barrels
(Figure 52) Crude and heating oil have dominated while petroleum products and liquefied petro-
leum gases have not (Figure 53) In 2011 oil exports peaked at 228 million barrels but declined to
159 million barrels in 2016mdash a drop of 30 percent Rec ord high shipments of Rus sian oil to the United
States coincided with an elevation in oil prices which made the subsequent decline in oil shipment
value between 2011 and 2016 (by about 72 percent as shown in Figure 54) seem more stark The
increase in price also raised the share of oil in Rus sian exports by 74 percent in 2011 (Figure 55)
The Rus sian share in total US oil imports was around 55 percent in 2011 and 43 percent in 2016
( Table 56) In the last five years the United States has relied exclusively on consumption of Rus sian
oil for the rough equivalent of one week out of the year (Figure 56)
It is unlikely that Rus sia can significantly increase its share of the US oil market and there is a real
possibility for a downward trend There are several reasons the historically high Rus sian hydrocar-
bon export threshold of 2011 will not soon if ever be surpassed
First US energy consumption will likely be flat According to the US Energy Information Adminis-
tration (EIA) demand for petroleum and other liquids in the United States will be about 35ndash36
quadrillion British thermal units (BTUs) with minimal variation over the next 25 years1
1 US EIA ldquoAnnual Energy Outlook 2017 with Projections to 2050rdquo January 5 2017 7ndash8
Figure 51 US- Russia Trade Growth () vs US and Rus sia Real GDP Growth () 1993ndash2016
Source IMF ldquoIMF Datardquo accessed September 27 2017 http wwwimf org en Data US Census Bureau
ldquoTrade in Goods with Rus siardquo
Note rGDPthinsp=thinspreal gross domestic product
Trade
USA rGDP growth
Russia rGDP growth
-60
-40
-20
0
20
40
60
80
100
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Gro
wth
All spikes in US-Russia trade have been connected with two main
variables volume and price of crude oil
594-71613_ch01_4Pindd 22 102017 404 PM
Vadim Grishin 23
Second the United States will become a net energy exporter between 2020 and 2030 in most
cases under dif er ent combinations of oil and natu ral gas prices GDP growth technological
breakthroughs and the availability of energy resources The role of oil imports will dramatically
fall2
Third oil price scenarios as described by the International Energy Agency (IEA) international
financial organ izations (IFIs) and many national agencies are very cautious and assume that even
by 2035 to 2040 oil prices will not to recover to the levels of 2011ndash20123
Fourth Rus sian oil production and export growth will be modest and driven by Asian economic
expansion and will comprise a decreasing share of Western markets4 According to forecasts from
2 Ibid 15ndash18
3 Ibid table 3 ldquoEnergy Prices by Sector and Sourcesrdquo World Bank World Bank Commodity Markets Price Forecasts
(Washington DC World Bank 2017) httpswwwworldbank org en research commodity - markets Organ ization of the
Petroleum Exporting Countries (OPEC) World Oil Outlook 2016 (Vienna OPEC 2016)
4 E D Belotskaia et al Global and Rus sian Energy Outlook 2016 (Moscow Energy Research Institute of the Rus sian
Acad emy of Science Analytical Center for the Government of the Rus sian Federation 2016) http acgov ru files
publication a 12767 pdf
Figure 52 US Imports from Rus sia Crude Oil and Petroleum Products Thousands of Barrels 1995ndash2016
Source US EIA ldquoUS Imports by Country of Origin Rus siardquo Petroleum amp Other Liquids September 13
2017 http wwweia gov dnav pet PET _ MOVE _ IMPCUS _ D _ NUS _ NRS _ MBBL _ M htm
0
50000
100000
150000
200000
250000
Date 1995 1996 1997 1998 199920002001200220032004200520062007200820092010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 23 102017 404 PM
US-Russia Economic Relations24
the Organ ization of the Petroleum Exporting Countries (OPEC) crude oil exports from Rus sia and
the Caspian region to the United States will dis appear by 20255
So why does the Rus sian Urals blend continue to be attractive for oil traders and US refineries
which could pro cess greater volumes of domestically produced lighter crude There are two main
reasons One is related to the preference of US high conversion refineries (the most sophisticated
in the world) to work with heavy oil blends produced by Canada Mexico Iraq Venezuela and
Rus sia Pro cessing heavy crude now is as profitable as pro cessing lighter crude The so- called
crack spreadmdash the diference between the cost of relatively cheap heavy crude oil and the final
price of value- added consumer products (diesel gasoline jet fuel and heating oil)mdash has become
the same as the refinery margins of light sweet crude6 This has primarily afected light oil produc-
ing countries such as Angola Algeria and Nigeria
5 OPEC World Oil Outlook 2016 306ndash309
6 ldquoHow Much for That Heavy Oilrdquo Oil Sands Magazine December 26 2015 https wwwoilsandsmagazine com
news 2015 12 26 how - much - for - that - heavy - oil
Figure 53 US Imports from Rus sia Oil and Petroleum Products US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$-
$25000000000
$20000000000
$15000000000
$10000000000
$5000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Liquefied petroleum gases
Petroleum products other
Fuel oil
Crude oil
594-71613_ch01_4Pindd 24 102017 404 PM
Vadim Grishin 25
Another factor afecting purchase of Rus sian oil is a new trend among oil companies for further
consolidation of scale and for integrating operations of upstream and downstream business7
There have been several waves of separation and unification of production transportation and
pro cessing in the last 50 years The current business cycle can be seen as an adaptation to a
period of low prices and oversupply Companies that buy andor produce oil in Rus sia most likely
prefer to transport and pro cess this oil in their own modern refineries in the United States At the
same time some of the newest refinery designs specifically for pro cessing heavy oils have been
built in Asia thus extending the choices of heavy oil producing countries
We should also consider that leading US and international oil traders along with oil producing
companies working with or owning US refineries frequently buy Rus sian oil on the open market
and have long- term contracts on Rus sian crude oil delivery Many Rus sian oil companies prefer to
pay for purchases or ser vices with their future production instead of cash creating situations of
ldquostickyrdquo oil imports that are difficult to replace The best- known example is an interaction between
7 ldquoEnergy and Utilities Sectorrdquo Roundtable Financier Worldwide December 2015 https wwwfinancierworldwide
com roundtable - energy - utilities - sector - dec15
Figure 54 US Imports of Oil and Petroleum Products from Rus sia vs Oil Prices Eu rope Brent Spot Price Free on Board (FOB) 1996ndash2017
Source US EIA ldquoUS Imports by Country of Origin Rus siardquo
0
20
40
60
80
100
120
140
0
5000
10000
15000
20000
25000
30000
Jan
-19
96
Jun
-19
96
No
v-19
96
Ap
r-19
97
Sep
-19
97
Feb
-19
98
Jul-
199
8D
ec-1
99
8M
ay-1
99
9O
ct-1
99
9M
ar-2
00
0A
ug
-20
00
Jan
-20
01
Jun
-20
01
No
v-2
00
1A
pr-
20
02
Sep
-20
02
Feb
-20
03
Jul-
20
03
Dec
-20
03
May
-20
04
Oct
-20
04
Mar
-20
05
Au
g-2
00
5Ja
n-2
00
6Ju
n-2
00
6N
ov-
20
06
Ap
r-2
00
7Se
p-2
00
7Fe
b-2
00
8Ju
l-2
00
8D
ec-2
00
8M
ay-2
00
9O
ct-2
00
9M
ar-2
010
Au
g-2
010
Jan
-20
11Ju
n-2
011
No
v-2
011
Ap
r-2
012
Sep
-20
12Fe
b-2
013
Jul-
20
13D
ec-2
013
May
-20
14O
ct-2
014
Mar
-20
15A
ug
-20
15Ja
n-2
016
Jun
-20
16N
ov-
20
16
USD
per
Bar
rel
Th
ou
san
d B
arr
els
US Imports from Russia of Crude Oil and Petroleum Products (Thousand Barrels)
Europe Brent Spot Price FOB (Dollars per Barrel)
594-71613_ch01_4Pindd 25 102017 404 PM
US-Russia Economic Relations26
Table 56 US Oil Imports All Countries vs Rus sia Thousand Barrels per Day 2011ndash2016
Years 2011 2012 2013 2014 2015 2016
All Countries 11436 10598 9859 9241 9449 10058
Rus sia 624 477 460 330 371 433
Share 546 450 467 357 393 431
Sources US EIA ldquoUS Imports by Country of Origin Total Crude Oil and Productsrdquo Petroleum amp Other
Liquids September 13 2017 wwweia gov dnav pet pet_move_impcus_a2_nus_ep00_im0_mbbl_m htm
authorrsquos computation
Figure 55 US Imports from Rus sia Share of Crude Oil and Petroleum Products Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
57
64
73
72
74
73
72
59
52 50
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
$40000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil and Petroleum Products
594-71613_ch01_4Pindd 26 102017 404 PM
Vadim Grishin 27
the Rus sian state mono poly Rosneft and commodity trading and mining giant Glencore which
along with energy and commodities com pany Vitol participated in a $10 billion prepayment
deal with Rosneft for crude supplies in 2013
There have been a number of ongoing transactions between the Rus sian oil industry and interna-
tional oil companies including several that top the list of importers of Rus sian oil to the United
States ( Table 57) In December 2016 Glencore participated in a controversial privatization opera-
tion purchasing in tandem with the Qatar sovereign wealth fund a 195 percent stake in Rosneft
which was on the US and EU list of sanctioned firms8 Glencore has also taken a blocking stake in
midsize oil producer RussNeft BP owns a 1975 percent stake in Rosneft Chevron holds a
15 percent interest in the 935- mile- long CPC9 pipeline which transports an average of 959000
barrels of crude oil per day including 76000 barrels daily from Rus sia10 ExxonMobil has formed
8 E Mazneva and I Arkhipov ldquoRus sia Sells $11 Billion Stake in Rosneft to Glencore Qatarrdquo Bloomberg December 7
2016
9 CPCthinsp=thinspCaspian Pipeline Consortium
10 ldquoRus sia Highlights of Operations and Business Portfoliordquo Chevron accessed October 3 2017 https wwwchevron
com worldwide russia
Figure 56 Share of Rus sian Oil in Total US Oil Imports Thousands of Barrels per Day 1972ndash2016
Source US EIA ldquoUS Imports by Country of Origin Total Crude Oil and Productsrdquo
2000
4000
6000
8000
10000
12000
14000
16000
US Imports of Crude Oil and Petroleum Products (Thousand Barrels per Day)
US Imports from Russia of Crude Oil and Petroleum Products (Thousand Barrels per Day)19
7319
7419
7519
7619
7719
7819
7919
80
198
119
82
198
319
84
198
519
86
198
719
88
198
919
90
199
119
92
199
319
94
199
519
96
199
719
98
199
92
00
02
00
12
00
22
00
32
00
42
00
52
00
62
00
72
00
82
00
92
010
20
112
012
20
132
014
20
152
016
594-71613_ch01_4Pindd 27 102017 404 PM
Table 57 Top Importers of Rus sian Oil to the United States Thousands of Barrels 2016
VALERO MARKETING amp SUPPLY CO 54590 3616
EXXONMOBIL OIL CORP 17087 1130
CHEVRON USA INC 15217 1008
BP WEST COAST PRODUCTS LLC 10130 671
GEORGE E WARREN CORP 7272 48
PAULSBORO REFINING CO LLC 6838 453
TESORO CORP 5097 338
VITOL INC 5084 337
PHILLIPS 66 CO 4726 313
TRAFIGURA AG 4360 289
PAR HAWAII REFINING LLC 3893 258
MOTIVA ENTERPRISES LLC 3041 205
SHELL US TRADING CO 2863 19
MARATHON PETROLEUM CO LLC 2475 16
ATLANTIC TRADING amp MARKETING 2099 14
FREEPOINT COMMODITIES LLC 1439 1
GLENCORE LTD 1284 85
BEST PETROLEUM CORP 967 64
ROLYMPUS US COMMODITIES GROUP LLC 822 6
HUNT CRUDE OIL SUPPLY CO 666 4
GULF OIL LP 658 4
Source US EIA ldquoUS Imports by Country of Origin Crude Oilrdquo Petroleum amp Other Liquids September 13
2017 httpswwweiagovdnavpetpet_move_impcus_a2_nus_epc0_im0_mbblpd_ahtm authorrsquos
computation
594-71613_ch01_4Pindd 28 102017 404 PM
Vadim Grishin 29
several joint ventures with Rosneft to undertake ofshore exploration in the Black Sea and the Kara
Sea in Siberia11
According to the Sanctions Act US persons are prohibited from exporting or reexporting goods
ser vices (except financial ser vices) and technology in support of exploration or production of new
deep- water Arctic ofshore or shale oil proj ects that involve designated Rus sian entities or other
entities in which such sanctioned persons have a controlling interest or a substantial noncontrol-
ling owner ship interest defined as not less than 33 percent (previously it was 50 percent) The new
law also authorizesmdash but does not requiremdash the imposition of so- called secondary sanctions
against non- US entities that engage in activities involving the construction maintenance or
expansion of Rus sian energy export pipelines with a fair market value of $1 million or more or an
aggregate fair market value during a 12- month period of $5 million12 This provision has raised the
concerns of some Eu ro pean countries particularly Germany As result the final language of the
law included wording about coordination of this issue with allies of the United States
Shipments of Rus sian oil to the United States could be afected by activity in the US refinery
industry In early 2017 Saudi Aramco bought the United Statesrsquo largest oil refinery in Port Arthur
(Texas) and it announced plans to send more of its own crude to that refinery13 Serious concerns
exist however regarding the future of three refineries and nine pipelines owned by Citgo a US
branch of the Venezuelan state com pany PdVSA which is balancing precariously on the edge of
default Under certain conditions in the event of PdVSA bankruptcy Rosneft could claim a stake of
up to 499 percent in Citgo Such a possibility has raised concerns among politicians and US
government officials with Trea sury Secretary Steven Mnuchin calling it a ldquonational security issuerdquo14
Tables 58 59 and 510 show allocations of Rus sian oil imports to major US refineries some of
which work exclusively on Rus sian crude a total of two to three months per year In total 150940
thousand barrels of Rus sian oil were refined in 2016
Figure 57 confirms a leading position of Texas and Louisiana among the US states receiving
Rus sian crude followed by New Jersey California Mississippi Washington Hawaii and Delaware
In a paradoxical way Texas has dis appeared from the list of states as a main destination of US
imports from Rus sia (Figure 58) because Rus sian crude is mostly delivered to Louisiana ports and
registered there by US Customs as an import from Rus sia After that it transports to refineries in
Louisiana and Texas
Overall the short- term business rationale behind the sustainability of US oil imports from Rus sia
cannot overcome strong headwinds in the US energy sector facing all oil importers which will
inevitably lead to a contraction of Rus sian oil exports to the United States in the foreseeable future
11 Exxon eforts to receive a special US Trea sury waiver to drill in sanctioned Rus sia failed in 2017
12 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364
13 Sarp Ozkan ldquoSaudi Aramcorsquos Port Arthur Refinery and the US Refinery Fleetrdquo Drilling Info May 11 2017
https infodrillinginfo com saudi - aramcos - port - arthur - refinery - us - refinery - fleet
14 Graham Kates ldquoTrea sury Secretary Rus siarsquos Citgo Deal a National Security Issuerdquo CBS News May 1 2017
http wwwcbsnews com news rosneft - citgo - steven - mnuchin - national - security
594-71613_ch01_4Pindd 29 102017 404 PM
US-Russia Economic Relations30
Table 58 Valerorsquos Refineries Pro cessing Rus sian Oil Thousands of Barrels 2016
Saint Charles Louisiana 29206 535
Corpus Christi Texas 20626 378
Wilmington California 4250 78
Total USA 54590 100
Source US EIA ldquoRefinery Capacity Reportrdquo January 1 2017
table 5 wwweia gov petroleum refinerycapacity table5 pdf
authorrsquos computation
Table 59 ExxonMobil Refineries Pro cessing Rus sian Oil Thousands of Barrels 2016
Baytown Texas 15037 88
Baton Rouge Louisiana 2046 12
Total USA 17083 100
Source US EIA ldquoRefinery Capacity Reportrdquo authorrsquos computation
Table 510 Chevronrsquos Refineries Pro cessing Rus sian Oil Thousands of Barrels 2016
Pascagoula Mississippi 12767 840
El Segundo California 2372 155
Saint Rose Louisiana 78 05
Total USA 15217 100
Source US EIA ldquoRefinery Capacity Reportrdquo authorrsquos computation
594-71613_ch01_4Pindd 30 102017 404 PM
Vadim Grishin 31
HEAVY METAL
Taken together US imports of metals and US imports of oil compose about 80 percent of US
total imports from Rus sia (Figure 59) Trade of metals like other commodities is strongly afected
by market price fluctuations Nevertheless metal imports from Rus sia have been fairly resilient to
market volatility and their average annual value has hovered at about $4 billion in the last five years
(Figure 510) This market resilience was forged at the end of the 1990searly 2000s when Rus sian
metal producers gradually modernized their plants adjusting quality of production to Western
standards and enhancing integration into global value and supply chains Some of them conquered
their share of the highly competitive US market struggling with peers from Canada and certain
BRICS countries (China India and Brazil) To attract additional resources all Rus sian large metal-
producing companies became public and were listed on stock exchanges chiefly the London Stock
Exchange (Severstalrsquo PAO Evraz MMK OAO Novolipetsk Steel Norilsk Nikel and TMK PAO) one
on the New York Stock Exchange (Mechel) and one on the Hong Kong Stock Exchange (Rusal)
Business logic pushed some of them to invest in the US metal- making industry which was hit
hard by crisis Later on some of those assets were sold (eg two US steel mills acquired by
Severstal in 2004 were purchased 10 years later by Steel Dynamics Inc and AK Steel Corp)
Figure 57 Share of US States Rus sian Oil Imports 2016
Source US EIA ldquoUS Imports from Rus sia of Crude Oil and Petroleum Productsrdquo Petroleum amp Other
Liquids September 29 2017 https www eia gov dnav pet hist LeafHandler ashx nshy=shyPETampsshy=shyMTTIM _ NUS
- NRS _ 1ampfshy=shyM authorrsquos computation
0
10
20
30
40
50
60
70
80
90
100
Maine
Massachusetts
Maryland
Connecticut
Georgia
Rhode Island
Virginia
Florida
New York
Alabama
Puerto Rico
Pennsylvania
Delaware
Hawaii
Washington
Mississippi
California
New Jersey
Louisiana
Texas
594-71613_ch01_4Pindd 31 102017 404 PM
Figure 58 US Imports from Rus sia by State Million US$ 2013ndash2016
Source US Census Bureau ldquoState and Metropolitan Area Trade Datardquo Foreign Trade last modified
October 2 2017 https wwwcensus gov foreign - trade statistics state
Alaska
Connecticut
Delaware
Hawaii
Louisiana
Maryland
North Dakota 0
$1000
$2000
$3000
$4000
$5000
$6000
2013 2014 2015 2016
Alabama
Alaska
Connecticut
Delaware
Hawaii
Louisiana
Maryland
Maine
Mississippi
Montana
North Dakota
Mississippi
Figure 59 US Imports from Rus sia Share of Oil and Metals Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
83
82
85
86
87
88
85
82
7375
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
$40000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil and Metals
594-71613_ch01_4Pindd 32 102017 404 PM
Vadim Grishin 33
Obviously the market dynamic of dif er ent metals varies (eg iron steel aluminum platinum and
nickel) Caps to increase their trade and production in a ldquored oceanrdquo global environment with
anemic demand is rather limited despite Figure 510 showing a spike of iron and steel imports
from Rus sia in 2014 and aluminum in 2016 Some opportunities may exist for Russian- owned steel
plants in the United States (such as NLMK) to participate in energy proj ects resumed under Presi-
dent Trump who has required that new pipelines use only American- made steel15
Rus sia occupies a special niche in the US market for titanium products a high- end metal indus-
try Twenty years ago a long- term contract was signed between Rus sian titanium producer
VSMPO- AVISMA and Boeing The Rus sian com pany entered the selective club of Boeing suppliers
for the manufacture of components and semi- finished products Since the signing of this contract
VSMPO has delivered more than 35 percent of all titanium placed on Boeing civil aircraft16 They
are hidden in the trade data in an import category for Civilian Aircrafts and Parts (Figure 511) At
the end of 2016 Boeing announced an extension of its framework agreement with AVISMA
15 E Scheyder C Ngai and T Sylvester ldquoAmerican Steel Unlikely to Get Keystone Boost Despite Trump Orderrdquo
Reuters January 27 2017 http wwwreuters com article usa - trump - pipeline - transcanada - idUSL1N1FH1ZD
16 A Kramer ldquoTitanium Fills Vital Role for Boeing and Rus siardquo New York Times July 5 2013 http wwwnytimes com
2013 07 06 business global titanium - fills - vital - role - for - boeing - and - russia html mcubzshy=shy3
Figure 510 US Imports from Rus sia Iron Steel Bauxite Aluminum Nickel Nonferrous Metals and Other Precious Metals and Materials US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
0
$6000000000
$5000000000
$4000000000
$3000000000
$2000000000
$1000000000
2007 2008 2009 2010 2011 20122013
20142015
2016
Finished metal shapes
Iron and steel advanced
Iron and steel products nec
Nonferrous metals other
Other precious metals
Nickel
Bauxite and aluminum
Iron and steel mill products
Steelmaking materials
594-71613_ch01_4Pindd 33 102017 404 PM
US-Russia Economic Relations34
through 2022 and additional investments in the construction of a new robotic plant in Titanium
Valley a special economic zone located in the Sverdlovsk region that will open in 2018 The pro-
cessing of titanium forgings in all Boeing civil aircraft will be performed there including 787s 737
MAXs and 777Xs17 The contract extension with AVISMA may add several hundred million dollars
in value to annual US imports from Rus sia
How can such heavy reliance on imports of Rus sian titanium exist during a period of rising geopo-
liti cal tensions The answer is straightforward VSMPO- AVISMA is a highly specialized natu ral
mono poly producing 45 percent of the worldrsquos aerospace titanium Only four other countries
smelt high- grade titanium in industrial quantities the United States Germany Japan and China
Overall global production capacity is limited while demand is growing The United States cur-
rently imports around 79 percent of all the titanium it consumes each year18
17 ldquoBoeing and VSMPO Avisma to Launch Second Joint Production Siterdquo Rus sian Aviation Insider December 22 2016
http wwwrusaviainsider com boeing - and - vsmpo - avisma - to - launch - second - joint - production - site
18 Jon Ostrower and Andy Pasztor ldquoBoeing United Technologies Stockpile Titanium Partsrdquo Wall Street Journal
August 7 2014 https wwwwsj com articles boeing - united - technologies - stockpiling - titanium - parts - 1407441886
Figure 511 US Imports from Rus sia Civilian Aircrafts and Parts US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
$200000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Parts-civilian aircraft
Civilian aircraft
594-71613_ch01_4Pindd 34 102017 404 PM
Vadim Grishin 35
The Sanctions Act authorizes the secretary of the trea sury (in a nonmandatory way) to impose
restrictions (without specifying them) against Rus sian state- owned entities operating in the railway
metals and mining sectors of the Rus sian economy Despite the commanding heights of Rus siarsquos
state sector owner ship in its economy (70 percent of GDP) the metal- producing companies have
remained mostly in private hands
NUCLEAR AFFAIRS
Historically owners and operators of the 104 commercial nuclear power reactors in the United
States have purchased more than 80 percent of their uranium from foreign countries Uranium
shipping from Rus sia accounted for about 13 percent of the 58 million pounds of uranium pur-
chased overseas in 201219 At the same time the Rus sian state- owned mono poly Rosatom ac-
counts for 20 percent of Kazakhstanrsquos uranium production (which in turn comprises 11 percent of
all US uranium imports) and 20 percent of US domestic uranium production capacity (with
owner ship of exploration tracts in Wyoming)20
Nuclear fuel and nuclear power continue to be po liti cally sensitive topics both in the United
States and Rus sia Bilateral cooperation in this sector (being surprisingly stable with imports of
nuclear fuel from Rus sia at a level of $1 billion annually in the last five years [Figure 512 and 513])
is under constant po liti cal and lobbying pressure and has been a source of several po liti cal scan-
dals21 Consequently upside risks in this area of interaction are minimal and downside risks are
much higher especially when we are seeing more decommissioning of nuclear plants in the
United States than new constructions The US EIArsquos 2017 Annual Energy Outlook assumes
that about 25 percent of the nuclear capacity now operating will be removed from ser vice
by 205022
WHY IS THE GRASS GREENER ON THE OTHER SIDE
The United States continues to significantly reduce imports of chemical fertilizers as domestic pro-
duction increases In 2016 the United States imported 13 percent less ammonia and 11 percent
less urea and UAN which is a liquid urea and ammonium nitrate fertilizer Rus sia accounts for
around 40 percent of UAN imported by the United States The United States canceled antidumping
duties on imports of ammonium nitrate and urea from Rus sia in 2016 but it did not prevent import
19 US EIA ldquoThe US Relies on Foreign Uranium Enrichment Ser vices to Fuel Its Nuclear Power Plantsrdquo Today in
Energy August 28 2013 https wwweia gov todayinenergy detail php idshy=shy1273
20 Colin Chilcoat ldquoDoes Rus sia Really Own 20 Percent of the USrsquo Uranium Reservesrdquo OilPricecom May 6 2015
http oilpricecom Alternative - Energy Nuclear - Power Does - Russia - Really - Own - 20 - Of - The - US - Uranium - Reserves
html
21 Michelle Ye Hee Lee ldquoThe Facts behind Trumprsquos Repeated Claim about Hillary Clintonrsquos Role in the Rus sian Ura-
nium Dealrdquo Washington Post October 26 2016
22 US EIA ldquoAnnual Energy Outlook 2017 with Projections to 2050rdquo 81ndash82
594-71613_ch01_4Pindd 35 102017 404 PM
Figure 512 US Imports from Rus sia Share of Oil Metals and Nuclear Fuel Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
87
86
90
90
90
91
88
86
7882
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals and Nuclear Fuel
Figure 513 US Imports from Rus sia Nuclear Fuel Materials US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$-
$200000000
$400000000
$600000000
$800000000
$1200000000
$1000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 36 102017 404 PM
Vadim Grishin 37
drops twice last year (Figures 514 and 515) According to forecasts UAN imports are expected to
decline further to 15 million tons this year down over 46 percent from 28 million tons imported
last year23 The downside trend in imports of fertilizers will likely continue because of oversupply
BIG FISH
US imports of fish and shellfish from Rus sia are best understood in comparison with US fish
exports to the Rus sian market which slipped to zero in August 2014 after Rus sia issued an order
banning certain agricultural imports from the United States (Figure 516) While the volume of US
supply was not very large it was impor tant because it broke up the monopolistic dominance of a
few vertically integrated Rus sian companies that have kept prices high by restricting the entry of
new producers Seeking to implement import substitution policies Rus sia has tried to reduce
exports as well as imports of fish and seafood products in the last couple of years This symmetri-
cal approach was intended to ldquocompensaterdquo for a decrease of fish products in the domestic
23 Deepika Thapliyal ldquoPotashCorp Forecasts Sharp Drop in US Nitrogen Imports in 2017rdquo ICIS News February 7
2017 https wwwicis com resources news 2017 02 07 10076734 potashcorp - forecasts - sharp - drop - in - us - nitrogen
- imports - in - 2017
Figure 514 US Imports from Rus sia Share of Oil Metals Nuclear Fuel and Fertilizers Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
90
93
92
93
94
95
92
91
85
86
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals Nuclear Fuel and Fertilizers
594-71613_ch01_4Pindd 37 102017 404 PM
Figure 515 US Imports from Rus sia Chemical- Fertilizers US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
S-
$200000000
$400000000
$600000000
$800000000
$1000000000
$1200000000
$1400000000
$1600000000
$1800000000
$2000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Figure 516 US Exports to Rus sia Fish and Shellfish US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$10000000
$20000000
$30000000
$40000000
$50000000
$60000000
$70000000
$80000000
$90000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Fish and shellfish
594-71613_ch01_4Pindd 38 102017 404 PM
Vadim Grishin 39
consumer market caused by Rus siarsquos import ban but it has failed As result the group most af-
fected by the self- imposed counter- sanctions were Rus sian consumers
With a significant drop in fish imports a devaluation of the ruble and inflationary pressures on
seafood prices yearly consumption of fish in Rus sia has declined precipitously In 2015 alone
fish prices increased 20 percent and consumption dropped to 14 kilograms per person24 from
22 kilograms in 201425 In 2016 food rose to 355 percent of house hold expenditure as a result of
increases in food prices26 This has pushed vertically integrated fishing monopolies to sell even
more of their catch abroad rather than deliver to the Rus sian Federation (Figure 517) Thus we
cannot exclude the possibility of further growth in US fish and shellfish imports from Rus sia on a
marginal scale
24 Александр Савельев ldquoПотребление рыбы в России упало до 14 кг на человекаrdquo [Fish consumption in Rus sia fell to
14 kg per person] Экономика Интерфакс January 28 2015 http wwwinterfax ru business 492038
25 Илья Шестаков ldquoПотебление рыбы в России снизилось на 10 процентов из- за роста ценrdquo [Fish consumption in
Rus sia dropped by 10 percent due to price increases] RNS March 8 2017 https rnsonline consumer - market
Potreblenie - ribi - v - Rossii - snizilos - na - 10 - iz - za - rosta - tsen - 2017 - 03 - 08
26 Zoya Sheftalovich and Christian Oliver ldquoRus siarsquos Boom (Farming) Economyrdquo Politico November 8 2016 http
wwwpolitico eu article russias - boom - farming - economy
Figure 517 US Imports from Rus sia Fish and Shellfish US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$50000000
$100000000
$150000000
$200000000
$250000000
$300000000
$350000000
$400000000
$450000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 39 102017 404 PM
US-Russia Economic Relations40
SPACE ODYSSEY
Among high- end products beyond the top five groups of goods imported from Rus sia cheap and
efficient Rus sian engines have been used to launch US rockets into space for about 16 years
(Figure 518) There was a serious po liti cal strug gle around a 2014 ban on the purchase of Rus sian
RD-180 rocket engines revealing the conflicting business interests of power ful high- tech companies
This restrictive mea sure was temporary and was quickly lifted because of significant cost impacts
and risks of disruption to launch schedules27 For the same reason the Sanctions Act does not autho-
rize ldquothe imposition of any sanction or other condition limitation restriction or prohibition that
directly or indirectly impedes the supply by any entity of the Rus sian Federation of any product or
ser vice or the procurement of such product or ser vice by any contractor or subcontractor of the
United States or any other entity relating to or in connection with any space launch conducted for
the National Aeronautics and Space Administration or any other nonndash Department of Defense
customerrdquo28
Nevertheless many experts believe that US domestic alternatives to replace Rus sian engines will
be viable in five to eight years
27 Ken Dilanian ldquoWhy Does the US Use Rus sian Rockets to Launch Its Satellitesrdquo NBC News updated November 15
2016 http wwwnbcnews com why - does - u - s - use - russian - rockets - launch - its - satellites - n588526
28 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364
Figure 518 Spacecraft Excluding Military US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 40 102017 404 PM
41
Diversity and technological complexity are the most vis i ble advantages supporting US exports to
Rus sia Three major groups of export goods include civilian aircraft engines and parts (Figure 61)
drilling and oil field equipment (Figure 62) and industrial machines and engines (Figure 63)
Despite sanctions against the transfer of advanced oil producing and pro cessing technologies the
realization of US drilling and oil field equipment in Rus sia is sustainable although some bilateral
proj ects have been frozen
Another category of goods that has demonstrated resilience is the phar ma ceu ti cal industry (Fig-
ure 64) because most drugs in Rus sia are imported (about 70 percent of the Rus sian phar ma ceu-
ti cal market in value) Import substitution policies have had only modest results in this industry
As confirmed by American Chamber of Commerce surveys US exports to Rus sia are closely
connected to US FDI 30 percent of total imports of US companies working in the Rus sian
market come from the United States (more than $2 billion in 2016) In other words about
40 percent of all US exports to Rus sia are related to a US corporate- sector business pro cess in
the country The major sectors of activity of these companies are energy and natu ral resources
(52 percent) manufacturing (17 percent) information and communications technology or ICT
(13 percent) retail (7 percent) automotive industry (6 percent) phar ma ceu ti cal production
(1 percent) professional ser vices (05 percent) and other (2 percent)1
Some obvious constraints on US exports to Rus sia have resulted from a reduction in demand A
deterioration of bilateral relations and implementation of sanctions and counter- sanctions have
directly or indirectly afected all businesses Figures 65 and 66 provide data regarding a dramatic
drop in the sale of US agricultural production in Rus sia with all other categories of exports in
goods showing big cuts as well (see Figures 67ndash69)
Exports of civilian aircraft engines and parts put the state of Washington in first place among
other states as a leading exporter to the Rus sian market (Figure 610)
1 American Chamber of Commerce in Rus sia ldquoInvestment and Import to Rus sia 2nd Surveyrdquo 13
Diversity and Constraints
06
594-71613_ch01_4Pindd 41 102017 404 PM
Figure 61 US Exports of Civilian Aircraft Engines Equipment and Parts to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
$2500000000
$2000000000
$1500000000
$1000000000
$500000000
$-
Figure 62 US Exports of Drilling and Oil Field Equipment US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
$40000000
$45000000
$50000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 42 102017 404 PM
Figure 63 US Exports of Industrial Engines to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Figure 64 US Exports of Phar ma ceu ti cal Preparations to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 43 102017 404 PM
Figure 65 US Exports of Meat and Poultry to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Meat poultry etc
$1000000000
$800000000
$600000000
$400000000
$200000000
$-
$1200000000
$1400000000
$1600000000
Figure 66 US Exports of Soybeans to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
$200000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 44 102017 404 PM
Figure 67 US Exports of Vehicles Engines and Parts to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Other parts and accessories of vehicles
Automotive tires and tubes
Bodies and chassis for passenger cars
Engines and engine parts (carburetors pistonsrings and valves)
Trucks buses and special purpose vehicles
Passenger cars new and used
$2500000000
$2000000000
$1500000000
$500000000
$-
$1000000000
Figure 68 US Exports of Medicinal Equipment to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 45 102017 404 PM
Figure 610 US Exports to Rus sia by States (2016 US$ Value) Million US$ 2013ndash2016
Source US Census Bureau ldquoState and Metropolitan Area Trade Datardquo
Iowa Kentucky
North Dakota
Oklahoma
South Carolina
Washington
0
$500
$1000
$1500
$2000
2013 2014 2015 2016
District of Columbia
Iowa
Kentucky
North Dakota
Oklahoma
South Carolina
Washington
Figure 69 US Exports of Excavating Machinery to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
$40000000
$45000000
$50000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 46 102017 404 PM
47
Upon reviewing the current trend in US- Russia economic relations we must acknowledge that
the existing trade model is obsolete and exhausted Imports are resource- oriented and reflect
constraints of the Rus sian economic structure while five groups of goodsmdash oil metals nuclear
fuels fertilizers and fishmdash make up more than 90 percent of total imports from Rus sia (Figure 71)
Each of these industries has a limited capacity for growth in the foreseeable future
Rus siarsquos core export to the United Statesmdash oilmdash will inevitably decrease in the mid- term under any
scenario The value and volume of Rus sian exports to the United States are open to global market
volatility and po liti cal pressures with limited hedging mechanisms
Overall US exports to Rus sia are unsustainable due to bilateral po liti cal tensions the whims of
commodity markets and changing domestic policies Sanctions and counter- sanctions have
created additional barriers particularly in finance banking high- tech energy and agro- business
According to the American Chamber of Commerce 69 percent of US companies working in the
country consider the impact of US sanctions against Rus sia on their business as negative At the
same time 60 percent of companies do not expect big changes in business relations between
Rus sia and the United States under Trump1 as the new law codifies existing sanctions fortifies
them and extends them to new sectors
Current US investments are low due to the weak rule of law in Rus sia a lack of property right
protections and proper contract enforcement high levels of statization and monopolization in the
economy a poor business climate outdated capital stock dependence on natural- resource
sectors and of course sanction and counter- sanction mea sures Bloated administrative compo-
nents created as risk mitigation instruments have also served as impediments The countryrsquos
institutional weakness low level of productivity bud get constraints and a declining inflexible
workforce will restrain future economic growth even if commodity prices recover Rus sian eco-
nomic policy will likely continue to be statist and protectionist relying mostly on import
substitutions
1 Ibid 11
Existing Trends and Future Scenarios
07
594-71613_ch01_4Pindd 47 102017 404 PM
US-Russia Economic Relations48
What scenarios can be expected in such a challenging environment
One probability (no peace no war) is based on the assumption that matters will not deteriorate
further and implementation of the Sanctions Act will be cursory This will cause relatively slow
degradation in the economic field with occasional flashes of activity in selected areas (eg closer
cooperation against Islamist terrorist groups in Syria)
A second worse case or critical scenario is the intensive and full- scale execution of current sanc-
tion legislation and even the imposition of new economic punitive and restrictive mea sures which
could incite asymmetric retaliatory actions and lead to the introduction of additional protectionist
policies This in turn could trigger a further escalation of mutual confrontation and could eventu-
ally destroy the fundamentals of the current bilateral trade system Rus sian leadership has charac-
terized the Sanctions Act as a declaration of a trade war that ends all hope for improving bilateral
relations2
2 Дмитрий Медведев ldquoПодписание президентом США нового санкционного закона против России создает несколько
последствийrdquo [The US Presidentrsquos signing of the package of new sanctions against Rus sia will have a few conse-
quences] Facebook August 2 2017 https wwwfacebook com Dmitry Medvedev posts 10154587161801851
Figure 71 US Imports from Rus sia Share of Oil Metals Nuclear Fuel Fertilizers and Fish Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
93
94
93
94
95
96
93
92
87
89
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals Nuclear FuelFertilizers and Fish
594-71613_ch01_4Pindd 48 102017 404 PM
Vadim Grishin 49
The best case and most favorable scenario looks less probable now It assumes the realization of
structural reforms in Rus sia in such a way that would adapt Rus siarsquos foreign policy to national
economic needs reduce confrontations with the West and make a concerted efort to integrate
Rus sian businesses into global supply and value chains A revitalization of the structural reform
agendamdash including eforts to diversify economic activities through de- monopolization and support
for SMEs a restructuring of the banking sector the creation of a vibrant business climate to foster
entrepreneurships and innovation the implementation of administrative and judicial reforms to
tackle red tape and endemic corruption and the reduction of state control over key sectors of the
economy via wide- spread privatization could kick- start the development of a nonoil economy and
improve long- term growth prospects Despite ongoing discussion of reform strategies deep
economic and po liti cal changes are extremely complicated over the next po liti calelectoral cycle
(2018ndash2024) particularly because of re sis tance of vested interests and growing commodity prices
The urgency to tackle structural shortcomings in natu ral resource- dependent economies usually
correlates with the price of those resources and the degree to which resource rents drive eco-
nomic activity However there may be marginal improvements in the efficiency of the current
economic system
Future US- Russia relations can be thought of through three pillars one pillar focuses on areas
where both countries maintain a competitive rivalry another looks at potential areas of interaction
under pres ent conditions a third pillar and one that has evaporated from the current bilateral
agenda concentrates on future cooperation Stronger economic ties could not only be a kind of
po liti cal shock absorber but contribute to the building of this future (particularly business contacts
aim to support future structural reforms) although po liti cal factors are depressing the prospects
for cooperation To escape deadlock it will be impor tant to establish the right balance between
politics and economics and create a model of collaboration within the framework of contention
594-71613_ch01_4Pindd 49 102017 404 PM
About the Author
Vadim Grishin PhD MBA has been involved in the reform pro cess in Rus sia as adviser to the
deputy prime minister of Rus sia in 1992ndash1993 and 2006ndash2010 He has extensive experience
working with the Bretton Woods Institutions He was the board member of the World Bank Group
and served as se nior adviser at the International Monetary Fund Currently he is a con sul tant to the
chief economistrsquos office of the International Finance Corporation and teaches the economics of
transition at Georgetown University in Washington DC
50
594-71613_ch99_4Pindd 50 102017 403 PM
Blank
COVER PHOTO ADOBE STOCK
1616 Rhode Island Avenue NW
Washington DC 20036
202 887 0200 | wwwcsisorg
v++ISBN 978-1-4422-8035-9
Lanham bull Boulder bull New York bull London
4501 Forbes Boulevard
Lanham MD 20706
301 459 3366 | wwwrowmancom
A U T H O R
Vadim Grishin
Myths and Realities
A Report of the
CSIS RUSSIA AND EURASIA PROGRAM
US-RussiaEconomicRelations
O C T O B E R 2 0 1 7
Euml|xHSLEOCy280359z
The Man Pupu Nyor Rock Formations at the Northern Urals also known as Seven
Strong Man or Little Mountain of the God in the local tribe (Mansi) language
O C T O B E R 2 0 1 7
US- Russia Economic RelationsMyths and Real ities
AUTHOR
Vadim Grishin
A REPORT OF THE
CSIS RUSSIA AND EURASIA PROGRAM
Lanham bull Boulder bull New York bull London
594-71613_ch00_4Pindd 1 102017 403 PM
About CSIS
For over 50 years the Center for Strategic and International Studies (CSIS) has worked
to develop solutions to the worldrsquos greatest policy challenges Today CSIS scholars are
providing strategic insights and bipartisan policy solutions to help decisionmakers chart a
course toward a better world
CSIS is a nonprofit organ ization headquartered in Washington DC The Centerrsquos 220 full-
time staff and large network of affiliated scholars conduct research and analy sis and develop
policy initiatives that look into the future and anticipate change
Founded at the height of the Cold War by David M Abshire and Admiral Arleigh Burke CSIS
was dedicated to finding ways to sustain American prominence and prosperity as a force for
good in the world Since 1962 CSIS has become one of the worldrsquos preeminent international
institutions focused on defense and security regional stability and transnational
challenges ranging from energy and climate to global health and economic integration
Thomas J Pritzker was named chairman of the CSIS Board of Trustees in November 2015
Former US deputy secretary of defense John J Hamre has served as the Centerrsquos president
and chief executive officer since 2000
CSIS does not take specific policy positions accordingly all views expressed herein should
be understood to be solely those of the author(s)
copy 2017 by the Center for Strategic and International Studies All rights reserved
ISBN 978-1-4422-8035-9 (pb) 978-1-4422-8036-6 (eBook)
Center for Strategic amp International Studies Rowman amp Littlefield
1616 Rhode Island Ave nue NW 4501 Forbes Boulevard
Washington DC 20036 Lanham MD 20706
202-887-0200 | wwwcsis org 301 - 459 - 3366 | www rowman com
594-71613_ch00_4Pindd 2 102017 403 PM
III
Contents
iv Acknowl edgments
1 CHAPTER 1 | Introduction
4 CHAPTER 2 | Does Bilateral Economic Interaction Matter
11 CHAPTER 3 | Politics in the Driverrsquos Seat
15 CHAPTER 4 | Are the United States and Rus sia ldquoNatu ralrdquo Trading Partners
A Little Bit of History
19 CHAPTER 5 | Sector Analyses
41 CHAPTER 6 | Diversity and Constraints
47 CHAPTER 7 | Existing Trends and Future Scenarios
50 About the Author
594-71613_ch00_4Pindd 3 102017 403 PM
The author wishes to thank the participants of a draft paper discussion William Arnold Jack
Brougher Matthew Edwards Daniel Fried Andrew Kuchins Randy Levinas Gary Litman Jeff
Mankoff Cyrus Newlin Olga Oliker Ian Solomon Doug Stanglin and Angela Stent
This report is made pos si ble by the generous support of Car ne gie Corporation of New York
Acknowl edgments
Iv
594-71613_ch00_4Pindd 4 102017 403 PM
1
01
Introduction
A friend of mine a devoted connoisseur of bilateral economic relations with 30 years of experi-
ence in the field once noted that the hottest discussions about US- Russia ties occur at a time
when mutual trade is compressed into the value of a mathematical error This is exactly what is
happening now According to official statistics the value of US- Russia trade is about $20 billion
and is rolling back to the level of 20051 There is no doubt that a new set of sanctions recently
signed into law by the US president and currently being implemented will further hurt economic
interaction by reducing financial inflows limiting the transfer of technology and expertise and
dampening business confidence Many policymakers and experts have agreed that HR 3364
(Countering Amer i carsquos Adversaries through Sanctions Act2) by expanding and codifying US
sanctions targeting Rus sia opens a new cycle in bilateral relations This legislation which received
overwhelming bipartisan support creates a new economic and po liti cal framework on a bilateral
track Strong concerns expressed by President Donald Trump in his special statement about
ldquounconstitutional provisions of the ldquoflawed billrdquo3 cannot significantly limit its intended and
unintended consequences In its implementation it could have relatively broad margins of flexibil-
ity and leverage but requires the president to seek congressional approval before easing or termi-
nating sanctions against Rus sia or undertaking actions that would significantly modify US policy
toward Rus sia Additional observations regarding HR 3364rsquos pos si ble impact on US- Russia
interaction in par tic u lar industries can be found throughout this report but suffice it to say that it
will contribute to a broader curtailment of many pillars of economic cooperation for years ahead
1 US Census Bureau ldquoForeign Trade Trade in Goods with Rus siardquo Foreign Trade updated June 29 2017 https
wwwcensus gov foreign - trade balance c4621 html
2 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364 115th Cong (2017ndash2018) https www
congress gov bill 115th - congress house - bill 3364
3 Donald J Trump ldquoStatement by President Donald J Trump on the Signing of HR 3364rdquo White House Office of the
Press Secretary August 2 2017 https wwwwhitehouse gov the - press - office 2017 08 02 statement - president
- donald - j - trump - signing - hr - 3364
594-71613_ch01_4Pindd 1 102017 404 PM
US-Russia Economic Relations2
Escalating geopo liti cal tensions have continued to significantly define Rus siarsquos economic prospects
however the countryrsquos economic model exhausted itself long before the dramatic deterioration of
relations with the West Structural bottlenecks have seriously limited Rus siarsquos growth capacity even
during the previous period of high oil prices4
The purpose of this report is to assess what has gone wrong with the US- Russia equation by
analyzing it through the prism of a bilateral economic and po liti cal trajectory while keeping in
mind the structural constraints of the Rus sian economy It will attempt to answer the following
questions
bull Do bilateral economic relations matter
bull Are the United States and Rus sia ldquonatu ralrdquo or ldquounnaturalrdquo trading partners
bull What future scenarios can we expect
In the vast lit er a ture on US- Russia economic relations analy sis of developing trends in bilateral
commerce has always been accompanied by discussions around impor tant po liti cal and eco-
nomic matters particularly regarding US legislation and regulation5 Over several de cades the
most controversial issues concerned the granting of permanent normal trading status to Rus sia
through legislation that eliminated the Jackson- Vanik Amendment and Rus siarsquos accession to
the World Trade Organ ization (WTO) The Magnitsky Act signed into law in 2012 repealed the
Jackson- Vanik provisions but added legislation providing authority for the US government to
withhold visas and freeze assets of Rus sians thought to have been involved with human rights
violations and later imposed sanctions on Rus sia because of its involvement in the Ukrainian and
Syrian crises and its cyber- enabled activities6
Some have observed deficiencies in Rus siarsquos participation in the international division of labor
(reliance on the export of energy and metals) which ldquo canrsquot serve any more as a basis for further
expansion of the countryrsquos position in world markets including the US marketrdquo7 Unfortunately
such observations have not been accompanied by quantitative and qualitative analy sis of structural
constraints in the Rus sian foreign trade model Many authors limit their policy recommendations
for fostering bilateral economic relations to a requirement for a strong initial push from respective
governments the creation of business working groups and the extension of bilateral and multilat-
eral legal grounds for economic cooperation Such instruments proved to be useful in facilitating
4 International Monetary Fund (IMF) Rus sian Federation Selected Issues (Washington DC IMF 2016)
5 ldquoAmer i carsquos New Economic Sanctions May Hurt Rus siarsquos Recoveryrdquo Economist August 5 2017 Andrey Kortunov and
Olga Oliker eds A Roadmap for US- Russia Relations (Washington DC CSISRIAC 2017) https csis - prods3
amazonaws com s3fs - public publication 170815 _ KortunovOliker _ USRussiaRelations _ Web pdf E0bdGVHlxxYRAxhO
w8zJ9tbRGwdWjEgV Самуйлов CM Братерский MB ldquoКонгресс и торговые отношения США с Россиейrdquo [US
Congressrsquos role in the US- RF trade relations] США и Канада экономика политика культура 5 no 533 (May 2014)
6 Andrew Weiss and Richard Nephew ldquoThe Role of Sanctions in US- Russian Relationsrdquo (Task Force White Paper
Car ne gie Endowment for International Peace Washington DC July 11 2016)
7 Глущенко ЮН ldquoСостояние проблемы и перспективы сотрудничества России и США в экономической сфереrdquo
[Status prob lems and prospects of Russia- US economic cooperation] Проблемы Национальной Стратегии 21 no 6
(2013) 148ndash164
594-71613_ch01_4Pindd 2 102017 404 PM
Vadim Grishin 3
trade and investment during several reset cycles in bilateral relations starting in the 1990s but
they were only partially successful
Several papers and books although focused primarily on bilateral po liti cal agendas or sectorial
analy sis underline the importance of Rus sian domestic realities Dr Angela Stent in her ldquoLimits of
Partnershiprdquo notes that state control of the commanding heights in the Rus sian economy creates
significant deterrents for US private- sector entrance into the market8 Thane Gustafson in the
ldquoWheel of Fortunerdquo asserts that Rus siarsquos growing dependence on revenue from oil exports along
with its inefficient and often- corrupt management of industry is unsustainable9 Andrew Kuchins
in his ldquoElevation and Calibration A New Rus sia Policy for Amer i cardquo has quoted some experts who
believe that the weakened Rus sian economic position may over time contribute to some rap-
prochement with the West and emphasized lack of reforms as ldquoa key obstacle not only for Rus sian
economic recovery but also for improving ties with the Westrdquo10
In a recent joint task force report Eugene Rumer Andrew S Weiss and Richard Sokolsky argue
that the concept of developing stronger economic ties with Rus sia as a foundation for improved
diplomatic relations has not worked ldquoClinton Bush and Obama all placed high hope on trade as
an engine of better relations with Rus sia All were frustrated by the fact that the two countries are
for the most part not natu ral trading partnersrdquo11 On a dif er ent note the former US envoy to
Rus sia Michael McFaul has defended the achievements of a reset policy under the Barack Obama
administration emphasizing that bilateral trade reached a rec ord level in 2011 Nevertheless he
also stresses that it was a one- time accomplishment unlikely to be repeated12
Voices of those who believe that extensive economic ties can provide stability to broader po liti cal
interaction are weaker than ever in an environment of growing protectionism and adversarial rivalry
8 Angela Stent The Limits of Partnerships US- Russian Relations in the XXI Century (Prince ton NJ Prince ton
University Press 2014) 98
9 Thane Gustafson Wheel of Fortune The Battle for Oil and Power in Rus sia (London Harvard University Press 2012)
10 Andrew Kuchins Elevation and Calibration A New Rus sia Policy for Amer i ca (Washington DC Center on Global
Interests 2016)
11 Eugene Rumer Richard Sokolsky and Andrew S Weiss ldquoTrump and Rus sia The Right Way to Manage Relationsrdquo
Foreign Affairs 96 no 2 (MarchApril 2017)
12 Michael McFaul ldquoUS- Russia Relationsrdquo (lecture Institute for Public Diplomacy and Global Communications
George Washington University Washington DC March 3 2017) https wwwc - span org video 424811 - 1 former
- ambassador - michael - mcfaul - discusses - state - usrussia - relations
594-71613_ch01_4Pindd 3 102017 404 PM
4
02
Does Bilateral Economic Interaction Matter
Economic relations do not emerge out of a vacuum There are many variables that define the final
configuration of economic interactions such as a par tic u lar countryrsquos level of economic develop-
ment its business environment legal framework po liti cal climate (regime) culture and religion
history and tradition demography and geography as well as global and national economic cycles
An impor tant driver of trade relations for many economies has become participation in global and
regional trade agreements
As many studies and anecdotal evidence show bilateral economic cooperation should be sizable
and should relate to the economic growth of two countries in a way that afects their policy
interests Let us take as a reference point the BRICS countries1 a community of large emerging
economies which Rus sia belongs to Table 21 pres ents official data on US trade and investments
with BRICS states US- Russia trade in goods is disproportionally lowmdash235 times less than US
trade with China 33 times smaller than US trade with India and 28 times less than US trade
with Brazil The size of the US- Russia trade balance is comparable to the size of the US trade
balance with South Africa whose economy is almost four times smaller than Rus siarsquos If we add
trade in ser vices to the trade of goods the gaps increase significantly (Figures 21 and 22) The
diference is not only quantitative but also qualitative
The quality of trade relations can be mea sured by its diversity its share of high- tech components
resilience to economic shocks and its contribution to GDP growth On average a 10 percent
increase in a nationrsquos two- way trade relative to GDP increases GDP through a variety of channels
by at least 16 percent2
Bilateral trade and real GDP growth in the United States and Rus sia are practically uncorrelated
as shown in the summary output of multifactorial regression The coefficient of multiple determi-
nation (R Square) is close to 0 ( Table 22) At the same time the correlation of US exports to India
1 BRICS is the acronym for a select group of five developing economies Brazil Rus sia India China and South Africa
2 World Economic Forum Foreign Direct Investment as a Key Driver for Trade Growth and Prosperity The Case for a
Multilateral Agreement on Investment (Geneva World Economic Forum 2013) 11
594-71613_ch01_4Pindd 4 102017 404 PM
Vadim Grishin 5
Table 21 US Trade and Foreign Direct Investments (FDI) with China India Brazil South Africa and Rus sia 2016
China India Brazil South Africa Rus sia
Total Goods Trade 5786 677 565 13 203
Imports 4628 460 262 73 145
Exports 1158 217 303 55 58
Trade in Ser vices 696 472 317 47 na
Imports 161 268 68 17 na
Exports 535 203 249 30 na
US FDI 746 283 653 62 141
BRICS FDI in the United States
148 93 043 076 63
Supported Jobs in the United States (thousand)
911 197 308 50 84
Source United States Trade Representative (USTR) ldquoCountries amp Regionsrdquo accessed September 27 2017
https ustrgov countries - regions See US- China Trade Facts US- India Trade Facts US- Brazil Trade
Facts US- South Africa Trade Facts and US- Russia Trade Facts
201520142013
and China with the real GDP growth of these big Asian economies is significant (05) In the case of
Brazil the correlation is even higher (07) By contrast South Africarsquos small open economy is quite
sensitive to US imports from South Africa (043)3
In marked contrast to other BRICS countries Rus sia is a poor choice for export- oriented opera-
tions As a recent International Monetary Fund (IMF) study highlights Rus sia is an outlier a rare
exception among emerging market (EM) economies with virtually no preferential access to major
markets and little meaningful change over three de cades4 This complicates Rus siarsquos integration
into the global value chain (GVC) which became a significant driving force toward economic
development and trade for certain BRICS economies
3 IMF statistics authorrsquos computation
4 IMF Rus sian Federation Selected Issues IMF Country Report N17198 (Washington DC IMF July 2017)
594-71613_ch01_4Pindd 5 102017 404 PM
US-Russia Economic Relations6
Trade is closely connected with foreign direct investment (FDI) and both are parts of a complex
interaction known as international production sharing According to publicly available official data
US FDI in Rus sia was about $131 billion for 2013 and $295 billion for 2016 with the top industrial
sectors being software and IT ser vices financial ser vices chemicals metals coal oil and gas
and business ser vices5 If we take into account US investments made through Eu ro pean branches
of US companies and ofshore firms this number would easily triple Another component
that usually is not tracked by official statistics is reinvestments The American Chamber of
Commerce surveys in 2016 and 2017 which include this component draw a completely dif er ent
picture accumulated US corporate FDI in 90 large US companies working in Rus sia reached
5 US Department of Commerce International Trade Administration ldquoRussiamdash94- Foreign Direct Investment and
Portfolio Investment Statisticsrdquo Rus sia Country Commercial Guide July 7 2017 https wwwexport gov article
id=shyRussia - foreign - direct - investment - statistics
Figure 21 US Trade in Goods with China India Brazil Rus sia and South Africa Billion US$ 2016
Source USTR ldquoCountries amp Regionsrdquo See US- China Trade Facts US- India Trade Facts US- Brazil Trade
Facts US- South Africa Trade Facts and US- Russia Trade Facts
0
$50
$100
$150
$200
$250
$300
$350
$400
$450
$500
$550
$600
China India Brazil Russia South Africa
Exports
Imports
594-71613_ch01_4Pindd 6 102017 404 PM
Vadim Grishin 7
$8244 billion in 20176 The real level from our perspective is usually between official and private
estimations around $40 billon But even this cumulative figure is less than the US FDI in Brazil
and China
The American Chamber of Commerce surveys have also revealed other impor tant data Eighty-
five percent of US companies doing business in Rus sia entered its market 10 or more years ago
while 60 percent of them ldquolandedrdquo there 20 years ago or earlier Only one percent have started
operations over the last five years confirming an obvious fact entry into the Rus sian market is
challenging because of growing monopolism risks associated with the business climate and a
stagnating economy7
6 American Chamber of Commerce in Rus sia ldquoInvestment and Import to Rus sia 2nd Surveyrdquo (Prepared by GfK for the
American Chamber of Commerce in Rus sia Moscow May 2017) 12
7 Ibid 4
Figure 22 US Trade in Goods and in Ser vices with China India Brazil Rus sia and South Africa Billion US$ 2016
Source USTR ldquoCountries amp Regionsrdquo See US- China Trade Facts US- India Trade Facts US- Brazil Trade
Facts US- South Africa Trade Facts and US- Russia Trade Facts
0
$100
$200
$300
$400
$500
$600
$700
China India Brazil Russia South Africa
Trade in Services
Total Goods Trade
594-71613_ch01_4Pindd 7 102017 404 PM
US-Russia Economic Relations8
Rus sian direct investment position toward the United States declined from $215 billion in 2013 to
$83 billion in 2015 (Figure 23) Taking into account dif er ent channels and instruments the actual
volume of Rus sian investments in the United States made through ofshore Eu ro pean Canadian
and US companies may be several times greater than the available official data
Foreign investment in financial assets or foreign portfolio investment (FPI) should be included
even though Central Bank of Rus sia statistics indicate they were also quite low US investments in
equity were $345 million and in debt instruments were about $65 million in the fourth quarter of
20168 However these numbers do not reflect the real level of FPI Rus siarsquos stocks are incredibly
inexpensive while there has been impressive growth of US investments in short- term securities
and in foreign exchange (FX) operations (cash- and- carry trade) Rus sia was among the top per-
forming emerging markets in 2016 gaining 4744 percent in US dollars9 Nevertheless the gen-
eral capitalization of the stock exchange is tiny (less than 20 percent of GDP) comparable to the
capitalization of just one large US com pany such as Coca- Cola Many private sources believe that
the US FPI in Rus sia could be as high as several billion US dollars but a new set of sanctions
approved by President Trump on August 2 2017 if implemented could reverse those flows It is
still not clear whether the secretary of trea sury will prohibit participation in the oferings of Rus siarsquos
sovereign debt and the full range of derivative products A report on this subject should be sub-
mitted no later than 180 days after enactment of the law which means no later than Febru-
ary 2018 New legislation tightens prohibition on Rus sian financial companies already under
sanctions by limiting any new equity or debt with a maturity greater than 14 days (a provision that
8 Central Bank of Rus sia ldquoForeign Direct Investments in the Rus sian Federationrdquo accessed September 27 2017 www
cbr ru localization switchlanguage urlshy=shy news ampfromshy=shyru - ruamptoshy=shyen - gb
9 VanEck ldquoRus sian Stock Market Soars in 2016rdquo Seeking Alpha February 14 2017 https seekingalphacom article
4045602 - russian - stock - market - soars - 2016
Table 22 Summary Output of Regression Statistics (US Real GDP Rus sia Real GDP US- Russia Exports Imports and Total Trade)
Regression Statistics
Multiple R 0056445768
R Square 0003186125
Adjusted R Square minus0042123597
Standard Error 2616043923
Observations 24
Sources IMF statistics authorrsquos computation
594-71613_ch01_4Pindd 8 102017 404 PM
Vadim Grishin 9
previously allowed for 30 days) Similarly US persons are prohibited from taking on any new debt
that has a maturity greater than 60 days (previously it was 90 days) with Rus sian energy compa-
nies currently under sanctions10
According to the Trea sury Department Rus sia held $1029 billion in US Trea sury securities in
June 201711 Could Rus sia withdraw all its reserves from the United States and use this action as a
retaliatory mea sure Such a scenario is unlikely since there is no comparable safe- haven alterna-
tive to US dollars When Rus siarsquos US Trea sury holdings dropped 50 percent from $176 billion
(October 2010) to $90 billion (November 2011) the market did not notice12 Nevertheless Rus sian
authorities have announced they will decrease dependence on assets and payments in US dollars13
10 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364
11 US Department of Trea sury Major Foreign Holders of Trea sury Securities September 18 2017 http ticdata
treasury gov Publish mfh txt
12 Ibid
13 ldquoНовый виток санкций Россия откажется от доллараrdquo [A new round of sanctions Rus sia will abandon the dollar]
Газетару August 7 2017 https wwwgazeta ru business 2017 08 07 10821937 shtml
Figure 23 Rus sia Outward FDI Position United States Equities and Debt Million US$ 2009ndash2016
Source Central Bank of the Rus sian Federation External Sector Statistics Rus sian Direct Investments
Abroad accessed September 27 2017 https wwwcbr ru localization switchlanguage urlshy=shy news
ampfromshy=shyru - ruamptoshy=shyen - gb
$6000
$8000
$10000
$12000
$14000
$16000
$18000
$20000
$22000
2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 9 102017 404 PM
US-Russia Economic Relations10
Officially the country does not invest in the US stock exchange although some Rus sian oligarchs
have bought US corporate bonds and equities in large amounts The new sanctions law requires
the secretary of trea sury in consultation with the director of national intelligence and the secretary
of state to issue reports on Rus sian se nior po liti cal figures and oligarchs based on their closeness
to the Rus sian regime and their net worth as well as the exposure of key economic sectors of the
United States to Rus sian po liti cally exposed persons and parastatal entities including at a mini-
mum the banking securities insurance and real estate sectors14
Only three Rus sian companies are listed in the US exchanges
Overall the scale and scope of US- Russia economic interaction and business activity is much greater
than officially appreciated but not significant enough to be taken into consideration by policymakers
14 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364
594-71613_ch01_4Pindd 10 102017 404 PM
11
03
Politics in the Driverrsquos Seat
Bilateral economic relations depend to a great extent on global and national economic cycles
After the recent global financial crisis the US economy has shown surprisingly sustainable GDP
growth while the Rus sian economy was the most afected among BRICS countries by the turbu-
lence of a worldwide economic downturn in 2008ndash2009 and after a short- term rebound slipped
into stagnation (2012ndash2013) and then into full- scale recession (2014ndash2016) The countryrsquos eco-
nomic cycle however appears to be changing once again with the economy returning to a
pattern of growth albeit uneven and gradual (Figures 31 and 32) Even with sanctions still in place
conditions have improved as a result of the stabilization of Urals oil to an average annual price of
$419 per barrel in 2016 The gains were sparked in part by major crude producers agreeing to cut
production after hefty price drops in 2014 and 2015 Supported by easier financial conditions
higher oil prices and growing macro- stability Rus sia is heading toward a moderate growth rate
that is expected to reach 14 percent this year according to forecasts of the World Bank Group
(WBG) and the IMF1
Because of the significant role that politics plays in any bilateral interaction it is impor tant to
combine economic and po liti cal cycles applying a ldquoresetrdquo to bilateral economic cooperation in
addition to the po liti cal relationship I have compared po liti cal cycles and trade dynamics using the
following graphs ( Table 31 and Figure 33) These charts do not pretend to reflect with mathemati-
cal precision all shifts in the bilateral po liti cal relationship but rather attempt to visually align
impor tant economic and po liti cal moments to detect the efects of po liti cal events on the size of
bilateral trade
Figure 33 shows all pos si ble combinations economic trends at the intersection of po liti cal devel-
opments oppose or support each other in synchronization It is evident that po liti cal interference
1 International Monetary Fund Rus sian Federation Staff Concluding Statement of the 2017 Article IV Mission (Wash-
ington DC IMF 2017) World Bank Group From Recession to Recovery Rus sia Economic Report no 37 (Washington
DC World Bank 2017) http pubdocsworldbank org en 383241495487103815 RER - 37 - May26 - FINAL - with - summary
594-71613_ch01_4Pindd 11 102017 404 PM
US-Russia Economic Relations12
in bilateral business afairs in the early 2000s was less significant than in later years As result
growing po liti cal tensions from 2003 to 2008 did not dramatically afect bilateral economic inter-
action It is also easier to explain why 2011ndash2012 resulted in rec ord trade and investmentmdash a con-
sequence of very high oil prices GDP growth in both countries improved legislation after Rus siarsquos
accession to the WTO and the Obamandash Medvedev po liti cal reset From 2014 to 2016 a perfect
storm of developments added efficiency to Western sanctions and augmented the damaging
consequences of counter- sanction mea sures
Figure 33 also confirms that in times of reduced economic cooperation po liti cal pressures can
easily change bilateral economic trends Moreover business interests along with economic inter-
actions have a limited capacity to reverse the po liti cal mainstream
Figure 31 Economic Cycle 2014ndash2016
Source Authorrsquos evaluation of international financial institutions (IFI) data and sources from respective
countries
Sustainable Growth
Brazil
Negative Growth
Unstable Growth
Mexico
Descending Growth
Argentina
EU
US
Russia
Vietnam
China
594-71613_ch01_4Pindd 12 102017 404 PM
Vadim Grishin 13
Table 31 Po liti cal Cycles in Bilateral US- Russia Relations 1999ndash2016
2001ndash2002 The George W Bushndash Vladimir Putin Reset Rus sia supported ldquoglobal war on terrorismrdquo launched by the United States after 911 the SORT nuclear arms reduction treaty was signed by the United States and Rus sia and a successful business dialogue was developed that created the current structure of economic relations
2003ndash2008 Deterioration in bilateral relations brought on by the Iraq War Georgiarsquos ldquoRose Revolutionrdquo Mikhail Khodorkovskyrsquos arrest Ukrainersquos ldquoOrange Revolutionrdquo Kosovorsquos in de pen dence and the Georgian War
2009ndash2010 The Barack Obamandash Dmitry Medvedev Reset Rus sia served as a logistical hub for transportation and supply of US forces in Af ghan i stan United States and Rus sia signed the new START nuclear arms reduction treaty Rus sia backed tighter economic sanctions on Iran Rus sia gained access to the WTO after 18 years of negotiations
2011ndash2016 Deterioration in bilateral relations caused by the Ukrainian crisis which were followed by sanctions and counter- sanctions along with the Syrian crises and cyber- enabled activities
Source Authorrsquos evaluation of po liti cal and economic data
Note SORTthinsp=thinspStrategic Ofensive Reductions Treaty STARTthinsp=thinspStrategic Arms Reduction Treaty
Figure 32 Economic Cycle 2017ndash2019
Source Authorrsquos evaluation of IFI data and sources from respective countries
Egypt
VenezuelaEU
South Africa
Brazil
Russia
India
US
Descending Growth
Korea
China
Negative Growth
Unstable Growth
Sustainable Growth
594-71613_ch01_4Pindd 13 102017 404 PM
US-Russia Economic Relations14
Figure 33 US- Russia Trade Million US$ vs Po liti cal Cycle 2000ndash2016
Sources US Census Bureau ldquoTrade in Goods with Rus siardquo Foreign Trade last modified June 29 2017
https wwwcensus gov foreign - trade balance c4621 html (see data for 2000ndash2016) authorrsquos evaluation
of po liti cal and economic data
Orange Revolution
Khodorkovskys arrest
GeorgianWar
Bush- Putin Reset
Iraq War Global Financial Crisis
Obama-Medvedev Reset
Russias WTO accession
New START Treaty
A Pefect Storm the Ukranian Crisis Oil Prices Crashing
Sanctions and Counter-Sanctions
$3000
$8000
$13000
$18000
$23000
$28000
$33000
$38000
$43000
2000 2002 2004 2006 2008 2010 2012 2014 2016
594-71613_ch01_4Pindd 14 102017 404 PM
15
The current structure of US- Russia economic relations emerged in the early 2000s when the
model of trade and investment interaction took on a character similar to that which existed be-
tween the United States and developing economies US imports from Rus sia centered on com-
modities while technology along with food products lead American exports The primary
exception was that Rus sia supplied nuclear fuel including highly enriched uranium extracted from
nuclear weapons for US power plants and provided ser vices to the aerospace industry primarily
in satellite launches However both these exceptions can be explained as a legacy of the Soviet
past and not a harbinger of the future economic relationship (Figure 41)
In the last 15 years this trade structure has not changed significantly The only noticeable shift in
trade was a dramatic drop (to practically nothing) in exports of US agricultural products a result
of Rus siarsquos policy of import substitution and so- called counter- sanction mea sures it took in re-
sponse to US sanctions over the Ukraine crisis (Figure 42)
Promising new directions of cooperation in the IT sector and in engineering ser vices for the
aerospace industry appeared in the early 2000s1 but did not spill into other sectors and conse-
quently did little to renew economic cooperation on the whole The integration of Rus sian high-
tech ser vices into large- scale global production and value chains was constrained by the usual
culprits a lack of financial resources managerial experience skilled labor modern infrastructure
RampD investments and an adequate business environment High commodity prices incentivized the
restoration of an economic system centered on resource rents The leading role of oil and gas
extraction and transportation discouraged the development of a nonenergy sector that might
have created advanced and complex production and ser vices An import substitution policy could
not work efficiently in an economic environment plagued by the Dutch disease where currency
1 The Boeing Design Center was created in Moscow It consists of nearly 250 Boeing employees managing
a team of 1200 contract engineers from Rus sian and Ukrainian aerospace companies ldquoBackgrounder Boeing in
Rus siardquo Boeing last modified January 2017 http wwwboeing com resources boeingdotcom company key _ orgs
boeing - international pdf russia - cisbackgrounder pdf
Are the United States and Rus sia ldquoNatu ralrdquo Trading Partners A Little Bit of History
04
594-71613_ch01_4Pindd 15 102017 404 PM
US-Russia Economic Relations16
inflows (oil money) lead to ruble appreciation and render a countryrsquos production less competitive
During that time Rus siarsquos industry did not receive preferential access to larger markets and could
not expand its share in the global economy particularly because of its self- isolation from the
regional trade agreements (except for its participation in the Eurasian Economic Union with some
neighboring countries of the former Soviet Union) As a result neither import substitution nor
export- led strategy promoted growth and specialization in nonoil production A long- awaited
modernization and reallocation of resources from an inefficient nontrade sector to a trade sector
did not materialize
These limits were later augmented with sanctions and an extension of domestic restrictions on
cooperation with Western partners Importantly the rapid growth of state- monopoly structures in
the Rus sian economy over the past 15 years has created additional obstacles to the development
and diversification of US- Russia economic ties
Figure 41 US Imports from Rus sia US$ 2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2016)
Fish and shellfish 3
Crude oil 5
Fuel oil 37
Petroleum products other
8
Nuclear fuel materials
7
Chemicals-fertilizers 4
Steelmaking materials 5
Iron and steel mill products 4
Bauxite and aluminum 9
Other precious metals 4
Nonferrous metals other 1
Finished metal shapes 1
Synthetic rubber--primary
1
Spacecraftexcluding military
594-71613_ch01_4Pindd 16 102017 404 PM
Fig
ure
42
U
S E
xpo
rts
to R
us s
ia U
S$ 2
016
Sou
rce
US
Ce
nsu
s B
ure
au ldquo
Trad
e in
Go
od
s w
ith
Ru
s sia
rdquo (s
ee
dat
a fo
r 2
016
)
Bak
ery
pro
du
cts
Win
e b
eer
an
d r
elat
ed
pro
du
cts
New
spri
nt
Pla
stic
mat
eria
ls
Ch
emic
als-
fert
ilize
rs
Ch
emic
als-
ino
rgan
icC
hem
ical
s-o
rgan
ic
Ch
emic
als-
oth
erC
ott
on
fib
er c
loth
In
du
stri
al r
ub
ber
pro
du
cts
Min
eral
su
pp
lies-
man
ufa
ctu
red
Gen
erat
ors
acc
esso
ries
Ele
ctri
c ap
par
atu
s
Dri
llin
g amp
oilfi
eld
eq
uip
men
t Sp
ecia
lized
min
ing
Exc
avat
ing
mac
hin
ery
No
nfa
rm t
ract
ors
an
d p
arts
In
du
stri
al e
ng
ines
Fo
od
to
bac
co m
ach
iner
y M
etal
wo
rkin
g m
ach
ine
too
ls
Tex
tile
sew
ing
m
ach
ines
W
oo
d g
lass
p
last
ic
Pu
lp a
nd
pap
er
mac
hin
ery
Mea
suri
ng
tes
tin
g
con
tro
l in
stru
men
ts
Mat
eria
ls h
and
ling
equ
ipm
ent
Ind
ust
rial
mac
hin
es
oth
er
Ph
oto
ser
vice
ind
ust
ry m
ach
iner
y A
gri
cult
ura
l mac
hin
ery
eq
uip
men
t C
om
pu
ters
Co
mp
ute
r ac
cess
ori
es
Sem
ico
nd
uct
ors
Tel
eco
mm
un
icat
ion
seq
uip
men
t
Bu
sin
ess
mac
hin
es a
nd
eq
uip
men
t
Lab
ora
tory
tes
tin
g in
stru
men
ts
Med
icin
al e
qu
ipm
ent
Civ
ilian
air
craf
t e
ng
ines
eq
uip
men
t a
nd
par
ts
Rai
lway
tra
nsp
ort
atio
n
equ
ipm
ent
Ves
sels
exc
lud
ing
scr
ap
Co
mm
erci
al v
esse
ls o
ther
M
arin
e en
gin
es p
arts
Spac
ecra
ft e
xclu
din
g
mili
tary
Pas
sen
ger
car
s
new
an
d u
sed
Tru
cks
bu
ses
and
sp
ecia
l p
urp
ose
ve
hic
les
En
gin
es a
nd
en
gin
e p
arts
(c
arb
ure
tors
pis
ton
s r
ing
s
and
val
ves)
B
od
ies
and
ch
assi
s fo
r p
asse
ng
er c
ars
Au
tom
oti
ve t
ires
an
d t
ub
es
Oth
er p
arts
an
d a
cces
sori
es o
f ve
hic
les
Ap
par
el h
ou
seh
old
go
od
s -
text
ile
Ph
arm
aceu
tica
lp
rep
arat
ion
s
Furn
itu
re h
ou
seh
old
go
od
s
etc
R
ug
s
Cel
l ph
on
es a
nd
oth
er
ho
use
ho
ld g
oo
ds
ne
c
594-71613_ch01_4Pindd 17 102017 404 PM
US-Russia Economic Relations18
Figure 43 US Trade in Goods with Rus sia Million US$ 1992ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
Russian Financial Crisis
Oil price Increased from$2446 USD per barrel (2001)
to $9694 USD per barrel(2008)
Global Financial Crisis
Oil price high record in2011-2012
(more that $111 USD perbarrel)
Oil price crashed
$-
$5000
$10000
$15000
$20000
$25000
$30000
$35000
$40000
$45000
$50000
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia US Exports to Russia US-Russia Trade in Goods
No doubt po liti cal ups and downs add volatility to US- Russia trade Nevertheless Rus siarsquos eco-
nomic structure exhausted itself before the Ukrainian crisis and the recent Rus sian recession Its
limitations are not only due to some mistakes in policy or negative coincidences of circumstances
but rather to deeply rooted properties in the current bilateral trade model related to structural
issues in the Rus sian economy Structural constraints such as the weak enforcement of property
rights poor business regulation and nondiversified exports weighed on Rus sian trade with the
United States From this perspective the term ldquonaturalunnatural trading partnersrdquo does not ad-
dress the unused capacity of bilateral interaction or the real challenges that kind of interaction
faces It just adds metaphysical flavor to the very specific economic and po liti cal factors that
determine the US- Russia trajectory
Overall the outlines of bilateral trade (Figure 43) resemble the famous ldquoRus sian Mountainsrdquo that
were a pre de ces sor of the modern roller coaster icy hills supported by wooden constructionsmdash a
rigid and immobile structure that sooner or later would melt This unfortunately is what is hap-
pening to US- Russia trade cooperation now
594-71613_ch01_4Pindd 18 102017 404 PM
19
ARE LITTLE FISH REALLY SWEET
Low US- Russia economic interaction has at least two consequences First it limits the capacity of
policymakers to exploit trade as an instrument for geopo liti cal combat Even the question of a US
trade deficit which used to be a headache for many US trading partners has become so insig-
nificant in absolute terms (about $87 billion in 2016) that it seems hardly worth caring about
When the volume of trade between two countries becomes very small in absolute terms whether
a country is running a surplus or deficit is no longer relevant But it also renders another type of
confrontations (sometimes more dangerous) more likely since the two traders have little to lose
Second in an environment marked by low levels of bilateral trade both sides could incentivize (if
and when a desire for po liti cal rapprochement exists) the signing of new trade deals which are
elevated symbolically as a turning point in bilateral po liti cal relations (ie the sale of Boeings to
Rus sia or the delivery via tankers of Rus sian oil to US refineries) Sometimes markets themselves
pres ent ldquogiftsrdquo that can be capitalized on po liti cally US- USSR grain trade in the 1970s was one
such ldquogiftrdquo large sales of American grain to the Soviet Union helped US policymakers win favor
with the po liti cally impor tant American farming sector and permitted Soviet leaders to maintain
access to a dietary staple for the Soviet population
The strong 32 percent growth in value of US imports from Rus sia from January to May 2017
versus January to May 2016 ( Table 51) is an example of a development that has tempted officials
to pres ent it as a sign of positive change due to ldquogrowing business activitiesrdquo (this kind of statement
was heard before the bilateral summit in Germany in July 2017) although the reason for that leap
was evidently an increase in commodity prices (mainly of oilmdash see Table 52) and not a rise in
entrepreneurial interactions The primary beneficiaries of that upside rally have been two other
petro- economies Saudi Arabia and Venezuela ( Tables 53 and 54)
Sector Analyses
05
594-71613_ch01_4Pindd 19 102017 404 PM
US-Russia Economic Relations20
Table 51 US Imports from Rus sia Million US$ Januaryndash May 2016 vs Januaryndash May 2017
Year January February March April May Total
2016 9603 6871 11097 12257 10977 50805
2017 12215 10220 16979 13471 14147 67032
Change 271 487 530 99 289 319
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
Table 52 Change in Urals Crude Oil Prices US$ per Barrel Januaryndash May 2016 vs Januaryndash May 2017
Januaryndash May 2016 Januaryndash May 2017 Change ($) Change ()
3601 5129 1528 424
Source Ministry of Finance of the Rus sian Federation https wwwminfin ru ru ixzz4mMIZ7XtC
Table 53 US Imports from Saudi Arabia Million US$ Januaryndash May 2016 vs Januaryndash May 2017
Year January February March April May Total
2016 15114 9036 13555 10844 14679 63228
2017 19802 20298 21650 16211 19542 97503
Change 3101 12463 5972 495 331 542
Source US Census Bureau ldquoTrade in Goods with Saudi Arabiardquo Foreign Trade last modified June 29 2017
https wwwcensus gov foreign - trade balance c5170 html (see data for 2016ndash2017)
594-71613_ch01_4Pindd 20 102017 404 PM
Vadim Grishin 21
Table 54 US Imports from Venezuela Million US$ Januaryndash May 2016 vs Januaryndash May 2017
Year January February March April May Total
2016 6657 5560 7140 8007 7922 35286
2017 13041 10864 123500 11148 12243 59646
Change 9590 9540 7297 3923 5454 6903
Source US Census Bureau ldquoTrade in Goods with Venezuelardquo Foreign Trade last modified June 29 2017
https wwwcensus gov foreign - trade balance c3070 html (see data for 2016ndash2017)
Table 55 US Exports to Rus sia Million US$ Januaryndash May 2016 vs Januaryndash May 2017
Year January February March April May Total
2016 3628 3577 7298 4657 4947 24107
2017 3144 4277 5386 6670 4806 24283
Change minus133 196 minus262 432 minus29 minus07
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2016ndash2017)
At the same time US exports to Rus sia continue to stagnate ( Table 55) due to low levels of
consumption during a two-and- a- half-year economic crisis a deep ruble devaluation sanctions
and counter- sanctions
Given the very dif er ent economic structures and resource endowments of Rus sia and the United
States it is not surprising that US- Russia trade is asymmetric and oil driven (Figure 51) A
3 percent increase in Urals oil prices translates into a one percent increase in US import growth
from Rus sia Thus in 2016 every $10 increase in Urals crude oil added $15 billion to the value of
US imports or 11 percent to the total value of imports from Rus sia
OIL ADDICTION
Oil is a core pillar of US- Russia bilateral trade A bumpy ride in oil markets afects commerce
Nevertheless Rus sian oil exports to the United States in physical terms have been rather
594-71613_ch01_4Pindd 21 102017 404 PM
US-Russia Economic Relations22
sustainable Starting from 2005 average annual deliveries have been above 150 million barrels
(Figure 52) Crude and heating oil have dominated while petroleum products and liquefied petro-
leum gases have not (Figure 53) In 2011 oil exports peaked at 228 million barrels but declined to
159 million barrels in 2016mdash a drop of 30 percent Rec ord high shipments of Rus sian oil to the United
States coincided with an elevation in oil prices which made the subsequent decline in oil shipment
value between 2011 and 2016 (by about 72 percent as shown in Figure 54) seem more stark The
increase in price also raised the share of oil in Rus sian exports by 74 percent in 2011 (Figure 55)
The Rus sian share in total US oil imports was around 55 percent in 2011 and 43 percent in 2016
( Table 56) In the last five years the United States has relied exclusively on consumption of Rus sian
oil for the rough equivalent of one week out of the year (Figure 56)
It is unlikely that Rus sia can significantly increase its share of the US oil market and there is a real
possibility for a downward trend There are several reasons the historically high Rus sian hydrocar-
bon export threshold of 2011 will not soon if ever be surpassed
First US energy consumption will likely be flat According to the US Energy Information Adminis-
tration (EIA) demand for petroleum and other liquids in the United States will be about 35ndash36
quadrillion British thermal units (BTUs) with minimal variation over the next 25 years1
1 US EIA ldquoAnnual Energy Outlook 2017 with Projections to 2050rdquo January 5 2017 7ndash8
Figure 51 US- Russia Trade Growth () vs US and Rus sia Real GDP Growth () 1993ndash2016
Source IMF ldquoIMF Datardquo accessed September 27 2017 http wwwimf org en Data US Census Bureau
ldquoTrade in Goods with Rus siardquo
Note rGDPthinsp=thinspreal gross domestic product
Trade
USA rGDP growth
Russia rGDP growth
-60
-40
-20
0
20
40
60
80
100
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Gro
wth
All spikes in US-Russia trade have been connected with two main
variables volume and price of crude oil
594-71613_ch01_4Pindd 22 102017 404 PM
Vadim Grishin 23
Second the United States will become a net energy exporter between 2020 and 2030 in most
cases under dif er ent combinations of oil and natu ral gas prices GDP growth technological
breakthroughs and the availability of energy resources The role of oil imports will dramatically
fall2
Third oil price scenarios as described by the International Energy Agency (IEA) international
financial organ izations (IFIs) and many national agencies are very cautious and assume that even
by 2035 to 2040 oil prices will not to recover to the levels of 2011ndash20123
Fourth Rus sian oil production and export growth will be modest and driven by Asian economic
expansion and will comprise a decreasing share of Western markets4 According to forecasts from
2 Ibid 15ndash18
3 Ibid table 3 ldquoEnergy Prices by Sector and Sourcesrdquo World Bank World Bank Commodity Markets Price Forecasts
(Washington DC World Bank 2017) httpswwwworldbank org en research commodity - markets Organ ization of the
Petroleum Exporting Countries (OPEC) World Oil Outlook 2016 (Vienna OPEC 2016)
4 E D Belotskaia et al Global and Rus sian Energy Outlook 2016 (Moscow Energy Research Institute of the Rus sian
Acad emy of Science Analytical Center for the Government of the Rus sian Federation 2016) http acgov ru files
publication a 12767 pdf
Figure 52 US Imports from Rus sia Crude Oil and Petroleum Products Thousands of Barrels 1995ndash2016
Source US EIA ldquoUS Imports by Country of Origin Rus siardquo Petroleum amp Other Liquids September 13
2017 http wwweia gov dnav pet PET _ MOVE _ IMPCUS _ D _ NUS _ NRS _ MBBL _ M htm
0
50000
100000
150000
200000
250000
Date 1995 1996 1997 1998 199920002001200220032004200520062007200820092010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 23 102017 404 PM
US-Russia Economic Relations24
the Organ ization of the Petroleum Exporting Countries (OPEC) crude oil exports from Rus sia and
the Caspian region to the United States will dis appear by 20255
So why does the Rus sian Urals blend continue to be attractive for oil traders and US refineries
which could pro cess greater volumes of domestically produced lighter crude There are two main
reasons One is related to the preference of US high conversion refineries (the most sophisticated
in the world) to work with heavy oil blends produced by Canada Mexico Iraq Venezuela and
Rus sia Pro cessing heavy crude now is as profitable as pro cessing lighter crude The so- called
crack spreadmdash the diference between the cost of relatively cheap heavy crude oil and the final
price of value- added consumer products (diesel gasoline jet fuel and heating oil)mdash has become
the same as the refinery margins of light sweet crude6 This has primarily afected light oil produc-
ing countries such as Angola Algeria and Nigeria
5 OPEC World Oil Outlook 2016 306ndash309
6 ldquoHow Much for That Heavy Oilrdquo Oil Sands Magazine December 26 2015 https wwwoilsandsmagazine com
news 2015 12 26 how - much - for - that - heavy - oil
Figure 53 US Imports from Rus sia Oil and Petroleum Products US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$-
$25000000000
$20000000000
$15000000000
$10000000000
$5000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Liquefied petroleum gases
Petroleum products other
Fuel oil
Crude oil
594-71613_ch01_4Pindd 24 102017 404 PM
Vadim Grishin 25
Another factor afecting purchase of Rus sian oil is a new trend among oil companies for further
consolidation of scale and for integrating operations of upstream and downstream business7
There have been several waves of separation and unification of production transportation and
pro cessing in the last 50 years The current business cycle can be seen as an adaptation to a
period of low prices and oversupply Companies that buy andor produce oil in Rus sia most likely
prefer to transport and pro cess this oil in their own modern refineries in the United States At the
same time some of the newest refinery designs specifically for pro cessing heavy oils have been
built in Asia thus extending the choices of heavy oil producing countries
We should also consider that leading US and international oil traders along with oil producing
companies working with or owning US refineries frequently buy Rus sian oil on the open market
and have long- term contracts on Rus sian crude oil delivery Many Rus sian oil companies prefer to
pay for purchases or ser vices with their future production instead of cash creating situations of
ldquostickyrdquo oil imports that are difficult to replace The best- known example is an interaction between
7 ldquoEnergy and Utilities Sectorrdquo Roundtable Financier Worldwide December 2015 https wwwfinancierworldwide
com roundtable - energy - utilities - sector - dec15
Figure 54 US Imports of Oil and Petroleum Products from Rus sia vs Oil Prices Eu rope Brent Spot Price Free on Board (FOB) 1996ndash2017
Source US EIA ldquoUS Imports by Country of Origin Rus siardquo
0
20
40
60
80
100
120
140
0
5000
10000
15000
20000
25000
30000
Jan
-19
96
Jun
-19
96
No
v-19
96
Ap
r-19
97
Sep
-19
97
Feb
-19
98
Jul-
199
8D
ec-1
99
8M
ay-1
99
9O
ct-1
99
9M
ar-2
00
0A
ug
-20
00
Jan
-20
01
Jun
-20
01
No
v-2
00
1A
pr-
20
02
Sep
-20
02
Feb
-20
03
Jul-
20
03
Dec
-20
03
May
-20
04
Oct
-20
04
Mar
-20
05
Au
g-2
00
5Ja
n-2
00
6Ju
n-2
00
6N
ov-
20
06
Ap
r-2
00
7Se
p-2
00
7Fe
b-2
00
8Ju
l-2
00
8D
ec-2
00
8M
ay-2
00
9O
ct-2
00
9M
ar-2
010
Au
g-2
010
Jan
-20
11Ju
n-2
011
No
v-2
011
Ap
r-2
012
Sep
-20
12Fe
b-2
013
Jul-
20
13D
ec-2
013
May
-20
14O
ct-2
014
Mar
-20
15A
ug
-20
15Ja
n-2
016
Jun
-20
16N
ov-
20
16
USD
per
Bar
rel
Th
ou
san
d B
arr
els
US Imports from Russia of Crude Oil and Petroleum Products (Thousand Barrels)
Europe Brent Spot Price FOB (Dollars per Barrel)
594-71613_ch01_4Pindd 25 102017 404 PM
US-Russia Economic Relations26
Table 56 US Oil Imports All Countries vs Rus sia Thousand Barrels per Day 2011ndash2016
Years 2011 2012 2013 2014 2015 2016
All Countries 11436 10598 9859 9241 9449 10058
Rus sia 624 477 460 330 371 433
Share 546 450 467 357 393 431
Sources US EIA ldquoUS Imports by Country of Origin Total Crude Oil and Productsrdquo Petroleum amp Other
Liquids September 13 2017 wwweia gov dnav pet pet_move_impcus_a2_nus_ep00_im0_mbbl_m htm
authorrsquos computation
Figure 55 US Imports from Rus sia Share of Crude Oil and Petroleum Products Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
57
64
73
72
74
73
72
59
52 50
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
$40000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil and Petroleum Products
594-71613_ch01_4Pindd 26 102017 404 PM
Vadim Grishin 27
the Rus sian state mono poly Rosneft and commodity trading and mining giant Glencore which
along with energy and commodities com pany Vitol participated in a $10 billion prepayment
deal with Rosneft for crude supplies in 2013
There have been a number of ongoing transactions between the Rus sian oil industry and interna-
tional oil companies including several that top the list of importers of Rus sian oil to the United
States ( Table 57) In December 2016 Glencore participated in a controversial privatization opera-
tion purchasing in tandem with the Qatar sovereign wealth fund a 195 percent stake in Rosneft
which was on the US and EU list of sanctioned firms8 Glencore has also taken a blocking stake in
midsize oil producer RussNeft BP owns a 1975 percent stake in Rosneft Chevron holds a
15 percent interest in the 935- mile- long CPC9 pipeline which transports an average of 959000
barrels of crude oil per day including 76000 barrels daily from Rus sia10 ExxonMobil has formed
8 E Mazneva and I Arkhipov ldquoRus sia Sells $11 Billion Stake in Rosneft to Glencore Qatarrdquo Bloomberg December 7
2016
9 CPCthinsp=thinspCaspian Pipeline Consortium
10 ldquoRus sia Highlights of Operations and Business Portfoliordquo Chevron accessed October 3 2017 https wwwchevron
com worldwide russia
Figure 56 Share of Rus sian Oil in Total US Oil Imports Thousands of Barrels per Day 1972ndash2016
Source US EIA ldquoUS Imports by Country of Origin Total Crude Oil and Productsrdquo
2000
4000
6000
8000
10000
12000
14000
16000
US Imports of Crude Oil and Petroleum Products (Thousand Barrels per Day)
US Imports from Russia of Crude Oil and Petroleum Products (Thousand Barrels per Day)19
7319
7419
7519
7619
7719
7819
7919
80
198
119
82
198
319
84
198
519
86
198
719
88
198
919
90
199
119
92
199
319
94
199
519
96
199
719
98
199
92
00
02
00
12
00
22
00
32
00
42
00
52
00
62
00
72
00
82
00
92
010
20
112
012
20
132
014
20
152
016
594-71613_ch01_4Pindd 27 102017 404 PM
Table 57 Top Importers of Rus sian Oil to the United States Thousands of Barrels 2016
VALERO MARKETING amp SUPPLY CO 54590 3616
EXXONMOBIL OIL CORP 17087 1130
CHEVRON USA INC 15217 1008
BP WEST COAST PRODUCTS LLC 10130 671
GEORGE E WARREN CORP 7272 48
PAULSBORO REFINING CO LLC 6838 453
TESORO CORP 5097 338
VITOL INC 5084 337
PHILLIPS 66 CO 4726 313
TRAFIGURA AG 4360 289
PAR HAWAII REFINING LLC 3893 258
MOTIVA ENTERPRISES LLC 3041 205
SHELL US TRADING CO 2863 19
MARATHON PETROLEUM CO LLC 2475 16
ATLANTIC TRADING amp MARKETING 2099 14
FREEPOINT COMMODITIES LLC 1439 1
GLENCORE LTD 1284 85
BEST PETROLEUM CORP 967 64
ROLYMPUS US COMMODITIES GROUP LLC 822 6
HUNT CRUDE OIL SUPPLY CO 666 4
GULF OIL LP 658 4
Source US EIA ldquoUS Imports by Country of Origin Crude Oilrdquo Petroleum amp Other Liquids September 13
2017 httpswwweiagovdnavpetpet_move_impcus_a2_nus_epc0_im0_mbblpd_ahtm authorrsquos
computation
594-71613_ch01_4Pindd 28 102017 404 PM
Vadim Grishin 29
several joint ventures with Rosneft to undertake ofshore exploration in the Black Sea and the Kara
Sea in Siberia11
According to the Sanctions Act US persons are prohibited from exporting or reexporting goods
ser vices (except financial ser vices) and technology in support of exploration or production of new
deep- water Arctic ofshore or shale oil proj ects that involve designated Rus sian entities or other
entities in which such sanctioned persons have a controlling interest or a substantial noncontrol-
ling owner ship interest defined as not less than 33 percent (previously it was 50 percent) The new
law also authorizesmdash but does not requiremdash the imposition of so- called secondary sanctions
against non- US entities that engage in activities involving the construction maintenance or
expansion of Rus sian energy export pipelines with a fair market value of $1 million or more or an
aggregate fair market value during a 12- month period of $5 million12 This provision has raised the
concerns of some Eu ro pean countries particularly Germany As result the final language of the
law included wording about coordination of this issue with allies of the United States
Shipments of Rus sian oil to the United States could be afected by activity in the US refinery
industry In early 2017 Saudi Aramco bought the United Statesrsquo largest oil refinery in Port Arthur
(Texas) and it announced plans to send more of its own crude to that refinery13 Serious concerns
exist however regarding the future of three refineries and nine pipelines owned by Citgo a US
branch of the Venezuelan state com pany PdVSA which is balancing precariously on the edge of
default Under certain conditions in the event of PdVSA bankruptcy Rosneft could claim a stake of
up to 499 percent in Citgo Such a possibility has raised concerns among politicians and US
government officials with Trea sury Secretary Steven Mnuchin calling it a ldquonational security issuerdquo14
Tables 58 59 and 510 show allocations of Rus sian oil imports to major US refineries some of
which work exclusively on Rus sian crude a total of two to three months per year In total 150940
thousand barrels of Rus sian oil were refined in 2016
Figure 57 confirms a leading position of Texas and Louisiana among the US states receiving
Rus sian crude followed by New Jersey California Mississippi Washington Hawaii and Delaware
In a paradoxical way Texas has dis appeared from the list of states as a main destination of US
imports from Rus sia (Figure 58) because Rus sian crude is mostly delivered to Louisiana ports and
registered there by US Customs as an import from Rus sia After that it transports to refineries in
Louisiana and Texas
Overall the short- term business rationale behind the sustainability of US oil imports from Rus sia
cannot overcome strong headwinds in the US energy sector facing all oil importers which will
inevitably lead to a contraction of Rus sian oil exports to the United States in the foreseeable future
11 Exxon eforts to receive a special US Trea sury waiver to drill in sanctioned Rus sia failed in 2017
12 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364
13 Sarp Ozkan ldquoSaudi Aramcorsquos Port Arthur Refinery and the US Refinery Fleetrdquo Drilling Info May 11 2017
https infodrillinginfo com saudi - aramcos - port - arthur - refinery - us - refinery - fleet
14 Graham Kates ldquoTrea sury Secretary Rus siarsquos Citgo Deal a National Security Issuerdquo CBS News May 1 2017
http wwwcbsnews com news rosneft - citgo - steven - mnuchin - national - security
594-71613_ch01_4Pindd 29 102017 404 PM
US-Russia Economic Relations30
Table 58 Valerorsquos Refineries Pro cessing Rus sian Oil Thousands of Barrels 2016
Saint Charles Louisiana 29206 535
Corpus Christi Texas 20626 378
Wilmington California 4250 78
Total USA 54590 100
Source US EIA ldquoRefinery Capacity Reportrdquo January 1 2017
table 5 wwweia gov petroleum refinerycapacity table5 pdf
authorrsquos computation
Table 59 ExxonMobil Refineries Pro cessing Rus sian Oil Thousands of Barrels 2016
Baytown Texas 15037 88
Baton Rouge Louisiana 2046 12
Total USA 17083 100
Source US EIA ldquoRefinery Capacity Reportrdquo authorrsquos computation
Table 510 Chevronrsquos Refineries Pro cessing Rus sian Oil Thousands of Barrels 2016
Pascagoula Mississippi 12767 840
El Segundo California 2372 155
Saint Rose Louisiana 78 05
Total USA 15217 100
Source US EIA ldquoRefinery Capacity Reportrdquo authorrsquos computation
594-71613_ch01_4Pindd 30 102017 404 PM
Vadim Grishin 31
HEAVY METAL
Taken together US imports of metals and US imports of oil compose about 80 percent of US
total imports from Rus sia (Figure 59) Trade of metals like other commodities is strongly afected
by market price fluctuations Nevertheless metal imports from Rus sia have been fairly resilient to
market volatility and their average annual value has hovered at about $4 billion in the last five years
(Figure 510) This market resilience was forged at the end of the 1990searly 2000s when Rus sian
metal producers gradually modernized their plants adjusting quality of production to Western
standards and enhancing integration into global value and supply chains Some of them conquered
their share of the highly competitive US market struggling with peers from Canada and certain
BRICS countries (China India and Brazil) To attract additional resources all Rus sian large metal-
producing companies became public and were listed on stock exchanges chiefly the London Stock
Exchange (Severstalrsquo PAO Evraz MMK OAO Novolipetsk Steel Norilsk Nikel and TMK PAO) one
on the New York Stock Exchange (Mechel) and one on the Hong Kong Stock Exchange (Rusal)
Business logic pushed some of them to invest in the US metal- making industry which was hit
hard by crisis Later on some of those assets were sold (eg two US steel mills acquired by
Severstal in 2004 were purchased 10 years later by Steel Dynamics Inc and AK Steel Corp)
Figure 57 Share of US States Rus sian Oil Imports 2016
Source US EIA ldquoUS Imports from Rus sia of Crude Oil and Petroleum Productsrdquo Petroleum amp Other
Liquids September 29 2017 https www eia gov dnav pet hist LeafHandler ashx nshy=shyPETampsshy=shyMTTIM _ NUS
- NRS _ 1ampfshy=shyM authorrsquos computation
0
10
20
30
40
50
60
70
80
90
100
Maine
Massachusetts
Maryland
Connecticut
Georgia
Rhode Island
Virginia
Florida
New York
Alabama
Puerto Rico
Pennsylvania
Delaware
Hawaii
Washington
Mississippi
California
New Jersey
Louisiana
Texas
594-71613_ch01_4Pindd 31 102017 404 PM
Figure 58 US Imports from Rus sia by State Million US$ 2013ndash2016
Source US Census Bureau ldquoState and Metropolitan Area Trade Datardquo Foreign Trade last modified
October 2 2017 https wwwcensus gov foreign - trade statistics state
Alaska
Connecticut
Delaware
Hawaii
Louisiana
Maryland
North Dakota 0
$1000
$2000
$3000
$4000
$5000
$6000
2013 2014 2015 2016
Alabama
Alaska
Connecticut
Delaware
Hawaii
Louisiana
Maryland
Maine
Mississippi
Montana
North Dakota
Mississippi
Figure 59 US Imports from Rus sia Share of Oil and Metals Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
83
82
85
86
87
88
85
82
7375
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
$40000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil and Metals
594-71613_ch01_4Pindd 32 102017 404 PM
Vadim Grishin 33
Obviously the market dynamic of dif er ent metals varies (eg iron steel aluminum platinum and
nickel) Caps to increase their trade and production in a ldquored oceanrdquo global environment with
anemic demand is rather limited despite Figure 510 showing a spike of iron and steel imports
from Rus sia in 2014 and aluminum in 2016 Some opportunities may exist for Russian- owned steel
plants in the United States (such as NLMK) to participate in energy proj ects resumed under Presi-
dent Trump who has required that new pipelines use only American- made steel15
Rus sia occupies a special niche in the US market for titanium products a high- end metal indus-
try Twenty years ago a long- term contract was signed between Rus sian titanium producer
VSMPO- AVISMA and Boeing The Rus sian com pany entered the selective club of Boeing suppliers
for the manufacture of components and semi- finished products Since the signing of this contract
VSMPO has delivered more than 35 percent of all titanium placed on Boeing civil aircraft16 They
are hidden in the trade data in an import category for Civilian Aircrafts and Parts (Figure 511) At
the end of 2016 Boeing announced an extension of its framework agreement with AVISMA
15 E Scheyder C Ngai and T Sylvester ldquoAmerican Steel Unlikely to Get Keystone Boost Despite Trump Orderrdquo
Reuters January 27 2017 http wwwreuters com article usa - trump - pipeline - transcanada - idUSL1N1FH1ZD
16 A Kramer ldquoTitanium Fills Vital Role for Boeing and Rus siardquo New York Times July 5 2013 http wwwnytimes com
2013 07 06 business global titanium - fills - vital - role - for - boeing - and - russia html mcubzshy=shy3
Figure 510 US Imports from Rus sia Iron Steel Bauxite Aluminum Nickel Nonferrous Metals and Other Precious Metals and Materials US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
0
$6000000000
$5000000000
$4000000000
$3000000000
$2000000000
$1000000000
2007 2008 2009 2010 2011 20122013
20142015
2016
Finished metal shapes
Iron and steel advanced
Iron and steel products nec
Nonferrous metals other
Other precious metals
Nickel
Bauxite and aluminum
Iron and steel mill products
Steelmaking materials
594-71613_ch01_4Pindd 33 102017 404 PM
US-Russia Economic Relations34
through 2022 and additional investments in the construction of a new robotic plant in Titanium
Valley a special economic zone located in the Sverdlovsk region that will open in 2018 The pro-
cessing of titanium forgings in all Boeing civil aircraft will be performed there including 787s 737
MAXs and 777Xs17 The contract extension with AVISMA may add several hundred million dollars
in value to annual US imports from Rus sia
How can such heavy reliance on imports of Rus sian titanium exist during a period of rising geopo-
liti cal tensions The answer is straightforward VSMPO- AVISMA is a highly specialized natu ral
mono poly producing 45 percent of the worldrsquos aerospace titanium Only four other countries
smelt high- grade titanium in industrial quantities the United States Germany Japan and China
Overall global production capacity is limited while demand is growing The United States cur-
rently imports around 79 percent of all the titanium it consumes each year18
17 ldquoBoeing and VSMPO Avisma to Launch Second Joint Production Siterdquo Rus sian Aviation Insider December 22 2016
http wwwrusaviainsider com boeing - and - vsmpo - avisma - to - launch - second - joint - production - site
18 Jon Ostrower and Andy Pasztor ldquoBoeing United Technologies Stockpile Titanium Partsrdquo Wall Street Journal
August 7 2014 https wwwwsj com articles boeing - united - technologies - stockpiling - titanium - parts - 1407441886
Figure 511 US Imports from Rus sia Civilian Aircrafts and Parts US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
$200000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Parts-civilian aircraft
Civilian aircraft
594-71613_ch01_4Pindd 34 102017 404 PM
Vadim Grishin 35
The Sanctions Act authorizes the secretary of the trea sury (in a nonmandatory way) to impose
restrictions (without specifying them) against Rus sian state- owned entities operating in the railway
metals and mining sectors of the Rus sian economy Despite the commanding heights of Rus siarsquos
state sector owner ship in its economy (70 percent of GDP) the metal- producing companies have
remained mostly in private hands
NUCLEAR AFFAIRS
Historically owners and operators of the 104 commercial nuclear power reactors in the United
States have purchased more than 80 percent of their uranium from foreign countries Uranium
shipping from Rus sia accounted for about 13 percent of the 58 million pounds of uranium pur-
chased overseas in 201219 At the same time the Rus sian state- owned mono poly Rosatom ac-
counts for 20 percent of Kazakhstanrsquos uranium production (which in turn comprises 11 percent of
all US uranium imports) and 20 percent of US domestic uranium production capacity (with
owner ship of exploration tracts in Wyoming)20
Nuclear fuel and nuclear power continue to be po liti cally sensitive topics both in the United
States and Rus sia Bilateral cooperation in this sector (being surprisingly stable with imports of
nuclear fuel from Rus sia at a level of $1 billion annually in the last five years [Figure 512 and 513])
is under constant po liti cal and lobbying pressure and has been a source of several po liti cal scan-
dals21 Consequently upside risks in this area of interaction are minimal and downside risks are
much higher especially when we are seeing more decommissioning of nuclear plants in the
United States than new constructions The US EIArsquos 2017 Annual Energy Outlook assumes
that about 25 percent of the nuclear capacity now operating will be removed from ser vice
by 205022
WHY IS THE GRASS GREENER ON THE OTHER SIDE
The United States continues to significantly reduce imports of chemical fertilizers as domestic pro-
duction increases In 2016 the United States imported 13 percent less ammonia and 11 percent
less urea and UAN which is a liquid urea and ammonium nitrate fertilizer Rus sia accounts for
around 40 percent of UAN imported by the United States The United States canceled antidumping
duties on imports of ammonium nitrate and urea from Rus sia in 2016 but it did not prevent import
19 US EIA ldquoThe US Relies on Foreign Uranium Enrichment Ser vices to Fuel Its Nuclear Power Plantsrdquo Today in
Energy August 28 2013 https wwweia gov todayinenergy detail php idshy=shy1273
20 Colin Chilcoat ldquoDoes Rus sia Really Own 20 Percent of the USrsquo Uranium Reservesrdquo OilPricecom May 6 2015
http oilpricecom Alternative - Energy Nuclear - Power Does - Russia - Really - Own - 20 - Of - The - US - Uranium - Reserves
html
21 Michelle Ye Hee Lee ldquoThe Facts behind Trumprsquos Repeated Claim about Hillary Clintonrsquos Role in the Rus sian Ura-
nium Dealrdquo Washington Post October 26 2016
22 US EIA ldquoAnnual Energy Outlook 2017 with Projections to 2050rdquo 81ndash82
594-71613_ch01_4Pindd 35 102017 404 PM
Figure 512 US Imports from Rus sia Share of Oil Metals and Nuclear Fuel Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
87
86
90
90
90
91
88
86
7882
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals and Nuclear Fuel
Figure 513 US Imports from Rus sia Nuclear Fuel Materials US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$-
$200000000
$400000000
$600000000
$800000000
$1200000000
$1000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 36 102017 404 PM
Vadim Grishin 37
drops twice last year (Figures 514 and 515) According to forecasts UAN imports are expected to
decline further to 15 million tons this year down over 46 percent from 28 million tons imported
last year23 The downside trend in imports of fertilizers will likely continue because of oversupply
BIG FISH
US imports of fish and shellfish from Rus sia are best understood in comparison with US fish
exports to the Rus sian market which slipped to zero in August 2014 after Rus sia issued an order
banning certain agricultural imports from the United States (Figure 516) While the volume of US
supply was not very large it was impor tant because it broke up the monopolistic dominance of a
few vertically integrated Rus sian companies that have kept prices high by restricting the entry of
new producers Seeking to implement import substitution policies Rus sia has tried to reduce
exports as well as imports of fish and seafood products in the last couple of years This symmetri-
cal approach was intended to ldquocompensaterdquo for a decrease of fish products in the domestic
23 Deepika Thapliyal ldquoPotashCorp Forecasts Sharp Drop in US Nitrogen Imports in 2017rdquo ICIS News February 7
2017 https wwwicis com resources news 2017 02 07 10076734 potashcorp - forecasts - sharp - drop - in - us - nitrogen
- imports - in - 2017
Figure 514 US Imports from Rus sia Share of Oil Metals Nuclear Fuel and Fertilizers Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
90
93
92
93
94
95
92
91
85
86
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals Nuclear Fuel and Fertilizers
594-71613_ch01_4Pindd 37 102017 404 PM
Figure 515 US Imports from Rus sia Chemical- Fertilizers US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
S-
$200000000
$400000000
$600000000
$800000000
$1000000000
$1200000000
$1400000000
$1600000000
$1800000000
$2000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Figure 516 US Exports to Rus sia Fish and Shellfish US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$10000000
$20000000
$30000000
$40000000
$50000000
$60000000
$70000000
$80000000
$90000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Fish and shellfish
594-71613_ch01_4Pindd 38 102017 404 PM
Vadim Grishin 39
consumer market caused by Rus siarsquos import ban but it has failed As result the group most af-
fected by the self- imposed counter- sanctions were Rus sian consumers
With a significant drop in fish imports a devaluation of the ruble and inflationary pressures on
seafood prices yearly consumption of fish in Rus sia has declined precipitously In 2015 alone
fish prices increased 20 percent and consumption dropped to 14 kilograms per person24 from
22 kilograms in 201425 In 2016 food rose to 355 percent of house hold expenditure as a result of
increases in food prices26 This has pushed vertically integrated fishing monopolies to sell even
more of their catch abroad rather than deliver to the Rus sian Federation (Figure 517) Thus we
cannot exclude the possibility of further growth in US fish and shellfish imports from Rus sia on a
marginal scale
24 Александр Савельев ldquoПотребление рыбы в России упало до 14 кг на человекаrdquo [Fish consumption in Rus sia fell to
14 kg per person] Экономика Интерфакс January 28 2015 http wwwinterfax ru business 492038
25 Илья Шестаков ldquoПотебление рыбы в России снизилось на 10 процентов из- за роста ценrdquo [Fish consumption in
Rus sia dropped by 10 percent due to price increases] RNS March 8 2017 https rnsonline consumer - market
Potreblenie - ribi - v - Rossii - snizilos - na - 10 - iz - za - rosta - tsen - 2017 - 03 - 08
26 Zoya Sheftalovich and Christian Oliver ldquoRus siarsquos Boom (Farming) Economyrdquo Politico November 8 2016 http
wwwpolitico eu article russias - boom - farming - economy
Figure 517 US Imports from Rus sia Fish and Shellfish US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$50000000
$100000000
$150000000
$200000000
$250000000
$300000000
$350000000
$400000000
$450000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 39 102017 404 PM
US-Russia Economic Relations40
SPACE ODYSSEY
Among high- end products beyond the top five groups of goods imported from Rus sia cheap and
efficient Rus sian engines have been used to launch US rockets into space for about 16 years
(Figure 518) There was a serious po liti cal strug gle around a 2014 ban on the purchase of Rus sian
RD-180 rocket engines revealing the conflicting business interests of power ful high- tech companies
This restrictive mea sure was temporary and was quickly lifted because of significant cost impacts
and risks of disruption to launch schedules27 For the same reason the Sanctions Act does not autho-
rize ldquothe imposition of any sanction or other condition limitation restriction or prohibition that
directly or indirectly impedes the supply by any entity of the Rus sian Federation of any product or
ser vice or the procurement of such product or ser vice by any contractor or subcontractor of the
United States or any other entity relating to or in connection with any space launch conducted for
the National Aeronautics and Space Administration or any other nonndash Department of Defense
customerrdquo28
Nevertheless many experts believe that US domestic alternatives to replace Rus sian engines will
be viable in five to eight years
27 Ken Dilanian ldquoWhy Does the US Use Rus sian Rockets to Launch Its Satellitesrdquo NBC News updated November 15
2016 http wwwnbcnews com why - does - u - s - use - russian - rockets - launch - its - satellites - n588526
28 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364
Figure 518 Spacecraft Excluding Military US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 40 102017 404 PM
41
Diversity and technological complexity are the most vis i ble advantages supporting US exports to
Rus sia Three major groups of export goods include civilian aircraft engines and parts (Figure 61)
drilling and oil field equipment (Figure 62) and industrial machines and engines (Figure 63)
Despite sanctions against the transfer of advanced oil producing and pro cessing technologies the
realization of US drilling and oil field equipment in Rus sia is sustainable although some bilateral
proj ects have been frozen
Another category of goods that has demonstrated resilience is the phar ma ceu ti cal industry (Fig-
ure 64) because most drugs in Rus sia are imported (about 70 percent of the Rus sian phar ma ceu-
ti cal market in value) Import substitution policies have had only modest results in this industry
As confirmed by American Chamber of Commerce surveys US exports to Rus sia are closely
connected to US FDI 30 percent of total imports of US companies working in the Rus sian
market come from the United States (more than $2 billion in 2016) In other words about
40 percent of all US exports to Rus sia are related to a US corporate- sector business pro cess in
the country The major sectors of activity of these companies are energy and natu ral resources
(52 percent) manufacturing (17 percent) information and communications technology or ICT
(13 percent) retail (7 percent) automotive industry (6 percent) phar ma ceu ti cal production
(1 percent) professional ser vices (05 percent) and other (2 percent)1
Some obvious constraints on US exports to Rus sia have resulted from a reduction in demand A
deterioration of bilateral relations and implementation of sanctions and counter- sanctions have
directly or indirectly afected all businesses Figures 65 and 66 provide data regarding a dramatic
drop in the sale of US agricultural production in Rus sia with all other categories of exports in
goods showing big cuts as well (see Figures 67ndash69)
Exports of civilian aircraft engines and parts put the state of Washington in first place among
other states as a leading exporter to the Rus sian market (Figure 610)
1 American Chamber of Commerce in Rus sia ldquoInvestment and Import to Rus sia 2nd Surveyrdquo 13
Diversity and Constraints
06
594-71613_ch01_4Pindd 41 102017 404 PM
Figure 61 US Exports of Civilian Aircraft Engines Equipment and Parts to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
$2500000000
$2000000000
$1500000000
$1000000000
$500000000
$-
Figure 62 US Exports of Drilling and Oil Field Equipment US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
$40000000
$45000000
$50000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 42 102017 404 PM
Figure 63 US Exports of Industrial Engines to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Figure 64 US Exports of Phar ma ceu ti cal Preparations to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 43 102017 404 PM
Figure 65 US Exports of Meat and Poultry to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Meat poultry etc
$1000000000
$800000000
$600000000
$400000000
$200000000
$-
$1200000000
$1400000000
$1600000000
Figure 66 US Exports of Soybeans to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
$200000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 44 102017 404 PM
Figure 67 US Exports of Vehicles Engines and Parts to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Other parts and accessories of vehicles
Automotive tires and tubes
Bodies and chassis for passenger cars
Engines and engine parts (carburetors pistonsrings and valves)
Trucks buses and special purpose vehicles
Passenger cars new and used
$2500000000
$2000000000
$1500000000
$500000000
$-
$1000000000
Figure 68 US Exports of Medicinal Equipment to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 45 102017 404 PM
Figure 610 US Exports to Rus sia by States (2016 US$ Value) Million US$ 2013ndash2016
Source US Census Bureau ldquoState and Metropolitan Area Trade Datardquo
Iowa Kentucky
North Dakota
Oklahoma
South Carolina
Washington
0
$500
$1000
$1500
$2000
2013 2014 2015 2016
District of Columbia
Iowa
Kentucky
North Dakota
Oklahoma
South Carolina
Washington
Figure 69 US Exports of Excavating Machinery to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
$40000000
$45000000
$50000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 46 102017 404 PM
47
Upon reviewing the current trend in US- Russia economic relations we must acknowledge that
the existing trade model is obsolete and exhausted Imports are resource- oriented and reflect
constraints of the Rus sian economic structure while five groups of goodsmdash oil metals nuclear
fuels fertilizers and fishmdash make up more than 90 percent of total imports from Rus sia (Figure 71)
Each of these industries has a limited capacity for growth in the foreseeable future
Rus siarsquos core export to the United Statesmdash oilmdash will inevitably decrease in the mid- term under any
scenario The value and volume of Rus sian exports to the United States are open to global market
volatility and po liti cal pressures with limited hedging mechanisms
Overall US exports to Rus sia are unsustainable due to bilateral po liti cal tensions the whims of
commodity markets and changing domestic policies Sanctions and counter- sanctions have
created additional barriers particularly in finance banking high- tech energy and agro- business
According to the American Chamber of Commerce 69 percent of US companies working in the
country consider the impact of US sanctions against Rus sia on their business as negative At the
same time 60 percent of companies do not expect big changes in business relations between
Rus sia and the United States under Trump1 as the new law codifies existing sanctions fortifies
them and extends them to new sectors
Current US investments are low due to the weak rule of law in Rus sia a lack of property right
protections and proper contract enforcement high levels of statization and monopolization in the
economy a poor business climate outdated capital stock dependence on natural- resource
sectors and of course sanction and counter- sanction mea sures Bloated administrative compo-
nents created as risk mitigation instruments have also served as impediments The countryrsquos
institutional weakness low level of productivity bud get constraints and a declining inflexible
workforce will restrain future economic growth even if commodity prices recover Rus sian eco-
nomic policy will likely continue to be statist and protectionist relying mostly on import
substitutions
1 Ibid 11
Existing Trends and Future Scenarios
07
594-71613_ch01_4Pindd 47 102017 404 PM
US-Russia Economic Relations48
What scenarios can be expected in such a challenging environment
One probability (no peace no war) is based on the assumption that matters will not deteriorate
further and implementation of the Sanctions Act will be cursory This will cause relatively slow
degradation in the economic field with occasional flashes of activity in selected areas (eg closer
cooperation against Islamist terrorist groups in Syria)
A second worse case or critical scenario is the intensive and full- scale execution of current sanc-
tion legislation and even the imposition of new economic punitive and restrictive mea sures which
could incite asymmetric retaliatory actions and lead to the introduction of additional protectionist
policies This in turn could trigger a further escalation of mutual confrontation and could eventu-
ally destroy the fundamentals of the current bilateral trade system Rus sian leadership has charac-
terized the Sanctions Act as a declaration of a trade war that ends all hope for improving bilateral
relations2
2 Дмитрий Медведев ldquoПодписание президентом США нового санкционного закона против России создает несколько
последствийrdquo [The US Presidentrsquos signing of the package of new sanctions against Rus sia will have a few conse-
quences] Facebook August 2 2017 https wwwfacebook com Dmitry Medvedev posts 10154587161801851
Figure 71 US Imports from Rus sia Share of Oil Metals Nuclear Fuel Fertilizers and Fish Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
93
94
93
94
95
96
93
92
87
89
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals Nuclear FuelFertilizers and Fish
594-71613_ch01_4Pindd 48 102017 404 PM
Vadim Grishin 49
The best case and most favorable scenario looks less probable now It assumes the realization of
structural reforms in Rus sia in such a way that would adapt Rus siarsquos foreign policy to national
economic needs reduce confrontations with the West and make a concerted efort to integrate
Rus sian businesses into global supply and value chains A revitalization of the structural reform
agendamdash including eforts to diversify economic activities through de- monopolization and support
for SMEs a restructuring of the banking sector the creation of a vibrant business climate to foster
entrepreneurships and innovation the implementation of administrative and judicial reforms to
tackle red tape and endemic corruption and the reduction of state control over key sectors of the
economy via wide- spread privatization could kick- start the development of a nonoil economy and
improve long- term growth prospects Despite ongoing discussion of reform strategies deep
economic and po liti cal changes are extremely complicated over the next po liti calelectoral cycle
(2018ndash2024) particularly because of re sis tance of vested interests and growing commodity prices
The urgency to tackle structural shortcomings in natu ral resource- dependent economies usually
correlates with the price of those resources and the degree to which resource rents drive eco-
nomic activity However there may be marginal improvements in the efficiency of the current
economic system
Future US- Russia relations can be thought of through three pillars one pillar focuses on areas
where both countries maintain a competitive rivalry another looks at potential areas of interaction
under pres ent conditions a third pillar and one that has evaporated from the current bilateral
agenda concentrates on future cooperation Stronger economic ties could not only be a kind of
po liti cal shock absorber but contribute to the building of this future (particularly business contacts
aim to support future structural reforms) although po liti cal factors are depressing the prospects
for cooperation To escape deadlock it will be impor tant to establish the right balance between
politics and economics and create a model of collaboration within the framework of contention
594-71613_ch01_4Pindd 49 102017 404 PM
About the Author
Vadim Grishin PhD MBA has been involved in the reform pro cess in Rus sia as adviser to the
deputy prime minister of Rus sia in 1992ndash1993 and 2006ndash2010 He has extensive experience
working with the Bretton Woods Institutions He was the board member of the World Bank Group
and served as se nior adviser at the International Monetary Fund Currently he is a con sul tant to the
chief economistrsquos office of the International Finance Corporation and teaches the economics of
transition at Georgetown University in Washington DC
50
594-71613_ch99_4Pindd 50 102017 403 PM
Blank
COVER PHOTO ADOBE STOCK
1616 Rhode Island Avenue NW
Washington DC 20036
202 887 0200 | wwwcsisorg
v++ISBN 978-1-4422-8035-9
Lanham bull Boulder bull New York bull London
4501 Forbes Boulevard
Lanham MD 20706
301 459 3366 | wwwrowmancom
A U T H O R
Vadim Grishin
Myths and Realities
A Report of the
CSIS RUSSIA AND EURASIA PROGRAM
US-RussiaEconomicRelations
O C T O B E R 2 0 1 7
Euml|xHSLEOCy280359z
The Man Pupu Nyor Rock Formations at the Northern Urals also known as Seven
Strong Man or Little Mountain of the God in the local tribe (Mansi) language
About CSIS
For over 50 years the Center for Strategic and International Studies (CSIS) has worked
to develop solutions to the worldrsquos greatest policy challenges Today CSIS scholars are
providing strategic insights and bipartisan policy solutions to help decisionmakers chart a
course toward a better world
CSIS is a nonprofit organ ization headquartered in Washington DC The Centerrsquos 220 full-
time staff and large network of affiliated scholars conduct research and analy sis and develop
policy initiatives that look into the future and anticipate change
Founded at the height of the Cold War by David M Abshire and Admiral Arleigh Burke CSIS
was dedicated to finding ways to sustain American prominence and prosperity as a force for
good in the world Since 1962 CSIS has become one of the worldrsquos preeminent international
institutions focused on defense and security regional stability and transnational
challenges ranging from energy and climate to global health and economic integration
Thomas J Pritzker was named chairman of the CSIS Board of Trustees in November 2015
Former US deputy secretary of defense John J Hamre has served as the Centerrsquos president
and chief executive officer since 2000
CSIS does not take specific policy positions accordingly all views expressed herein should
be understood to be solely those of the author(s)
copy 2017 by the Center for Strategic and International Studies All rights reserved
ISBN 978-1-4422-8035-9 (pb) 978-1-4422-8036-6 (eBook)
Center for Strategic amp International Studies Rowman amp Littlefield
1616 Rhode Island Ave nue NW 4501 Forbes Boulevard
Washington DC 20036 Lanham MD 20706
202-887-0200 | wwwcsis org 301 - 459 - 3366 | www rowman com
594-71613_ch00_4Pindd 2 102017 403 PM
III
Contents
iv Acknowl edgments
1 CHAPTER 1 | Introduction
4 CHAPTER 2 | Does Bilateral Economic Interaction Matter
11 CHAPTER 3 | Politics in the Driverrsquos Seat
15 CHAPTER 4 | Are the United States and Rus sia ldquoNatu ralrdquo Trading Partners
A Little Bit of History
19 CHAPTER 5 | Sector Analyses
41 CHAPTER 6 | Diversity and Constraints
47 CHAPTER 7 | Existing Trends and Future Scenarios
50 About the Author
594-71613_ch00_4Pindd 3 102017 403 PM
The author wishes to thank the participants of a draft paper discussion William Arnold Jack
Brougher Matthew Edwards Daniel Fried Andrew Kuchins Randy Levinas Gary Litman Jeff
Mankoff Cyrus Newlin Olga Oliker Ian Solomon Doug Stanglin and Angela Stent
This report is made pos si ble by the generous support of Car ne gie Corporation of New York
Acknowl edgments
Iv
594-71613_ch00_4Pindd 4 102017 403 PM
1
01
Introduction
A friend of mine a devoted connoisseur of bilateral economic relations with 30 years of experi-
ence in the field once noted that the hottest discussions about US- Russia ties occur at a time
when mutual trade is compressed into the value of a mathematical error This is exactly what is
happening now According to official statistics the value of US- Russia trade is about $20 billion
and is rolling back to the level of 20051 There is no doubt that a new set of sanctions recently
signed into law by the US president and currently being implemented will further hurt economic
interaction by reducing financial inflows limiting the transfer of technology and expertise and
dampening business confidence Many policymakers and experts have agreed that HR 3364
(Countering Amer i carsquos Adversaries through Sanctions Act2) by expanding and codifying US
sanctions targeting Rus sia opens a new cycle in bilateral relations This legislation which received
overwhelming bipartisan support creates a new economic and po liti cal framework on a bilateral
track Strong concerns expressed by President Donald Trump in his special statement about
ldquounconstitutional provisions of the ldquoflawed billrdquo3 cannot significantly limit its intended and
unintended consequences In its implementation it could have relatively broad margins of flexibil-
ity and leverage but requires the president to seek congressional approval before easing or termi-
nating sanctions against Rus sia or undertaking actions that would significantly modify US policy
toward Rus sia Additional observations regarding HR 3364rsquos pos si ble impact on US- Russia
interaction in par tic u lar industries can be found throughout this report but suffice it to say that it
will contribute to a broader curtailment of many pillars of economic cooperation for years ahead
1 US Census Bureau ldquoForeign Trade Trade in Goods with Rus siardquo Foreign Trade updated June 29 2017 https
wwwcensus gov foreign - trade balance c4621 html
2 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364 115th Cong (2017ndash2018) https www
congress gov bill 115th - congress house - bill 3364
3 Donald J Trump ldquoStatement by President Donald J Trump on the Signing of HR 3364rdquo White House Office of the
Press Secretary August 2 2017 https wwwwhitehouse gov the - press - office 2017 08 02 statement - president
- donald - j - trump - signing - hr - 3364
594-71613_ch01_4Pindd 1 102017 404 PM
US-Russia Economic Relations2
Escalating geopo liti cal tensions have continued to significantly define Rus siarsquos economic prospects
however the countryrsquos economic model exhausted itself long before the dramatic deterioration of
relations with the West Structural bottlenecks have seriously limited Rus siarsquos growth capacity even
during the previous period of high oil prices4
The purpose of this report is to assess what has gone wrong with the US- Russia equation by
analyzing it through the prism of a bilateral economic and po liti cal trajectory while keeping in
mind the structural constraints of the Rus sian economy It will attempt to answer the following
questions
bull Do bilateral economic relations matter
bull Are the United States and Rus sia ldquonatu ralrdquo or ldquounnaturalrdquo trading partners
bull What future scenarios can we expect
In the vast lit er a ture on US- Russia economic relations analy sis of developing trends in bilateral
commerce has always been accompanied by discussions around impor tant po liti cal and eco-
nomic matters particularly regarding US legislation and regulation5 Over several de cades the
most controversial issues concerned the granting of permanent normal trading status to Rus sia
through legislation that eliminated the Jackson- Vanik Amendment and Rus siarsquos accession to
the World Trade Organ ization (WTO) The Magnitsky Act signed into law in 2012 repealed the
Jackson- Vanik provisions but added legislation providing authority for the US government to
withhold visas and freeze assets of Rus sians thought to have been involved with human rights
violations and later imposed sanctions on Rus sia because of its involvement in the Ukrainian and
Syrian crises and its cyber- enabled activities6
Some have observed deficiencies in Rus siarsquos participation in the international division of labor
(reliance on the export of energy and metals) which ldquo canrsquot serve any more as a basis for further
expansion of the countryrsquos position in world markets including the US marketrdquo7 Unfortunately
such observations have not been accompanied by quantitative and qualitative analy sis of structural
constraints in the Rus sian foreign trade model Many authors limit their policy recommendations
for fostering bilateral economic relations to a requirement for a strong initial push from respective
governments the creation of business working groups and the extension of bilateral and multilat-
eral legal grounds for economic cooperation Such instruments proved to be useful in facilitating
4 International Monetary Fund (IMF) Rus sian Federation Selected Issues (Washington DC IMF 2016)
5 ldquoAmer i carsquos New Economic Sanctions May Hurt Rus siarsquos Recoveryrdquo Economist August 5 2017 Andrey Kortunov and
Olga Oliker eds A Roadmap for US- Russia Relations (Washington DC CSISRIAC 2017) https csis - prods3
amazonaws com s3fs - public publication 170815 _ KortunovOliker _ USRussiaRelations _ Web pdf E0bdGVHlxxYRAxhO
w8zJ9tbRGwdWjEgV Самуйлов CM Братерский MB ldquoКонгресс и торговые отношения США с Россиейrdquo [US
Congressrsquos role in the US- RF trade relations] США и Канада экономика политика культура 5 no 533 (May 2014)
6 Andrew Weiss and Richard Nephew ldquoThe Role of Sanctions in US- Russian Relationsrdquo (Task Force White Paper
Car ne gie Endowment for International Peace Washington DC July 11 2016)
7 Глущенко ЮН ldquoСостояние проблемы и перспективы сотрудничества России и США в экономической сфереrdquo
[Status prob lems and prospects of Russia- US economic cooperation] Проблемы Национальной Стратегии 21 no 6
(2013) 148ndash164
594-71613_ch01_4Pindd 2 102017 404 PM
Vadim Grishin 3
trade and investment during several reset cycles in bilateral relations starting in the 1990s but
they were only partially successful
Several papers and books although focused primarily on bilateral po liti cal agendas or sectorial
analy sis underline the importance of Rus sian domestic realities Dr Angela Stent in her ldquoLimits of
Partnershiprdquo notes that state control of the commanding heights in the Rus sian economy creates
significant deterrents for US private- sector entrance into the market8 Thane Gustafson in the
ldquoWheel of Fortunerdquo asserts that Rus siarsquos growing dependence on revenue from oil exports along
with its inefficient and often- corrupt management of industry is unsustainable9 Andrew Kuchins
in his ldquoElevation and Calibration A New Rus sia Policy for Amer i cardquo has quoted some experts who
believe that the weakened Rus sian economic position may over time contribute to some rap-
prochement with the West and emphasized lack of reforms as ldquoa key obstacle not only for Rus sian
economic recovery but also for improving ties with the Westrdquo10
In a recent joint task force report Eugene Rumer Andrew S Weiss and Richard Sokolsky argue
that the concept of developing stronger economic ties with Rus sia as a foundation for improved
diplomatic relations has not worked ldquoClinton Bush and Obama all placed high hope on trade as
an engine of better relations with Rus sia All were frustrated by the fact that the two countries are
for the most part not natu ral trading partnersrdquo11 On a dif er ent note the former US envoy to
Rus sia Michael McFaul has defended the achievements of a reset policy under the Barack Obama
administration emphasizing that bilateral trade reached a rec ord level in 2011 Nevertheless he
also stresses that it was a one- time accomplishment unlikely to be repeated12
Voices of those who believe that extensive economic ties can provide stability to broader po liti cal
interaction are weaker than ever in an environment of growing protectionism and adversarial rivalry
8 Angela Stent The Limits of Partnerships US- Russian Relations in the XXI Century (Prince ton NJ Prince ton
University Press 2014) 98
9 Thane Gustafson Wheel of Fortune The Battle for Oil and Power in Rus sia (London Harvard University Press 2012)
10 Andrew Kuchins Elevation and Calibration A New Rus sia Policy for Amer i ca (Washington DC Center on Global
Interests 2016)
11 Eugene Rumer Richard Sokolsky and Andrew S Weiss ldquoTrump and Rus sia The Right Way to Manage Relationsrdquo
Foreign Affairs 96 no 2 (MarchApril 2017)
12 Michael McFaul ldquoUS- Russia Relationsrdquo (lecture Institute for Public Diplomacy and Global Communications
George Washington University Washington DC March 3 2017) https wwwc - span org video 424811 - 1 former
- ambassador - michael - mcfaul - discusses - state - usrussia - relations
594-71613_ch01_4Pindd 3 102017 404 PM
4
02
Does Bilateral Economic Interaction Matter
Economic relations do not emerge out of a vacuum There are many variables that define the final
configuration of economic interactions such as a par tic u lar countryrsquos level of economic develop-
ment its business environment legal framework po liti cal climate (regime) culture and religion
history and tradition demography and geography as well as global and national economic cycles
An impor tant driver of trade relations for many economies has become participation in global and
regional trade agreements
As many studies and anecdotal evidence show bilateral economic cooperation should be sizable
and should relate to the economic growth of two countries in a way that afects their policy
interests Let us take as a reference point the BRICS countries1 a community of large emerging
economies which Rus sia belongs to Table 21 pres ents official data on US trade and investments
with BRICS states US- Russia trade in goods is disproportionally lowmdash235 times less than US
trade with China 33 times smaller than US trade with India and 28 times less than US trade
with Brazil The size of the US- Russia trade balance is comparable to the size of the US trade
balance with South Africa whose economy is almost four times smaller than Rus siarsquos If we add
trade in ser vices to the trade of goods the gaps increase significantly (Figures 21 and 22) The
diference is not only quantitative but also qualitative
The quality of trade relations can be mea sured by its diversity its share of high- tech components
resilience to economic shocks and its contribution to GDP growth On average a 10 percent
increase in a nationrsquos two- way trade relative to GDP increases GDP through a variety of channels
by at least 16 percent2
Bilateral trade and real GDP growth in the United States and Rus sia are practically uncorrelated
as shown in the summary output of multifactorial regression The coefficient of multiple determi-
nation (R Square) is close to 0 ( Table 22) At the same time the correlation of US exports to India
1 BRICS is the acronym for a select group of five developing economies Brazil Rus sia India China and South Africa
2 World Economic Forum Foreign Direct Investment as a Key Driver for Trade Growth and Prosperity The Case for a
Multilateral Agreement on Investment (Geneva World Economic Forum 2013) 11
594-71613_ch01_4Pindd 4 102017 404 PM
Vadim Grishin 5
Table 21 US Trade and Foreign Direct Investments (FDI) with China India Brazil South Africa and Rus sia 2016
China India Brazil South Africa Rus sia
Total Goods Trade 5786 677 565 13 203
Imports 4628 460 262 73 145
Exports 1158 217 303 55 58
Trade in Ser vices 696 472 317 47 na
Imports 161 268 68 17 na
Exports 535 203 249 30 na
US FDI 746 283 653 62 141
BRICS FDI in the United States
148 93 043 076 63
Supported Jobs in the United States (thousand)
911 197 308 50 84
Source United States Trade Representative (USTR) ldquoCountries amp Regionsrdquo accessed September 27 2017
https ustrgov countries - regions See US- China Trade Facts US- India Trade Facts US- Brazil Trade
Facts US- South Africa Trade Facts and US- Russia Trade Facts
201520142013
and China with the real GDP growth of these big Asian economies is significant (05) In the case of
Brazil the correlation is even higher (07) By contrast South Africarsquos small open economy is quite
sensitive to US imports from South Africa (043)3
In marked contrast to other BRICS countries Rus sia is a poor choice for export- oriented opera-
tions As a recent International Monetary Fund (IMF) study highlights Rus sia is an outlier a rare
exception among emerging market (EM) economies with virtually no preferential access to major
markets and little meaningful change over three de cades4 This complicates Rus siarsquos integration
into the global value chain (GVC) which became a significant driving force toward economic
development and trade for certain BRICS economies
3 IMF statistics authorrsquos computation
4 IMF Rus sian Federation Selected Issues IMF Country Report N17198 (Washington DC IMF July 2017)
594-71613_ch01_4Pindd 5 102017 404 PM
US-Russia Economic Relations6
Trade is closely connected with foreign direct investment (FDI) and both are parts of a complex
interaction known as international production sharing According to publicly available official data
US FDI in Rus sia was about $131 billion for 2013 and $295 billion for 2016 with the top industrial
sectors being software and IT ser vices financial ser vices chemicals metals coal oil and gas
and business ser vices5 If we take into account US investments made through Eu ro pean branches
of US companies and ofshore firms this number would easily triple Another component
that usually is not tracked by official statistics is reinvestments The American Chamber of
Commerce surveys in 2016 and 2017 which include this component draw a completely dif er ent
picture accumulated US corporate FDI in 90 large US companies working in Rus sia reached
5 US Department of Commerce International Trade Administration ldquoRussiamdash94- Foreign Direct Investment and
Portfolio Investment Statisticsrdquo Rus sia Country Commercial Guide July 7 2017 https wwwexport gov article
id=shyRussia - foreign - direct - investment - statistics
Figure 21 US Trade in Goods with China India Brazil Rus sia and South Africa Billion US$ 2016
Source USTR ldquoCountries amp Regionsrdquo See US- China Trade Facts US- India Trade Facts US- Brazil Trade
Facts US- South Africa Trade Facts and US- Russia Trade Facts
0
$50
$100
$150
$200
$250
$300
$350
$400
$450
$500
$550
$600
China India Brazil Russia South Africa
Exports
Imports
594-71613_ch01_4Pindd 6 102017 404 PM
Vadim Grishin 7
$8244 billion in 20176 The real level from our perspective is usually between official and private
estimations around $40 billon But even this cumulative figure is less than the US FDI in Brazil
and China
The American Chamber of Commerce surveys have also revealed other impor tant data Eighty-
five percent of US companies doing business in Rus sia entered its market 10 or more years ago
while 60 percent of them ldquolandedrdquo there 20 years ago or earlier Only one percent have started
operations over the last five years confirming an obvious fact entry into the Rus sian market is
challenging because of growing monopolism risks associated with the business climate and a
stagnating economy7
6 American Chamber of Commerce in Rus sia ldquoInvestment and Import to Rus sia 2nd Surveyrdquo (Prepared by GfK for the
American Chamber of Commerce in Rus sia Moscow May 2017) 12
7 Ibid 4
Figure 22 US Trade in Goods and in Ser vices with China India Brazil Rus sia and South Africa Billion US$ 2016
Source USTR ldquoCountries amp Regionsrdquo See US- China Trade Facts US- India Trade Facts US- Brazil Trade
Facts US- South Africa Trade Facts and US- Russia Trade Facts
0
$100
$200
$300
$400
$500
$600
$700
China India Brazil Russia South Africa
Trade in Services
Total Goods Trade
594-71613_ch01_4Pindd 7 102017 404 PM
US-Russia Economic Relations8
Rus sian direct investment position toward the United States declined from $215 billion in 2013 to
$83 billion in 2015 (Figure 23) Taking into account dif er ent channels and instruments the actual
volume of Rus sian investments in the United States made through ofshore Eu ro pean Canadian
and US companies may be several times greater than the available official data
Foreign investment in financial assets or foreign portfolio investment (FPI) should be included
even though Central Bank of Rus sia statistics indicate they were also quite low US investments in
equity were $345 million and in debt instruments were about $65 million in the fourth quarter of
20168 However these numbers do not reflect the real level of FPI Rus siarsquos stocks are incredibly
inexpensive while there has been impressive growth of US investments in short- term securities
and in foreign exchange (FX) operations (cash- and- carry trade) Rus sia was among the top per-
forming emerging markets in 2016 gaining 4744 percent in US dollars9 Nevertheless the gen-
eral capitalization of the stock exchange is tiny (less than 20 percent of GDP) comparable to the
capitalization of just one large US com pany such as Coca- Cola Many private sources believe that
the US FPI in Rus sia could be as high as several billion US dollars but a new set of sanctions
approved by President Trump on August 2 2017 if implemented could reverse those flows It is
still not clear whether the secretary of trea sury will prohibit participation in the oferings of Rus siarsquos
sovereign debt and the full range of derivative products A report on this subject should be sub-
mitted no later than 180 days after enactment of the law which means no later than Febru-
ary 2018 New legislation tightens prohibition on Rus sian financial companies already under
sanctions by limiting any new equity or debt with a maturity greater than 14 days (a provision that
8 Central Bank of Rus sia ldquoForeign Direct Investments in the Rus sian Federationrdquo accessed September 27 2017 www
cbr ru localization switchlanguage urlshy=shy news ampfromshy=shyru - ruamptoshy=shyen - gb
9 VanEck ldquoRus sian Stock Market Soars in 2016rdquo Seeking Alpha February 14 2017 https seekingalphacom article
4045602 - russian - stock - market - soars - 2016
Table 22 Summary Output of Regression Statistics (US Real GDP Rus sia Real GDP US- Russia Exports Imports and Total Trade)
Regression Statistics
Multiple R 0056445768
R Square 0003186125
Adjusted R Square minus0042123597
Standard Error 2616043923
Observations 24
Sources IMF statistics authorrsquos computation
594-71613_ch01_4Pindd 8 102017 404 PM
Vadim Grishin 9
previously allowed for 30 days) Similarly US persons are prohibited from taking on any new debt
that has a maturity greater than 60 days (previously it was 90 days) with Rus sian energy compa-
nies currently under sanctions10
According to the Trea sury Department Rus sia held $1029 billion in US Trea sury securities in
June 201711 Could Rus sia withdraw all its reserves from the United States and use this action as a
retaliatory mea sure Such a scenario is unlikely since there is no comparable safe- haven alterna-
tive to US dollars When Rus siarsquos US Trea sury holdings dropped 50 percent from $176 billion
(October 2010) to $90 billion (November 2011) the market did not notice12 Nevertheless Rus sian
authorities have announced they will decrease dependence on assets and payments in US dollars13
10 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364
11 US Department of Trea sury Major Foreign Holders of Trea sury Securities September 18 2017 http ticdata
treasury gov Publish mfh txt
12 Ibid
13 ldquoНовый виток санкций Россия откажется от доллараrdquo [A new round of sanctions Rus sia will abandon the dollar]
Газетару August 7 2017 https wwwgazeta ru business 2017 08 07 10821937 shtml
Figure 23 Rus sia Outward FDI Position United States Equities and Debt Million US$ 2009ndash2016
Source Central Bank of the Rus sian Federation External Sector Statistics Rus sian Direct Investments
Abroad accessed September 27 2017 https wwwcbr ru localization switchlanguage urlshy=shy news
ampfromshy=shyru - ruamptoshy=shyen - gb
$6000
$8000
$10000
$12000
$14000
$16000
$18000
$20000
$22000
2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 9 102017 404 PM
US-Russia Economic Relations10
Officially the country does not invest in the US stock exchange although some Rus sian oligarchs
have bought US corporate bonds and equities in large amounts The new sanctions law requires
the secretary of trea sury in consultation with the director of national intelligence and the secretary
of state to issue reports on Rus sian se nior po liti cal figures and oligarchs based on their closeness
to the Rus sian regime and their net worth as well as the exposure of key economic sectors of the
United States to Rus sian po liti cally exposed persons and parastatal entities including at a mini-
mum the banking securities insurance and real estate sectors14
Only three Rus sian companies are listed in the US exchanges
Overall the scale and scope of US- Russia economic interaction and business activity is much greater
than officially appreciated but not significant enough to be taken into consideration by policymakers
14 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364
594-71613_ch01_4Pindd 10 102017 404 PM
11
03
Politics in the Driverrsquos Seat
Bilateral economic relations depend to a great extent on global and national economic cycles
After the recent global financial crisis the US economy has shown surprisingly sustainable GDP
growth while the Rus sian economy was the most afected among BRICS countries by the turbu-
lence of a worldwide economic downturn in 2008ndash2009 and after a short- term rebound slipped
into stagnation (2012ndash2013) and then into full- scale recession (2014ndash2016) The countryrsquos eco-
nomic cycle however appears to be changing once again with the economy returning to a
pattern of growth albeit uneven and gradual (Figures 31 and 32) Even with sanctions still in place
conditions have improved as a result of the stabilization of Urals oil to an average annual price of
$419 per barrel in 2016 The gains were sparked in part by major crude producers agreeing to cut
production after hefty price drops in 2014 and 2015 Supported by easier financial conditions
higher oil prices and growing macro- stability Rus sia is heading toward a moderate growth rate
that is expected to reach 14 percent this year according to forecasts of the World Bank Group
(WBG) and the IMF1
Because of the significant role that politics plays in any bilateral interaction it is impor tant to
combine economic and po liti cal cycles applying a ldquoresetrdquo to bilateral economic cooperation in
addition to the po liti cal relationship I have compared po liti cal cycles and trade dynamics using the
following graphs ( Table 31 and Figure 33) These charts do not pretend to reflect with mathemati-
cal precision all shifts in the bilateral po liti cal relationship but rather attempt to visually align
impor tant economic and po liti cal moments to detect the efects of po liti cal events on the size of
bilateral trade
Figure 33 shows all pos si ble combinations economic trends at the intersection of po liti cal devel-
opments oppose or support each other in synchronization It is evident that po liti cal interference
1 International Monetary Fund Rus sian Federation Staff Concluding Statement of the 2017 Article IV Mission (Wash-
ington DC IMF 2017) World Bank Group From Recession to Recovery Rus sia Economic Report no 37 (Washington
DC World Bank 2017) http pubdocsworldbank org en 383241495487103815 RER - 37 - May26 - FINAL - with - summary
594-71613_ch01_4Pindd 11 102017 404 PM
US-Russia Economic Relations12
in bilateral business afairs in the early 2000s was less significant than in later years As result
growing po liti cal tensions from 2003 to 2008 did not dramatically afect bilateral economic inter-
action It is also easier to explain why 2011ndash2012 resulted in rec ord trade and investmentmdash a con-
sequence of very high oil prices GDP growth in both countries improved legislation after Rus siarsquos
accession to the WTO and the Obamandash Medvedev po liti cal reset From 2014 to 2016 a perfect
storm of developments added efficiency to Western sanctions and augmented the damaging
consequences of counter- sanction mea sures
Figure 33 also confirms that in times of reduced economic cooperation po liti cal pressures can
easily change bilateral economic trends Moreover business interests along with economic inter-
actions have a limited capacity to reverse the po liti cal mainstream
Figure 31 Economic Cycle 2014ndash2016
Source Authorrsquos evaluation of international financial institutions (IFI) data and sources from respective
countries
Sustainable Growth
Brazil
Negative Growth
Unstable Growth
Mexico
Descending Growth
Argentina
EU
US
Russia
Vietnam
China
594-71613_ch01_4Pindd 12 102017 404 PM
Vadim Grishin 13
Table 31 Po liti cal Cycles in Bilateral US- Russia Relations 1999ndash2016
2001ndash2002 The George W Bushndash Vladimir Putin Reset Rus sia supported ldquoglobal war on terrorismrdquo launched by the United States after 911 the SORT nuclear arms reduction treaty was signed by the United States and Rus sia and a successful business dialogue was developed that created the current structure of economic relations
2003ndash2008 Deterioration in bilateral relations brought on by the Iraq War Georgiarsquos ldquoRose Revolutionrdquo Mikhail Khodorkovskyrsquos arrest Ukrainersquos ldquoOrange Revolutionrdquo Kosovorsquos in de pen dence and the Georgian War
2009ndash2010 The Barack Obamandash Dmitry Medvedev Reset Rus sia served as a logistical hub for transportation and supply of US forces in Af ghan i stan United States and Rus sia signed the new START nuclear arms reduction treaty Rus sia backed tighter economic sanctions on Iran Rus sia gained access to the WTO after 18 years of negotiations
2011ndash2016 Deterioration in bilateral relations caused by the Ukrainian crisis which were followed by sanctions and counter- sanctions along with the Syrian crises and cyber- enabled activities
Source Authorrsquos evaluation of po liti cal and economic data
Note SORTthinsp=thinspStrategic Ofensive Reductions Treaty STARTthinsp=thinspStrategic Arms Reduction Treaty
Figure 32 Economic Cycle 2017ndash2019
Source Authorrsquos evaluation of IFI data and sources from respective countries
Egypt
VenezuelaEU
South Africa
Brazil
Russia
India
US
Descending Growth
Korea
China
Negative Growth
Unstable Growth
Sustainable Growth
594-71613_ch01_4Pindd 13 102017 404 PM
US-Russia Economic Relations14
Figure 33 US- Russia Trade Million US$ vs Po liti cal Cycle 2000ndash2016
Sources US Census Bureau ldquoTrade in Goods with Rus siardquo Foreign Trade last modified June 29 2017
https wwwcensus gov foreign - trade balance c4621 html (see data for 2000ndash2016) authorrsquos evaluation
of po liti cal and economic data
Orange Revolution
Khodorkovskys arrest
GeorgianWar
Bush- Putin Reset
Iraq War Global Financial Crisis
Obama-Medvedev Reset
Russias WTO accession
New START Treaty
A Pefect Storm the Ukranian Crisis Oil Prices Crashing
Sanctions and Counter-Sanctions
$3000
$8000
$13000
$18000
$23000
$28000
$33000
$38000
$43000
2000 2002 2004 2006 2008 2010 2012 2014 2016
594-71613_ch01_4Pindd 14 102017 404 PM
15
The current structure of US- Russia economic relations emerged in the early 2000s when the
model of trade and investment interaction took on a character similar to that which existed be-
tween the United States and developing economies US imports from Rus sia centered on com-
modities while technology along with food products lead American exports The primary
exception was that Rus sia supplied nuclear fuel including highly enriched uranium extracted from
nuclear weapons for US power plants and provided ser vices to the aerospace industry primarily
in satellite launches However both these exceptions can be explained as a legacy of the Soviet
past and not a harbinger of the future economic relationship (Figure 41)
In the last 15 years this trade structure has not changed significantly The only noticeable shift in
trade was a dramatic drop (to practically nothing) in exports of US agricultural products a result
of Rus siarsquos policy of import substitution and so- called counter- sanction mea sures it took in re-
sponse to US sanctions over the Ukraine crisis (Figure 42)
Promising new directions of cooperation in the IT sector and in engineering ser vices for the
aerospace industry appeared in the early 2000s1 but did not spill into other sectors and conse-
quently did little to renew economic cooperation on the whole The integration of Rus sian high-
tech ser vices into large- scale global production and value chains was constrained by the usual
culprits a lack of financial resources managerial experience skilled labor modern infrastructure
RampD investments and an adequate business environment High commodity prices incentivized the
restoration of an economic system centered on resource rents The leading role of oil and gas
extraction and transportation discouraged the development of a nonenergy sector that might
have created advanced and complex production and ser vices An import substitution policy could
not work efficiently in an economic environment plagued by the Dutch disease where currency
1 The Boeing Design Center was created in Moscow It consists of nearly 250 Boeing employees managing
a team of 1200 contract engineers from Rus sian and Ukrainian aerospace companies ldquoBackgrounder Boeing in
Rus siardquo Boeing last modified January 2017 http wwwboeing com resources boeingdotcom company key _ orgs
boeing - international pdf russia - cisbackgrounder pdf
Are the United States and Rus sia ldquoNatu ralrdquo Trading Partners A Little Bit of History
04
594-71613_ch01_4Pindd 15 102017 404 PM
US-Russia Economic Relations16
inflows (oil money) lead to ruble appreciation and render a countryrsquos production less competitive
During that time Rus siarsquos industry did not receive preferential access to larger markets and could
not expand its share in the global economy particularly because of its self- isolation from the
regional trade agreements (except for its participation in the Eurasian Economic Union with some
neighboring countries of the former Soviet Union) As a result neither import substitution nor
export- led strategy promoted growth and specialization in nonoil production A long- awaited
modernization and reallocation of resources from an inefficient nontrade sector to a trade sector
did not materialize
These limits were later augmented with sanctions and an extension of domestic restrictions on
cooperation with Western partners Importantly the rapid growth of state- monopoly structures in
the Rus sian economy over the past 15 years has created additional obstacles to the development
and diversification of US- Russia economic ties
Figure 41 US Imports from Rus sia US$ 2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2016)
Fish and shellfish 3
Crude oil 5
Fuel oil 37
Petroleum products other
8
Nuclear fuel materials
7
Chemicals-fertilizers 4
Steelmaking materials 5
Iron and steel mill products 4
Bauxite and aluminum 9
Other precious metals 4
Nonferrous metals other 1
Finished metal shapes 1
Synthetic rubber--primary
1
Spacecraftexcluding military
594-71613_ch01_4Pindd 16 102017 404 PM
Fig
ure
42
U
S E
xpo
rts
to R
us s
ia U
S$ 2
016
Sou
rce
US
Ce
nsu
s B
ure
au ldquo
Trad
e in
Go
od
s w
ith
Ru
s sia
rdquo (s
ee
dat
a fo
r 2
016
)
Bak
ery
pro
du
cts
Win
e b
eer
an
d r
elat
ed
pro
du
cts
New
spri
nt
Pla
stic
mat
eria
ls
Ch
emic
als-
fert
ilize
rs
Ch
emic
als-
ino
rgan
icC
hem
ical
s-o
rgan
ic
Ch
emic
als-
oth
erC
ott
on
fib
er c
loth
In
du
stri
al r
ub
ber
pro
du
cts
Min
eral
su
pp
lies-
man
ufa
ctu
red
Gen
erat
ors
acc
esso
ries
Ele
ctri
c ap
par
atu
s
Dri
llin
g amp
oilfi
eld
eq
uip
men
t Sp
ecia
lized
min
ing
Exc
avat
ing
mac
hin
ery
No
nfa
rm t
ract
ors
an
d p
arts
In
du
stri
al e
ng
ines
Fo
od
to
bac
co m
ach
iner
y M
etal
wo
rkin
g m
ach
ine
too
ls
Tex
tile
sew
ing
m
ach
ines
W
oo
d g
lass
p
last
ic
Pu
lp a
nd
pap
er
mac
hin
ery
Mea
suri
ng
tes
tin
g
con
tro
l in
stru
men
ts
Mat
eria
ls h
and
ling
equ
ipm
ent
Ind
ust
rial
mac
hin
es
oth
er
Ph
oto
ser
vice
ind
ust
ry m
ach
iner
y A
gri
cult
ura
l mac
hin
ery
eq
uip
men
t C
om
pu
ters
Co
mp
ute
r ac
cess
ori
es
Sem
ico
nd
uct
ors
Tel
eco
mm
un
icat
ion
seq
uip
men
t
Bu
sin
ess
mac
hin
es a
nd
eq
uip
men
t
Lab
ora
tory
tes
tin
g in
stru
men
ts
Med
icin
al e
qu
ipm
ent
Civ
ilian
air
craf
t e
ng
ines
eq
uip
men
t a
nd
par
ts
Rai
lway
tra
nsp
ort
atio
n
equ
ipm
ent
Ves
sels
exc
lud
ing
scr
ap
Co
mm
erci
al v
esse
ls o
ther
M
arin
e en
gin
es p
arts
Spac
ecra
ft e
xclu
din
g
mili
tary
Pas
sen
ger
car
s
new
an
d u
sed
Tru
cks
bu
ses
and
sp
ecia
l p
urp
ose
ve
hic
les
En
gin
es a
nd
en
gin
e p
arts
(c
arb
ure
tors
pis
ton
s r
ing
s
and
val
ves)
B
od
ies
and
ch
assi
s fo
r p
asse
ng
er c
ars
Au
tom
oti
ve t
ires
an
d t
ub
es
Oth
er p
arts
an
d a
cces
sori
es o
f ve
hic
les
Ap
par
el h
ou
seh
old
go
od
s -
text
ile
Ph
arm
aceu
tica
lp
rep
arat
ion
s
Furn
itu
re h
ou
seh
old
go
od
s
etc
R
ug
s
Cel
l ph
on
es a
nd
oth
er
ho
use
ho
ld g
oo
ds
ne
c
594-71613_ch01_4Pindd 17 102017 404 PM
US-Russia Economic Relations18
Figure 43 US Trade in Goods with Rus sia Million US$ 1992ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
Russian Financial Crisis
Oil price Increased from$2446 USD per barrel (2001)
to $9694 USD per barrel(2008)
Global Financial Crisis
Oil price high record in2011-2012
(more that $111 USD perbarrel)
Oil price crashed
$-
$5000
$10000
$15000
$20000
$25000
$30000
$35000
$40000
$45000
$50000
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia US Exports to Russia US-Russia Trade in Goods
No doubt po liti cal ups and downs add volatility to US- Russia trade Nevertheless Rus siarsquos eco-
nomic structure exhausted itself before the Ukrainian crisis and the recent Rus sian recession Its
limitations are not only due to some mistakes in policy or negative coincidences of circumstances
but rather to deeply rooted properties in the current bilateral trade model related to structural
issues in the Rus sian economy Structural constraints such as the weak enforcement of property
rights poor business regulation and nondiversified exports weighed on Rus sian trade with the
United States From this perspective the term ldquonaturalunnatural trading partnersrdquo does not ad-
dress the unused capacity of bilateral interaction or the real challenges that kind of interaction
faces It just adds metaphysical flavor to the very specific economic and po liti cal factors that
determine the US- Russia trajectory
Overall the outlines of bilateral trade (Figure 43) resemble the famous ldquoRus sian Mountainsrdquo that
were a pre de ces sor of the modern roller coaster icy hills supported by wooden constructionsmdash a
rigid and immobile structure that sooner or later would melt This unfortunately is what is hap-
pening to US- Russia trade cooperation now
594-71613_ch01_4Pindd 18 102017 404 PM
19
ARE LITTLE FISH REALLY SWEET
Low US- Russia economic interaction has at least two consequences First it limits the capacity of
policymakers to exploit trade as an instrument for geopo liti cal combat Even the question of a US
trade deficit which used to be a headache for many US trading partners has become so insig-
nificant in absolute terms (about $87 billion in 2016) that it seems hardly worth caring about
When the volume of trade between two countries becomes very small in absolute terms whether
a country is running a surplus or deficit is no longer relevant But it also renders another type of
confrontations (sometimes more dangerous) more likely since the two traders have little to lose
Second in an environment marked by low levels of bilateral trade both sides could incentivize (if
and when a desire for po liti cal rapprochement exists) the signing of new trade deals which are
elevated symbolically as a turning point in bilateral po liti cal relations (ie the sale of Boeings to
Rus sia or the delivery via tankers of Rus sian oil to US refineries) Sometimes markets themselves
pres ent ldquogiftsrdquo that can be capitalized on po liti cally US- USSR grain trade in the 1970s was one
such ldquogiftrdquo large sales of American grain to the Soviet Union helped US policymakers win favor
with the po liti cally impor tant American farming sector and permitted Soviet leaders to maintain
access to a dietary staple for the Soviet population
The strong 32 percent growth in value of US imports from Rus sia from January to May 2017
versus January to May 2016 ( Table 51) is an example of a development that has tempted officials
to pres ent it as a sign of positive change due to ldquogrowing business activitiesrdquo (this kind of statement
was heard before the bilateral summit in Germany in July 2017) although the reason for that leap
was evidently an increase in commodity prices (mainly of oilmdash see Table 52) and not a rise in
entrepreneurial interactions The primary beneficiaries of that upside rally have been two other
petro- economies Saudi Arabia and Venezuela ( Tables 53 and 54)
Sector Analyses
05
594-71613_ch01_4Pindd 19 102017 404 PM
US-Russia Economic Relations20
Table 51 US Imports from Rus sia Million US$ Januaryndash May 2016 vs Januaryndash May 2017
Year January February March April May Total
2016 9603 6871 11097 12257 10977 50805
2017 12215 10220 16979 13471 14147 67032
Change 271 487 530 99 289 319
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
Table 52 Change in Urals Crude Oil Prices US$ per Barrel Januaryndash May 2016 vs Januaryndash May 2017
Januaryndash May 2016 Januaryndash May 2017 Change ($) Change ()
3601 5129 1528 424
Source Ministry of Finance of the Rus sian Federation https wwwminfin ru ru ixzz4mMIZ7XtC
Table 53 US Imports from Saudi Arabia Million US$ Januaryndash May 2016 vs Januaryndash May 2017
Year January February March April May Total
2016 15114 9036 13555 10844 14679 63228
2017 19802 20298 21650 16211 19542 97503
Change 3101 12463 5972 495 331 542
Source US Census Bureau ldquoTrade in Goods with Saudi Arabiardquo Foreign Trade last modified June 29 2017
https wwwcensus gov foreign - trade balance c5170 html (see data for 2016ndash2017)
594-71613_ch01_4Pindd 20 102017 404 PM
Vadim Grishin 21
Table 54 US Imports from Venezuela Million US$ Januaryndash May 2016 vs Januaryndash May 2017
Year January February March April May Total
2016 6657 5560 7140 8007 7922 35286
2017 13041 10864 123500 11148 12243 59646
Change 9590 9540 7297 3923 5454 6903
Source US Census Bureau ldquoTrade in Goods with Venezuelardquo Foreign Trade last modified June 29 2017
https wwwcensus gov foreign - trade balance c3070 html (see data for 2016ndash2017)
Table 55 US Exports to Rus sia Million US$ Januaryndash May 2016 vs Januaryndash May 2017
Year January February March April May Total
2016 3628 3577 7298 4657 4947 24107
2017 3144 4277 5386 6670 4806 24283
Change minus133 196 minus262 432 minus29 minus07
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2016ndash2017)
At the same time US exports to Rus sia continue to stagnate ( Table 55) due to low levels of
consumption during a two-and- a- half-year economic crisis a deep ruble devaluation sanctions
and counter- sanctions
Given the very dif er ent economic structures and resource endowments of Rus sia and the United
States it is not surprising that US- Russia trade is asymmetric and oil driven (Figure 51) A
3 percent increase in Urals oil prices translates into a one percent increase in US import growth
from Rus sia Thus in 2016 every $10 increase in Urals crude oil added $15 billion to the value of
US imports or 11 percent to the total value of imports from Rus sia
OIL ADDICTION
Oil is a core pillar of US- Russia bilateral trade A bumpy ride in oil markets afects commerce
Nevertheless Rus sian oil exports to the United States in physical terms have been rather
594-71613_ch01_4Pindd 21 102017 404 PM
US-Russia Economic Relations22
sustainable Starting from 2005 average annual deliveries have been above 150 million barrels
(Figure 52) Crude and heating oil have dominated while petroleum products and liquefied petro-
leum gases have not (Figure 53) In 2011 oil exports peaked at 228 million barrels but declined to
159 million barrels in 2016mdash a drop of 30 percent Rec ord high shipments of Rus sian oil to the United
States coincided with an elevation in oil prices which made the subsequent decline in oil shipment
value between 2011 and 2016 (by about 72 percent as shown in Figure 54) seem more stark The
increase in price also raised the share of oil in Rus sian exports by 74 percent in 2011 (Figure 55)
The Rus sian share in total US oil imports was around 55 percent in 2011 and 43 percent in 2016
( Table 56) In the last five years the United States has relied exclusively on consumption of Rus sian
oil for the rough equivalent of one week out of the year (Figure 56)
It is unlikely that Rus sia can significantly increase its share of the US oil market and there is a real
possibility for a downward trend There are several reasons the historically high Rus sian hydrocar-
bon export threshold of 2011 will not soon if ever be surpassed
First US energy consumption will likely be flat According to the US Energy Information Adminis-
tration (EIA) demand for petroleum and other liquids in the United States will be about 35ndash36
quadrillion British thermal units (BTUs) with minimal variation over the next 25 years1
1 US EIA ldquoAnnual Energy Outlook 2017 with Projections to 2050rdquo January 5 2017 7ndash8
Figure 51 US- Russia Trade Growth () vs US and Rus sia Real GDP Growth () 1993ndash2016
Source IMF ldquoIMF Datardquo accessed September 27 2017 http wwwimf org en Data US Census Bureau
ldquoTrade in Goods with Rus siardquo
Note rGDPthinsp=thinspreal gross domestic product
Trade
USA rGDP growth
Russia rGDP growth
-60
-40
-20
0
20
40
60
80
100
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Gro
wth
All spikes in US-Russia trade have been connected with two main
variables volume and price of crude oil
594-71613_ch01_4Pindd 22 102017 404 PM
Vadim Grishin 23
Second the United States will become a net energy exporter between 2020 and 2030 in most
cases under dif er ent combinations of oil and natu ral gas prices GDP growth technological
breakthroughs and the availability of energy resources The role of oil imports will dramatically
fall2
Third oil price scenarios as described by the International Energy Agency (IEA) international
financial organ izations (IFIs) and many national agencies are very cautious and assume that even
by 2035 to 2040 oil prices will not to recover to the levels of 2011ndash20123
Fourth Rus sian oil production and export growth will be modest and driven by Asian economic
expansion and will comprise a decreasing share of Western markets4 According to forecasts from
2 Ibid 15ndash18
3 Ibid table 3 ldquoEnergy Prices by Sector and Sourcesrdquo World Bank World Bank Commodity Markets Price Forecasts
(Washington DC World Bank 2017) httpswwwworldbank org en research commodity - markets Organ ization of the
Petroleum Exporting Countries (OPEC) World Oil Outlook 2016 (Vienna OPEC 2016)
4 E D Belotskaia et al Global and Rus sian Energy Outlook 2016 (Moscow Energy Research Institute of the Rus sian
Acad emy of Science Analytical Center for the Government of the Rus sian Federation 2016) http acgov ru files
publication a 12767 pdf
Figure 52 US Imports from Rus sia Crude Oil and Petroleum Products Thousands of Barrels 1995ndash2016
Source US EIA ldquoUS Imports by Country of Origin Rus siardquo Petroleum amp Other Liquids September 13
2017 http wwweia gov dnav pet PET _ MOVE _ IMPCUS _ D _ NUS _ NRS _ MBBL _ M htm
0
50000
100000
150000
200000
250000
Date 1995 1996 1997 1998 199920002001200220032004200520062007200820092010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 23 102017 404 PM
US-Russia Economic Relations24
the Organ ization of the Petroleum Exporting Countries (OPEC) crude oil exports from Rus sia and
the Caspian region to the United States will dis appear by 20255
So why does the Rus sian Urals blend continue to be attractive for oil traders and US refineries
which could pro cess greater volumes of domestically produced lighter crude There are two main
reasons One is related to the preference of US high conversion refineries (the most sophisticated
in the world) to work with heavy oil blends produced by Canada Mexico Iraq Venezuela and
Rus sia Pro cessing heavy crude now is as profitable as pro cessing lighter crude The so- called
crack spreadmdash the diference between the cost of relatively cheap heavy crude oil and the final
price of value- added consumer products (diesel gasoline jet fuel and heating oil)mdash has become
the same as the refinery margins of light sweet crude6 This has primarily afected light oil produc-
ing countries such as Angola Algeria and Nigeria
5 OPEC World Oil Outlook 2016 306ndash309
6 ldquoHow Much for That Heavy Oilrdquo Oil Sands Magazine December 26 2015 https wwwoilsandsmagazine com
news 2015 12 26 how - much - for - that - heavy - oil
Figure 53 US Imports from Rus sia Oil and Petroleum Products US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$-
$25000000000
$20000000000
$15000000000
$10000000000
$5000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Liquefied petroleum gases
Petroleum products other
Fuel oil
Crude oil
594-71613_ch01_4Pindd 24 102017 404 PM
Vadim Grishin 25
Another factor afecting purchase of Rus sian oil is a new trend among oil companies for further
consolidation of scale and for integrating operations of upstream and downstream business7
There have been several waves of separation and unification of production transportation and
pro cessing in the last 50 years The current business cycle can be seen as an adaptation to a
period of low prices and oversupply Companies that buy andor produce oil in Rus sia most likely
prefer to transport and pro cess this oil in their own modern refineries in the United States At the
same time some of the newest refinery designs specifically for pro cessing heavy oils have been
built in Asia thus extending the choices of heavy oil producing countries
We should also consider that leading US and international oil traders along with oil producing
companies working with or owning US refineries frequently buy Rus sian oil on the open market
and have long- term contracts on Rus sian crude oil delivery Many Rus sian oil companies prefer to
pay for purchases or ser vices with their future production instead of cash creating situations of
ldquostickyrdquo oil imports that are difficult to replace The best- known example is an interaction between
7 ldquoEnergy and Utilities Sectorrdquo Roundtable Financier Worldwide December 2015 https wwwfinancierworldwide
com roundtable - energy - utilities - sector - dec15
Figure 54 US Imports of Oil and Petroleum Products from Rus sia vs Oil Prices Eu rope Brent Spot Price Free on Board (FOB) 1996ndash2017
Source US EIA ldquoUS Imports by Country of Origin Rus siardquo
0
20
40
60
80
100
120
140
0
5000
10000
15000
20000
25000
30000
Jan
-19
96
Jun
-19
96
No
v-19
96
Ap
r-19
97
Sep
-19
97
Feb
-19
98
Jul-
199
8D
ec-1
99
8M
ay-1
99
9O
ct-1
99
9M
ar-2
00
0A
ug
-20
00
Jan
-20
01
Jun
-20
01
No
v-2
00
1A
pr-
20
02
Sep
-20
02
Feb
-20
03
Jul-
20
03
Dec
-20
03
May
-20
04
Oct
-20
04
Mar
-20
05
Au
g-2
00
5Ja
n-2
00
6Ju
n-2
00
6N
ov-
20
06
Ap
r-2
00
7Se
p-2
00
7Fe
b-2
00
8Ju
l-2
00
8D
ec-2
00
8M
ay-2
00
9O
ct-2
00
9M
ar-2
010
Au
g-2
010
Jan
-20
11Ju
n-2
011
No
v-2
011
Ap
r-2
012
Sep
-20
12Fe
b-2
013
Jul-
20
13D
ec-2
013
May
-20
14O
ct-2
014
Mar
-20
15A
ug
-20
15Ja
n-2
016
Jun
-20
16N
ov-
20
16
USD
per
Bar
rel
Th
ou
san
d B
arr
els
US Imports from Russia of Crude Oil and Petroleum Products (Thousand Barrels)
Europe Brent Spot Price FOB (Dollars per Barrel)
594-71613_ch01_4Pindd 25 102017 404 PM
US-Russia Economic Relations26
Table 56 US Oil Imports All Countries vs Rus sia Thousand Barrels per Day 2011ndash2016
Years 2011 2012 2013 2014 2015 2016
All Countries 11436 10598 9859 9241 9449 10058
Rus sia 624 477 460 330 371 433
Share 546 450 467 357 393 431
Sources US EIA ldquoUS Imports by Country of Origin Total Crude Oil and Productsrdquo Petroleum amp Other
Liquids September 13 2017 wwweia gov dnav pet pet_move_impcus_a2_nus_ep00_im0_mbbl_m htm
authorrsquos computation
Figure 55 US Imports from Rus sia Share of Crude Oil and Petroleum Products Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
57
64
73
72
74
73
72
59
52 50
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
$40000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil and Petroleum Products
594-71613_ch01_4Pindd 26 102017 404 PM
Vadim Grishin 27
the Rus sian state mono poly Rosneft and commodity trading and mining giant Glencore which
along with energy and commodities com pany Vitol participated in a $10 billion prepayment
deal with Rosneft for crude supplies in 2013
There have been a number of ongoing transactions between the Rus sian oil industry and interna-
tional oil companies including several that top the list of importers of Rus sian oil to the United
States ( Table 57) In December 2016 Glencore participated in a controversial privatization opera-
tion purchasing in tandem with the Qatar sovereign wealth fund a 195 percent stake in Rosneft
which was on the US and EU list of sanctioned firms8 Glencore has also taken a blocking stake in
midsize oil producer RussNeft BP owns a 1975 percent stake in Rosneft Chevron holds a
15 percent interest in the 935- mile- long CPC9 pipeline which transports an average of 959000
barrels of crude oil per day including 76000 barrels daily from Rus sia10 ExxonMobil has formed
8 E Mazneva and I Arkhipov ldquoRus sia Sells $11 Billion Stake in Rosneft to Glencore Qatarrdquo Bloomberg December 7
2016
9 CPCthinsp=thinspCaspian Pipeline Consortium
10 ldquoRus sia Highlights of Operations and Business Portfoliordquo Chevron accessed October 3 2017 https wwwchevron
com worldwide russia
Figure 56 Share of Rus sian Oil in Total US Oil Imports Thousands of Barrels per Day 1972ndash2016
Source US EIA ldquoUS Imports by Country of Origin Total Crude Oil and Productsrdquo
2000
4000
6000
8000
10000
12000
14000
16000
US Imports of Crude Oil and Petroleum Products (Thousand Barrels per Day)
US Imports from Russia of Crude Oil and Petroleum Products (Thousand Barrels per Day)19
7319
7419
7519
7619
7719
7819
7919
80
198
119
82
198
319
84
198
519
86
198
719
88
198
919
90
199
119
92
199
319
94
199
519
96
199
719
98
199
92
00
02
00
12
00
22
00
32
00
42
00
52
00
62
00
72
00
82
00
92
010
20
112
012
20
132
014
20
152
016
594-71613_ch01_4Pindd 27 102017 404 PM
Table 57 Top Importers of Rus sian Oil to the United States Thousands of Barrels 2016
VALERO MARKETING amp SUPPLY CO 54590 3616
EXXONMOBIL OIL CORP 17087 1130
CHEVRON USA INC 15217 1008
BP WEST COAST PRODUCTS LLC 10130 671
GEORGE E WARREN CORP 7272 48
PAULSBORO REFINING CO LLC 6838 453
TESORO CORP 5097 338
VITOL INC 5084 337
PHILLIPS 66 CO 4726 313
TRAFIGURA AG 4360 289
PAR HAWAII REFINING LLC 3893 258
MOTIVA ENTERPRISES LLC 3041 205
SHELL US TRADING CO 2863 19
MARATHON PETROLEUM CO LLC 2475 16
ATLANTIC TRADING amp MARKETING 2099 14
FREEPOINT COMMODITIES LLC 1439 1
GLENCORE LTD 1284 85
BEST PETROLEUM CORP 967 64
ROLYMPUS US COMMODITIES GROUP LLC 822 6
HUNT CRUDE OIL SUPPLY CO 666 4
GULF OIL LP 658 4
Source US EIA ldquoUS Imports by Country of Origin Crude Oilrdquo Petroleum amp Other Liquids September 13
2017 httpswwweiagovdnavpetpet_move_impcus_a2_nus_epc0_im0_mbblpd_ahtm authorrsquos
computation
594-71613_ch01_4Pindd 28 102017 404 PM
Vadim Grishin 29
several joint ventures with Rosneft to undertake ofshore exploration in the Black Sea and the Kara
Sea in Siberia11
According to the Sanctions Act US persons are prohibited from exporting or reexporting goods
ser vices (except financial ser vices) and technology in support of exploration or production of new
deep- water Arctic ofshore or shale oil proj ects that involve designated Rus sian entities or other
entities in which such sanctioned persons have a controlling interest or a substantial noncontrol-
ling owner ship interest defined as not less than 33 percent (previously it was 50 percent) The new
law also authorizesmdash but does not requiremdash the imposition of so- called secondary sanctions
against non- US entities that engage in activities involving the construction maintenance or
expansion of Rus sian energy export pipelines with a fair market value of $1 million or more or an
aggregate fair market value during a 12- month period of $5 million12 This provision has raised the
concerns of some Eu ro pean countries particularly Germany As result the final language of the
law included wording about coordination of this issue with allies of the United States
Shipments of Rus sian oil to the United States could be afected by activity in the US refinery
industry In early 2017 Saudi Aramco bought the United Statesrsquo largest oil refinery in Port Arthur
(Texas) and it announced plans to send more of its own crude to that refinery13 Serious concerns
exist however regarding the future of three refineries and nine pipelines owned by Citgo a US
branch of the Venezuelan state com pany PdVSA which is balancing precariously on the edge of
default Under certain conditions in the event of PdVSA bankruptcy Rosneft could claim a stake of
up to 499 percent in Citgo Such a possibility has raised concerns among politicians and US
government officials with Trea sury Secretary Steven Mnuchin calling it a ldquonational security issuerdquo14
Tables 58 59 and 510 show allocations of Rus sian oil imports to major US refineries some of
which work exclusively on Rus sian crude a total of two to three months per year In total 150940
thousand barrels of Rus sian oil were refined in 2016
Figure 57 confirms a leading position of Texas and Louisiana among the US states receiving
Rus sian crude followed by New Jersey California Mississippi Washington Hawaii and Delaware
In a paradoxical way Texas has dis appeared from the list of states as a main destination of US
imports from Rus sia (Figure 58) because Rus sian crude is mostly delivered to Louisiana ports and
registered there by US Customs as an import from Rus sia After that it transports to refineries in
Louisiana and Texas
Overall the short- term business rationale behind the sustainability of US oil imports from Rus sia
cannot overcome strong headwinds in the US energy sector facing all oil importers which will
inevitably lead to a contraction of Rus sian oil exports to the United States in the foreseeable future
11 Exxon eforts to receive a special US Trea sury waiver to drill in sanctioned Rus sia failed in 2017
12 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364
13 Sarp Ozkan ldquoSaudi Aramcorsquos Port Arthur Refinery and the US Refinery Fleetrdquo Drilling Info May 11 2017
https infodrillinginfo com saudi - aramcos - port - arthur - refinery - us - refinery - fleet
14 Graham Kates ldquoTrea sury Secretary Rus siarsquos Citgo Deal a National Security Issuerdquo CBS News May 1 2017
http wwwcbsnews com news rosneft - citgo - steven - mnuchin - national - security
594-71613_ch01_4Pindd 29 102017 404 PM
US-Russia Economic Relations30
Table 58 Valerorsquos Refineries Pro cessing Rus sian Oil Thousands of Barrels 2016
Saint Charles Louisiana 29206 535
Corpus Christi Texas 20626 378
Wilmington California 4250 78
Total USA 54590 100
Source US EIA ldquoRefinery Capacity Reportrdquo January 1 2017
table 5 wwweia gov petroleum refinerycapacity table5 pdf
authorrsquos computation
Table 59 ExxonMobil Refineries Pro cessing Rus sian Oil Thousands of Barrels 2016
Baytown Texas 15037 88
Baton Rouge Louisiana 2046 12
Total USA 17083 100
Source US EIA ldquoRefinery Capacity Reportrdquo authorrsquos computation
Table 510 Chevronrsquos Refineries Pro cessing Rus sian Oil Thousands of Barrels 2016
Pascagoula Mississippi 12767 840
El Segundo California 2372 155
Saint Rose Louisiana 78 05
Total USA 15217 100
Source US EIA ldquoRefinery Capacity Reportrdquo authorrsquos computation
594-71613_ch01_4Pindd 30 102017 404 PM
Vadim Grishin 31
HEAVY METAL
Taken together US imports of metals and US imports of oil compose about 80 percent of US
total imports from Rus sia (Figure 59) Trade of metals like other commodities is strongly afected
by market price fluctuations Nevertheless metal imports from Rus sia have been fairly resilient to
market volatility and their average annual value has hovered at about $4 billion in the last five years
(Figure 510) This market resilience was forged at the end of the 1990searly 2000s when Rus sian
metal producers gradually modernized their plants adjusting quality of production to Western
standards and enhancing integration into global value and supply chains Some of them conquered
their share of the highly competitive US market struggling with peers from Canada and certain
BRICS countries (China India and Brazil) To attract additional resources all Rus sian large metal-
producing companies became public and were listed on stock exchanges chiefly the London Stock
Exchange (Severstalrsquo PAO Evraz MMK OAO Novolipetsk Steel Norilsk Nikel and TMK PAO) one
on the New York Stock Exchange (Mechel) and one on the Hong Kong Stock Exchange (Rusal)
Business logic pushed some of them to invest in the US metal- making industry which was hit
hard by crisis Later on some of those assets were sold (eg two US steel mills acquired by
Severstal in 2004 were purchased 10 years later by Steel Dynamics Inc and AK Steel Corp)
Figure 57 Share of US States Rus sian Oil Imports 2016
Source US EIA ldquoUS Imports from Rus sia of Crude Oil and Petroleum Productsrdquo Petroleum amp Other
Liquids September 29 2017 https www eia gov dnav pet hist LeafHandler ashx nshy=shyPETampsshy=shyMTTIM _ NUS
- NRS _ 1ampfshy=shyM authorrsquos computation
0
10
20
30
40
50
60
70
80
90
100
Maine
Massachusetts
Maryland
Connecticut
Georgia
Rhode Island
Virginia
Florida
New York
Alabama
Puerto Rico
Pennsylvania
Delaware
Hawaii
Washington
Mississippi
California
New Jersey
Louisiana
Texas
594-71613_ch01_4Pindd 31 102017 404 PM
Figure 58 US Imports from Rus sia by State Million US$ 2013ndash2016
Source US Census Bureau ldquoState and Metropolitan Area Trade Datardquo Foreign Trade last modified
October 2 2017 https wwwcensus gov foreign - trade statistics state
Alaska
Connecticut
Delaware
Hawaii
Louisiana
Maryland
North Dakota 0
$1000
$2000
$3000
$4000
$5000
$6000
2013 2014 2015 2016
Alabama
Alaska
Connecticut
Delaware
Hawaii
Louisiana
Maryland
Maine
Mississippi
Montana
North Dakota
Mississippi
Figure 59 US Imports from Rus sia Share of Oil and Metals Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
83
82
85
86
87
88
85
82
7375
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
$40000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil and Metals
594-71613_ch01_4Pindd 32 102017 404 PM
Vadim Grishin 33
Obviously the market dynamic of dif er ent metals varies (eg iron steel aluminum platinum and
nickel) Caps to increase their trade and production in a ldquored oceanrdquo global environment with
anemic demand is rather limited despite Figure 510 showing a spike of iron and steel imports
from Rus sia in 2014 and aluminum in 2016 Some opportunities may exist for Russian- owned steel
plants in the United States (such as NLMK) to participate in energy proj ects resumed under Presi-
dent Trump who has required that new pipelines use only American- made steel15
Rus sia occupies a special niche in the US market for titanium products a high- end metal indus-
try Twenty years ago a long- term contract was signed between Rus sian titanium producer
VSMPO- AVISMA and Boeing The Rus sian com pany entered the selective club of Boeing suppliers
for the manufacture of components and semi- finished products Since the signing of this contract
VSMPO has delivered more than 35 percent of all titanium placed on Boeing civil aircraft16 They
are hidden in the trade data in an import category for Civilian Aircrafts and Parts (Figure 511) At
the end of 2016 Boeing announced an extension of its framework agreement with AVISMA
15 E Scheyder C Ngai and T Sylvester ldquoAmerican Steel Unlikely to Get Keystone Boost Despite Trump Orderrdquo
Reuters January 27 2017 http wwwreuters com article usa - trump - pipeline - transcanada - idUSL1N1FH1ZD
16 A Kramer ldquoTitanium Fills Vital Role for Boeing and Rus siardquo New York Times July 5 2013 http wwwnytimes com
2013 07 06 business global titanium - fills - vital - role - for - boeing - and - russia html mcubzshy=shy3
Figure 510 US Imports from Rus sia Iron Steel Bauxite Aluminum Nickel Nonferrous Metals and Other Precious Metals and Materials US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
0
$6000000000
$5000000000
$4000000000
$3000000000
$2000000000
$1000000000
2007 2008 2009 2010 2011 20122013
20142015
2016
Finished metal shapes
Iron and steel advanced
Iron and steel products nec
Nonferrous metals other
Other precious metals
Nickel
Bauxite and aluminum
Iron and steel mill products
Steelmaking materials
594-71613_ch01_4Pindd 33 102017 404 PM
US-Russia Economic Relations34
through 2022 and additional investments in the construction of a new robotic plant in Titanium
Valley a special economic zone located in the Sverdlovsk region that will open in 2018 The pro-
cessing of titanium forgings in all Boeing civil aircraft will be performed there including 787s 737
MAXs and 777Xs17 The contract extension with AVISMA may add several hundred million dollars
in value to annual US imports from Rus sia
How can such heavy reliance on imports of Rus sian titanium exist during a period of rising geopo-
liti cal tensions The answer is straightforward VSMPO- AVISMA is a highly specialized natu ral
mono poly producing 45 percent of the worldrsquos aerospace titanium Only four other countries
smelt high- grade titanium in industrial quantities the United States Germany Japan and China
Overall global production capacity is limited while demand is growing The United States cur-
rently imports around 79 percent of all the titanium it consumes each year18
17 ldquoBoeing and VSMPO Avisma to Launch Second Joint Production Siterdquo Rus sian Aviation Insider December 22 2016
http wwwrusaviainsider com boeing - and - vsmpo - avisma - to - launch - second - joint - production - site
18 Jon Ostrower and Andy Pasztor ldquoBoeing United Technologies Stockpile Titanium Partsrdquo Wall Street Journal
August 7 2014 https wwwwsj com articles boeing - united - technologies - stockpiling - titanium - parts - 1407441886
Figure 511 US Imports from Rus sia Civilian Aircrafts and Parts US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
$200000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Parts-civilian aircraft
Civilian aircraft
594-71613_ch01_4Pindd 34 102017 404 PM
Vadim Grishin 35
The Sanctions Act authorizes the secretary of the trea sury (in a nonmandatory way) to impose
restrictions (without specifying them) against Rus sian state- owned entities operating in the railway
metals and mining sectors of the Rus sian economy Despite the commanding heights of Rus siarsquos
state sector owner ship in its economy (70 percent of GDP) the metal- producing companies have
remained mostly in private hands
NUCLEAR AFFAIRS
Historically owners and operators of the 104 commercial nuclear power reactors in the United
States have purchased more than 80 percent of their uranium from foreign countries Uranium
shipping from Rus sia accounted for about 13 percent of the 58 million pounds of uranium pur-
chased overseas in 201219 At the same time the Rus sian state- owned mono poly Rosatom ac-
counts for 20 percent of Kazakhstanrsquos uranium production (which in turn comprises 11 percent of
all US uranium imports) and 20 percent of US domestic uranium production capacity (with
owner ship of exploration tracts in Wyoming)20
Nuclear fuel and nuclear power continue to be po liti cally sensitive topics both in the United
States and Rus sia Bilateral cooperation in this sector (being surprisingly stable with imports of
nuclear fuel from Rus sia at a level of $1 billion annually in the last five years [Figure 512 and 513])
is under constant po liti cal and lobbying pressure and has been a source of several po liti cal scan-
dals21 Consequently upside risks in this area of interaction are minimal and downside risks are
much higher especially when we are seeing more decommissioning of nuclear plants in the
United States than new constructions The US EIArsquos 2017 Annual Energy Outlook assumes
that about 25 percent of the nuclear capacity now operating will be removed from ser vice
by 205022
WHY IS THE GRASS GREENER ON THE OTHER SIDE
The United States continues to significantly reduce imports of chemical fertilizers as domestic pro-
duction increases In 2016 the United States imported 13 percent less ammonia and 11 percent
less urea and UAN which is a liquid urea and ammonium nitrate fertilizer Rus sia accounts for
around 40 percent of UAN imported by the United States The United States canceled antidumping
duties on imports of ammonium nitrate and urea from Rus sia in 2016 but it did not prevent import
19 US EIA ldquoThe US Relies on Foreign Uranium Enrichment Ser vices to Fuel Its Nuclear Power Plantsrdquo Today in
Energy August 28 2013 https wwweia gov todayinenergy detail php idshy=shy1273
20 Colin Chilcoat ldquoDoes Rus sia Really Own 20 Percent of the USrsquo Uranium Reservesrdquo OilPricecom May 6 2015
http oilpricecom Alternative - Energy Nuclear - Power Does - Russia - Really - Own - 20 - Of - The - US - Uranium - Reserves
html
21 Michelle Ye Hee Lee ldquoThe Facts behind Trumprsquos Repeated Claim about Hillary Clintonrsquos Role in the Rus sian Ura-
nium Dealrdquo Washington Post October 26 2016
22 US EIA ldquoAnnual Energy Outlook 2017 with Projections to 2050rdquo 81ndash82
594-71613_ch01_4Pindd 35 102017 404 PM
Figure 512 US Imports from Rus sia Share of Oil Metals and Nuclear Fuel Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
87
86
90
90
90
91
88
86
7882
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals and Nuclear Fuel
Figure 513 US Imports from Rus sia Nuclear Fuel Materials US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$-
$200000000
$400000000
$600000000
$800000000
$1200000000
$1000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 36 102017 404 PM
Vadim Grishin 37
drops twice last year (Figures 514 and 515) According to forecasts UAN imports are expected to
decline further to 15 million tons this year down over 46 percent from 28 million tons imported
last year23 The downside trend in imports of fertilizers will likely continue because of oversupply
BIG FISH
US imports of fish and shellfish from Rus sia are best understood in comparison with US fish
exports to the Rus sian market which slipped to zero in August 2014 after Rus sia issued an order
banning certain agricultural imports from the United States (Figure 516) While the volume of US
supply was not very large it was impor tant because it broke up the monopolistic dominance of a
few vertically integrated Rus sian companies that have kept prices high by restricting the entry of
new producers Seeking to implement import substitution policies Rus sia has tried to reduce
exports as well as imports of fish and seafood products in the last couple of years This symmetri-
cal approach was intended to ldquocompensaterdquo for a decrease of fish products in the domestic
23 Deepika Thapliyal ldquoPotashCorp Forecasts Sharp Drop in US Nitrogen Imports in 2017rdquo ICIS News February 7
2017 https wwwicis com resources news 2017 02 07 10076734 potashcorp - forecasts - sharp - drop - in - us - nitrogen
- imports - in - 2017
Figure 514 US Imports from Rus sia Share of Oil Metals Nuclear Fuel and Fertilizers Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
90
93
92
93
94
95
92
91
85
86
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals Nuclear Fuel and Fertilizers
594-71613_ch01_4Pindd 37 102017 404 PM
Figure 515 US Imports from Rus sia Chemical- Fertilizers US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
S-
$200000000
$400000000
$600000000
$800000000
$1000000000
$1200000000
$1400000000
$1600000000
$1800000000
$2000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Figure 516 US Exports to Rus sia Fish and Shellfish US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$10000000
$20000000
$30000000
$40000000
$50000000
$60000000
$70000000
$80000000
$90000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Fish and shellfish
594-71613_ch01_4Pindd 38 102017 404 PM
Vadim Grishin 39
consumer market caused by Rus siarsquos import ban but it has failed As result the group most af-
fected by the self- imposed counter- sanctions were Rus sian consumers
With a significant drop in fish imports a devaluation of the ruble and inflationary pressures on
seafood prices yearly consumption of fish in Rus sia has declined precipitously In 2015 alone
fish prices increased 20 percent and consumption dropped to 14 kilograms per person24 from
22 kilograms in 201425 In 2016 food rose to 355 percent of house hold expenditure as a result of
increases in food prices26 This has pushed vertically integrated fishing monopolies to sell even
more of their catch abroad rather than deliver to the Rus sian Federation (Figure 517) Thus we
cannot exclude the possibility of further growth in US fish and shellfish imports from Rus sia on a
marginal scale
24 Александр Савельев ldquoПотребление рыбы в России упало до 14 кг на человекаrdquo [Fish consumption in Rus sia fell to
14 kg per person] Экономика Интерфакс January 28 2015 http wwwinterfax ru business 492038
25 Илья Шестаков ldquoПотебление рыбы в России снизилось на 10 процентов из- за роста ценrdquo [Fish consumption in
Rus sia dropped by 10 percent due to price increases] RNS March 8 2017 https rnsonline consumer - market
Potreblenie - ribi - v - Rossii - snizilos - na - 10 - iz - za - rosta - tsen - 2017 - 03 - 08
26 Zoya Sheftalovich and Christian Oliver ldquoRus siarsquos Boom (Farming) Economyrdquo Politico November 8 2016 http
wwwpolitico eu article russias - boom - farming - economy
Figure 517 US Imports from Rus sia Fish and Shellfish US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$50000000
$100000000
$150000000
$200000000
$250000000
$300000000
$350000000
$400000000
$450000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 39 102017 404 PM
US-Russia Economic Relations40
SPACE ODYSSEY
Among high- end products beyond the top five groups of goods imported from Rus sia cheap and
efficient Rus sian engines have been used to launch US rockets into space for about 16 years
(Figure 518) There was a serious po liti cal strug gle around a 2014 ban on the purchase of Rus sian
RD-180 rocket engines revealing the conflicting business interests of power ful high- tech companies
This restrictive mea sure was temporary and was quickly lifted because of significant cost impacts
and risks of disruption to launch schedules27 For the same reason the Sanctions Act does not autho-
rize ldquothe imposition of any sanction or other condition limitation restriction or prohibition that
directly or indirectly impedes the supply by any entity of the Rus sian Federation of any product or
ser vice or the procurement of such product or ser vice by any contractor or subcontractor of the
United States or any other entity relating to or in connection with any space launch conducted for
the National Aeronautics and Space Administration or any other nonndash Department of Defense
customerrdquo28
Nevertheless many experts believe that US domestic alternatives to replace Rus sian engines will
be viable in five to eight years
27 Ken Dilanian ldquoWhy Does the US Use Rus sian Rockets to Launch Its Satellitesrdquo NBC News updated November 15
2016 http wwwnbcnews com why - does - u - s - use - russian - rockets - launch - its - satellites - n588526
28 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364
Figure 518 Spacecraft Excluding Military US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 40 102017 404 PM
41
Diversity and technological complexity are the most vis i ble advantages supporting US exports to
Rus sia Three major groups of export goods include civilian aircraft engines and parts (Figure 61)
drilling and oil field equipment (Figure 62) and industrial machines and engines (Figure 63)
Despite sanctions against the transfer of advanced oil producing and pro cessing technologies the
realization of US drilling and oil field equipment in Rus sia is sustainable although some bilateral
proj ects have been frozen
Another category of goods that has demonstrated resilience is the phar ma ceu ti cal industry (Fig-
ure 64) because most drugs in Rus sia are imported (about 70 percent of the Rus sian phar ma ceu-
ti cal market in value) Import substitution policies have had only modest results in this industry
As confirmed by American Chamber of Commerce surveys US exports to Rus sia are closely
connected to US FDI 30 percent of total imports of US companies working in the Rus sian
market come from the United States (more than $2 billion in 2016) In other words about
40 percent of all US exports to Rus sia are related to a US corporate- sector business pro cess in
the country The major sectors of activity of these companies are energy and natu ral resources
(52 percent) manufacturing (17 percent) information and communications technology or ICT
(13 percent) retail (7 percent) automotive industry (6 percent) phar ma ceu ti cal production
(1 percent) professional ser vices (05 percent) and other (2 percent)1
Some obvious constraints on US exports to Rus sia have resulted from a reduction in demand A
deterioration of bilateral relations and implementation of sanctions and counter- sanctions have
directly or indirectly afected all businesses Figures 65 and 66 provide data regarding a dramatic
drop in the sale of US agricultural production in Rus sia with all other categories of exports in
goods showing big cuts as well (see Figures 67ndash69)
Exports of civilian aircraft engines and parts put the state of Washington in first place among
other states as a leading exporter to the Rus sian market (Figure 610)
1 American Chamber of Commerce in Rus sia ldquoInvestment and Import to Rus sia 2nd Surveyrdquo 13
Diversity and Constraints
06
594-71613_ch01_4Pindd 41 102017 404 PM
Figure 61 US Exports of Civilian Aircraft Engines Equipment and Parts to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
$2500000000
$2000000000
$1500000000
$1000000000
$500000000
$-
Figure 62 US Exports of Drilling and Oil Field Equipment US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
$40000000
$45000000
$50000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 42 102017 404 PM
Figure 63 US Exports of Industrial Engines to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Figure 64 US Exports of Phar ma ceu ti cal Preparations to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 43 102017 404 PM
Figure 65 US Exports of Meat and Poultry to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Meat poultry etc
$1000000000
$800000000
$600000000
$400000000
$200000000
$-
$1200000000
$1400000000
$1600000000
Figure 66 US Exports of Soybeans to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
$200000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 44 102017 404 PM
Figure 67 US Exports of Vehicles Engines and Parts to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Other parts and accessories of vehicles
Automotive tires and tubes
Bodies and chassis for passenger cars
Engines and engine parts (carburetors pistonsrings and valves)
Trucks buses and special purpose vehicles
Passenger cars new and used
$2500000000
$2000000000
$1500000000
$500000000
$-
$1000000000
Figure 68 US Exports of Medicinal Equipment to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 45 102017 404 PM
Figure 610 US Exports to Rus sia by States (2016 US$ Value) Million US$ 2013ndash2016
Source US Census Bureau ldquoState and Metropolitan Area Trade Datardquo
Iowa Kentucky
North Dakota
Oklahoma
South Carolina
Washington
0
$500
$1000
$1500
$2000
2013 2014 2015 2016
District of Columbia
Iowa
Kentucky
North Dakota
Oklahoma
South Carolina
Washington
Figure 69 US Exports of Excavating Machinery to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
$40000000
$45000000
$50000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 46 102017 404 PM
47
Upon reviewing the current trend in US- Russia economic relations we must acknowledge that
the existing trade model is obsolete and exhausted Imports are resource- oriented and reflect
constraints of the Rus sian economic structure while five groups of goodsmdash oil metals nuclear
fuels fertilizers and fishmdash make up more than 90 percent of total imports from Rus sia (Figure 71)
Each of these industries has a limited capacity for growth in the foreseeable future
Rus siarsquos core export to the United Statesmdash oilmdash will inevitably decrease in the mid- term under any
scenario The value and volume of Rus sian exports to the United States are open to global market
volatility and po liti cal pressures with limited hedging mechanisms
Overall US exports to Rus sia are unsustainable due to bilateral po liti cal tensions the whims of
commodity markets and changing domestic policies Sanctions and counter- sanctions have
created additional barriers particularly in finance banking high- tech energy and agro- business
According to the American Chamber of Commerce 69 percent of US companies working in the
country consider the impact of US sanctions against Rus sia on their business as negative At the
same time 60 percent of companies do not expect big changes in business relations between
Rus sia and the United States under Trump1 as the new law codifies existing sanctions fortifies
them and extends them to new sectors
Current US investments are low due to the weak rule of law in Rus sia a lack of property right
protections and proper contract enforcement high levels of statization and monopolization in the
economy a poor business climate outdated capital stock dependence on natural- resource
sectors and of course sanction and counter- sanction mea sures Bloated administrative compo-
nents created as risk mitigation instruments have also served as impediments The countryrsquos
institutional weakness low level of productivity bud get constraints and a declining inflexible
workforce will restrain future economic growth even if commodity prices recover Rus sian eco-
nomic policy will likely continue to be statist and protectionist relying mostly on import
substitutions
1 Ibid 11
Existing Trends and Future Scenarios
07
594-71613_ch01_4Pindd 47 102017 404 PM
US-Russia Economic Relations48
What scenarios can be expected in such a challenging environment
One probability (no peace no war) is based on the assumption that matters will not deteriorate
further and implementation of the Sanctions Act will be cursory This will cause relatively slow
degradation in the economic field with occasional flashes of activity in selected areas (eg closer
cooperation against Islamist terrorist groups in Syria)
A second worse case or critical scenario is the intensive and full- scale execution of current sanc-
tion legislation and even the imposition of new economic punitive and restrictive mea sures which
could incite asymmetric retaliatory actions and lead to the introduction of additional protectionist
policies This in turn could trigger a further escalation of mutual confrontation and could eventu-
ally destroy the fundamentals of the current bilateral trade system Rus sian leadership has charac-
terized the Sanctions Act as a declaration of a trade war that ends all hope for improving bilateral
relations2
2 Дмитрий Медведев ldquoПодписание президентом США нового санкционного закона против России создает несколько
последствийrdquo [The US Presidentrsquos signing of the package of new sanctions against Rus sia will have a few conse-
quences] Facebook August 2 2017 https wwwfacebook com Dmitry Medvedev posts 10154587161801851
Figure 71 US Imports from Rus sia Share of Oil Metals Nuclear Fuel Fertilizers and Fish Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
93
94
93
94
95
96
93
92
87
89
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals Nuclear FuelFertilizers and Fish
594-71613_ch01_4Pindd 48 102017 404 PM
Vadim Grishin 49
The best case and most favorable scenario looks less probable now It assumes the realization of
structural reforms in Rus sia in such a way that would adapt Rus siarsquos foreign policy to national
economic needs reduce confrontations with the West and make a concerted efort to integrate
Rus sian businesses into global supply and value chains A revitalization of the structural reform
agendamdash including eforts to diversify economic activities through de- monopolization and support
for SMEs a restructuring of the banking sector the creation of a vibrant business climate to foster
entrepreneurships and innovation the implementation of administrative and judicial reforms to
tackle red tape and endemic corruption and the reduction of state control over key sectors of the
economy via wide- spread privatization could kick- start the development of a nonoil economy and
improve long- term growth prospects Despite ongoing discussion of reform strategies deep
economic and po liti cal changes are extremely complicated over the next po liti calelectoral cycle
(2018ndash2024) particularly because of re sis tance of vested interests and growing commodity prices
The urgency to tackle structural shortcomings in natu ral resource- dependent economies usually
correlates with the price of those resources and the degree to which resource rents drive eco-
nomic activity However there may be marginal improvements in the efficiency of the current
economic system
Future US- Russia relations can be thought of through three pillars one pillar focuses on areas
where both countries maintain a competitive rivalry another looks at potential areas of interaction
under pres ent conditions a third pillar and one that has evaporated from the current bilateral
agenda concentrates on future cooperation Stronger economic ties could not only be a kind of
po liti cal shock absorber but contribute to the building of this future (particularly business contacts
aim to support future structural reforms) although po liti cal factors are depressing the prospects
for cooperation To escape deadlock it will be impor tant to establish the right balance between
politics and economics and create a model of collaboration within the framework of contention
594-71613_ch01_4Pindd 49 102017 404 PM
About the Author
Vadim Grishin PhD MBA has been involved in the reform pro cess in Rus sia as adviser to the
deputy prime minister of Rus sia in 1992ndash1993 and 2006ndash2010 He has extensive experience
working with the Bretton Woods Institutions He was the board member of the World Bank Group
and served as se nior adviser at the International Monetary Fund Currently he is a con sul tant to the
chief economistrsquos office of the International Finance Corporation and teaches the economics of
transition at Georgetown University in Washington DC
50
594-71613_ch99_4Pindd 50 102017 403 PM
Blank
COVER PHOTO ADOBE STOCK
1616 Rhode Island Avenue NW
Washington DC 20036
202 887 0200 | wwwcsisorg
v++ISBN 978-1-4422-8035-9
Lanham bull Boulder bull New York bull London
4501 Forbes Boulevard
Lanham MD 20706
301 459 3366 | wwwrowmancom
A U T H O R
Vadim Grishin
Myths and Realities
A Report of the
CSIS RUSSIA AND EURASIA PROGRAM
US-RussiaEconomicRelations
O C T O B E R 2 0 1 7
Euml|xHSLEOCy280359z
The Man Pupu Nyor Rock Formations at the Northern Urals also known as Seven
Strong Man or Little Mountain of the God in the local tribe (Mansi) language
III
Contents
iv Acknowl edgments
1 CHAPTER 1 | Introduction
4 CHAPTER 2 | Does Bilateral Economic Interaction Matter
11 CHAPTER 3 | Politics in the Driverrsquos Seat
15 CHAPTER 4 | Are the United States and Rus sia ldquoNatu ralrdquo Trading Partners
A Little Bit of History
19 CHAPTER 5 | Sector Analyses
41 CHAPTER 6 | Diversity and Constraints
47 CHAPTER 7 | Existing Trends and Future Scenarios
50 About the Author
594-71613_ch00_4Pindd 3 102017 403 PM
The author wishes to thank the participants of a draft paper discussion William Arnold Jack
Brougher Matthew Edwards Daniel Fried Andrew Kuchins Randy Levinas Gary Litman Jeff
Mankoff Cyrus Newlin Olga Oliker Ian Solomon Doug Stanglin and Angela Stent
This report is made pos si ble by the generous support of Car ne gie Corporation of New York
Acknowl edgments
Iv
594-71613_ch00_4Pindd 4 102017 403 PM
1
01
Introduction
A friend of mine a devoted connoisseur of bilateral economic relations with 30 years of experi-
ence in the field once noted that the hottest discussions about US- Russia ties occur at a time
when mutual trade is compressed into the value of a mathematical error This is exactly what is
happening now According to official statistics the value of US- Russia trade is about $20 billion
and is rolling back to the level of 20051 There is no doubt that a new set of sanctions recently
signed into law by the US president and currently being implemented will further hurt economic
interaction by reducing financial inflows limiting the transfer of technology and expertise and
dampening business confidence Many policymakers and experts have agreed that HR 3364
(Countering Amer i carsquos Adversaries through Sanctions Act2) by expanding and codifying US
sanctions targeting Rus sia opens a new cycle in bilateral relations This legislation which received
overwhelming bipartisan support creates a new economic and po liti cal framework on a bilateral
track Strong concerns expressed by President Donald Trump in his special statement about
ldquounconstitutional provisions of the ldquoflawed billrdquo3 cannot significantly limit its intended and
unintended consequences In its implementation it could have relatively broad margins of flexibil-
ity and leverage but requires the president to seek congressional approval before easing or termi-
nating sanctions against Rus sia or undertaking actions that would significantly modify US policy
toward Rus sia Additional observations regarding HR 3364rsquos pos si ble impact on US- Russia
interaction in par tic u lar industries can be found throughout this report but suffice it to say that it
will contribute to a broader curtailment of many pillars of economic cooperation for years ahead
1 US Census Bureau ldquoForeign Trade Trade in Goods with Rus siardquo Foreign Trade updated June 29 2017 https
wwwcensus gov foreign - trade balance c4621 html
2 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364 115th Cong (2017ndash2018) https www
congress gov bill 115th - congress house - bill 3364
3 Donald J Trump ldquoStatement by President Donald J Trump on the Signing of HR 3364rdquo White House Office of the
Press Secretary August 2 2017 https wwwwhitehouse gov the - press - office 2017 08 02 statement - president
- donald - j - trump - signing - hr - 3364
594-71613_ch01_4Pindd 1 102017 404 PM
US-Russia Economic Relations2
Escalating geopo liti cal tensions have continued to significantly define Rus siarsquos economic prospects
however the countryrsquos economic model exhausted itself long before the dramatic deterioration of
relations with the West Structural bottlenecks have seriously limited Rus siarsquos growth capacity even
during the previous period of high oil prices4
The purpose of this report is to assess what has gone wrong with the US- Russia equation by
analyzing it through the prism of a bilateral economic and po liti cal trajectory while keeping in
mind the structural constraints of the Rus sian economy It will attempt to answer the following
questions
bull Do bilateral economic relations matter
bull Are the United States and Rus sia ldquonatu ralrdquo or ldquounnaturalrdquo trading partners
bull What future scenarios can we expect
In the vast lit er a ture on US- Russia economic relations analy sis of developing trends in bilateral
commerce has always been accompanied by discussions around impor tant po liti cal and eco-
nomic matters particularly regarding US legislation and regulation5 Over several de cades the
most controversial issues concerned the granting of permanent normal trading status to Rus sia
through legislation that eliminated the Jackson- Vanik Amendment and Rus siarsquos accession to
the World Trade Organ ization (WTO) The Magnitsky Act signed into law in 2012 repealed the
Jackson- Vanik provisions but added legislation providing authority for the US government to
withhold visas and freeze assets of Rus sians thought to have been involved with human rights
violations and later imposed sanctions on Rus sia because of its involvement in the Ukrainian and
Syrian crises and its cyber- enabled activities6
Some have observed deficiencies in Rus siarsquos participation in the international division of labor
(reliance on the export of energy and metals) which ldquo canrsquot serve any more as a basis for further
expansion of the countryrsquos position in world markets including the US marketrdquo7 Unfortunately
such observations have not been accompanied by quantitative and qualitative analy sis of structural
constraints in the Rus sian foreign trade model Many authors limit their policy recommendations
for fostering bilateral economic relations to a requirement for a strong initial push from respective
governments the creation of business working groups and the extension of bilateral and multilat-
eral legal grounds for economic cooperation Such instruments proved to be useful in facilitating
4 International Monetary Fund (IMF) Rus sian Federation Selected Issues (Washington DC IMF 2016)
5 ldquoAmer i carsquos New Economic Sanctions May Hurt Rus siarsquos Recoveryrdquo Economist August 5 2017 Andrey Kortunov and
Olga Oliker eds A Roadmap for US- Russia Relations (Washington DC CSISRIAC 2017) https csis - prods3
amazonaws com s3fs - public publication 170815 _ KortunovOliker _ USRussiaRelations _ Web pdf E0bdGVHlxxYRAxhO
w8zJ9tbRGwdWjEgV Самуйлов CM Братерский MB ldquoКонгресс и торговые отношения США с Россиейrdquo [US
Congressrsquos role in the US- RF trade relations] США и Канада экономика политика культура 5 no 533 (May 2014)
6 Andrew Weiss and Richard Nephew ldquoThe Role of Sanctions in US- Russian Relationsrdquo (Task Force White Paper
Car ne gie Endowment for International Peace Washington DC July 11 2016)
7 Глущенко ЮН ldquoСостояние проблемы и перспективы сотрудничества России и США в экономической сфереrdquo
[Status prob lems and prospects of Russia- US economic cooperation] Проблемы Национальной Стратегии 21 no 6
(2013) 148ndash164
594-71613_ch01_4Pindd 2 102017 404 PM
Vadim Grishin 3
trade and investment during several reset cycles in bilateral relations starting in the 1990s but
they were only partially successful
Several papers and books although focused primarily on bilateral po liti cal agendas or sectorial
analy sis underline the importance of Rus sian domestic realities Dr Angela Stent in her ldquoLimits of
Partnershiprdquo notes that state control of the commanding heights in the Rus sian economy creates
significant deterrents for US private- sector entrance into the market8 Thane Gustafson in the
ldquoWheel of Fortunerdquo asserts that Rus siarsquos growing dependence on revenue from oil exports along
with its inefficient and often- corrupt management of industry is unsustainable9 Andrew Kuchins
in his ldquoElevation and Calibration A New Rus sia Policy for Amer i cardquo has quoted some experts who
believe that the weakened Rus sian economic position may over time contribute to some rap-
prochement with the West and emphasized lack of reforms as ldquoa key obstacle not only for Rus sian
economic recovery but also for improving ties with the Westrdquo10
In a recent joint task force report Eugene Rumer Andrew S Weiss and Richard Sokolsky argue
that the concept of developing stronger economic ties with Rus sia as a foundation for improved
diplomatic relations has not worked ldquoClinton Bush and Obama all placed high hope on trade as
an engine of better relations with Rus sia All were frustrated by the fact that the two countries are
for the most part not natu ral trading partnersrdquo11 On a dif er ent note the former US envoy to
Rus sia Michael McFaul has defended the achievements of a reset policy under the Barack Obama
administration emphasizing that bilateral trade reached a rec ord level in 2011 Nevertheless he
also stresses that it was a one- time accomplishment unlikely to be repeated12
Voices of those who believe that extensive economic ties can provide stability to broader po liti cal
interaction are weaker than ever in an environment of growing protectionism and adversarial rivalry
8 Angela Stent The Limits of Partnerships US- Russian Relations in the XXI Century (Prince ton NJ Prince ton
University Press 2014) 98
9 Thane Gustafson Wheel of Fortune The Battle for Oil and Power in Rus sia (London Harvard University Press 2012)
10 Andrew Kuchins Elevation and Calibration A New Rus sia Policy for Amer i ca (Washington DC Center on Global
Interests 2016)
11 Eugene Rumer Richard Sokolsky and Andrew S Weiss ldquoTrump and Rus sia The Right Way to Manage Relationsrdquo
Foreign Affairs 96 no 2 (MarchApril 2017)
12 Michael McFaul ldquoUS- Russia Relationsrdquo (lecture Institute for Public Diplomacy and Global Communications
George Washington University Washington DC March 3 2017) https wwwc - span org video 424811 - 1 former
- ambassador - michael - mcfaul - discusses - state - usrussia - relations
594-71613_ch01_4Pindd 3 102017 404 PM
4
02
Does Bilateral Economic Interaction Matter
Economic relations do not emerge out of a vacuum There are many variables that define the final
configuration of economic interactions such as a par tic u lar countryrsquos level of economic develop-
ment its business environment legal framework po liti cal climate (regime) culture and religion
history and tradition demography and geography as well as global and national economic cycles
An impor tant driver of trade relations for many economies has become participation in global and
regional trade agreements
As many studies and anecdotal evidence show bilateral economic cooperation should be sizable
and should relate to the economic growth of two countries in a way that afects their policy
interests Let us take as a reference point the BRICS countries1 a community of large emerging
economies which Rus sia belongs to Table 21 pres ents official data on US trade and investments
with BRICS states US- Russia trade in goods is disproportionally lowmdash235 times less than US
trade with China 33 times smaller than US trade with India and 28 times less than US trade
with Brazil The size of the US- Russia trade balance is comparable to the size of the US trade
balance with South Africa whose economy is almost four times smaller than Rus siarsquos If we add
trade in ser vices to the trade of goods the gaps increase significantly (Figures 21 and 22) The
diference is not only quantitative but also qualitative
The quality of trade relations can be mea sured by its diversity its share of high- tech components
resilience to economic shocks and its contribution to GDP growth On average a 10 percent
increase in a nationrsquos two- way trade relative to GDP increases GDP through a variety of channels
by at least 16 percent2
Bilateral trade and real GDP growth in the United States and Rus sia are practically uncorrelated
as shown in the summary output of multifactorial regression The coefficient of multiple determi-
nation (R Square) is close to 0 ( Table 22) At the same time the correlation of US exports to India
1 BRICS is the acronym for a select group of five developing economies Brazil Rus sia India China and South Africa
2 World Economic Forum Foreign Direct Investment as a Key Driver for Trade Growth and Prosperity The Case for a
Multilateral Agreement on Investment (Geneva World Economic Forum 2013) 11
594-71613_ch01_4Pindd 4 102017 404 PM
Vadim Grishin 5
Table 21 US Trade and Foreign Direct Investments (FDI) with China India Brazil South Africa and Rus sia 2016
China India Brazil South Africa Rus sia
Total Goods Trade 5786 677 565 13 203
Imports 4628 460 262 73 145
Exports 1158 217 303 55 58
Trade in Ser vices 696 472 317 47 na
Imports 161 268 68 17 na
Exports 535 203 249 30 na
US FDI 746 283 653 62 141
BRICS FDI in the United States
148 93 043 076 63
Supported Jobs in the United States (thousand)
911 197 308 50 84
Source United States Trade Representative (USTR) ldquoCountries amp Regionsrdquo accessed September 27 2017
https ustrgov countries - regions See US- China Trade Facts US- India Trade Facts US- Brazil Trade
Facts US- South Africa Trade Facts and US- Russia Trade Facts
201520142013
and China with the real GDP growth of these big Asian economies is significant (05) In the case of
Brazil the correlation is even higher (07) By contrast South Africarsquos small open economy is quite
sensitive to US imports from South Africa (043)3
In marked contrast to other BRICS countries Rus sia is a poor choice for export- oriented opera-
tions As a recent International Monetary Fund (IMF) study highlights Rus sia is an outlier a rare
exception among emerging market (EM) economies with virtually no preferential access to major
markets and little meaningful change over three de cades4 This complicates Rus siarsquos integration
into the global value chain (GVC) which became a significant driving force toward economic
development and trade for certain BRICS economies
3 IMF statistics authorrsquos computation
4 IMF Rus sian Federation Selected Issues IMF Country Report N17198 (Washington DC IMF July 2017)
594-71613_ch01_4Pindd 5 102017 404 PM
US-Russia Economic Relations6
Trade is closely connected with foreign direct investment (FDI) and both are parts of a complex
interaction known as international production sharing According to publicly available official data
US FDI in Rus sia was about $131 billion for 2013 and $295 billion for 2016 with the top industrial
sectors being software and IT ser vices financial ser vices chemicals metals coal oil and gas
and business ser vices5 If we take into account US investments made through Eu ro pean branches
of US companies and ofshore firms this number would easily triple Another component
that usually is not tracked by official statistics is reinvestments The American Chamber of
Commerce surveys in 2016 and 2017 which include this component draw a completely dif er ent
picture accumulated US corporate FDI in 90 large US companies working in Rus sia reached
5 US Department of Commerce International Trade Administration ldquoRussiamdash94- Foreign Direct Investment and
Portfolio Investment Statisticsrdquo Rus sia Country Commercial Guide July 7 2017 https wwwexport gov article
id=shyRussia - foreign - direct - investment - statistics
Figure 21 US Trade in Goods with China India Brazil Rus sia and South Africa Billion US$ 2016
Source USTR ldquoCountries amp Regionsrdquo See US- China Trade Facts US- India Trade Facts US- Brazil Trade
Facts US- South Africa Trade Facts and US- Russia Trade Facts
0
$50
$100
$150
$200
$250
$300
$350
$400
$450
$500
$550
$600
China India Brazil Russia South Africa
Exports
Imports
594-71613_ch01_4Pindd 6 102017 404 PM
Vadim Grishin 7
$8244 billion in 20176 The real level from our perspective is usually between official and private
estimations around $40 billon But even this cumulative figure is less than the US FDI in Brazil
and China
The American Chamber of Commerce surveys have also revealed other impor tant data Eighty-
five percent of US companies doing business in Rus sia entered its market 10 or more years ago
while 60 percent of them ldquolandedrdquo there 20 years ago or earlier Only one percent have started
operations over the last five years confirming an obvious fact entry into the Rus sian market is
challenging because of growing monopolism risks associated with the business climate and a
stagnating economy7
6 American Chamber of Commerce in Rus sia ldquoInvestment and Import to Rus sia 2nd Surveyrdquo (Prepared by GfK for the
American Chamber of Commerce in Rus sia Moscow May 2017) 12
7 Ibid 4
Figure 22 US Trade in Goods and in Ser vices with China India Brazil Rus sia and South Africa Billion US$ 2016
Source USTR ldquoCountries amp Regionsrdquo See US- China Trade Facts US- India Trade Facts US- Brazil Trade
Facts US- South Africa Trade Facts and US- Russia Trade Facts
0
$100
$200
$300
$400
$500
$600
$700
China India Brazil Russia South Africa
Trade in Services
Total Goods Trade
594-71613_ch01_4Pindd 7 102017 404 PM
US-Russia Economic Relations8
Rus sian direct investment position toward the United States declined from $215 billion in 2013 to
$83 billion in 2015 (Figure 23) Taking into account dif er ent channels and instruments the actual
volume of Rus sian investments in the United States made through ofshore Eu ro pean Canadian
and US companies may be several times greater than the available official data
Foreign investment in financial assets or foreign portfolio investment (FPI) should be included
even though Central Bank of Rus sia statistics indicate they were also quite low US investments in
equity were $345 million and in debt instruments were about $65 million in the fourth quarter of
20168 However these numbers do not reflect the real level of FPI Rus siarsquos stocks are incredibly
inexpensive while there has been impressive growth of US investments in short- term securities
and in foreign exchange (FX) operations (cash- and- carry trade) Rus sia was among the top per-
forming emerging markets in 2016 gaining 4744 percent in US dollars9 Nevertheless the gen-
eral capitalization of the stock exchange is tiny (less than 20 percent of GDP) comparable to the
capitalization of just one large US com pany such as Coca- Cola Many private sources believe that
the US FPI in Rus sia could be as high as several billion US dollars but a new set of sanctions
approved by President Trump on August 2 2017 if implemented could reverse those flows It is
still not clear whether the secretary of trea sury will prohibit participation in the oferings of Rus siarsquos
sovereign debt and the full range of derivative products A report on this subject should be sub-
mitted no later than 180 days after enactment of the law which means no later than Febru-
ary 2018 New legislation tightens prohibition on Rus sian financial companies already under
sanctions by limiting any new equity or debt with a maturity greater than 14 days (a provision that
8 Central Bank of Rus sia ldquoForeign Direct Investments in the Rus sian Federationrdquo accessed September 27 2017 www
cbr ru localization switchlanguage urlshy=shy news ampfromshy=shyru - ruamptoshy=shyen - gb
9 VanEck ldquoRus sian Stock Market Soars in 2016rdquo Seeking Alpha February 14 2017 https seekingalphacom article
4045602 - russian - stock - market - soars - 2016
Table 22 Summary Output of Regression Statistics (US Real GDP Rus sia Real GDP US- Russia Exports Imports and Total Trade)
Regression Statistics
Multiple R 0056445768
R Square 0003186125
Adjusted R Square minus0042123597
Standard Error 2616043923
Observations 24
Sources IMF statistics authorrsquos computation
594-71613_ch01_4Pindd 8 102017 404 PM
Vadim Grishin 9
previously allowed for 30 days) Similarly US persons are prohibited from taking on any new debt
that has a maturity greater than 60 days (previously it was 90 days) with Rus sian energy compa-
nies currently under sanctions10
According to the Trea sury Department Rus sia held $1029 billion in US Trea sury securities in
June 201711 Could Rus sia withdraw all its reserves from the United States and use this action as a
retaliatory mea sure Such a scenario is unlikely since there is no comparable safe- haven alterna-
tive to US dollars When Rus siarsquos US Trea sury holdings dropped 50 percent from $176 billion
(October 2010) to $90 billion (November 2011) the market did not notice12 Nevertheless Rus sian
authorities have announced they will decrease dependence on assets and payments in US dollars13
10 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364
11 US Department of Trea sury Major Foreign Holders of Trea sury Securities September 18 2017 http ticdata
treasury gov Publish mfh txt
12 Ibid
13 ldquoНовый виток санкций Россия откажется от доллараrdquo [A new round of sanctions Rus sia will abandon the dollar]
Газетару August 7 2017 https wwwgazeta ru business 2017 08 07 10821937 shtml
Figure 23 Rus sia Outward FDI Position United States Equities and Debt Million US$ 2009ndash2016
Source Central Bank of the Rus sian Federation External Sector Statistics Rus sian Direct Investments
Abroad accessed September 27 2017 https wwwcbr ru localization switchlanguage urlshy=shy news
ampfromshy=shyru - ruamptoshy=shyen - gb
$6000
$8000
$10000
$12000
$14000
$16000
$18000
$20000
$22000
2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 9 102017 404 PM
US-Russia Economic Relations10
Officially the country does not invest in the US stock exchange although some Rus sian oligarchs
have bought US corporate bonds and equities in large amounts The new sanctions law requires
the secretary of trea sury in consultation with the director of national intelligence and the secretary
of state to issue reports on Rus sian se nior po liti cal figures and oligarchs based on their closeness
to the Rus sian regime and their net worth as well as the exposure of key economic sectors of the
United States to Rus sian po liti cally exposed persons and parastatal entities including at a mini-
mum the banking securities insurance and real estate sectors14
Only three Rus sian companies are listed in the US exchanges
Overall the scale and scope of US- Russia economic interaction and business activity is much greater
than officially appreciated but not significant enough to be taken into consideration by policymakers
14 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364
594-71613_ch01_4Pindd 10 102017 404 PM
11
03
Politics in the Driverrsquos Seat
Bilateral economic relations depend to a great extent on global and national economic cycles
After the recent global financial crisis the US economy has shown surprisingly sustainable GDP
growth while the Rus sian economy was the most afected among BRICS countries by the turbu-
lence of a worldwide economic downturn in 2008ndash2009 and after a short- term rebound slipped
into stagnation (2012ndash2013) and then into full- scale recession (2014ndash2016) The countryrsquos eco-
nomic cycle however appears to be changing once again with the economy returning to a
pattern of growth albeit uneven and gradual (Figures 31 and 32) Even with sanctions still in place
conditions have improved as a result of the stabilization of Urals oil to an average annual price of
$419 per barrel in 2016 The gains were sparked in part by major crude producers agreeing to cut
production after hefty price drops in 2014 and 2015 Supported by easier financial conditions
higher oil prices and growing macro- stability Rus sia is heading toward a moderate growth rate
that is expected to reach 14 percent this year according to forecasts of the World Bank Group
(WBG) and the IMF1
Because of the significant role that politics plays in any bilateral interaction it is impor tant to
combine economic and po liti cal cycles applying a ldquoresetrdquo to bilateral economic cooperation in
addition to the po liti cal relationship I have compared po liti cal cycles and trade dynamics using the
following graphs ( Table 31 and Figure 33) These charts do not pretend to reflect with mathemati-
cal precision all shifts in the bilateral po liti cal relationship but rather attempt to visually align
impor tant economic and po liti cal moments to detect the efects of po liti cal events on the size of
bilateral trade
Figure 33 shows all pos si ble combinations economic trends at the intersection of po liti cal devel-
opments oppose or support each other in synchronization It is evident that po liti cal interference
1 International Monetary Fund Rus sian Federation Staff Concluding Statement of the 2017 Article IV Mission (Wash-
ington DC IMF 2017) World Bank Group From Recession to Recovery Rus sia Economic Report no 37 (Washington
DC World Bank 2017) http pubdocsworldbank org en 383241495487103815 RER - 37 - May26 - FINAL - with - summary
594-71613_ch01_4Pindd 11 102017 404 PM
US-Russia Economic Relations12
in bilateral business afairs in the early 2000s was less significant than in later years As result
growing po liti cal tensions from 2003 to 2008 did not dramatically afect bilateral economic inter-
action It is also easier to explain why 2011ndash2012 resulted in rec ord trade and investmentmdash a con-
sequence of very high oil prices GDP growth in both countries improved legislation after Rus siarsquos
accession to the WTO and the Obamandash Medvedev po liti cal reset From 2014 to 2016 a perfect
storm of developments added efficiency to Western sanctions and augmented the damaging
consequences of counter- sanction mea sures
Figure 33 also confirms that in times of reduced economic cooperation po liti cal pressures can
easily change bilateral economic trends Moreover business interests along with economic inter-
actions have a limited capacity to reverse the po liti cal mainstream
Figure 31 Economic Cycle 2014ndash2016
Source Authorrsquos evaluation of international financial institutions (IFI) data and sources from respective
countries
Sustainable Growth
Brazil
Negative Growth
Unstable Growth
Mexico
Descending Growth
Argentina
EU
US
Russia
Vietnam
China
594-71613_ch01_4Pindd 12 102017 404 PM
Vadim Grishin 13
Table 31 Po liti cal Cycles in Bilateral US- Russia Relations 1999ndash2016
2001ndash2002 The George W Bushndash Vladimir Putin Reset Rus sia supported ldquoglobal war on terrorismrdquo launched by the United States after 911 the SORT nuclear arms reduction treaty was signed by the United States and Rus sia and a successful business dialogue was developed that created the current structure of economic relations
2003ndash2008 Deterioration in bilateral relations brought on by the Iraq War Georgiarsquos ldquoRose Revolutionrdquo Mikhail Khodorkovskyrsquos arrest Ukrainersquos ldquoOrange Revolutionrdquo Kosovorsquos in de pen dence and the Georgian War
2009ndash2010 The Barack Obamandash Dmitry Medvedev Reset Rus sia served as a logistical hub for transportation and supply of US forces in Af ghan i stan United States and Rus sia signed the new START nuclear arms reduction treaty Rus sia backed tighter economic sanctions on Iran Rus sia gained access to the WTO after 18 years of negotiations
2011ndash2016 Deterioration in bilateral relations caused by the Ukrainian crisis which were followed by sanctions and counter- sanctions along with the Syrian crises and cyber- enabled activities
Source Authorrsquos evaluation of po liti cal and economic data
Note SORTthinsp=thinspStrategic Ofensive Reductions Treaty STARTthinsp=thinspStrategic Arms Reduction Treaty
Figure 32 Economic Cycle 2017ndash2019
Source Authorrsquos evaluation of IFI data and sources from respective countries
Egypt
VenezuelaEU
South Africa
Brazil
Russia
India
US
Descending Growth
Korea
China
Negative Growth
Unstable Growth
Sustainable Growth
594-71613_ch01_4Pindd 13 102017 404 PM
US-Russia Economic Relations14
Figure 33 US- Russia Trade Million US$ vs Po liti cal Cycle 2000ndash2016
Sources US Census Bureau ldquoTrade in Goods with Rus siardquo Foreign Trade last modified June 29 2017
https wwwcensus gov foreign - trade balance c4621 html (see data for 2000ndash2016) authorrsquos evaluation
of po liti cal and economic data
Orange Revolution
Khodorkovskys arrest
GeorgianWar
Bush- Putin Reset
Iraq War Global Financial Crisis
Obama-Medvedev Reset
Russias WTO accession
New START Treaty
A Pefect Storm the Ukranian Crisis Oil Prices Crashing
Sanctions and Counter-Sanctions
$3000
$8000
$13000
$18000
$23000
$28000
$33000
$38000
$43000
2000 2002 2004 2006 2008 2010 2012 2014 2016
594-71613_ch01_4Pindd 14 102017 404 PM
15
The current structure of US- Russia economic relations emerged in the early 2000s when the
model of trade and investment interaction took on a character similar to that which existed be-
tween the United States and developing economies US imports from Rus sia centered on com-
modities while technology along with food products lead American exports The primary
exception was that Rus sia supplied nuclear fuel including highly enriched uranium extracted from
nuclear weapons for US power plants and provided ser vices to the aerospace industry primarily
in satellite launches However both these exceptions can be explained as a legacy of the Soviet
past and not a harbinger of the future economic relationship (Figure 41)
In the last 15 years this trade structure has not changed significantly The only noticeable shift in
trade was a dramatic drop (to practically nothing) in exports of US agricultural products a result
of Rus siarsquos policy of import substitution and so- called counter- sanction mea sures it took in re-
sponse to US sanctions over the Ukraine crisis (Figure 42)
Promising new directions of cooperation in the IT sector and in engineering ser vices for the
aerospace industry appeared in the early 2000s1 but did not spill into other sectors and conse-
quently did little to renew economic cooperation on the whole The integration of Rus sian high-
tech ser vices into large- scale global production and value chains was constrained by the usual
culprits a lack of financial resources managerial experience skilled labor modern infrastructure
RampD investments and an adequate business environment High commodity prices incentivized the
restoration of an economic system centered on resource rents The leading role of oil and gas
extraction and transportation discouraged the development of a nonenergy sector that might
have created advanced and complex production and ser vices An import substitution policy could
not work efficiently in an economic environment plagued by the Dutch disease where currency
1 The Boeing Design Center was created in Moscow It consists of nearly 250 Boeing employees managing
a team of 1200 contract engineers from Rus sian and Ukrainian aerospace companies ldquoBackgrounder Boeing in
Rus siardquo Boeing last modified January 2017 http wwwboeing com resources boeingdotcom company key _ orgs
boeing - international pdf russia - cisbackgrounder pdf
Are the United States and Rus sia ldquoNatu ralrdquo Trading Partners A Little Bit of History
04
594-71613_ch01_4Pindd 15 102017 404 PM
US-Russia Economic Relations16
inflows (oil money) lead to ruble appreciation and render a countryrsquos production less competitive
During that time Rus siarsquos industry did not receive preferential access to larger markets and could
not expand its share in the global economy particularly because of its self- isolation from the
regional trade agreements (except for its participation in the Eurasian Economic Union with some
neighboring countries of the former Soviet Union) As a result neither import substitution nor
export- led strategy promoted growth and specialization in nonoil production A long- awaited
modernization and reallocation of resources from an inefficient nontrade sector to a trade sector
did not materialize
These limits were later augmented with sanctions and an extension of domestic restrictions on
cooperation with Western partners Importantly the rapid growth of state- monopoly structures in
the Rus sian economy over the past 15 years has created additional obstacles to the development
and diversification of US- Russia economic ties
Figure 41 US Imports from Rus sia US$ 2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2016)
Fish and shellfish 3
Crude oil 5
Fuel oil 37
Petroleum products other
8
Nuclear fuel materials
7
Chemicals-fertilizers 4
Steelmaking materials 5
Iron and steel mill products 4
Bauxite and aluminum 9
Other precious metals 4
Nonferrous metals other 1
Finished metal shapes 1
Synthetic rubber--primary
1
Spacecraftexcluding military
594-71613_ch01_4Pindd 16 102017 404 PM
Fig
ure
42
U
S E
xpo
rts
to R
us s
ia U
S$ 2
016
Sou
rce
US
Ce
nsu
s B
ure
au ldquo
Trad
e in
Go
od
s w
ith
Ru
s sia
rdquo (s
ee
dat
a fo
r 2
016
)
Bak
ery
pro
du
cts
Win
e b
eer
an
d r
elat
ed
pro
du
cts
New
spri
nt
Pla
stic
mat
eria
ls
Ch
emic
als-
fert
ilize
rs
Ch
emic
als-
ino
rgan
icC
hem
ical
s-o
rgan
ic
Ch
emic
als-
oth
erC
ott
on
fib
er c
loth
In
du
stri
al r
ub
ber
pro
du
cts
Min
eral
su
pp
lies-
man
ufa
ctu
red
Gen
erat
ors
acc
esso
ries
Ele
ctri
c ap
par
atu
s
Dri
llin
g amp
oilfi
eld
eq
uip
men
t Sp
ecia
lized
min
ing
Exc
avat
ing
mac
hin
ery
No
nfa
rm t
ract
ors
an
d p
arts
In
du
stri
al e
ng
ines
Fo
od
to
bac
co m
ach
iner
y M
etal
wo
rkin
g m
ach
ine
too
ls
Tex
tile
sew
ing
m
ach
ines
W
oo
d g
lass
p
last
ic
Pu
lp a
nd
pap
er
mac
hin
ery
Mea
suri
ng
tes
tin
g
con
tro
l in
stru
men
ts
Mat
eria
ls h
and
ling
equ
ipm
ent
Ind
ust
rial
mac
hin
es
oth
er
Ph
oto
ser
vice
ind
ust
ry m
ach
iner
y A
gri
cult
ura
l mac
hin
ery
eq
uip
men
t C
om
pu
ters
Co
mp
ute
r ac
cess
ori
es
Sem
ico
nd
uct
ors
Tel
eco
mm
un
icat
ion
seq
uip
men
t
Bu
sin
ess
mac
hin
es a
nd
eq
uip
men
t
Lab
ora
tory
tes
tin
g in
stru
men
ts
Med
icin
al e
qu
ipm
ent
Civ
ilian
air
craf
t e
ng
ines
eq
uip
men
t a
nd
par
ts
Rai
lway
tra
nsp
ort
atio
n
equ
ipm
ent
Ves
sels
exc
lud
ing
scr
ap
Co
mm
erci
al v
esse
ls o
ther
M
arin
e en
gin
es p
arts
Spac
ecra
ft e
xclu
din
g
mili
tary
Pas
sen
ger
car
s
new
an
d u
sed
Tru
cks
bu
ses
and
sp
ecia
l p
urp
ose
ve
hic
les
En
gin
es a
nd
en
gin
e p
arts
(c
arb
ure
tors
pis
ton
s r
ing
s
and
val
ves)
B
od
ies
and
ch
assi
s fo
r p
asse
ng
er c
ars
Au
tom
oti
ve t
ires
an
d t
ub
es
Oth
er p
arts
an
d a
cces
sori
es o
f ve
hic
les
Ap
par
el h
ou
seh
old
go
od
s -
text
ile
Ph
arm
aceu
tica
lp
rep
arat
ion
s
Furn
itu
re h
ou
seh
old
go
od
s
etc
R
ug
s
Cel
l ph
on
es a
nd
oth
er
ho
use
ho
ld g
oo
ds
ne
c
594-71613_ch01_4Pindd 17 102017 404 PM
US-Russia Economic Relations18
Figure 43 US Trade in Goods with Rus sia Million US$ 1992ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
Russian Financial Crisis
Oil price Increased from$2446 USD per barrel (2001)
to $9694 USD per barrel(2008)
Global Financial Crisis
Oil price high record in2011-2012
(more that $111 USD perbarrel)
Oil price crashed
$-
$5000
$10000
$15000
$20000
$25000
$30000
$35000
$40000
$45000
$50000
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia US Exports to Russia US-Russia Trade in Goods
No doubt po liti cal ups and downs add volatility to US- Russia trade Nevertheless Rus siarsquos eco-
nomic structure exhausted itself before the Ukrainian crisis and the recent Rus sian recession Its
limitations are not only due to some mistakes in policy or negative coincidences of circumstances
but rather to deeply rooted properties in the current bilateral trade model related to structural
issues in the Rus sian economy Structural constraints such as the weak enforcement of property
rights poor business regulation and nondiversified exports weighed on Rus sian trade with the
United States From this perspective the term ldquonaturalunnatural trading partnersrdquo does not ad-
dress the unused capacity of bilateral interaction or the real challenges that kind of interaction
faces It just adds metaphysical flavor to the very specific economic and po liti cal factors that
determine the US- Russia trajectory
Overall the outlines of bilateral trade (Figure 43) resemble the famous ldquoRus sian Mountainsrdquo that
were a pre de ces sor of the modern roller coaster icy hills supported by wooden constructionsmdash a
rigid and immobile structure that sooner or later would melt This unfortunately is what is hap-
pening to US- Russia trade cooperation now
594-71613_ch01_4Pindd 18 102017 404 PM
19
ARE LITTLE FISH REALLY SWEET
Low US- Russia economic interaction has at least two consequences First it limits the capacity of
policymakers to exploit trade as an instrument for geopo liti cal combat Even the question of a US
trade deficit which used to be a headache for many US trading partners has become so insig-
nificant in absolute terms (about $87 billion in 2016) that it seems hardly worth caring about
When the volume of trade between two countries becomes very small in absolute terms whether
a country is running a surplus or deficit is no longer relevant But it also renders another type of
confrontations (sometimes more dangerous) more likely since the two traders have little to lose
Second in an environment marked by low levels of bilateral trade both sides could incentivize (if
and when a desire for po liti cal rapprochement exists) the signing of new trade deals which are
elevated symbolically as a turning point in bilateral po liti cal relations (ie the sale of Boeings to
Rus sia or the delivery via tankers of Rus sian oil to US refineries) Sometimes markets themselves
pres ent ldquogiftsrdquo that can be capitalized on po liti cally US- USSR grain trade in the 1970s was one
such ldquogiftrdquo large sales of American grain to the Soviet Union helped US policymakers win favor
with the po liti cally impor tant American farming sector and permitted Soviet leaders to maintain
access to a dietary staple for the Soviet population
The strong 32 percent growth in value of US imports from Rus sia from January to May 2017
versus January to May 2016 ( Table 51) is an example of a development that has tempted officials
to pres ent it as a sign of positive change due to ldquogrowing business activitiesrdquo (this kind of statement
was heard before the bilateral summit in Germany in July 2017) although the reason for that leap
was evidently an increase in commodity prices (mainly of oilmdash see Table 52) and not a rise in
entrepreneurial interactions The primary beneficiaries of that upside rally have been two other
petro- economies Saudi Arabia and Venezuela ( Tables 53 and 54)
Sector Analyses
05
594-71613_ch01_4Pindd 19 102017 404 PM
US-Russia Economic Relations20
Table 51 US Imports from Rus sia Million US$ Januaryndash May 2016 vs Januaryndash May 2017
Year January February March April May Total
2016 9603 6871 11097 12257 10977 50805
2017 12215 10220 16979 13471 14147 67032
Change 271 487 530 99 289 319
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
Table 52 Change in Urals Crude Oil Prices US$ per Barrel Januaryndash May 2016 vs Januaryndash May 2017
Januaryndash May 2016 Januaryndash May 2017 Change ($) Change ()
3601 5129 1528 424
Source Ministry of Finance of the Rus sian Federation https wwwminfin ru ru ixzz4mMIZ7XtC
Table 53 US Imports from Saudi Arabia Million US$ Januaryndash May 2016 vs Januaryndash May 2017
Year January February March April May Total
2016 15114 9036 13555 10844 14679 63228
2017 19802 20298 21650 16211 19542 97503
Change 3101 12463 5972 495 331 542
Source US Census Bureau ldquoTrade in Goods with Saudi Arabiardquo Foreign Trade last modified June 29 2017
https wwwcensus gov foreign - trade balance c5170 html (see data for 2016ndash2017)
594-71613_ch01_4Pindd 20 102017 404 PM
Vadim Grishin 21
Table 54 US Imports from Venezuela Million US$ Januaryndash May 2016 vs Januaryndash May 2017
Year January February March April May Total
2016 6657 5560 7140 8007 7922 35286
2017 13041 10864 123500 11148 12243 59646
Change 9590 9540 7297 3923 5454 6903
Source US Census Bureau ldquoTrade in Goods with Venezuelardquo Foreign Trade last modified June 29 2017
https wwwcensus gov foreign - trade balance c3070 html (see data for 2016ndash2017)
Table 55 US Exports to Rus sia Million US$ Januaryndash May 2016 vs Januaryndash May 2017
Year January February March April May Total
2016 3628 3577 7298 4657 4947 24107
2017 3144 4277 5386 6670 4806 24283
Change minus133 196 minus262 432 minus29 minus07
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2016ndash2017)
At the same time US exports to Rus sia continue to stagnate ( Table 55) due to low levels of
consumption during a two-and- a- half-year economic crisis a deep ruble devaluation sanctions
and counter- sanctions
Given the very dif er ent economic structures and resource endowments of Rus sia and the United
States it is not surprising that US- Russia trade is asymmetric and oil driven (Figure 51) A
3 percent increase in Urals oil prices translates into a one percent increase in US import growth
from Rus sia Thus in 2016 every $10 increase in Urals crude oil added $15 billion to the value of
US imports or 11 percent to the total value of imports from Rus sia
OIL ADDICTION
Oil is a core pillar of US- Russia bilateral trade A bumpy ride in oil markets afects commerce
Nevertheless Rus sian oil exports to the United States in physical terms have been rather
594-71613_ch01_4Pindd 21 102017 404 PM
US-Russia Economic Relations22
sustainable Starting from 2005 average annual deliveries have been above 150 million barrels
(Figure 52) Crude and heating oil have dominated while petroleum products and liquefied petro-
leum gases have not (Figure 53) In 2011 oil exports peaked at 228 million barrels but declined to
159 million barrels in 2016mdash a drop of 30 percent Rec ord high shipments of Rus sian oil to the United
States coincided with an elevation in oil prices which made the subsequent decline in oil shipment
value between 2011 and 2016 (by about 72 percent as shown in Figure 54) seem more stark The
increase in price also raised the share of oil in Rus sian exports by 74 percent in 2011 (Figure 55)
The Rus sian share in total US oil imports was around 55 percent in 2011 and 43 percent in 2016
( Table 56) In the last five years the United States has relied exclusively on consumption of Rus sian
oil for the rough equivalent of one week out of the year (Figure 56)
It is unlikely that Rus sia can significantly increase its share of the US oil market and there is a real
possibility for a downward trend There are several reasons the historically high Rus sian hydrocar-
bon export threshold of 2011 will not soon if ever be surpassed
First US energy consumption will likely be flat According to the US Energy Information Adminis-
tration (EIA) demand for petroleum and other liquids in the United States will be about 35ndash36
quadrillion British thermal units (BTUs) with minimal variation over the next 25 years1
1 US EIA ldquoAnnual Energy Outlook 2017 with Projections to 2050rdquo January 5 2017 7ndash8
Figure 51 US- Russia Trade Growth () vs US and Rus sia Real GDP Growth () 1993ndash2016
Source IMF ldquoIMF Datardquo accessed September 27 2017 http wwwimf org en Data US Census Bureau
ldquoTrade in Goods with Rus siardquo
Note rGDPthinsp=thinspreal gross domestic product
Trade
USA rGDP growth
Russia rGDP growth
-60
-40
-20
0
20
40
60
80
100
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Gro
wth
All spikes in US-Russia trade have been connected with two main
variables volume and price of crude oil
594-71613_ch01_4Pindd 22 102017 404 PM
Vadim Grishin 23
Second the United States will become a net energy exporter between 2020 and 2030 in most
cases under dif er ent combinations of oil and natu ral gas prices GDP growth technological
breakthroughs and the availability of energy resources The role of oil imports will dramatically
fall2
Third oil price scenarios as described by the International Energy Agency (IEA) international
financial organ izations (IFIs) and many national agencies are very cautious and assume that even
by 2035 to 2040 oil prices will not to recover to the levels of 2011ndash20123
Fourth Rus sian oil production and export growth will be modest and driven by Asian economic
expansion and will comprise a decreasing share of Western markets4 According to forecasts from
2 Ibid 15ndash18
3 Ibid table 3 ldquoEnergy Prices by Sector and Sourcesrdquo World Bank World Bank Commodity Markets Price Forecasts
(Washington DC World Bank 2017) httpswwwworldbank org en research commodity - markets Organ ization of the
Petroleum Exporting Countries (OPEC) World Oil Outlook 2016 (Vienna OPEC 2016)
4 E D Belotskaia et al Global and Rus sian Energy Outlook 2016 (Moscow Energy Research Institute of the Rus sian
Acad emy of Science Analytical Center for the Government of the Rus sian Federation 2016) http acgov ru files
publication a 12767 pdf
Figure 52 US Imports from Rus sia Crude Oil and Petroleum Products Thousands of Barrels 1995ndash2016
Source US EIA ldquoUS Imports by Country of Origin Rus siardquo Petroleum amp Other Liquids September 13
2017 http wwweia gov dnav pet PET _ MOVE _ IMPCUS _ D _ NUS _ NRS _ MBBL _ M htm
0
50000
100000
150000
200000
250000
Date 1995 1996 1997 1998 199920002001200220032004200520062007200820092010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 23 102017 404 PM
US-Russia Economic Relations24
the Organ ization of the Petroleum Exporting Countries (OPEC) crude oil exports from Rus sia and
the Caspian region to the United States will dis appear by 20255
So why does the Rus sian Urals blend continue to be attractive for oil traders and US refineries
which could pro cess greater volumes of domestically produced lighter crude There are two main
reasons One is related to the preference of US high conversion refineries (the most sophisticated
in the world) to work with heavy oil blends produced by Canada Mexico Iraq Venezuela and
Rus sia Pro cessing heavy crude now is as profitable as pro cessing lighter crude The so- called
crack spreadmdash the diference between the cost of relatively cheap heavy crude oil and the final
price of value- added consumer products (diesel gasoline jet fuel and heating oil)mdash has become
the same as the refinery margins of light sweet crude6 This has primarily afected light oil produc-
ing countries such as Angola Algeria and Nigeria
5 OPEC World Oil Outlook 2016 306ndash309
6 ldquoHow Much for That Heavy Oilrdquo Oil Sands Magazine December 26 2015 https wwwoilsandsmagazine com
news 2015 12 26 how - much - for - that - heavy - oil
Figure 53 US Imports from Rus sia Oil and Petroleum Products US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$-
$25000000000
$20000000000
$15000000000
$10000000000
$5000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Liquefied petroleum gases
Petroleum products other
Fuel oil
Crude oil
594-71613_ch01_4Pindd 24 102017 404 PM
Vadim Grishin 25
Another factor afecting purchase of Rus sian oil is a new trend among oil companies for further
consolidation of scale and for integrating operations of upstream and downstream business7
There have been several waves of separation and unification of production transportation and
pro cessing in the last 50 years The current business cycle can be seen as an adaptation to a
period of low prices and oversupply Companies that buy andor produce oil in Rus sia most likely
prefer to transport and pro cess this oil in their own modern refineries in the United States At the
same time some of the newest refinery designs specifically for pro cessing heavy oils have been
built in Asia thus extending the choices of heavy oil producing countries
We should also consider that leading US and international oil traders along with oil producing
companies working with or owning US refineries frequently buy Rus sian oil on the open market
and have long- term contracts on Rus sian crude oil delivery Many Rus sian oil companies prefer to
pay for purchases or ser vices with their future production instead of cash creating situations of
ldquostickyrdquo oil imports that are difficult to replace The best- known example is an interaction between
7 ldquoEnergy and Utilities Sectorrdquo Roundtable Financier Worldwide December 2015 https wwwfinancierworldwide
com roundtable - energy - utilities - sector - dec15
Figure 54 US Imports of Oil and Petroleum Products from Rus sia vs Oil Prices Eu rope Brent Spot Price Free on Board (FOB) 1996ndash2017
Source US EIA ldquoUS Imports by Country of Origin Rus siardquo
0
20
40
60
80
100
120
140
0
5000
10000
15000
20000
25000
30000
Jan
-19
96
Jun
-19
96
No
v-19
96
Ap
r-19
97
Sep
-19
97
Feb
-19
98
Jul-
199
8D
ec-1
99
8M
ay-1
99
9O
ct-1
99
9M
ar-2
00
0A
ug
-20
00
Jan
-20
01
Jun
-20
01
No
v-2
00
1A
pr-
20
02
Sep
-20
02
Feb
-20
03
Jul-
20
03
Dec
-20
03
May
-20
04
Oct
-20
04
Mar
-20
05
Au
g-2
00
5Ja
n-2
00
6Ju
n-2
00
6N
ov-
20
06
Ap
r-2
00
7Se
p-2
00
7Fe
b-2
00
8Ju
l-2
00
8D
ec-2
00
8M
ay-2
00
9O
ct-2
00
9M
ar-2
010
Au
g-2
010
Jan
-20
11Ju
n-2
011
No
v-2
011
Ap
r-2
012
Sep
-20
12Fe
b-2
013
Jul-
20
13D
ec-2
013
May
-20
14O
ct-2
014
Mar
-20
15A
ug
-20
15Ja
n-2
016
Jun
-20
16N
ov-
20
16
USD
per
Bar
rel
Th
ou
san
d B
arr
els
US Imports from Russia of Crude Oil and Petroleum Products (Thousand Barrels)
Europe Brent Spot Price FOB (Dollars per Barrel)
594-71613_ch01_4Pindd 25 102017 404 PM
US-Russia Economic Relations26
Table 56 US Oil Imports All Countries vs Rus sia Thousand Barrels per Day 2011ndash2016
Years 2011 2012 2013 2014 2015 2016
All Countries 11436 10598 9859 9241 9449 10058
Rus sia 624 477 460 330 371 433
Share 546 450 467 357 393 431
Sources US EIA ldquoUS Imports by Country of Origin Total Crude Oil and Productsrdquo Petroleum amp Other
Liquids September 13 2017 wwweia gov dnav pet pet_move_impcus_a2_nus_ep00_im0_mbbl_m htm
authorrsquos computation
Figure 55 US Imports from Rus sia Share of Crude Oil and Petroleum Products Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
57
64
73
72
74
73
72
59
52 50
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
$40000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil and Petroleum Products
594-71613_ch01_4Pindd 26 102017 404 PM
Vadim Grishin 27
the Rus sian state mono poly Rosneft and commodity trading and mining giant Glencore which
along with energy and commodities com pany Vitol participated in a $10 billion prepayment
deal with Rosneft for crude supplies in 2013
There have been a number of ongoing transactions between the Rus sian oil industry and interna-
tional oil companies including several that top the list of importers of Rus sian oil to the United
States ( Table 57) In December 2016 Glencore participated in a controversial privatization opera-
tion purchasing in tandem with the Qatar sovereign wealth fund a 195 percent stake in Rosneft
which was on the US and EU list of sanctioned firms8 Glencore has also taken a blocking stake in
midsize oil producer RussNeft BP owns a 1975 percent stake in Rosneft Chevron holds a
15 percent interest in the 935- mile- long CPC9 pipeline which transports an average of 959000
barrels of crude oil per day including 76000 barrels daily from Rus sia10 ExxonMobil has formed
8 E Mazneva and I Arkhipov ldquoRus sia Sells $11 Billion Stake in Rosneft to Glencore Qatarrdquo Bloomberg December 7
2016
9 CPCthinsp=thinspCaspian Pipeline Consortium
10 ldquoRus sia Highlights of Operations and Business Portfoliordquo Chevron accessed October 3 2017 https wwwchevron
com worldwide russia
Figure 56 Share of Rus sian Oil in Total US Oil Imports Thousands of Barrels per Day 1972ndash2016
Source US EIA ldquoUS Imports by Country of Origin Total Crude Oil and Productsrdquo
2000
4000
6000
8000
10000
12000
14000
16000
US Imports of Crude Oil and Petroleum Products (Thousand Barrels per Day)
US Imports from Russia of Crude Oil and Petroleum Products (Thousand Barrels per Day)19
7319
7419
7519
7619
7719
7819
7919
80
198
119
82
198
319
84
198
519
86
198
719
88
198
919
90
199
119
92
199
319
94
199
519
96
199
719
98
199
92
00
02
00
12
00
22
00
32
00
42
00
52
00
62
00
72
00
82
00
92
010
20
112
012
20
132
014
20
152
016
594-71613_ch01_4Pindd 27 102017 404 PM
Table 57 Top Importers of Rus sian Oil to the United States Thousands of Barrels 2016
VALERO MARKETING amp SUPPLY CO 54590 3616
EXXONMOBIL OIL CORP 17087 1130
CHEVRON USA INC 15217 1008
BP WEST COAST PRODUCTS LLC 10130 671
GEORGE E WARREN CORP 7272 48
PAULSBORO REFINING CO LLC 6838 453
TESORO CORP 5097 338
VITOL INC 5084 337
PHILLIPS 66 CO 4726 313
TRAFIGURA AG 4360 289
PAR HAWAII REFINING LLC 3893 258
MOTIVA ENTERPRISES LLC 3041 205
SHELL US TRADING CO 2863 19
MARATHON PETROLEUM CO LLC 2475 16
ATLANTIC TRADING amp MARKETING 2099 14
FREEPOINT COMMODITIES LLC 1439 1
GLENCORE LTD 1284 85
BEST PETROLEUM CORP 967 64
ROLYMPUS US COMMODITIES GROUP LLC 822 6
HUNT CRUDE OIL SUPPLY CO 666 4
GULF OIL LP 658 4
Source US EIA ldquoUS Imports by Country of Origin Crude Oilrdquo Petroleum amp Other Liquids September 13
2017 httpswwweiagovdnavpetpet_move_impcus_a2_nus_epc0_im0_mbblpd_ahtm authorrsquos
computation
594-71613_ch01_4Pindd 28 102017 404 PM
Vadim Grishin 29
several joint ventures with Rosneft to undertake ofshore exploration in the Black Sea and the Kara
Sea in Siberia11
According to the Sanctions Act US persons are prohibited from exporting or reexporting goods
ser vices (except financial ser vices) and technology in support of exploration or production of new
deep- water Arctic ofshore or shale oil proj ects that involve designated Rus sian entities or other
entities in which such sanctioned persons have a controlling interest or a substantial noncontrol-
ling owner ship interest defined as not less than 33 percent (previously it was 50 percent) The new
law also authorizesmdash but does not requiremdash the imposition of so- called secondary sanctions
against non- US entities that engage in activities involving the construction maintenance or
expansion of Rus sian energy export pipelines with a fair market value of $1 million or more or an
aggregate fair market value during a 12- month period of $5 million12 This provision has raised the
concerns of some Eu ro pean countries particularly Germany As result the final language of the
law included wording about coordination of this issue with allies of the United States
Shipments of Rus sian oil to the United States could be afected by activity in the US refinery
industry In early 2017 Saudi Aramco bought the United Statesrsquo largest oil refinery in Port Arthur
(Texas) and it announced plans to send more of its own crude to that refinery13 Serious concerns
exist however regarding the future of three refineries and nine pipelines owned by Citgo a US
branch of the Venezuelan state com pany PdVSA which is balancing precariously on the edge of
default Under certain conditions in the event of PdVSA bankruptcy Rosneft could claim a stake of
up to 499 percent in Citgo Such a possibility has raised concerns among politicians and US
government officials with Trea sury Secretary Steven Mnuchin calling it a ldquonational security issuerdquo14
Tables 58 59 and 510 show allocations of Rus sian oil imports to major US refineries some of
which work exclusively on Rus sian crude a total of two to three months per year In total 150940
thousand barrels of Rus sian oil were refined in 2016
Figure 57 confirms a leading position of Texas and Louisiana among the US states receiving
Rus sian crude followed by New Jersey California Mississippi Washington Hawaii and Delaware
In a paradoxical way Texas has dis appeared from the list of states as a main destination of US
imports from Rus sia (Figure 58) because Rus sian crude is mostly delivered to Louisiana ports and
registered there by US Customs as an import from Rus sia After that it transports to refineries in
Louisiana and Texas
Overall the short- term business rationale behind the sustainability of US oil imports from Rus sia
cannot overcome strong headwinds in the US energy sector facing all oil importers which will
inevitably lead to a contraction of Rus sian oil exports to the United States in the foreseeable future
11 Exxon eforts to receive a special US Trea sury waiver to drill in sanctioned Rus sia failed in 2017
12 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364
13 Sarp Ozkan ldquoSaudi Aramcorsquos Port Arthur Refinery and the US Refinery Fleetrdquo Drilling Info May 11 2017
https infodrillinginfo com saudi - aramcos - port - arthur - refinery - us - refinery - fleet
14 Graham Kates ldquoTrea sury Secretary Rus siarsquos Citgo Deal a National Security Issuerdquo CBS News May 1 2017
http wwwcbsnews com news rosneft - citgo - steven - mnuchin - national - security
594-71613_ch01_4Pindd 29 102017 404 PM
US-Russia Economic Relations30
Table 58 Valerorsquos Refineries Pro cessing Rus sian Oil Thousands of Barrels 2016
Saint Charles Louisiana 29206 535
Corpus Christi Texas 20626 378
Wilmington California 4250 78
Total USA 54590 100
Source US EIA ldquoRefinery Capacity Reportrdquo January 1 2017
table 5 wwweia gov petroleum refinerycapacity table5 pdf
authorrsquos computation
Table 59 ExxonMobil Refineries Pro cessing Rus sian Oil Thousands of Barrels 2016
Baytown Texas 15037 88
Baton Rouge Louisiana 2046 12
Total USA 17083 100
Source US EIA ldquoRefinery Capacity Reportrdquo authorrsquos computation
Table 510 Chevronrsquos Refineries Pro cessing Rus sian Oil Thousands of Barrels 2016
Pascagoula Mississippi 12767 840
El Segundo California 2372 155
Saint Rose Louisiana 78 05
Total USA 15217 100
Source US EIA ldquoRefinery Capacity Reportrdquo authorrsquos computation
594-71613_ch01_4Pindd 30 102017 404 PM
Vadim Grishin 31
HEAVY METAL
Taken together US imports of metals and US imports of oil compose about 80 percent of US
total imports from Rus sia (Figure 59) Trade of metals like other commodities is strongly afected
by market price fluctuations Nevertheless metal imports from Rus sia have been fairly resilient to
market volatility and their average annual value has hovered at about $4 billion in the last five years
(Figure 510) This market resilience was forged at the end of the 1990searly 2000s when Rus sian
metal producers gradually modernized their plants adjusting quality of production to Western
standards and enhancing integration into global value and supply chains Some of them conquered
their share of the highly competitive US market struggling with peers from Canada and certain
BRICS countries (China India and Brazil) To attract additional resources all Rus sian large metal-
producing companies became public and were listed on stock exchanges chiefly the London Stock
Exchange (Severstalrsquo PAO Evraz MMK OAO Novolipetsk Steel Norilsk Nikel and TMK PAO) one
on the New York Stock Exchange (Mechel) and one on the Hong Kong Stock Exchange (Rusal)
Business logic pushed some of them to invest in the US metal- making industry which was hit
hard by crisis Later on some of those assets were sold (eg two US steel mills acquired by
Severstal in 2004 were purchased 10 years later by Steel Dynamics Inc and AK Steel Corp)
Figure 57 Share of US States Rus sian Oil Imports 2016
Source US EIA ldquoUS Imports from Rus sia of Crude Oil and Petroleum Productsrdquo Petroleum amp Other
Liquids September 29 2017 https www eia gov dnav pet hist LeafHandler ashx nshy=shyPETampsshy=shyMTTIM _ NUS
- NRS _ 1ampfshy=shyM authorrsquos computation
0
10
20
30
40
50
60
70
80
90
100
Maine
Massachusetts
Maryland
Connecticut
Georgia
Rhode Island
Virginia
Florida
New York
Alabama
Puerto Rico
Pennsylvania
Delaware
Hawaii
Washington
Mississippi
California
New Jersey
Louisiana
Texas
594-71613_ch01_4Pindd 31 102017 404 PM
Figure 58 US Imports from Rus sia by State Million US$ 2013ndash2016
Source US Census Bureau ldquoState and Metropolitan Area Trade Datardquo Foreign Trade last modified
October 2 2017 https wwwcensus gov foreign - trade statistics state
Alaska
Connecticut
Delaware
Hawaii
Louisiana
Maryland
North Dakota 0
$1000
$2000
$3000
$4000
$5000
$6000
2013 2014 2015 2016
Alabama
Alaska
Connecticut
Delaware
Hawaii
Louisiana
Maryland
Maine
Mississippi
Montana
North Dakota
Mississippi
Figure 59 US Imports from Rus sia Share of Oil and Metals Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
83
82
85
86
87
88
85
82
7375
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
$40000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil and Metals
594-71613_ch01_4Pindd 32 102017 404 PM
Vadim Grishin 33
Obviously the market dynamic of dif er ent metals varies (eg iron steel aluminum platinum and
nickel) Caps to increase their trade and production in a ldquored oceanrdquo global environment with
anemic demand is rather limited despite Figure 510 showing a spike of iron and steel imports
from Rus sia in 2014 and aluminum in 2016 Some opportunities may exist for Russian- owned steel
plants in the United States (such as NLMK) to participate in energy proj ects resumed under Presi-
dent Trump who has required that new pipelines use only American- made steel15
Rus sia occupies a special niche in the US market for titanium products a high- end metal indus-
try Twenty years ago a long- term contract was signed between Rus sian titanium producer
VSMPO- AVISMA and Boeing The Rus sian com pany entered the selective club of Boeing suppliers
for the manufacture of components and semi- finished products Since the signing of this contract
VSMPO has delivered more than 35 percent of all titanium placed on Boeing civil aircraft16 They
are hidden in the trade data in an import category for Civilian Aircrafts and Parts (Figure 511) At
the end of 2016 Boeing announced an extension of its framework agreement with AVISMA
15 E Scheyder C Ngai and T Sylvester ldquoAmerican Steel Unlikely to Get Keystone Boost Despite Trump Orderrdquo
Reuters January 27 2017 http wwwreuters com article usa - trump - pipeline - transcanada - idUSL1N1FH1ZD
16 A Kramer ldquoTitanium Fills Vital Role for Boeing and Rus siardquo New York Times July 5 2013 http wwwnytimes com
2013 07 06 business global titanium - fills - vital - role - for - boeing - and - russia html mcubzshy=shy3
Figure 510 US Imports from Rus sia Iron Steel Bauxite Aluminum Nickel Nonferrous Metals and Other Precious Metals and Materials US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
0
$6000000000
$5000000000
$4000000000
$3000000000
$2000000000
$1000000000
2007 2008 2009 2010 2011 20122013
20142015
2016
Finished metal shapes
Iron and steel advanced
Iron and steel products nec
Nonferrous metals other
Other precious metals
Nickel
Bauxite and aluminum
Iron and steel mill products
Steelmaking materials
594-71613_ch01_4Pindd 33 102017 404 PM
US-Russia Economic Relations34
through 2022 and additional investments in the construction of a new robotic plant in Titanium
Valley a special economic zone located in the Sverdlovsk region that will open in 2018 The pro-
cessing of titanium forgings in all Boeing civil aircraft will be performed there including 787s 737
MAXs and 777Xs17 The contract extension with AVISMA may add several hundred million dollars
in value to annual US imports from Rus sia
How can such heavy reliance on imports of Rus sian titanium exist during a period of rising geopo-
liti cal tensions The answer is straightforward VSMPO- AVISMA is a highly specialized natu ral
mono poly producing 45 percent of the worldrsquos aerospace titanium Only four other countries
smelt high- grade titanium in industrial quantities the United States Germany Japan and China
Overall global production capacity is limited while demand is growing The United States cur-
rently imports around 79 percent of all the titanium it consumes each year18
17 ldquoBoeing and VSMPO Avisma to Launch Second Joint Production Siterdquo Rus sian Aviation Insider December 22 2016
http wwwrusaviainsider com boeing - and - vsmpo - avisma - to - launch - second - joint - production - site
18 Jon Ostrower and Andy Pasztor ldquoBoeing United Technologies Stockpile Titanium Partsrdquo Wall Street Journal
August 7 2014 https wwwwsj com articles boeing - united - technologies - stockpiling - titanium - parts - 1407441886
Figure 511 US Imports from Rus sia Civilian Aircrafts and Parts US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
$200000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Parts-civilian aircraft
Civilian aircraft
594-71613_ch01_4Pindd 34 102017 404 PM
Vadim Grishin 35
The Sanctions Act authorizes the secretary of the trea sury (in a nonmandatory way) to impose
restrictions (without specifying them) against Rus sian state- owned entities operating in the railway
metals and mining sectors of the Rus sian economy Despite the commanding heights of Rus siarsquos
state sector owner ship in its economy (70 percent of GDP) the metal- producing companies have
remained mostly in private hands
NUCLEAR AFFAIRS
Historically owners and operators of the 104 commercial nuclear power reactors in the United
States have purchased more than 80 percent of their uranium from foreign countries Uranium
shipping from Rus sia accounted for about 13 percent of the 58 million pounds of uranium pur-
chased overseas in 201219 At the same time the Rus sian state- owned mono poly Rosatom ac-
counts for 20 percent of Kazakhstanrsquos uranium production (which in turn comprises 11 percent of
all US uranium imports) and 20 percent of US domestic uranium production capacity (with
owner ship of exploration tracts in Wyoming)20
Nuclear fuel and nuclear power continue to be po liti cally sensitive topics both in the United
States and Rus sia Bilateral cooperation in this sector (being surprisingly stable with imports of
nuclear fuel from Rus sia at a level of $1 billion annually in the last five years [Figure 512 and 513])
is under constant po liti cal and lobbying pressure and has been a source of several po liti cal scan-
dals21 Consequently upside risks in this area of interaction are minimal and downside risks are
much higher especially when we are seeing more decommissioning of nuclear plants in the
United States than new constructions The US EIArsquos 2017 Annual Energy Outlook assumes
that about 25 percent of the nuclear capacity now operating will be removed from ser vice
by 205022
WHY IS THE GRASS GREENER ON THE OTHER SIDE
The United States continues to significantly reduce imports of chemical fertilizers as domestic pro-
duction increases In 2016 the United States imported 13 percent less ammonia and 11 percent
less urea and UAN which is a liquid urea and ammonium nitrate fertilizer Rus sia accounts for
around 40 percent of UAN imported by the United States The United States canceled antidumping
duties on imports of ammonium nitrate and urea from Rus sia in 2016 but it did not prevent import
19 US EIA ldquoThe US Relies on Foreign Uranium Enrichment Ser vices to Fuel Its Nuclear Power Plantsrdquo Today in
Energy August 28 2013 https wwweia gov todayinenergy detail php idshy=shy1273
20 Colin Chilcoat ldquoDoes Rus sia Really Own 20 Percent of the USrsquo Uranium Reservesrdquo OilPricecom May 6 2015
http oilpricecom Alternative - Energy Nuclear - Power Does - Russia - Really - Own - 20 - Of - The - US - Uranium - Reserves
html
21 Michelle Ye Hee Lee ldquoThe Facts behind Trumprsquos Repeated Claim about Hillary Clintonrsquos Role in the Rus sian Ura-
nium Dealrdquo Washington Post October 26 2016
22 US EIA ldquoAnnual Energy Outlook 2017 with Projections to 2050rdquo 81ndash82
594-71613_ch01_4Pindd 35 102017 404 PM
Figure 512 US Imports from Rus sia Share of Oil Metals and Nuclear Fuel Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
87
86
90
90
90
91
88
86
7882
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals and Nuclear Fuel
Figure 513 US Imports from Rus sia Nuclear Fuel Materials US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$-
$200000000
$400000000
$600000000
$800000000
$1200000000
$1000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 36 102017 404 PM
Vadim Grishin 37
drops twice last year (Figures 514 and 515) According to forecasts UAN imports are expected to
decline further to 15 million tons this year down over 46 percent from 28 million tons imported
last year23 The downside trend in imports of fertilizers will likely continue because of oversupply
BIG FISH
US imports of fish and shellfish from Rus sia are best understood in comparison with US fish
exports to the Rus sian market which slipped to zero in August 2014 after Rus sia issued an order
banning certain agricultural imports from the United States (Figure 516) While the volume of US
supply was not very large it was impor tant because it broke up the monopolistic dominance of a
few vertically integrated Rus sian companies that have kept prices high by restricting the entry of
new producers Seeking to implement import substitution policies Rus sia has tried to reduce
exports as well as imports of fish and seafood products in the last couple of years This symmetri-
cal approach was intended to ldquocompensaterdquo for a decrease of fish products in the domestic
23 Deepika Thapliyal ldquoPotashCorp Forecasts Sharp Drop in US Nitrogen Imports in 2017rdquo ICIS News February 7
2017 https wwwicis com resources news 2017 02 07 10076734 potashcorp - forecasts - sharp - drop - in - us - nitrogen
- imports - in - 2017
Figure 514 US Imports from Rus sia Share of Oil Metals Nuclear Fuel and Fertilizers Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
90
93
92
93
94
95
92
91
85
86
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals Nuclear Fuel and Fertilizers
594-71613_ch01_4Pindd 37 102017 404 PM
Figure 515 US Imports from Rus sia Chemical- Fertilizers US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
S-
$200000000
$400000000
$600000000
$800000000
$1000000000
$1200000000
$1400000000
$1600000000
$1800000000
$2000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Figure 516 US Exports to Rus sia Fish and Shellfish US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$10000000
$20000000
$30000000
$40000000
$50000000
$60000000
$70000000
$80000000
$90000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Fish and shellfish
594-71613_ch01_4Pindd 38 102017 404 PM
Vadim Grishin 39
consumer market caused by Rus siarsquos import ban but it has failed As result the group most af-
fected by the self- imposed counter- sanctions were Rus sian consumers
With a significant drop in fish imports a devaluation of the ruble and inflationary pressures on
seafood prices yearly consumption of fish in Rus sia has declined precipitously In 2015 alone
fish prices increased 20 percent and consumption dropped to 14 kilograms per person24 from
22 kilograms in 201425 In 2016 food rose to 355 percent of house hold expenditure as a result of
increases in food prices26 This has pushed vertically integrated fishing monopolies to sell even
more of their catch abroad rather than deliver to the Rus sian Federation (Figure 517) Thus we
cannot exclude the possibility of further growth in US fish and shellfish imports from Rus sia on a
marginal scale
24 Александр Савельев ldquoПотребление рыбы в России упало до 14 кг на человекаrdquo [Fish consumption in Rus sia fell to
14 kg per person] Экономика Интерфакс January 28 2015 http wwwinterfax ru business 492038
25 Илья Шестаков ldquoПотебление рыбы в России снизилось на 10 процентов из- за роста ценrdquo [Fish consumption in
Rus sia dropped by 10 percent due to price increases] RNS March 8 2017 https rnsonline consumer - market
Potreblenie - ribi - v - Rossii - snizilos - na - 10 - iz - za - rosta - tsen - 2017 - 03 - 08
26 Zoya Sheftalovich and Christian Oliver ldquoRus siarsquos Boom (Farming) Economyrdquo Politico November 8 2016 http
wwwpolitico eu article russias - boom - farming - economy
Figure 517 US Imports from Rus sia Fish and Shellfish US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$50000000
$100000000
$150000000
$200000000
$250000000
$300000000
$350000000
$400000000
$450000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 39 102017 404 PM
US-Russia Economic Relations40
SPACE ODYSSEY
Among high- end products beyond the top five groups of goods imported from Rus sia cheap and
efficient Rus sian engines have been used to launch US rockets into space for about 16 years
(Figure 518) There was a serious po liti cal strug gle around a 2014 ban on the purchase of Rus sian
RD-180 rocket engines revealing the conflicting business interests of power ful high- tech companies
This restrictive mea sure was temporary and was quickly lifted because of significant cost impacts
and risks of disruption to launch schedules27 For the same reason the Sanctions Act does not autho-
rize ldquothe imposition of any sanction or other condition limitation restriction or prohibition that
directly or indirectly impedes the supply by any entity of the Rus sian Federation of any product or
ser vice or the procurement of such product or ser vice by any contractor or subcontractor of the
United States or any other entity relating to or in connection with any space launch conducted for
the National Aeronautics and Space Administration or any other nonndash Department of Defense
customerrdquo28
Nevertheless many experts believe that US domestic alternatives to replace Rus sian engines will
be viable in five to eight years
27 Ken Dilanian ldquoWhy Does the US Use Rus sian Rockets to Launch Its Satellitesrdquo NBC News updated November 15
2016 http wwwnbcnews com why - does - u - s - use - russian - rockets - launch - its - satellites - n588526
28 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364
Figure 518 Spacecraft Excluding Military US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 40 102017 404 PM
41
Diversity and technological complexity are the most vis i ble advantages supporting US exports to
Rus sia Three major groups of export goods include civilian aircraft engines and parts (Figure 61)
drilling and oil field equipment (Figure 62) and industrial machines and engines (Figure 63)
Despite sanctions against the transfer of advanced oil producing and pro cessing technologies the
realization of US drilling and oil field equipment in Rus sia is sustainable although some bilateral
proj ects have been frozen
Another category of goods that has demonstrated resilience is the phar ma ceu ti cal industry (Fig-
ure 64) because most drugs in Rus sia are imported (about 70 percent of the Rus sian phar ma ceu-
ti cal market in value) Import substitution policies have had only modest results in this industry
As confirmed by American Chamber of Commerce surveys US exports to Rus sia are closely
connected to US FDI 30 percent of total imports of US companies working in the Rus sian
market come from the United States (more than $2 billion in 2016) In other words about
40 percent of all US exports to Rus sia are related to a US corporate- sector business pro cess in
the country The major sectors of activity of these companies are energy and natu ral resources
(52 percent) manufacturing (17 percent) information and communications technology or ICT
(13 percent) retail (7 percent) automotive industry (6 percent) phar ma ceu ti cal production
(1 percent) professional ser vices (05 percent) and other (2 percent)1
Some obvious constraints on US exports to Rus sia have resulted from a reduction in demand A
deterioration of bilateral relations and implementation of sanctions and counter- sanctions have
directly or indirectly afected all businesses Figures 65 and 66 provide data regarding a dramatic
drop in the sale of US agricultural production in Rus sia with all other categories of exports in
goods showing big cuts as well (see Figures 67ndash69)
Exports of civilian aircraft engines and parts put the state of Washington in first place among
other states as a leading exporter to the Rus sian market (Figure 610)
1 American Chamber of Commerce in Rus sia ldquoInvestment and Import to Rus sia 2nd Surveyrdquo 13
Diversity and Constraints
06
594-71613_ch01_4Pindd 41 102017 404 PM
Figure 61 US Exports of Civilian Aircraft Engines Equipment and Parts to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
$2500000000
$2000000000
$1500000000
$1000000000
$500000000
$-
Figure 62 US Exports of Drilling and Oil Field Equipment US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
$40000000
$45000000
$50000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 42 102017 404 PM
Figure 63 US Exports of Industrial Engines to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Figure 64 US Exports of Phar ma ceu ti cal Preparations to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 43 102017 404 PM
Figure 65 US Exports of Meat and Poultry to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Meat poultry etc
$1000000000
$800000000
$600000000
$400000000
$200000000
$-
$1200000000
$1400000000
$1600000000
Figure 66 US Exports of Soybeans to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
$200000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 44 102017 404 PM
Figure 67 US Exports of Vehicles Engines and Parts to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Other parts and accessories of vehicles
Automotive tires and tubes
Bodies and chassis for passenger cars
Engines and engine parts (carburetors pistonsrings and valves)
Trucks buses and special purpose vehicles
Passenger cars new and used
$2500000000
$2000000000
$1500000000
$500000000
$-
$1000000000
Figure 68 US Exports of Medicinal Equipment to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 45 102017 404 PM
Figure 610 US Exports to Rus sia by States (2016 US$ Value) Million US$ 2013ndash2016
Source US Census Bureau ldquoState and Metropolitan Area Trade Datardquo
Iowa Kentucky
North Dakota
Oklahoma
South Carolina
Washington
0
$500
$1000
$1500
$2000
2013 2014 2015 2016
District of Columbia
Iowa
Kentucky
North Dakota
Oklahoma
South Carolina
Washington
Figure 69 US Exports of Excavating Machinery to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
$40000000
$45000000
$50000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 46 102017 404 PM
47
Upon reviewing the current trend in US- Russia economic relations we must acknowledge that
the existing trade model is obsolete and exhausted Imports are resource- oriented and reflect
constraints of the Rus sian economic structure while five groups of goodsmdash oil metals nuclear
fuels fertilizers and fishmdash make up more than 90 percent of total imports from Rus sia (Figure 71)
Each of these industries has a limited capacity for growth in the foreseeable future
Rus siarsquos core export to the United Statesmdash oilmdash will inevitably decrease in the mid- term under any
scenario The value and volume of Rus sian exports to the United States are open to global market
volatility and po liti cal pressures with limited hedging mechanisms
Overall US exports to Rus sia are unsustainable due to bilateral po liti cal tensions the whims of
commodity markets and changing domestic policies Sanctions and counter- sanctions have
created additional barriers particularly in finance banking high- tech energy and agro- business
According to the American Chamber of Commerce 69 percent of US companies working in the
country consider the impact of US sanctions against Rus sia on their business as negative At the
same time 60 percent of companies do not expect big changes in business relations between
Rus sia and the United States under Trump1 as the new law codifies existing sanctions fortifies
them and extends them to new sectors
Current US investments are low due to the weak rule of law in Rus sia a lack of property right
protections and proper contract enforcement high levels of statization and monopolization in the
economy a poor business climate outdated capital stock dependence on natural- resource
sectors and of course sanction and counter- sanction mea sures Bloated administrative compo-
nents created as risk mitigation instruments have also served as impediments The countryrsquos
institutional weakness low level of productivity bud get constraints and a declining inflexible
workforce will restrain future economic growth even if commodity prices recover Rus sian eco-
nomic policy will likely continue to be statist and protectionist relying mostly on import
substitutions
1 Ibid 11
Existing Trends and Future Scenarios
07
594-71613_ch01_4Pindd 47 102017 404 PM
US-Russia Economic Relations48
What scenarios can be expected in such a challenging environment
One probability (no peace no war) is based on the assumption that matters will not deteriorate
further and implementation of the Sanctions Act will be cursory This will cause relatively slow
degradation in the economic field with occasional flashes of activity in selected areas (eg closer
cooperation against Islamist terrorist groups in Syria)
A second worse case or critical scenario is the intensive and full- scale execution of current sanc-
tion legislation and even the imposition of new economic punitive and restrictive mea sures which
could incite asymmetric retaliatory actions and lead to the introduction of additional protectionist
policies This in turn could trigger a further escalation of mutual confrontation and could eventu-
ally destroy the fundamentals of the current bilateral trade system Rus sian leadership has charac-
terized the Sanctions Act as a declaration of a trade war that ends all hope for improving bilateral
relations2
2 Дмитрий Медведев ldquoПодписание президентом США нового санкционного закона против России создает несколько
последствийrdquo [The US Presidentrsquos signing of the package of new sanctions against Rus sia will have a few conse-
quences] Facebook August 2 2017 https wwwfacebook com Dmitry Medvedev posts 10154587161801851
Figure 71 US Imports from Rus sia Share of Oil Metals Nuclear Fuel Fertilizers and Fish Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
93
94
93
94
95
96
93
92
87
89
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals Nuclear FuelFertilizers and Fish
594-71613_ch01_4Pindd 48 102017 404 PM
Vadim Grishin 49
The best case and most favorable scenario looks less probable now It assumes the realization of
structural reforms in Rus sia in such a way that would adapt Rus siarsquos foreign policy to national
economic needs reduce confrontations with the West and make a concerted efort to integrate
Rus sian businesses into global supply and value chains A revitalization of the structural reform
agendamdash including eforts to diversify economic activities through de- monopolization and support
for SMEs a restructuring of the banking sector the creation of a vibrant business climate to foster
entrepreneurships and innovation the implementation of administrative and judicial reforms to
tackle red tape and endemic corruption and the reduction of state control over key sectors of the
economy via wide- spread privatization could kick- start the development of a nonoil economy and
improve long- term growth prospects Despite ongoing discussion of reform strategies deep
economic and po liti cal changes are extremely complicated over the next po liti calelectoral cycle
(2018ndash2024) particularly because of re sis tance of vested interests and growing commodity prices
The urgency to tackle structural shortcomings in natu ral resource- dependent economies usually
correlates with the price of those resources and the degree to which resource rents drive eco-
nomic activity However there may be marginal improvements in the efficiency of the current
economic system
Future US- Russia relations can be thought of through three pillars one pillar focuses on areas
where both countries maintain a competitive rivalry another looks at potential areas of interaction
under pres ent conditions a third pillar and one that has evaporated from the current bilateral
agenda concentrates on future cooperation Stronger economic ties could not only be a kind of
po liti cal shock absorber but contribute to the building of this future (particularly business contacts
aim to support future structural reforms) although po liti cal factors are depressing the prospects
for cooperation To escape deadlock it will be impor tant to establish the right balance between
politics and economics and create a model of collaboration within the framework of contention
594-71613_ch01_4Pindd 49 102017 404 PM
About the Author
Vadim Grishin PhD MBA has been involved in the reform pro cess in Rus sia as adviser to the
deputy prime minister of Rus sia in 1992ndash1993 and 2006ndash2010 He has extensive experience
working with the Bretton Woods Institutions He was the board member of the World Bank Group
and served as se nior adviser at the International Monetary Fund Currently he is a con sul tant to the
chief economistrsquos office of the International Finance Corporation and teaches the economics of
transition at Georgetown University in Washington DC
50
594-71613_ch99_4Pindd 50 102017 403 PM
Blank
COVER PHOTO ADOBE STOCK
1616 Rhode Island Avenue NW
Washington DC 20036
202 887 0200 | wwwcsisorg
v++ISBN 978-1-4422-8035-9
Lanham bull Boulder bull New York bull London
4501 Forbes Boulevard
Lanham MD 20706
301 459 3366 | wwwrowmancom
A U T H O R
Vadim Grishin
Myths and Realities
A Report of the
CSIS RUSSIA AND EURASIA PROGRAM
US-RussiaEconomicRelations
O C T O B E R 2 0 1 7
Euml|xHSLEOCy280359z
The Man Pupu Nyor Rock Formations at the Northern Urals also known as Seven
Strong Man or Little Mountain of the God in the local tribe (Mansi) language
The author wishes to thank the participants of a draft paper discussion William Arnold Jack
Brougher Matthew Edwards Daniel Fried Andrew Kuchins Randy Levinas Gary Litman Jeff
Mankoff Cyrus Newlin Olga Oliker Ian Solomon Doug Stanglin and Angela Stent
This report is made pos si ble by the generous support of Car ne gie Corporation of New York
Acknowl edgments
Iv
594-71613_ch00_4Pindd 4 102017 403 PM
1
01
Introduction
A friend of mine a devoted connoisseur of bilateral economic relations with 30 years of experi-
ence in the field once noted that the hottest discussions about US- Russia ties occur at a time
when mutual trade is compressed into the value of a mathematical error This is exactly what is
happening now According to official statistics the value of US- Russia trade is about $20 billion
and is rolling back to the level of 20051 There is no doubt that a new set of sanctions recently
signed into law by the US president and currently being implemented will further hurt economic
interaction by reducing financial inflows limiting the transfer of technology and expertise and
dampening business confidence Many policymakers and experts have agreed that HR 3364
(Countering Amer i carsquos Adversaries through Sanctions Act2) by expanding and codifying US
sanctions targeting Rus sia opens a new cycle in bilateral relations This legislation which received
overwhelming bipartisan support creates a new economic and po liti cal framework on a bilateral
track Strong concerns expressed by President Donald Trump in his special statement about
ldquounconstitutional provisions of the ldquoflawed billrdquo3 cannot significantly limit its intended and
unintended consequences In its implementation it could have relatively broad margins of flexibil-
ity and leverage but requires the president to seek congressional approval before easing or termi-
nating sanctions against Rus sia or undertaking actions that would significantly modify US policy
toward Rus sia Additional observations regarding HR 3364rsquos pos si ble impact on US- Russia
interaction in par tic u lar industries can be found throughout this report but suffice it to say that it
will contribute to a broader curtailment of many pillars of economic cooperation for years ahead
1 US Census Bureau ldquoForeign Trade Trade in Goods with Rus siardquo Foreign Trade updated June 29 2017 https
wwwcensus gov foreign - trade balance c4621 html
2 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364 115th Cong (2017ndash2018) https www
congress gov bill 115th - congress house - bill 3364
3 Donald J Trump ldquoStatement by President Donald J Trump on the Signing of HR 3364rdquo White House Office of the
Press Secretary August 2 2017 https wwwwhitehouse gov the - press - office 2017 08 02 statement - president
- donald - j - trump - signing - hr - 3364
594-71613_ch01_4Pindd 1 102017 404 PM
US-Russia Economic Relations2
Escalating geopo liti cal tensions have continued to significantly define Rus siarsquos economic prospects
however the countryrsquos economic model exhausted itself long before the dramatic deterioration of
relations with the West Structural bottlenecks have seriously limited Rus siarsquos growth capacity even
during the previous period of high oil prices4
The purpose of this report is to assess what has gone wrong with the US- Russia equation by
analyzing it through the prism of a bilateral economic and po liti cal trajectory while keeping in
mind the structural constraints of the Rus sian economy It will attempt to answer the following
questions
bull Do bilateral economic relations matter
bull Are the United States and Rus sia ldquonatu ralrdquo or ldquounnaturalrdquo trading partners
bull What future scenarios can we expect
In the vast lit er a ture on US- Russia economic relations analy sis of developing trends in bilateral
commerce has always been accompanied by discussions around impor tant po liti cal and eco-
nomic matters particularly regarding US legislation and regulation5 Over several de cades the
most controversial issues concerned the granting of permanent normal trading status to Rus sia
through legislation that eliminated the Jackson- Vanik Amendment and Rus siarsquos accession to
the World Trade Organ ization (WTO) The Magnitsky Act signed into law in 2012 repealed the
Jackson- Vanik provisions but added legislation providing authority for the US government to
withhold visas and freeze assets of Rus sians thought to have been involved with human rights
violations and later imposed sanctions on Rus sia because of its involvement in the Ukrainian and
Syrian crises and its cyber- enabled activities6
Some have observed deficiencies in Rus siarsquos participation in the international division of labor
(reliance on the export of energy and metals) which ldquo canrsquot serve any more as a basis for further
expansion of the countryrsquos position in world markets including the US marketrdquo7 Unfortunately
such observations have not been accompanied by quantitative and qualitative analy sis of structural
constraints in the Rus sian foreign trade model Many authors limit their policy recommendations
for fostering bilateral economic relations to a requirement for a strong initial push from respective
governments the creation of business working groups and the extension of bilateral and multilat-
eral legal grounds for economic cooperation Such instruments proved to be useful in facilitating
4 International Monetary Fund (IMF) Rus sian Federation Selected Issues (Washington DC IMF 2016)
5 ldquoAmer i carsquos New Economic Sanctions May Hurt Rus siarsquos Recoveryrdquo Economist August 5 2017 Andrey Kortunov and
Olga Oliker eds A Roadmap for US- Russia Relations (Washington DC CSISRIAC 2017) https csis - prods3
amazonaws com s3fs - public publication 170815 _ KortunovOliker _ USRussiaRelations _ Web pdf E0bdGVHlxxYRAxhO
w8zJ9tbRGwdWjEgV Самуйлов CM Братерский MB ldquoКонгресс и торговые отношения США с Россиейrdquo [US
Congressrsquos role in the US- RF trade relations] США и Канада экономика политика культура 5 no 533 (May 2014)
6 Andrew Weiss and Richard Nephew ldquoThe Role of Sanctions in US- Russian Relationsrdquo (Task Force White Paper
Car ne gie Endowment for International Peace Washington DC July 11 2016)
7 Глущенко ЮН ldquoСостояние проблемы и перспективы сотрудничества России и США в экономической сфереrdquo
[Status prob lems and prospects of Russia- US economic cooperation] Проблемы Национальной Стратегии 21 no 6
(2013) 148ndash164
594-71613_ch01_4Pindd 2 102017 404 PM
Vadim Grishin 3
trade and investment during several reset cycles in bilateral relations starting in the 1990s but
they were only partially successful
Several papers and books although focused primarily on bilateral po liti cal agendas or sectorial
analy sis underline the importance of Rus sian domestic realities Dr Angela Stent in her ldquoLimits of
Partnershiprdquo notes that state control of the commanding heights in the Rus sian economy creates
significant deterrents for US private- sector entrance into the market8 Thane Gustafson in the
ldquoWheel of Fortunerdquo asserts that Rus siarsquos growing dependence on revenue from oil exports along
with its inefficient and often- corrupt management of industry is unsustainable9 Andrew Kuchins
in his ldquoElevation and Calibration A New Rus sia Policy for Amer i cardquo has quoted some experts who
believe that the weakened Rus sian economic position may over time contribute to some rap-
prochement with the West and emphasized lack of reforms as ldquoa key obstacle not only for Rus sian
economic recovery but also for improving ties with the Westrdquo10
In a recent joint task force report Eugene Rumer Andrew S Weiss and Richard Sokolsky argue
that the concept of developing stronger economic ties with Rus sia as a foundation for improved
diplomatic relations has not worked ldquoClinton Bush and Obama all placed high hope on trade as
an engine of better relations with Rus sia All were frustrated by the fact that the two countries are
for the most part not natu ral trading partnersrdquo11 On a dif er ent note the former US envoy to
Rus sia Michael McFaul has defended the achievements of a reset policy under the Barack Obama
administration emphasizing that bilateral trade reached a rec ord level in 2011 Nevertheless he
also stresses that it was a one- time accomplishment unlikely to be repeated12
Voices of those who believe that extensive economic ties can provide stability to broader po liti cal
interaction are weaker than ever in an environment of growing protectionism and adversarial rivalry
8 Angela Stent The Limits of Partnerships US- Russian Relations in the XXI Century (Prince ton NJ Prince ton
University Press 2014) 98
9 Thane Gustafson Wheel of Fortune The Battle for Oil and Power in Rus sia (London Harvard University Press 2012)
10 Andrew Kuchins Elevation and Calibration A New Rus sia Policy for Amer i ca (Washington DC Center on Global
Interests 2016)
11 Eugene Rumer Richard Sokolsky and Andrew S Weiss ldquoTrump and Rus sia The Right Way to Manage Relationsrdquo
Foreign Affairs 96 no 2 (MarchApril 2017)
12 Michael McFaul ldquoUS- Russia Relationsrdquo (lecture Institute for Public Diplomacy and Global Communications
George Washington University Washington DC March 3 2017) https wwwc - span org video 424811 - 1 former
- ambassador - michael - mcfaul - discusses - state - usrussia - relations
594-71613_ch01_4Pindd 3 102017 404 PM
4
02
Does Bilateral Economic Interaction Matter
Economic relations do not emerge out of a vacuum There are many variables that define the final
configuration of economic interactions such as a par tic u lar countryrsquos level of economic develop-
ment its business environment legal framework po liti cal climate (regime) culture and religion
history and tradition demography and geography as well as global and national economic cycles
An impor tant driver of trade relations for many economies has become participation in global and
regional trade agreements
As many studies and anecdotal evidence show bilateral economic cooperation should be sizable
and should relate to the economic growth of two countries in a way that afects their policy
interests Let us take as a reference point the BRICS countries1 a community of large emerging
economies which Rus sia belongs to Table 21 pres ents official data on US trade and investments
with BRICS states US- Russia trade in goods is disproportionally lowmdash235 times less than US
trade with China 33 times smaller than US trade with India and 28 times less than US trade
with Brazil The size of the US- Russia trade balance is comparable to the size of the US trade
balance with South Africa whose economy is almost four times smaller than Rus siarsquos If we add
trade in ser vices to the trade of goods the gaps increase significantly (Figures 21 and 22) The
diference is not only quantitative but also qualitative
The quality of trade relations can be mea sured by its diversity its share of high- tech components
resilience to economic shocks and its contribution to GDP growth On average a 10 percent
increase in a nationrsquos two- way trade relative to GDP increases GDP through a variety of channels
by at least 16 percent2
Bilateral trade and real GDP growth in the United States and Rus sia are practically uncorrelated
as shown in the summary output of multifactorial regression The coefficient of multiple determi-
nation (R Square) is close to 0 ( Table 22) At the same time the correlation of US exports to India
1 BRICS is the acronym for a select group of five developing economies Brazil Rus sia India China and South Africa
2 World Economic Forum Foreign Direct Investment as a Key Driver for Trade Growth and Prosperity The Case for a
Multilateral Agreement on Investment (Geneva World Economic Forum 2013) 11
594-71613_ch01_4Pindd 4 102017 404 PM
Vadim Grishin 5
Table 21 US Trade and Foreign Direct Investments (FDI) with China India Brazil South Africa and Rus sia 2016
China India Brazil South Africa Rus sia
Total Goods Trade 5786 677 565 13 203
Imports 4628 460 262 73 145
Exports 1158 217 303 55 58
Trade in Ser vices 696 472 317 47 na
Imports 161 268 68 17 na
Exports 535 203 249 30 na
US FDI 746 283 653 62 141
BRICS FDI in the United States
148 93 043 076 63
Supported Jobs in the United States (thousand)
911 197 308 50 84
Source United States Trade Representative (USTR) ldquoCountries amp Regionsrdquo accessed September 27 2017
https ustrgov countries - regions See US- China Trade Facts US- India Trade Facts US- Brazil Trade
Facts US- South Africa Trade Facts and US- Russia Trade Facts
201520142013
and China with the real GDP growth of these big Asian economies is significant (05) In the case of
Brazil the correlation is even higher (07) By contrast South Africarsquos small open economy is quite
sensitive to US imports from South Africa (043)3
In marked contrast to other BRICS countries Rus sia is a poor choice for export- oriented opera-
tions As a recent International Monetary Fund (IMF) study highlights Rus sia is an outlier a rare
exception among emerging market (EM) economies with virtually no preferential access to major
markets and little meaningful change over three de cades4 This complicates Rus siarsquos integration
into the global value chain (GVC) which became a significant driving force toward economic
development and trade for certain BRICS economies
3 IMF statistics authorrsquos computation
4 IMF Rus sian Federation Selected Issues IMF Country Report N17198 (Washington DC IMF July 2017)
594-71613_ch01_4Pindd 5 102017 404 PM
US-Russia Economic Relations6
Trade is closely connected with foreign direct investment (FDI) and both are parts of a complex
interaction known as international production sharing According to publicly available official data
US FDI in Rus sia was about $131 billion for 2013 and $295 billion for 2016 with the top industrial
sectors being software and IT ser vices financial ser vices chemicals metals coal oil and gas
and business ser vices5 If we take into account US investments made through Eu ro pean branches
of US companies and ofshore firms this number would easily triple Another component
that usually is not tracked by official statistics is reinvestments The American Chamber of
Commerce surveys in 2016 and 2017 which include this component draw a completely dif er ent
picture accumulated US corporate FDI in 90 large US companies working in Rus sia reached
5 US Department of Commerce International Trade Administration ldquoRussiamdash94- Foreign Direct Investment and
Portfolio Investment Statisticsrdquo Rus sia Country Commercial Guide July 7 2017 https wwwexport gov article
id=shyRussia - foreign - direct - investment - statistics
Figure 21 US Trade in Goods with China India Brazil Rus sia and South Africa Billion US$ 2016
Source USTR ldquoCountries amp Regionsrdquo See US- China Trade Facts US- India Trade Facts US- Brazil Trade
Facts US- South Africa Trade Facts and US- Russia Trade Facts
0
$50
$100
$150
$200
$250
$300
$350
$400
$450
$500
$550
$600
China India Brazil Russia South Africa
Exports
Imports
594-71613_ch01_4Pindd 6 102017 404 PM
Vadim Grishin 7
$8244 billion in 20176 The real level from our perspective is usually between official and private
estimations around $40 billon But even this cumulative figure is less than the US FDI in Brazil
and China
The American Chamber of Commerce surveys have also revealed other impor tant data Eighty-
five percent of US companies doing business in Rus sia entered its market 10 or more years ago
while 60 percent of them ldquolandedrdquo there 20 years ago or earlier Only one percent have started
operations over the last five years confirming an obvious fact entry into the Rus sian market is
challenging because of growing monopolism risks associated with the business climate and a
stagnating economy7
6 American Chamber of Commerce in Rus sia ldquoInvestment and Import to Rus sia 2nd Surveyrdquo (Prepared by GfK for the
American Chamber of Commerce in Rus sia Moscow May 2017) 12
7 Ibid 4
Figure 22 US Trade in Goods and in Ser vices with China India Brazil Rus sia and South Africa Billion US$ 2016
Source USTR ldquoCountries amp Regionsrdquo See US- China Trade Facts US- India Trade Facts US- Brazil Trade
Facts US- South Africa Trade Facts and US- Russia Trade Facts
0
$100
$200
$300
$400
$500
$600
$700
China India Brazil Russia South Africa
Trade in Services
Total Goods Trade
594-71613_ch01_4Pindd 7 102017 404 PM
US-Russia Economic Relations8
Rus sian direct investment position toward the United States declined from $215 billion in 2013 to
$83 billion in 2015 (Figure 23) Taking into account dif er ent channels and instruments the actual
volume of Rus sian investments in the United States made through ofshore Eu ro pean Canadian
and US companies may be several times greater than the available official data
Foreign investment in financial assets or foreign portfolio investment (FPI) should be included
even though Central Bank of Rus sia statistics indicate they were also quite low US investments in
equity were $345 million and in debt instruments were about $65 million in the fourth quarter of
20168 However these numbers do not reflect the real level of FPI Rus siarsquos stocks are incredibly
inexpensive while there has been impressive growth of US investments in short- term securities
and in foreign exchange (FX) operations (cash- and- carry trade) Rus sia was among the top per-
forming emerging markets in 2016 gaining 4744 percent in US dollars9 Nevertheless the gen-
eral capitalization of the stock exchange is tiny (less than 20 percent of GDP) comparable to the
capitalization of just one large US com pany such as Coca- Cola Many private sources believe that
the US FPI in Rus sia could be as high as several billion US dollars but a new set of sanctions
approved by President Trump on August 2 2017 if implemented could reverse those flows It is
still not clear whether the secretary of trea sury will prohibit participation in the oferings of Rus siarsquos
sovereign debt and the full range of derivative products A report on this subject should be sub-
mitted no later than 180 days after enactment of the law which means no later than Febru-
ary 2018 New legislation tightens prohibition on Rus sian financial companies already under
sanctions by limiting any new equity or debt with a maturity greater than 14 days (a provision that
8 Central Bank of Rus sia ldquoForeign Direct Investments in the Rus sian Federationrdquo accessed September 27 2017 www
cbr ru localization switchlanguage urlshy=shy news ampfromshy=shyru - ruamptoshy=shyen - gb
9 VanEck ldquoRus sian Stock Market Soars in 2016rdquo Seeking Alpha February 14 2017 https seekingalphacom article
4045602 - russian - stock - market - soars - 2016
Table 22 Summary Output of Regression Statistics (US Real GDP Rus sia Real GDP US- Russia Exports Imports and Total Trade)
Regression Statistics
Multiple R 0056445768
R Square 0003186125
Adjusted R Square minus0042123597
Standard Error 2616043923
Observations 24
Sources IMF statistics authorrsquos computation
594-71613_ch01_4Pindd 8 102017 404 PM
Vadim Grishin 9
previously allowed for 30 days) Similarly US persons are prohibited from taking on any new debt
that has a maturity greater than 60 days (previously it was 90 days) with Rus sian energy compa-
nies currently under sanctions10
According to the Trea sury Department Rus sia held $1029 billion in US Trea sury securities in
June 201711 Could Rus sia withdraw all its reserves from the United States and use this action as a
retaliatory mea sure Such a scenario is unlikely since there is no comparable safe- haven alterna-
tive to US dollars When Rus siarsquos US Trea sury holdings dropped 50 percent from $176 billion
(October 2010) to $90 billion (November 2011) the market did not notice12 Nevertheless Rus sian
authorities have announced they will decrease dependence on assets and payments in US dollars13
10 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364
11 US Department of Trea sury Major Foreign Holders of Trea sury Securities September 18 2017 http ticdata
treasury gov Publish mfh txt
12 Ibid
13 ldquoНовый виток санкций Россия откажется от доллараrdquo [A new round of sanctions Rus sia will abandon the dollar]
Газетару August 7 2017 https wwwgazeta ru business 2017 08 07 10821937 shtml
Figure 23 Rus sia Outward FDI Position United States Equities and Debt Million US$ 2009ndash2016
Source Central Bank of the Rus sian Federation External Sector Statistics Rus sian Direct Investments
Abroad accessed September 27 2017 https wwwcbr ru localization switchlanguage urlshy=shy news
ampfromshy=shyru - ruamptoshy=shyen - gb
$6000
$8000
$10000
$12000
$14000
$16000
$18000
$20000
$22000
2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 9 102017 404 PM
US-Russia Economic Relations10
Officially the country does not invest in the US stock exchange although some Rus sian oligarchs
have bought US corporate bonds and equities in large amounts The new sanctions law requires
the secretary of trea sury in consultation with the director of national intelligence and the secretary
of state to issue reports on Rus sian se nior po liti cal figures and oligarchs based on their closeness
to the Rus sian regime and their net worth as well as the exposure of key economic sectors of the
United States to Rus sian po liti cally exposed persons and parastatal entities including at a mini-
mum the banking securities insurance and real estate sectors14
Only three Rus sian companies are listed in the US exchanges
Overall the scale and scope of US- Russia economic interaction and business activity is much greater
than officially appreciated but not significant enough to be taken into consideration by policymakers
14 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364
594-71613_ch01_4Pindd 10 102017 404 PM
11
03
Politics in the Driverrsquos Seat
Bilateral economic relations depend to a great extent on global and national economic cycles
After the recent global financial crisis the US economy has shown surprisingly sustainable GDP
growth while the Rus sian economy was the most afected among BRICS countries by the turbu-
lence of a worldwide economic downturn in 2008ndash2009 and after a short- term rebound slipped
into stagnation (2012ndash2013) and then into full- scale recession (2014ndash2016) The countryrsquos eco-
nomic cycle however appears to be changing once again with the economy returning to a
pattern of growth albeit uneven and gradual (Figures 31 and 32) Even with sanctions still in place
conditions have improved as a result of the stabilization of Urals oil to an average annual price of
$419 per barrel in 2016 The gains were sparked in part by major crude producers agreeing to cut
production after hefty price drops in 2014 and 2015 Supported by easier financial conditions
higher oil prices and growing macro- stability Rus sia is heading toward a moderate growth rate
that is expected to reach 14 percent this year according to forecasts of the World Bank Group
(WBG) and the IMF1
Because of the significant role that politics plays in any bilateral interaction it is impor tant to
combine economic and po liti cal cycles applying a ldquoresetrdquo to bilateral economic cooperation in
addition to the po liti cal relationship I have compared po liti cal cycles and trade dynamics using the
following graphs ( Table 31 and Figure 33) These charts do not pretend to reflect with mathemati-
cal precision all shifts in the bilateral po liti cal relationship but rather attempt to visually align
impor tant economic and po liti cal moments to detect the efects of po liti cal events on the size of
bilateral trade
Figure 33 shows all pos si ble combinations economic trends at the intersection of po liti cal devel-
opments oppose or support each other in synchronization It is evident that po liti cal interference
1 International Monetary Fund Rus sian Federation Staff Concluding Statement of the 2017 Article IV Mission (Wash-
ington DC IMF 2017) World Bank Group From Recession to Recovery Rus sia Economic Report no 37 (Washington
DC World Bank 2017) http pubdocsworldbank org en 383241495487103815 RER - 37 - May26 - FINAL - with - summary
594-71613_ch01_4Pindd 11 102017 404 PM
US-Russia Economic Relations12
in bilateral business afairs in the early 2000s was less significant than in later years As result
growing po liti cal tensions from 2003 to 2008 did not dramatically afect bilateral economic inter-
action It is also easier to explain why 2011ndash2012 resulted in rec ord trade and investmentmdash a con-
sequence of very high oil prices GDP growth in both countries improved legislation after Rus siarsquos
accession to the WTO and the Obamandash Medvedev po liti cal reset From 2014 to 2016 a perfect
storm of developments added efficiency to Western sanctions and augmented the damaging
consequences of counter- sanction mea sures
Figure 33 also confirms that in times of reduced economic cooperation po liti cal pressures can
easily change bilateral economic trends Moreover business interests along with economic inter-
actions have a limited capacity to reverse the po liti cal mainstream
Figure 31 Economic Cycle 2014ndash2016
Source Authorrsquos evaluation of international financial institutions (IFI) data and sources from respective
countries
Sustainable Growth
Brazil
Negative Growth
Unstable Growth
Mexico
Descending Growth
Argentina
EU
US
Russia
Vietnam
China
594-71613_ch01_4Pindd 12 102017 404 PM
Vadim Grishin 13
Table 31 Po liti cal Cycles in Bilateral US- Russia Relations 1999ndash2016
2001ndash2002 The George W Bushndash Vladimir Putin Reset Rus sia supported ldquoglobal war on terrorismrdquo launched by the United States after 911 the SORT nuclear arms reduction treaty was signed by the United States and Rus sia and a successful business dialogue was developed that created the current structure of economic relations
2003ndash2008 Deterioration in bilateral relations brought on by the Iraq War Georgiarsquos ldquoRose Revolutionrdquo Mikhail Khodorkovskyrsquos arrest Ukrainersquos ldquoOrange Revolutionrdquo Kosovorsquos in de pen dence and the Georgian War
2009ndash2010 The Barack Obamandash Dmitry Medvedev Reset Rus sia served as a logistical hub for transportation and supply of US forces in Af ghan i stan United States and Rus sia signed the new START nuclear arms reduction treaty Rus sia backed tighter economic sanctions on Iran Rus sia gained access to the WTO after 18 years of negotiations
2011ndash2016 Deterioration in bilateral relations caused by the Ukrainian crisis which were followed by sanctions and counter- sanctions along with the Syrian crises and cyber- enabled activities
Source Authorrsquos evaluation of po liti cal and economic data
Note SORTthinsp=thinspStrategic Ofensive Reductions Treaty STARTthinsp=thinspStrategic Arms Reduction Treaty
Figure 32 Economic Cycle 2017ndash2019
Source Authorrsquos evaluation of IFI data and sources from respective countries
Egypt
VenezuelaEU
South Africa
Brazil
Russia
India
US
Descending Growth
Korea
China
Negative Growth
Unstable Growth
Sustainable Growth
594-71613_ch01_4Pindd 13 102017 404 PM
US-Russia Economic Relations14
Figure 33 US- Russia Trade Million US$ vs Po liti cal Cycle 2000ndash2016
Sources US Census Bureau ldquoTrade in Goods with Rus siardquo Foreign Trade last modified June 29 2017
https wwwcensus gov foreign - trade balance c4621 html (see data for 2000ndash2016) authorrsquos evaluation
of po liti cal and economic data
Orange Revolution
Khodorkovskys arrest
GeorgianWar
Bush- Putin Reset
Iraq War Global Financial Crisis
Obama-Medvedev Reset
Russias WTO accession
New START Treaty
A Pefect Storm the Ukranian Crisis Oil Prices Crashing
Sanctions and Counter-Sanctions
$3000
$8000
$13000
$18000
$23000
$28000
$33000
$38000
$43000
2000 2002 2004 2006 2008 2010 2012 2014 2016
594-71613_ch01_4Pindd 14 102017 404 PM
15
The current structure of US- Russia economic relations emerged in the early 2000s when the
model of trade and investment interaction took on a character similar to that which existed be-
tween the United States and developing economies US imports from Rus sia centered on com-
modities while technology along with food products lead American exports The primary
exception was that Rus sia supplied nuclear fuel including highly enriched uranium extracted from
nuclear weapons for US power plants and provided ser vices to the aerospace industry primarily
in satellite launches However both these exceptions can be explained as a legacy of the Soviet
past and not a harbinger of the future economic relationship (Figure 41)
In the last 15 years this trade structure has not changed significantly The only noticeable shift in
trade was a dramatic drop (to practically nothing) in exports of US agricultural products a result
of Rus siarsquos policy of import substitution and so- called counter- sanction mea sures it took in re-
sponse to US sanctions over the Ukraine crisis (Figure 42)
Promising new directions of cooperation in the IT sector and in engineering ser vices for the
aerospace industry appeared in the early 2000s1 but did not spill into other sectors and conse-
quently did little to renew economic cooperation on the whole The integration of Rus sian high-
tech ser vices into large- scale global production and value chains was constrained by the usual
culprits a lack of financial resources managerial experience skilled labor modern infrastructure
RampD investments and an adequate business environment High commodity prices incentivized the
restoration of an economic system centered on resource rents The leading role of oil and gas
extraction and transportation discouraged the development of a nonenergy sector that might
have created advanced and complex production and ser vices An import substitution policy could
not work efficiently in an economic environment plagued by the Dutch disease where currency
1 The Boeing Design Center was created in Moscow It consists of nearly 250 Boeing employees managing
a team of 1200 contract engineers from Rus sian and Ukrainian aerospace companies ldquoBackgrounder Boeing in
Rus siardquo Boeing last modified January 2017 http wwwboeing com resources boeingdotcom company key _ orgs
boeing - international pdf russia - cisbackgrounder pdf
Are the United States and Rus sia ldquoNatu ralrdquo Trading Partners A Little Bit of History
04
594-71613_ch01_4Pindd 15 102017 404 PM
US-Russia Economic Relations16
inflows (oil money) lead to ruble appreciation and render a countryrsquos production less competitive
During that time Rus siarsquos industry did not receive preferential access to larger markets and could
not expand its share in the global economy particularly because of its self- isolation from the
regional trade agreements (except for its participation in the Eurasian Economic Union with some
neighboring countries of the former Soviet Union) As a result neither import substitution nor
export- led strategy promoted growth and specialization in nonoil production A long- awaited
modernization and reallocation of resources from an inefficient nontrade sector to a trade sector
did not materialize
These limits were later augmented with sanctions and an extension of domestic restrictions on
cooperation with Western partners Importantly the rapid growth of state- monopoly structures in
the Rus sian economy over the past 15 years has created additional obstacles to the development
and diversification of US- Russia economic ties
Figure 41 US Imports from Rus sia US$ 2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2016)
Fish and shellfish 3
Crude oil 5
Fuel oil 37
Petroleum products other
8
Nuclear fuel materials
7
Chemicals-fertilizers 4
Steelmaking materials 5
Iron and steel mill products 4
Bauxite and aluminum 9
Other precious metals 4
Nonferrous metals other 1
Finished metal shapes 1
Synthetic rubber--primary
1
Spacecraftexcluding military
594-71613_ch01_4Pindd 16 102017 404 PM
Fig
ure
42
U
S E
xpo
rts
to R
us s
ia U
S$ 2
016
Sou
rce
US
Ce
nsu
s B
ure
au ldquo
Trad
e in
Go
od
s w
ith
Ru
s sia
rdquo (s
ee
dat
a fo
r 2
016
)
Bak
ery
pro
du
cts
Win
e b
eer
an
d r
elat
ed
pro
du
cts
New
spri
nt
Pla
stic
mat
eria
ls
Ch
emic
als-
fert
ilize
rs
Ch
emic
als-
ino
rgan
icC
hem
ical
s-o
rgan
ic
Ch
emic
als-
oth
erC
ott
on
fib
er c
loth
In
du
stri
al r
ub
ber
pro
du
cts
Min
eral
su
pp
lies-
man
ufa
ctu
red
Gen
erat
ors
acc
esso
ries
Ele
ctri
c ap
par
atu
s
Dri
llin
g amp
oilfi
eld
eq
uip
men
t Sp
ecia
lized
min
ing
Exc
avat
ing
mac
hin
ery
No
nfa
rm t
ract
ors
an
d p
arts
In
du
stri
al e
ng
ines
Fo
od
to
bac
co m
ach
iner
y M
etal
wo
rkin
g m
ach
ine
too
ls
Tex
tile
sew
ing
m
ach
ines
W
oo
d g
lass
p
last
ic
Pu
lp a
nd
pap
er
mac
hin
ery
Mea
suri
ng
tes
tin
g
con
tro
l in
stru
men
ts
Mat
eria
ls h
and
ling
equ
ipm
ent
Ind
ust
rial
mac
hin
es
oth
er
Ph
oto
ser
vice
ind
ust
ry m
ach
iner
y A
gri
cult
ura
l mac
hin
ery
eq
uip
men
t C
om
pu
ters
Co
mp
ute
r ac
cess
ori
es
Sem
ico
nd
uct
ors
Tel
eco
mm
un
icat
ion
seq
uip
men
t
Bu
sin
ess
mac
hin
es a
nd
eq
uip
men
t
Lab
ora
tory
tes
tin
g in
stru
men
ts
Med
icin
al e
qu
ipm
ent
Civ
ilian
air
craf
t e
ng
ines
eq
uip
men
t a
nd
par
ts
Rai
lway
tra
nsp
ort
atio
n
equ
ipm
ent
Ves
sels
exc
lud
ing
scr
ap
Co
mm
erci
al v
esse
ls o
ther
M
arin
e en
gin
es p
arts
Spac
ecra
ft e
xclu
din
g
mili
tary
Pas
sen
ger
car
s
new
an
d u
sed
Tru
cks
bu
ses
and
sp
ecia
l p
urp
ose
ve
hic
les
En
gin
es a
nd
en
gin
e p
arts
(c
arb
ure
tors
pis
ton
s r
ing
s
and
val
ves)
B
od
ies
and
ch
assi
s fo
r p
asse
ng
er c
ars
Au
tom
oti
ve t
ires
an
d t
ub
es
Oth
er p
arts
an
d a
cces
sori
es o
f ve
hic
les
Ap
par
el h
ou
seh
old
go
od
s -
text
ile
Ph
arm
aceu
tica
lp
rep
arat
ion
s
Furn
itu
re h
ou
seh
old
go
od
s
etc
R
ug
s
Cel
l ph
on
es a
nd
oth
er
ho
use
ho
ld g
oo
ds
ne
c
594-71613_ch01_4Pindd 17 102017 404 PM
US-Russia Economic Relations18
Figure 43 US Trade in Goods with Rus sia Million US$ 1992ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
Russian Financial Crisis
Oil price Increased from$2446 USD per barrel (2001)
to $9694 USD per barrel(2008)
Global Financial Crisis
Oil price high record in2011-2012
(more that $111 USD perbarrel)
Oil price crashed
$-
$5000
$10000
$15000
$20000
$25000
$30000
$35000
$40000
$45000
$50000
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia US Exports to Russia US-Russia Trade in Goods
No doubt po liti cal ups and downs add volatility to US- Russia trade Nevertheless Rus siarsquos eco-
nomic structure exhausted itself before the Ukrainian crisis and the recent Rus sian recession Its
limitations are not only due to some mistakes in policy or negative coincidences of circumstances
but rather to deeply rooted properties in the current bilateral trade model related to structural
issues in the Rus sian economy Structural constraints such as the weak enforcement of property
rights poor business regulation and nondiversified exports weighed on Rus sian trade with the
United States From this perspective the term ldquonaturalunnatural trading partnersrdquo does not ad-
dress the unused capacity of bilateral interaction or the real challenges that kind of interaction
faces It just adds metaphysical flavor to the very specific economic and po liti cal factors that
determine the US- Russia trajectory
Overall the outlines of bilateral trade (Figure 43) resemble the famous ldquoRus sian Mountainsrdquo that
were a pre de ces sor of the modern roller coaster icy hills supported by wooden constructionsmdash a
rigid and immobile structure that sooner or later would melt This unfortunately is what is hap-
pening to US- Russia trade cooperation now
594-71613_ch01_4Pindd 18 102017 404 PM
19
ARE LITTLE FISH REALLY SWEET
Low US- Russia economic interaction has at least two consequences First it limits the capacity of
policymakers to exploit trade as an instrument for geopo liti cal combat Even the question of a US
trade deficit which used to be a headache for many US trading partners has become so insig-
nificant in absolute terms (about $87 billion in 2016) that it seems hardly worth caring about
When the volume of trade between two countries becomes very small in absolute terms whether
a country is running a surplus or deficit is no longer relevant But it also renders another type of
confrontations (sometimes more dangerous) more likely since the two traders have little to lose
Second in an environment marked by low levels of bilateral trade both sides could incentivize (if
and when a desire for po liti cal rapprochement exists) the signing of new trade deals which are
elevated symbolically as a turning point in bilateral po liti cal relations (ie the sale of Boeings to
Rus sia or the delivery via tankers of Rus sian oil to US refineries) Sometimes markets themselves
pres ent ldquogiftsrdquo that can be capitalized on po liti cally US- USSR grain trade in the 1970s was one
such ldquogiftrdquo large sales of American grain to the Soviet Union helped US policymakers win favor
with the po liti cally impor tant American farming sector and permitted Soviet leaders to maintain
access to a dietary staple for the Soviet population
The strong 32 percent growth in value of US imports from Rus sia from January to May 2017
versus January to May 2016 ( Table 51) is an example of a development that has tempted officials
to pres ent it as a sign of positive change due to ldquogrowing business activitiesrdquo (this kind of statement
was heard before the bilateral summit in Germany in July 2017) although the reason for that leap
was evidently an increase in commodity prices (mainly of oilmdash see Table 52) and not a rise in
entrepreneurial interactions The primary beneficiaries of that upside rally have been two other
petro- economies Saudi Arabia and Venezuela ( Tables 53 and 54)
Sector Analyses
05
594-71613_ch01_4Pindd 19 102017 404 PM
US-Russia Economic Relations20
Table 51 US Imports from Rus sia Million US$ Januaryndash May 2016 vs Januaryndash May 2017
Year January February March April May Total
2016 9603 6871 11097 12257 10977 50805
2017 12215 10220 16979 13471 14147 67032
Change 271 487 530 99 289 319
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
Table 52 Change in Urals Crude Oil Prices US$ per Barrel Januaryndash May 2016 vs Januaryndash May 2017
Januaryndash May 2016 Januaryndash May 2017 Change ($) Change ()
3601 5129 1528 424
Source Ministry of Finance of the Rus sian Federation https wwwminfin ru ru ixzz4mMIZ7XtC
Table 53 US Imports from Saudi Arabia Million US$ Januaryndash May 2016 vs Januaryndash May 2017
Year January February March April May Total
2016 15114 9036 13555 10844 14679 63228
2017 19802 20298 21650 16211 19542 97503
Change 3101 12463 5972 495 331 542
Source US Census Bureau ldquoTrade in Goods with Saudi Arabiardquo Foreign Trade last modified June 29 2017
https wwwcensus gov foreign - trade balance c5170 html (see data for 2016ndash2017)
594-71613_ch01_4Pindd 20 102017 404 PM
Vadim Grishin 21
Table 54 US Imports from Venezuela Million US$ Januaryndash May 2016 vs Januaryndash May 2017
Year January February March April May Total
2016 6657 5560 7140 8007 7922 35286
2017 13041 10864 123500 11148 12243 59646
Change 9590 9540 7297 3923 5454 6903
Source US Census Bureau ldquoTrade in Goods with Venezuelardquo Foreign Trade last modified June 29 2017
https wwwcensus gov foreign - trade balance c3070 html (see data for 2016ndash2017)
Table 55 US Exports to Rus sia Million US$ Januaryndash May 2016 vs Januaryndash May 2017
Year January February March April May Total
2016 3628 3577 7298 4657 4947 24107
2017 3144 4277 5386 6670 4806 24283
Change minus133 196 minus262 432 minus29 minus07
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2016ndash2017)
At the same time US exports to Rus sia continue to stagnate ( Table 55) due to low levels of
consumption during a two-and- a- half-year economic crisis a deep ruble devaluation sanctions
and counter- sanctions
Given the very dif er ent economic structures and resource endowments of Rus sia and the United
States it is not surprising that US- Russia trade is asymmetric and oil driven (Figure 51) A
3 percent increase in Urals oil prices translates into a one percent increase in US import growth
from Rus sia Thus in 2016 every $10 increase in Urals crude oil added $15 billion to the value of
US imports or 11 percent to the total value of imports from Rus sia
OIL ADDICTION
Oil is a core pillar of US- Russia bilateral trade A bumpy ride in oil markets afects commerce
Nevertheless Rus sian oil exports to the United States in physical terms have been rather
594-71613_ch01_4Pindd 21 102017 404 PM
US-Russia Economic Relations22
sustainable Starting from 2005 average annual deliveries have been above 150 million barrels
(Figure 52) Crude and heating oil have dominated while petroleum products and liquefied petro-
leum gases have not (Figure 53) In 2011 oil exports peaked at 228 million barrels but declined to
159 million barrels in 2016mdash a drop of 30 percent Rec ord high shipments of Rus sian oil to the United
States coincided with an elevation in oil prices which made the subsequent decline in oil shipment
value between 2011 and 2016 (by about 72 percent as shown in Figure 54) seem more stark The
increase in price also raised the share of oil in Rus sian exports by 74 percent in 2011 (Figure 55)
The Rus sian share in total US oil imports was around 55 percent in 2011 and 43 percent in 2016
( Table 56) In the last five years the United States has relied exclusively on consumption of Rus sian
oil for the rough equivalent of one week out of the year (Figure 56)
It is unlikely that Rus sia can significantly increase its share of the US oil market and there is a real
possibility for a downward trend There are several reasons the historically high Rus sian hydrocar-
bon export threshold of 2011 will not soon if ever be surpassed
First US energy consumption will likely be flat According to the US Energy Information Adminis-
tration (EIA) demand for petroleum and other liquids in the United States will be about 35ndash36
quadrillion British thermal units (BTUs) with minimal variation over the next 25 years1
1 US EIA ldquoAnnual Energy Outlook 2017 with Projections to 2050rdquo January 5 2017 7ndash8
Figure 51 US- Russia Trade Growth () vs US and Rus sia Real GDP Growth () 1993ndash2016
Source IMF ldquoIMF Datardquo accessed September 27 2017 http wwwimf org en Data US Census Bureau
ldquoTrade in Goods with Rus siardquo
Note rGDPthinsp=thinspreal gross domestic product
Trade
USA rGDP growth
Russia rGDP growth
-60
-40
-20
0
20
40
60
80
100
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Gro
wth
All spikes in US-Russia trade have been connected with two main
variables volume and price of crude oil
594-71613_ch01_4Pindd 22 102017 404 PM
Vadim Grishin 23
Second the United States will become a net energy exporter between 2020 and 2030 in most
cases under dif er ent combinations of oil and natu ral gas prices GDP growth technological
breakthroughs and the availability of energy resources The role of oil imports will dramatically
fall2
Third oil price scenarios as described by the International Energy Agency (IEA) international
financial organ izations (IFIs) and many national agencies are very cautious and assume that even
by 2035 to 2040 oil prices will not to recover to the levels of 2011ndash20123
Fourth Rus sian oil production and export growth will be modest and driven by Asian economic
expansion and will comprise a decreasing share of Western markets4 According to forecasts from
2 Ibid 15ndash18
3 Ibid table 3 ldquoEnergy Prices by Sector and Sourcesrdquo World Bank World Bank Commodity Markets Price Forecasts
(Washington DC World Bank 2017) httpswwwworldbank org en research commodity - markets Organ ization of the
Petroleum Exporting Countries (OPEC) World Oil Outlook 2016 (Vienna OPEC 2016)
4 E D Belotskaia et al Global and Rus sian Energy Outlook 2016 (Moscow Energy Research Institute of the Rus sian
Acad emy of Science Analytical Center for the Government of the Rus sian Federation 2016) http acgov ru files
publication a 12767 pdf
Figure 52 US Imports from Rus sia Crude Oil and Petroleum Products Thousands of Barrels 1995ndash2016
Source US EIA ldquoUS Imports by Country of Origin Rus siardquo Petroleum amp Other Liquids September 13
2017 http wwweia gov dnav pet PET _ MOVE _ IMPCUS _ D _ NUS _ NRS _ MBBL _ M htm
0
50000
100000
150000
200000
250000
Date 1995 1996 1997 1998 199920002001200220032004200520062007200820092010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 23 102017 404 PM
US-Russia Economic Relations24
the Organ ization of the Petroleum Exporting Countries (OPEC) crude oil exports from Rus sia and
the Caspian region to the United States will dis appear by 20255
So why does the Rus sian Urals blend continue to be attractive for oil traders and US refineries
which could pro cess greater volumes of domestically produced lighter crude There are two main
reasons One is related to the preference of US high conversion refineries (the most sophisticated
in the world) to work with heavy oil blends produced by Canada Mexico Iraq Venezuela and
Rus sia Pro cessing heavy crude now is as profitable as pro cessing lighter crude The so- called
crack spreadmdash the diference between the cost of relatively cheap heavy crude oil and the final
price of value- added consumer products (diesel gasoline jet fuel and heating oil)mdash has become
the same as the refinery margins of light sweet crude6 This has primarily afected light oil produc-
ing countries such as Angola Algeria and Nigeria
5 OPEC World Oil Outlook 2016 306ndash309
6 ldquoHow Much for That Heavy Oilrdquo Oil Sands Magazine December 26 2015 https wwwoilsandsmagazine com
news 2015 12 26 how - much - for - that - heavy - oil
Figure 53 US Imports from Rus sia Oil and Petroleum Products US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$-
$25000000000
$20000000000
$15000000000
$10000000000
$5000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Liquefied petroleum gases
Petroleum products other
Fuel oil
Crude oil
594-71613_ch01_4Pindd 24 102017 404 PM
Vadim Grishin 25
Another factor afecting purchase of Rus sian oil is a new trend among oil companies for further
consolidation of scale and for integrating operations of upstream and downstream business7
There have been several waves of separation and unification of production transportation and
pro cessing in the last 50 years The current business cycle can be seen as an adaptation to a
period of low prices and oversupply Companies that buy andor produce oil in Rus sia most likely
prefer to transport and pro cess this oil in their own modern refineries in the United States At the
same time some of the newest refinery designs specifically for pro cessing heavy oils have been
built in Asia thus extending the choices of heavy oil producing countries
We should also consider that leading US and international oil traders along with oil producing
companies working with or owning US refineries frequently buy Rus sian oil on the open market
and have long- term contracts on Rus sian crude oil delivery Many Rus sian oil companies prefer to
pay for purchases or ser vices with their future production instead of cash creating situations of
ldquostickyrdquo oil imports that are difficult to replace The best- known example is an interaction between
7 ldquoEnergy and Utilities Sectorrdquo Roundtable Financier Worldwide December 2015 https wwwfinancierworldwide
com roundtable - energy - utilities - sector - dec15
Figure 54 US Imports of Oil and Petroleum Products from Rus sia vs Oil Prices Eu rope Brent Spot Price Free on Board (FOB) 1996ndash2017
Source US EIA ldquoUS Imports by Country of Origin Rus siardquo
0
20
40
60
80
100
120
140
0
5000
10000
15000
20000
25000
30000
Jan
-19
96
Jun
-19
96
No
v-19
96
Ap
r-19
97
Sep
-19
97
Feb
-19
98
Jul-
199
8D
ec-1
99
8M
ay-1
99
9O
ct-1
99
9M
ar-2
00
0A
ug
-20
00
Jan
-20
01
Jun
-20
01
No
v-2
00
1A
pr-
20
02
Sep
-20
02
Feb
-20
03
Jul-
20
03
Dec
-20
03
May
-20
04
Oct
-20
04
Mar
-20
05
Au
g-2
00
5Ja
n-2
00
6Ju
n-2
00
6N
ov-
20
06
Ap
r-2
00
7Se
p-2
00
7Fe
b-2
00
8Ju
l-2
00
8D
ec-2
00
8M
ay-2
00
9O
ct-2
00
9M
ar-2
010
Au
g-2
010
Jan
-20
11Ju
n-2
011
No
v-2
011
Ap
r-2
012
Sep
-20
12Fe
b-2
013
Jul-
20
13D
ec-2
013
May
-20
14O
ct-2
014
Mar
-20
15A
ug
-20
15Ja
n-2
016
Jun
-20
16N
ov-
20
16
USD
per
Bar
rel
Th
ou
san
d B
arr
els
US Imports from Russia of Crude Oil and Petroleum Products (Thousand Barrels)
Europe Brent Spot Price FOB (Dollars per Barrel)
594-71613_ch01_4Pindd 25 102017 404 PM
US-Russia Economic Relations26
Table 56 US Oil Imports All Countries vs Rus sia Thousand Barrels per Day 2011ndash2016
Years 2011 2012 2013 2014 2015 2016
All Countries 11436 10598 9859 9241 9449 10058
Rus sia 624 477 460 330 371 433
Share 546 450 467 357 393 431
Sources US EIA ldquoUS Imports by Country of Origin Total Crude Oil and Productsrdquo Petroleum amp Other
Liquids September 13 2017 wwweia gov dnav pet pet_move_impcus_a2_nus_ep00_im0_mbbl_m htm
authorrsquos computation
Figure 55 US Imports from Rus sia Share of Crude Oil and Petroleum Products Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
57
64
73
72
74
73
72
59
52 50
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
$40000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil and Petroleum Products
594-71613_ch01_4Pindd 26 102017 404 PM
Vadim Grishin 27
the Rus sian state mono poly Rosneft and commodity trading and mining giant Glencore which
along with energy and commodities com pany Vitol participated in a $10 billion prepayment
deal with Rosneft for crude supplies in 2013
There have been a number of ongoing transactions between the Rus sian oil industry and interna-
tional oil companies including several that top the list of importers of Rus sian oil to the United
States ( Table 57) In December 2016 Glencore participated in a controversial privatization opera-
tion purchasing in tandem with the Qatar sovereign wealth fund a 195 percent stake in Rosneft
which was on the US and EU list of sanctioned firms8 Glencore has also taken a blocking stake in
midsize oil producer RussNeft BP owns a 1975 percent stake in Rosneft Chevron holds a
15 percent interest in the 935- mile- long CPC9 pipeline which transports an average of 959000
barrels of crude oil per day including 76000 barrels daily from Rus sia10 ExxonMobil has formed
8 E Mazneva and I Arkhipov ldquoRus sia Sells $11 Billion Stake in Rosneft to Glencore Qatarrdquo Bloomberg December 7
2016
9 CPCthinsp=thinspCaspian Pipeline Consortium
10 ldquoRus sia Highlights of Operations and Business Portfoliordquo Chevron accessed October 3 2017 https wwwchevron
com worldwide russia
Figure 56 Share of Rus sian Oil in Total US Oil Imports Thousands of Barrels per Day 1972ndash2016
Source US EIA ldquoUS Imports by Country of Origin Total Crude Oil and Productsrdquo
2000
4000
6000
8000
10000
12000
14000
16000
US Imports of Crude Oil and Petroleum Products (Thousand Barrels per Day)
US Imports from Russia of Crude Oil and Petroleum Products (Thousand Barrels per Day)19
7319
7419
7519
7619
7719
7819
7919
80
198
119
82
198
319
84
198
519
86
198
719
88
198
919
90
199
119
92
199
319
94
199
519
96
199
719
98
199
92
00
02
00
12
00
22
00
32
00
42
00
52
00
62
00
72
00
82
00
92
010
20
112
012
20
132
014
20
152
016
594-71613_ch01_4Pindd 27 102017 404 PM
Table 57 Top Importers of Rus sian Oil to the United States Thousands of Barrels 2016
VALERO MARKETING amp SUPPLY CO 54590 3616
EXXONMOBIL OIL CORP 17087 1130
CHEVRON USA INC 15217 1008
BP WEST COAST PRODUCTS LLC 10130 671
GEORGE E WARREN CORP 7272 48
PAULSBORO REFINING CO LLC 6838 453
TESORO CORP 5097 338
VITOL INC 5084 337
PHILLIPS 66 CO 4726 313
TRAFIGURA AG 4360 289
PAR HAWAII REFINING LLC 3893 258
MOTIVA ENTERPRISES LLC 3041 205
SHELL US TRADING CO 2863 19
MARATHON PETROLEUM CO LLC 2475 16
ATLANTIC TRADING amp MARKETING 2099 14
FREEPOINT COMMODITIES LLC 1439 1
GLENCORE LTD 1284 85
BEST PETROLEUM CORP 967 64
ROLYMPUS US COMMODITIES GROUP LLC 822 6
HUNT CRUDE OIL SUPPLY CO 666 4
GULF OIL LP 658 4
Source US EIA ldquoUS Imports by Country of Origin Crude Oilrdquo Petroleum amp Other Liquids September 13
2017 httpswwweiagovdnavpetpet_move_impcus_a2_nus_epc0_im0_mbblpd_ahtm authorrsquos
computation
594-71613_ch01_4Pindd 28 102017 404 PM
Vadim Grishin 29
several joint ventures with Rosneft to undertake ofshore exploration in the Black Sea and the Kara
Sea in Siberia11
According to the Sanctions Act US persons are prohibited from exporting or reexporting goods
ser vices (except financial ser vices) and technology in support of exploration or production of new
deep- water Arctic ofshore or shale oil proj ects that involve designated Rus sian entities or other
entities in which such sanctioned persons have a controlling interest or a substantial noncontrol-
ling owner ship interest defined as not less than 33 percent (previously it was 50 percent) The new
law also authorizesmdash but does not requiremdash the imposition of so- called secondary sanctions
against non- US entities that engage in activities involving the construction maintenance or
expansion of Rus sian energy export pipelines with a fair market value of $1 million or more or an
aggregate fair market value during a 12- month period of $5 million12 This provision has raised the
concerns of some Eu ro pean countries particularly Germany As result the final language of the
law included wording about coordination of this issue with allies of the United States
Shipments of Rus sian oil to the United States could be afected by activity in the US refinery
industry In early 2017 Saudi Aramco bought the United Statesrsquo largest oil refinery in Port Arthur
(Texas) and it announced plans to send more of its own crude to that refinery13 Serious concerns
exist however regarding the future of three refineries and nine pipelines owned by Citgo a US
branch of the Venezuelan state com pany PdVSA which is balancing precariously on the edge of
default Under certain conditions in the event of PdVSA bankruptcy Rosneft could claim a stake of
up to 499 percent in Citgo Such a possibility has raised concerns among politicians and US
government officials with Trea sury Secretary Steven Mnuchin calling it a ldquonational security issuerdquo14
Tables 58 59 and 510 show allocations of Rus sian oil imports to major US refineries some of
which work exclusively on Rus sian crude a total of two to three months per year In total 150940
thousand barrels of Rus sian oil were refined in 2016
Figure 57 confirms a leading position of Texas and Louisiana among the US states receiving
Rus sian crude followed by New Jersey California Mississippi Washington Hawaii and Delaware
In a paradoxical way Texas has dis appeared from the list of states as a main destination of US
imports from Rus sia (Figure 58) because Rus sian crude is mostly delivered to Louisiana ports and
registered there by US Customs as an import from Rus sia After that it transports to refineries in
Louisiana and Texas
Overall the short- term business rationale behind the sustainability of US oil imports from Rus sia
cannot overcome strong headwinds in the US energy sector facing all oil importers which will
inevitably lead to a contraction of Rus sian oil exports to the United States in the foreseeable future
11 Exxon eforts to receive a special US Trea sury waiver to drill in sanctioned Rus sia failed in 2017
12 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364
13 Sarp Ozkan ldquoSaudi Aramcorsquos Port Arthur Refinery and the US Refinery Fleetrdquo Drilling Info May 11 2017
https infodrillinginfo com saudi - aramcos - port - arthur - refinery - us - refinery - fleet
14 Graham Kates ldquoTrea sury Secretary Rus siarsquos Citgo Deal a National Security Issuerdquo CBS News May 1 2017
http wwwcbsnews com news rosneft - citgo - steven - mnuchin - national - security
594-71613_ch01_4Pindd 29 102017 404 PM
US-Russia Economic Relations30
Table 58 Valerorsquos Refineries Pro cessing Rus sian Oil Thousands of Barrels 2016
Saint Charles Louisiana 29206 535
Corpus Christi Texas 20626 378
Wilmington California 4250 78
Total USA 54590 100
Source US EIA ldquoRefinery Capacity Reportrdquo January 1 2017
table 5 wwweia gov petroleum refinerycapacity table5 pdf
authorrsquos computation
Table 59 ExxonMobil Refineries Pro cessing Rus sian Oil Thousands of Barrels 2016
Baytown Texas 15037 88
Baton Rouge Louisiana 2046 12
Total USA 17083 100
Source US EIA ldquoRefinery Capacity Reportrdquo authorrsquos computation
Table 510 Chevronrsquos Refineries Pro cessing Rus sian Oil Thousands of Barrels 2016
Pascagoula Mississippi 12767 840
El Segundo California 2372 155
Saint Rose Louisiana 78 05
Total USA 15217 100
Source US EIA ldquoRefinery Capacity Reportrdquo authorrsquos computation
594-71613_ch01_4Pindd 30 102017 404 PM
Vadim Grishin 31
HEAVY METAL
Taken together US imports of metals and US imports of oil compose about 80 percent of US
total imports from Rus sia (Figure 59) Trade of metals like other commodities is strongly afected
by market price fluctuations Nevertheless metal imports from Rus sia have been fairly resilient to
market volatility and their average annual value has hovered at about $4 billion in the last five years
(Figure 510) This market resilience was forged at the end of the 1990searly 2000s when Rus sian
metal producers gradually modernized their plants adjusting quality of production to Western
standards and enhancing integration into global value and supply chains Some of them conquered
their share of the highly competitive US market struggling with peers from Canada and certain
BRICS countries (China India and Brazil) To attract additional resources all Rus sian large metal-
producing companies became public and were listed on stock exchanges chiefly the London Stock
Exchange (Severstalrsquo PAO Evraz MMK OAO Novolipetsk Steel Norilsk Nikel and TMK PAO) one
on the New York Stock Exchange (Mechel) and one on the Hong Kong Stock Exchange (Rusal)
Business logic pushed some of them to invest in the US metal- making industry which was hit
hard by crisis Later on some of those assets were sold (eg two US steel mills acquired by
Severstal in 2004 were purchased 10 years later by Steel Dynamics Inc and AK Steel Corp)
Figure 57 Share of US States Rus sian Oil Imports 2016
Source US EIA ldquoUS Imports from Rus sia of Crude Oil and Petroleum Productsrdquo Petroleum amp Other
Liquids September 29 2017 https www eia gov dnav pet hist LeafHandler ashx nshy=shyPETampsshy=shyMTTIM _ NUS
- NRS _ 1ampfshy=shyM authorrsquos computation
0
10
20
30
40
50
60
70
80
90
100
Maine
Massachusetts
Maryland
Connecticut
Georgia
Rhode Island
Virginia
Florida
New York
Alabama
Puerto Rico
Pennsylvania
Delaware
Hawaii
Washington
Mississippi
California
New Jersey
Louisiana
Texas
594-71613_ch01_4Pindd 31 102017 404 PM
Figure 58 US Imports from Rus sia by State Million US$ 2013ndash2016
Source US Census Bureau ldquoState and Metropolitan Area Trade Datardquo Foreign Trade last modified
October 2 2017 https wwwcensus gov foreign - trade statistics state
Alaska
Connecticut
Delaware
Hawaii
Louisiana
Maryland
North Dakota 0
$1000
$2000
$3000
$4000
$5000
$6000
2013 2014 2015 2016
Alabama
Alaska
Connecticut
Delaware
Hawaii
Louisiana
Maryland
Maine
Mississippi
Montana
North Dakota
Mississippi
Figure 59 US Imports from Rus sia Share of Oil and Metals Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
83
82
85
86
87
88
85
82
7375
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
$40000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil and Metals
594-71613_ch01_4Pindd 32 102017 404 PM
Vadim Grishin 33
Obviously the market dynamic of dif er ent metals varies (eg iron steel aluminum platinum and
nickel) Caps to increase their trade and production in a ldquored oceanrdquo global environment with
anemic demand is rather limited despite Figure 510 showing a spike of iron and steel imports
from Rus sia in 2014 and aluminum in 2016 Some opportunities may exist for Russian- owned steel
plants in the United States (such as NLMK) to participate in energy proj ects resumed under Presi-
dent Trump who has required that new pipelines use only American- made steel15
Rus sia occupies a special niche in the US market for titanium products a high- end metal indus-
try Twenty years ago a long- term contract was signed between Rus sian titanium producer
VSMPO- AVISMA and Boeing The Rus sian com pany entered the selective club of Boeing suppliers
for the manufacture of components and semi- finished products Since the signing of this contract
VSMPO has delivered more than 35 percent of all titanium placed on Boeing civil aircraft16 They
are hidden in the trade data in an import category for Civilian Aircrafts and Parts (Figure 511) At
the end of 2016 Boeing announced an extension of its framework agreement with AVISMA
15 E Scheyder C Ngai and T Sylvester ldquoAmerican Steel Unlikely to Get Keystone Boost Despite Trump Orderrdquo
Reuters January 27 2017 http wwwreuters com article usa - trump - pipeline - transcanada - idUSL1N1FH1ZD
16 A Kramer ldquoTitanium Fills Vital Role for Boeing and Rus siardquo New York Times July 5 2013 http wwwnytimes com
2013 07 06 business global titanium - fills - vital - role - for - boeing - and - russia html mcubzshy=shy3
Figure 510 US Imports from Rus sia Iron Steel Bauxite Aluminum Nickel Nonferrous Metals and Other Precious Metals and Materials US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
0
$6000000000
$5000000000
$4000000000
$3000000000
$2000000000
$1000000000
2007 2008 2009 2010 2011 20122013
20142015
2016
Finished metal shapes
Iron and steel advanced
Iron and steel products nec
Nonferrous metals other
Other precious metals
Nickel
Bauxite and aluminum
Iron and steel mill products
Steelmaking materials
594-71613_ch01_4Pindd 33 102017 404 PM
US-Russia Economic Relations34
through 2022 and additional investments in the construction of a new robotic plant in Titanium
Valley a special economic zone located in the Sverdlovsk region that will open in 2018 The pro-
cessing of titanium forgings in all Boeing civil aircraft will be performed there including 787s 737
MAXs and 777Xs17 The contract extension with AVISMA may add several hundred million dollars
in value to annual US imports from Rus sia
How can such heavy reliance on imports of Rus sian titanium exist during a period of rising geopo-
liti cal tensions The answer is straightforward VSMPO- AVISMA is a highly specialized natu ral
mono poly producing 45 percent of the worldrsquos aerospace titanium Only four other countries
smelt high- grade titanium in industrial quantities the United States Germany Japan and China
Overall global production capacity is limited while demand is growing The United States cur-
rently imports around 79 percent of all the titanium it consumes each year18
17 ldquoBoeing and VSMPO Avisma to Launch Second Joint Production Siterdquo Rus sian Aviation Insider December 22 2016
http wwwrusaviainsider com boeing - and - vsmpo - avisma - to - launch - second - joint - production - site
18 Jon Ostrower and Andy Pasztor ldquoBoeing United Technologies Stockpile Titanium Partsrdquo Wall Street Journal
August 7 2014 https wwwwsj com articles boeing - united - technologies - stockpiling - titanium - parts - 1407441886
Figure 511 US Imports from Rus sia Civilian Aircrafts and Parts US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
$200000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Parts-civilian aircraft
Civilian aircraft
594-71613_ch01_4Pindd 34 102017 404 PM
Vadim Grishin 35
The Sanctions Act authorizes the secretary of the trea sury (in a nonmandatory way) to impose
restrictions (without specifying them) against Rus sian state- owned entities operating in the railway
metals and mining sectors of the Rus sian economy Despite the commanding heights of Rus siarsquos
state sector owner ship in its economy (70 percent of GDP) the metal- producing companies have
remained mostly in private hands
NUCLEAR AFFAIRS
Historically owners and operators of the 104 commercial nuclear power reactors in the United
States have purchased more than 80 percent of their uranium from foreign countries Uranium
shipping from Rus sia accounted for about 13 percent of the 58 million pounds of uranium pur-
chased overseas in 201219 At the same time the Rus sian state- owned mono poly Rosatom ac-
counts for 20 percent of Kazakhstanrsquos uranium production (which in turn comprises 11 percent of
all US uranium imports) and 20 percent of US domestic uranium production capacity (with
owner ship of exploration tracts in Wyoming)20
Nuclear fuel and nuclear power continue to be po liti cally sensitive topics both in the United
States and Rus sia Bilateral cooperation in this sector (being surprisingly stable with imports of
nuclear fuel from Rus sia at a level of $1 billion annually in the last five years [Figure 512 and 513])
is under constant po liti cal and lobbying pressure and has been a source of several po liti cal scan-
dals21 Consequently upside risks in this area of interaction are minimal and downside risks are
much higher especially when we are seeing more decommissioning of nuclear plants in the
United States than new constructions The US EIArsquos 2017 Annual Energy Outlook assumes
that about 25 percent of the nuclear capacity now operating will be removed from ser vice
by 205022
WHY IS THE GRASS GREENER ON THE OTHER SIDE
The United States continues to significantly reduce imports of chemical fertilizers as domestic pro-
duction increases In 2016 the United States imported 13 percent less ammonia and 11 percent
less urea and UAN which is a liquid urea and ammonium nitrate fertilizer Rus sia accounts for
around 40 percent of UAN imported by the United States The United States canceled antidumping
duties on imports of ammonium nitrate and urea from Rus sia in 2016 but it did not prevent import
19 US EIA ldquoThe US Relies on Foreign Uranium Enrichment Ser vices to Fuel Its Nuclear Power Plantsrdquo Today in
Energy August 28 2013 https wwweia gov todayinenergy detail php idshy=shy1273
20 Colin Chilcoat ldquoDoes Rus sia Really Own 20 Percent of the USrsquo Uranium Reservesrdquo OilPricecom May 6 2015
http oilpricecom Alternative - Energy Nuclear - Power Does - Russia - Really - Own - 20 - Of - The - US - Uranium - Reserves
html
21 Michelle Ye Hee Lee ldquoThe Facts behind Trumprsquos Repeated Claim about Hillary Clintonrsquos Role in the Rus sian Ura-
nium Dealrdquo Washington Post October 26 2016
22 US EIA ldquoAnnual Energy Outlook 2017 with Projections to 2050rdquo 81ndash82
594-71613_ch01_4Pindd 35 102017 404 PM
Figure 512 US Imports from Rus sia Share of Oil Metals and Nuclear Fuel Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
87
86
90
90
90
91
88
86
7882
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals and Nuclear Fuel
Figure 513 US Imports from Rus sia Nuclear Fuel Materials US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$-
$200000000
$400000000
$600000000
$800000000
$1200000000
$1000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 36 102017 404 PM
Vadim Grishin 37
drops twice last year (Figures 514 and 515) According to forecasts UAN imports are expected to
decline further to 15 million tons this year down over 46 percent from 28 million tons imported
last year23 The downside trend in imports of fertilizers will likely continue because of oversupply
BIG FISH
US imports of fish and shellfish from Rus sia are best understood in comparison with US fish
exports to the Rus sian market which slipped to zero in August 2014 after Rus sia issued an order
banning certain agricultural imports from the United States (Figure 516) While the volume of US
supply was not very large it was impor tant because it broke up the monopolistic dominance of a
few vertically integrated Rus sian companies that have kept prices high by restricting the entry of
new producers Seeking to implement import substitution policies Rus sia has tried to reduce
exports as well as imports of fish and seafood products in the last couple of years This symmetri-
cal approach was intended to ldquocompensaterdquo for a decrease of fish products in the domestic
23 Deepika Thapliyal ldquoPotashCorp Forecasts Sharp Drop in US Nitrogen Imports in 2017rdquo ICIS News February 7
2017 https wwwicis com resources news 2017 02 07 10076734 potashcorp - forecasts - sharp - drop - in - us - nitrogen
- imports - in - 2017
Figure 514 US Imports from Rus sia Share of Oil Metals Nuclear Fuel and Fertilizers Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
90
93
92
93
94
95
92
91
85
86
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals Nuclear Fuel and Fertilizers
594-71613_ch01_4Pindd 37 102017 404 PM
Figure 515 US Imports from Rus sia Chemical- Fertilizers US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
S-
$200000000
$400000000
$600000000
$800000000
$1000000000
$1200000000
$1400000000
$1600000000
$1800000000
$2000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Figure 516 US Exports to Rus sia Fish and Shellfish US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$10000000
$20000000
$30000000
$40000000
$50000000
$60000000
$70000000
$80000000
$90000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Fish and shellfish
594-71613_ch01_4Pindd 38 102017 404 PM
Vadim Grishin 39
consumer market caused by Rus siarsquos import ban but it has failed As result the group most af-
fected by the self- imposed counter- sanctions were Rus sian consumers
With a significant drop in fish imports a devaluation of the ruble and inflationary pressures on
seafood prices yearly consumption of fish in Rus sia has declined precipitously In 2015 alone
fish prices increased 20 percent and consumption dropped to 14 kilograms per person24 from
22 kilograms in 201425 In 2016 food rose to 355 percent of house hold expenditure as a result of
increases in food prices26 This has pushed vertically integrated fishing monopolies to sell even
more of their catch abroad rather than deliver to the Rus sian Federation (Figure 517) Thus we
cannot exclude the possibility of further growth in US fish and shellfish imports from Rus sia on a
marginal scale
24 Александр Савельев ldquoПотребление рыбы в России упало до 14 кг на человекаrdquo [Fish consumption in Rus sia fell to
14 kg per person] Экономика Интерфакс January 28 2015 http wwwinterfax ru business 492038
25 Илья Шестаков ldquoПотебление рыбы в России снизилось на 10 процентов из- за роста ценrdquo [Fish consumption in
Rus sia dropped by 10 percent due to price increases] RNS March 8 2017 https rnsonline consumer - market
Potreblenie - ribi - v - Rossii - snizilos - na - 10 - iz - za - rosta - tsen - 2017 - 03 - 08
26 Zoya Sheftalovich and Christian Oliver ldquoRus siarsquos Boom (Farming) Economyrdquo Politico November 8 2016 http
wwwpolitico eu article russias - boom - farming - economy
Figure 517 US Imports from Rus sia Fish and Shellfish US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$50000000
$100000000
$150000000
$200000000
$250000000
$300000000
$350000000
$400000000
$450000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 39 102017 404 PM
US-Russia Economic Relations40
SPACE ODYSSEY
Among high- end products beyond the top five groups of goods imported from Rus sia cheap and
efficient Rus sian engines have been used to launch US rockets into space for about 16 years
(Figure 518) There was a serious po liti cal strug gle around a 2014 ban on the purchase of Rus sian
RD-180 rocket engines revealing the conflicting business interests of power ful high- tech companies
This restrictive mea sure was temporary and was quickly lifted because of significant cost impacts
and risks of disruption to launch schedules27 For the same reason the Sanctions Act does not autho-
rize ldquothe imposition of any sanction or other condition limitation restriction or prohibition that
directly or indirectly impedes the supply by any entity of the Rus sian Federation of any product or
ser vice or the procurement of such product or ser vice by any contractor or subcontractor of the
United States or any other entity relating to or in connection with any space launch conducted for
the National Aeronautics and Space Administration or any other nonndash Department of Defense
customerrdquo28
Nevertheless many experts believe that US domestic alternatives to replace Rus sian engines will
be viable in five to eight years
27 Ken Dilanian ldquoWhy Does the US Use Rus sian Rockets to Launch Its Satellitesrdquo NBC News updated November 15
2016 http wwwnbcnews com why - does - u - s - use - russian - rockets - launch - its - satellites - n588526
28 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364
Figure 518 Spacecraft Excluding Military US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 40 102017 404 PM
41
Diversity and technological complexity are the most vis i ble advantages supporting US exports to
Rus sia Three major groups of export goods include civilian aircraft engines and parts (Figure 61)
drilling and oil field equipment (Figure 62) and industrial machines and engines (Figure 63)
Despite sanctions against the transfer of advanced oil producing and pro cessing technologies the
realization of US drilling and oil field equipment in Rus sia is sustainable although some bilateral
proj ects have been frozen
Another category of goods that has demonstrated resilience is the phar ma ceu ti cal industry (Fig-
ure 64) because most drugs in Rus sia are imported (about 70 percent of the Rus sian phar ma ceu-
ti cal market in value) Import substitution policies have had only modest results in this industry
As confirmed by American Chamber of Commerce surveys US exports to Rus sia are closely
connected to US FDI 30 percent of total imports of US companies working in the Rus sian
market come from the United States (more than $2 billion in 2016) In other words about
40 percent of all US exports to Rus sia are related to a US corporate- sector business pro cess in
the country The major sectors of activity of these companies are energy and natu ral resources
(52 percent) manufacturing (17 percent) information and communications technology or ICT
(13 percent) retail (7 percent) automotive industry (6 percent) phar ma ceu ti cal production
(1 percent) professional ser vices (05 percent) and other (2 percent)1
Some obvious constraints on US exports to Rus sia have resulted from a reduction in demand A
deterioration of bilateral relations and implementation of sanctions and counter- sanctions have
directly or indirectly afected all businesses Figures 65 and 66 provide data regarding a dramatic
drop in the sale of US agricultural production in Rus sia with all other categories of exports in
goods showing big cuts as well (see Figures 67ndash69)
Exports of civilian aircraft engines and parts put the state of Washington in first place among
other states as a leading exporter to the Rus sian market (Figure 610)
1 American Chamber of Commerce in Rus sia ldquoInvestment and Import to Rus sia 2nd Surveyrdquo 13
Diversity and Constraints
06
594-71613_ch01_4Pindd 41 102017 404 PM
Figure 61 US Exports of Civilian Aircraft Engines Equipment and Parts to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
$2500000000
$2000000000
$1500000000
$1000000000
$500000000
$-
Figure 62 US Exports of Drilling and Oil Field Equipment US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
$40000000
$45000000
$50000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 42 102017 404 PM
Figure 63 US Exports of Industrial Engines to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Figure 64 US Exports of Phar ma ceu ti cal Preparations to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 43 102017 404 PM
Figure 65 US Exports of Meat and Poultry to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Meat poultry etc
$1000000000
$800000000
$600000000
$400000000
$200000000
$-
$1200000000
$1400000000
$1600000000
Figure 66 US Exports of Soybeans to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
$200000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 44 102017 404 PM
Figure 67 US Exports of Vehicles Engines and Parts to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Other parts and accessories of vehicles
Automotive tires and tubes
Bodies and chassis for passenger cars
Engines and engine parts (carburetors pistonsrings and valves)
Trucks buses and special purpose vehicles
Passenger cars new and used
$2500000000
$2000000000
$1500000000
$500000000
$-
$1000000000
Figure 68 US Exports of Medicinal Equipment to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 45 102017 404 PM
Figure 610 US Exports to Rus sia by States (2016 US$ Value) Million US$ 2013ndash2016
Source US Census Bureau ldquoState and Metropolitan Area Trade Datardquo
Iowa Kentucky
North Dakota
Oklahoma
South Carolina
Washington
0
$500
$1000
$1500
$2000
2013 2014 2015 2016
District of Columbia
Iowa
Kentucky
North Dakota
Oklahoma
South Carolina
Washington
Figure 69 US Exports of Excavating Machinery to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
$40000000
$45000000
$50000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 46 102017 404 PM
47
Upon reviewing the current trend in US- Russia economic relations we must acknowledge that
the existing trade model is obsolete and exhausted Imports are resource- oriented and reflect
constraints of the Rus sian economic structure while five groups of goodsmdash oil metals nuclear
fuels fertilizers and fishmdash make up more than 90 percent of total imports from Rus sia (Figure 71)
Each of these industries has a limited capacity for growth in the foreseeable future
Rus siarsquos core export to the United Statesmdash oilmdash will inevitably decrease in the mid- term under any
scenario The value and volume of Rus sian exports to the United States are open to global market
volatility and po liti cal pressures with limited hedging mechanisms
Overall US exports to Rus sia are unsustainable due to bilateral po liti cal tensions the whims of
commodity markets and changing domestic policies Sanctions and counter- sanctions have
created additional barriers particularly in finance banking high- tech energy and agro- business
According to the American Chamber of Commerce 69 percent of US companies working in the
country consider the impact of US sanctions against Rus sia on their business as negative At the
same time 60 percent of companies do not expect big changes in business relations between
Rus sia and the United States under Trump1 as the new law codifies existing sanctions fortifies
them and extends them to new sectors
Current US investments are low due to the weak rule of law in Rus sia a lack of property right
protections and proper contract enforcement high levels of statization and monopolization in the
economy a poor business climate outdated capital stock dependence on natural- resource
sectors and of course sanction and counter- sanction mea sures Bloated administrative compo-
nents created as risk mitigation instruments have also served as impediments The countryrsquos
institutional weakness low level of productivity bud get constraints and a declining inflexible
workforce will restrain future economic growth even if commodity prices recover Rus sian eco-
nomic policy will likely continue to be statist and protectionist relying mostly on import
substitutions
1 Ibid 11
Existing Trends and Future Scenarios
07
594-71613_ch01_4Pindd 47 102017 404 PM
US-Russia Economic Relations48
What scenarios can be expected in such a challenging environment
One probability (no peace no war) is based on the assumption that matters will not deteriorate
further and implementation of the Sanctions Act will be cursory This will cause relatively slow
degradation in the economic field with occasional flashes of activity in selected areas (eg closer
cooperation against Islamist terrorist groups in Syria)
A second worse case or critical scenario is the intensive and full- scale execution of current sanc-
tion legislation and even the imposition of new economic punitive and restrictive mea sures which
could incite asymmetric retaliatory actions and lead to the introduction of additional protectionist
policies This in turn could trigger a further escalation of mutual confrontation and could eventu-
ally destroy the fundamentals of the current bilateral trade system Rus sian leadership has charac-
terized the Sanctions Act as a declaration of a trade war that ends all hope for improving bilateral
relations2
2 Дмитрий Медведев ldquoПодписание президентом США нового санкционного закона против России создает несколько
последствийrdquo [The US Presidentrsquos signing of the package of new sanctions against Rus sia will have a few conse-
quences] Facebook August 2 2017 https wwwfacebook com Dmitry Medvedev posts 10154587161801851
Figure 71 US Imports from Rus sia Share of Oil Metals Nuclear Fuel Fertilizers and Fish Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
93
94
93
94
95
96
93
92
87
89
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals Nuclear FuelFertilizers and Fish
594-71613_ch01_4Pindd 48 102017 404 PM
Vadim Grishin 49
The best case and most favorable scenario looks less probable now It assumes the realization of
structural reforms in Rus sia in such a way that would adapt Rus siarsquos foreign policy to national
economic needs reduce confrontations with the West and make a concerted efort to integrate
Rus sian businesses into global supply and value chains A revitalization of the structural reform
agendamdash including eforts to diversify economic activities through de- monopolization and support
for SMEs a restructuring of the banking sector the creation of a vibrant business climate to foster
entrepreneurships and innovation the implementation of administrative and judicial reforms to
tackle red tape and endemic corruption and the reduction of state control over key sectors of the
economy via wide- spread privatization could kick- start the development of a nonoil economy and
improve long- term growth prospects Despite ongoing discussion of reform strategies deep
economic and po liti cal changes are extremely complicated over the next po liti calelectoral cycle
(2018ndash2024) particularly because of re sis tance of vested interests and growing commodity prices
The urgency to tackle structural shortcomings in natu ral resource- dependent economies usually
correlates with the price of those resources and the degree to which resource rents drive eco-
nomic activity However there may be marginal improvements in the efficiency of the current
economic system
Future US- Russia relations can be thought of through three pillars one pillar focuses on areas
where both countries maintain a competitive rivalry another looks at potential areas of interaction
under pres ent conditions a third pillar and one that has evaporated from the current bilateral
agenda concentrates on future cooperation Stronger economic ties could not only be a kind of
po liti cal shock absorber but contribute to the building of this future (particularly business contacts
aim to support future structural reforms) although po liti cal factors are depressing the prospects
for cooperation To escape deadlock it will be impor tant to establish the right balance between
politics and economics and create a model of collaboration within the framework of contention
594-71613_ch01_4Pindd 49 102017 404 PM
About the Author
Vadim Grishin PhD MBA has been involved in the reform pro cess in Rus sia as adviser to the
deputy prime minister of Rus sia in 1992ndash1993 and 2006ndash2010 He has extensive experience
working with the Bretton Woods Institutions He was the board member of the World Bank Group
and served as se nior adviser at the International Monetary Fund Currently he is a con sul tant to the
chief economistrsquos office of the International Finance Corporation and teaches the economics of
transition at Georgetown University in Washington DC
50
594-71613_ch99_4Pindd 50 102017 403 PM
Blank
COVER PHOTO ADOBE STOCK
1616 Rhode Island Avenue NW
Washington DC 20036
202 887 0200 | wwwcsisorg
v++ISBN 978-1-4422-8035-9
Lanham bull Boulder bull New York bull London
4501 Forbes Boulevard
Lanham MD 20706
301 459 3366 | wwwrowmancom
A U T H O R
Vadim Grishin
Myths and Realities
A Report of the
CSIS RUSSIA AND EURASIA PROGRAM
US-RussiaEconomicRelations
O C T O B E R 2 0 1 7
Euml|xHSLEOCy280359z
The Man Pupu Nyor Rock Formations at the Northern Urals also known as Seven
Strong Man or Little Mountain of the God in the local tribe (Mansi) language
1
01
Introduction
A friend of mine a devoted connoisseur of bilateral economic relations with 30 years of experi-
ence in the field once noted that the hottest discussions about US- Russia ties occur at a time
when mutual trade is compressed into the value of a mathematical error This is exactly what is
happening now According to official statistics the value of US- Russia trade is about $20 billion
and is rolling back to the level of 20051 There is no doubt that a new set of sanctions recently
signed into law by the US president and currently being implemented will further hurt economic
interaction by reducing financial inflows limiting the transfer of technology and expertise and
dampening business confidence Many policymakers and experts have agreed that HR 3364
(Countering Amer i carsquos Adversaries through Sanctions Act2) by expanding and codifying US
sanctions targeting Rus sia opens a new cycle in bilateral relations This legislation which received
overwhelming bipartisan support creates a new economic and po liti cal framework on a bilateral
track Strong concerns expressed by President Donald Trump in his special statement about
ldquounconstitutional provisions of the ldquoflawed billrdquo3 cannot significantly limit its intended and
unintended consequences In its implementation it could have relatively broad margins of flexibil-
ity and leverage but requires the president to seek congressional approval before easing or termi-
nating sanctions against Rus sia or undertaking actions that would significantly modify US policy
toward Rus sia Additional observations regarding HR 3364rsquos pos si ble impact on US- Russia
interaction in par tic u lar industries can be found throughout this report but suffice it to say that it
will contribute to a broader curtailment of many pillars of economic cooperation for years ahead
1 US Census Bureau ldquoForeign Trade Trade in Goods with Rus siardquo Foreign Trade updated June 29 2017 https
wwwcensus gov foreign - trade balance c4621 html
2 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364 115th Cong (2017ndash2018) https www
congress gov bill 115th - congress house - bill 3364
3 Donald J Trump ldquoStatement by President Donald J Trump on the Signing of HR 3364rdquo White House Office of the
Press Secretary August 2 2017 https wwwwhitehouse gov the - press - office 2017 08 02 statement - president
- donald - j - trump - signing - hr - 3364
594-71613_ch01_4Pindd 1 102017 404 PM
US-Russia Economic Relations2
Escalating geopo liti cal tensions have continued to significantly define Rus siarsquos economic prospects
however the countryrsquos economic model exhausted itself long before the dramatic deterioration of
relations with the West Structural bottlenecks have seriously limited Rus siarsquos growth capacity even
during the previous period of high oil prices4
The purpose of this report is to assess what has gone wrong with the US- Russia equation by
analyzing it through the prism of a bilateral economic and po liti cal trajectory while keeping in
mind the structural constraints of the Rus sian economy It will attempt to answer the following
questions
bull Do bilateral economic relations matter
bull Are the United States and Rus sia ldquonatu ralrdquo or ldquounnaturalrdquo trading partners
bull What future scenarios can we expect
In the vast lit er a ture on US- Russia economic relations analy sis of developing trends in bilateral
commerce has always been accompanied by discussions around impor tant po liti cal and eco-
nomic matters particularly regarding US legislation and regulation5 Over several de cades the
most controversial issues concerned the granting of permanent normal trading status to Rus sia
through legislation that eliminated the Jackson- Vanik Amendment and Rus siarsquos accession to
the World Trade Organ ization (WTO) The Magnitsky Act signed into law in 2012 repealed the
Jackson- Vanik provisions but added legislation providing authority for the US government to
withhold visas and freeze assets of Rus sians thought to have been involved with human rights
violations and later imposed sanctions on Rus sia because of its involvement in the Ukrainian and
Syrian crises and its cyber- enabled activities6
Some have observed deficiencies in Rus siarsquos participation in the international division of labor
(reliance on the export of energy and metals) which ldquo canrsquot serve any more as a basis for further
expansion of the countryrsquos position in world markets including the US marketrdquo7 Unfortunately
such observations have not been accompanied by quantitative and qualitative analy sis of structural
constraints in the Rus sian foreign trade model Many authors limit their policy recommendations
for fostering bilateral economic relations to a requirement for a strong initial push from respective
governments the creation of business working groups and the extension of bilateral and multilat-
eral legal grounds for economic cooperation Such instruments proved to be useful in facilitating
4 International Monetary Fund (IMF) Rus sian Federation Selected Issues (Washington DC IMF 2016)
5 ldquoAmer i carsquos New Economic Sanctions May Hurt Rus siarsquos Recoveryrdquo Economist August 5 2017 Andrey Kortunov and
Olga Oliker eds A Roadmap for US- Russia Relations (Washington DC CSISRIAC 2017) https csis - prods3
amazonaws com s3fs - public publication 170815 _ KortunovOliker _ USRussiaRelations _ Web pdf E0bdGVHlxxYRAxhO
w8zJ9tbRGwdWjEgV Самуйлов CM Братерский MB ldquoКонгресс и торговые отношения США с Россиейrdquo [US
Congressrsquos role in the US- RF trade relations] США и Канада экономика политика культура 5 no 533 (May 2014)
6 Andrew Weiss and Richard Nephew ldquoThe Role of Sanctions in US- Russian Relationsrdquo (Task Force White Paper
Car ne gie Endowment for International Peace Washington DC July 11 2016)
7 Глущенко ЮН ldquoСостояние проблемы и перспективы сотрудничества России и США в экономической сфереrdquo
[Status prob lems and prospects of Russia- US economic cooperation] Проблемы Национальной Стратегии 21 no 6
(2013) 148ndash164
594-71613_ch01_4Pindd 2 102017 404 PM
Vadim Grishin 3
trade and investment during several reset cycles in bilateral relations starting in the 1990s but
they were only partially successful
Several papers and books although focused primarily on bilateral po liti cal agendas or sectorial
analy sis underline the importance of Rus sian domestic realities Dr Angela Stent in her ldquoLimits of
Partnershiprdquo notes that state control of the commanding heights in the Rus sian economy creates
significant deterrents for US private- sector entrance into the market8 Thane Gustafson in the
ldquoWheel of Fortunerdquo asserts that Rus siarsquos growing dependence on revenue from oil exports along
with its inefficient and often- corrupt management of industry is unsustainable9 Andrew Kuchins
in his ldquoElevation and Calibration A New Rus sia Policy for Amer i cardquo has quoted some experts who
believe that the weakened Rus sian economic position may over time contribute to some rap-
prochement with the West and emphasized lack of reforms as ldquoa key obstacle not only for Rus sian
economic recovery but also for improving ties with the Westrdquo10
In a recent joint task force report Eugene Rumer Andrew S Weiss and Richard Sokolsky argue
that the concept of developing stronger economic ties with Rus sia as a foundation for improved
diplomatic relations has not worked ldquoClinton Bush and Obama all placed high hope on trade as
an engine of better relations with Rus sia All were frustrated by the fact that the two countries are
for the most part not natu ral trading partnersrdquo11 On a dif er ent note the former US envoy to
Rus sia Michael McFaul has defended the achievements of a reset policy under the Barack Obama
administration emphasizing that bilateral trade reached a rec ord level in 2011 Nevertheless he
also stresses that it was a one- time accomplishment unlikely to be repeated12
Voices of those who believe that extensive economic ties can provide stability to broader po liti cal
interaction are weaker than ever in an environment of growing protectionism and adversarial rivalry
8 Angela Stent The Limits of Partnerships US- Russian Relations in the XXI Century (Prince ton NJ Prince ton
University Press 2014) 98
9 Thane Gustafson Wheel of Fortune The Battle for Oil and Power in Rus sia (London Harvard University Press 2012)
10 Andrew Kuchins Elevation and Calibration A New Rus sia Policy for Amer i ca (Washington DC Center on Global
Interests 2016)
11 Eugene Rumer Richard Sokolsky and Andrew S Weiss ldquoTrump and Rus sia The Right Way to Manage Relationsrdquo
Foreign Affairs 96 no 2 (MarchApril 2017)
12 Michael McFaul ldquoUS- Russia Relationsrdquo (lecture Institute for Public Diplomacy and Global Communications
George Washington University Washington DC March 3 2017) https wwwc - span org video 424811 - 1 former
- ambassador - michael - mcfaul - discusses - state - usrussia - relations
594-71613_ch01_4Pindd 3 102017 404 PM
4
02
Does Bilateral Economic Interaction Matter
Economic relations do not emerge out of a vacuum There are many variables that define the final
configuration of economic interactions such as a par tic u lar countryrsquos level of economic develop-
ment its business environment legal framework po liti cal climate (regime) culture and religion
history and tradition demography and geography as well as global and national economic cycles
An impor tant driver of trade relations for many economies has become participation in global and
regional trade agreements
As many studies and anecdotal evidence show bilateral economic cooperation should be sizable
and should relate to the economic growth of two countries in a way that afects their policy
interests Let us take as a reference point the BRICS countries1 a community of large emerging
economies which Rus sia belongs to Table 21 pres ents official data on US trade and investments
with BRICS states US- Russia trade in goods is disproportionally lowmdash235 times less than US
trade with China 33 times smaller than US trade with India and 28 times less than US trade
with Brazil The size of the US- Russia trade balance is comparable to the size of the US trade
balance with South Africa whose economy is almost four times smaller than Rus siarsquos If we add
trade in ser vices to the trade of goods the gaps increase significantly (Figures 21 and 22) The
diference is not only quantitative but also qualitative
The quality of trade relations can be mea sured by its diversity its share of high- tech components
resilience to economic shocks and its contribution to GDP growth On average a 10 percent
increase in a nationrsquos two- way trade relative to GDP increases GDP through a variety of channels
by at least 16 percent2
Bilateral trade and real GDP growth in the United States and Rus sia are practically uncorrelated
as shown in the summary output of multifactorial regression The coefficient of multiple determi-
nation (R Square) is close to 0 ( Table 22) At the same time the correlation of US exports to India
1 BRICS is the acronym for a select group of five developing economies Brazil Rus sia India China and South Africa
2 World Economic Forum Foreign Direct Investment as a Key Driver for Trade Growth and Prosperity The Case for a
Multilateral Agreement on Investment (Geneva World Economic Forum 2013) 11
594-71613_ch01_4Pindd 4 102017 404 PM
Vadim Grishin 5
Table 21 US Trade and Foreign Direct Investments (FDI) with China India Brazil South Africa and Rus sia 2016
China India Brazil South Africa Rus sia
Total Goods Trade 5786 677 565 13 203
Imports 4628 460 262 73 145
Exports 1158 217 303 55 58
Trade in Ser vices 696 472 317 47 na
Imports 161 268 68 17 na
Exports 535 203 249 30 na
US FDI 746 283 653 62 141
BRICS FDI in the United States
148 93 043 076 63
Supported Jobs in the United States (thousand)
911 197 308 50 84
Source United States Trade Representative (USTR) ldquoCountries amp Regionsrdquo accessed September 27 2017
https ustrgov countries - regions See US- China Trade Facts US- India Trade Facts US- Brazil Trade
Facts US- South Africa Trade Facts and US- Russia Trade Facts
201520142013
and China with the real GDP growth of these big Asian economies is significant (05) In the case of
Brazil the correlation is even higher (07) By contrast South Africarsquos small open economy is quite
sensitive to US imports from South Africa (043)3
In marked contrast to other BRICS countries Rus sia is a poor choice for export- oriented opera-
tions As a recent International Monetary Fund (IMF) study highlights Rus sia is an outlier a rare
exception among emerging market (EM) economies with virtually no preferential access to major
markets and little meaningful change over three de cades4 This complicates Rus siarsquos integration
into the global value chain (GVC) which became a significant driving force toward economic
development and trade for certain BRICS economies
3 IMF statistics authorrsquos computation
4 IMF Rus sian Federation Selected Issues IMF Country Report N17198 (Washington DC IMF July 2017)
594-71613_ch01_4Pindd 5 102017 404 PM
US-Russia Economic Relations6
Trade is closely connected with foreign direct investment (FDI) and both are parts of a complex
interaction known as international production sharing According to publicly available official data
US FDI in Rus sia was about $131 billion for 2013 and $295 billion for 2016 with the top industrial
sectors being software and IT ser vices financial ser vices chemicals metals coal oil and gas
and business ser vices5 If we take into account US investments made through Eu ro pean branches
of US companies and ofshore firms this number would easily triple Another component
that usually is not tracked by official statistics is reinvestments The American Chamber of
Commerce surveys in 2016 and 2017 which include this component draw a completely dif er ent
picture accumulated US corporate FDI in 90 large US companies working in Rus sia reached
5 US Department of Commerce International Trade Administration ldquoRussiamdash94- Foreign Direct Investment and
Portfolio Investment Statisticsrdquo Rus sia Country Commercial Guide July 7 2017 https wwwexport gov article
id=shyRussia - foreign - direct - investment - statistics
Figure 21 US Trade in Goods with China India Brazil Rus sia and South Africa Billion US$ 2016
Source USTR ldquoCountries amp Regionsrdquo See US- China Trade Facts US- India Trade Facts US- Brazil Trade
Facts US- South Africa Trade Facts and US- Russia Trade Facts
0
$50
$100
$150
$200
$250
$300
$350
$400
$450
$500
$550
$600
China India Brazil Russia South Africa
Exports
Imports
594-71613_ch01_4Pindd 6 102017 404 PM
Vadim Grishin 7
$8244 billion in 20176 The real level from our perspective is usually between official and private
estimations around $40 billon But even this cumulative figure is less than the US FDI in Brazil
and China
The American Chamber of Commerce surveys have also revealed other impor tant data Eighty-
five percent of US companies doing business in Rus sia entered its market 10 or more years ago
while 60 percent of them ldquolandedrdquo there 20 years ago or earlier Only one percent have started
operations over the last five years confirming an obvious fact entry into the Rus sian market is
challenging because of growing monopolism risks associated with the business climate and a
stagnating economy7
6 American Chamber of Commerce in Rus sia ldquoInvestment and Import to Rus sia 2nd Surveyrdquo (Prepared by GfK for the
American Chamber of Commerce in Rus sia Moscow May 2017) 12
7 Ibid 4
Figure 22 US Trade in Goods and in Ser vices with China India Brazil Rus sia and South Africa Billion US$ 2016
Source USTR ldquoCountries amp Regionsrdquo See US- China Trade Facts US- India Trade Facts US- Brazil Trade
Facts US- South Africa Trade Facts and US- Russia Trade Facts
0
$100
$200
$300
$400
$500
$600
$700
China India Brazil Russia South Africa
Trade in Services
Total Goods Trade
594-71613_ch01_4Pindd 7 102017 404 PM
US-Russia Economic Relations8
Rus sian direct investment position toward the United States declined from $215 billion in 2013 to
$83 billion in 2015 (Figure 23) Taking into account dif er ent channels and instruments the actual
volume of Rus sian investments in the United States made through ofshore Eu ro pean Canadian
and US companies may be several times greater than the available official data
Foreign investment in financial assets or foreign portfolio investment (FPI) should be included
even though Central Bank of Rus sia statistics indicate they were also quite low US investments in
equity were $345 million and in debt instruments were about $65 million in the fourth quarter of
20168 However these numbers do not reflect the real level of FPI Rus siarsquos stocks are incredibly
inexpensive while there has been impressive growth of US investments in short- term securities
and in foreign exchange (FX) operations (cash- and- carry trade) Rus sia was among the top per-
forming emerging markets in 2016 gaining 4744 percent in US dollars9 Nevertheless the gen-
eral capitalization of the stock exchange is tiny (less than 20 percent of GDP) comparable to the
capitalization of just one large US com pany such as Coca- Cola Many private sources believe that
the US FPI in Rus sia could be as high as several billion US dollars but a new set of sanctions
approved by President Trump on August 2 2017 if implemented could reverse those flows It is
still not clear whether the secretary of trea sury will prohibit participation in the oferings of Rus siarsquos
sovereign debt and the full range of derivative products A report on this subject should be sub-
mitted no later than 180 days after enactment of the law which means no later than Febru-
ary 2018 New legislation tightens prohibition on Rus sian financial companies already under
sanctions by limiting any new equity or debt with a maturity greater than 14 days (a provision that
8 Central Bank of Rus sia ldquoForeign Direct Investments in the Rus sian Federationrdquo accessed September 27 2017 www
cbr ru localization switchlanguage urlshy=shy news ampfromshy=shyru - ruamptoshy=shyen - gb
9 VanEck ldquoRus sian Stock Market Soars in 2016rdquo Seeking Alpha February 14 2017 https seekingalphacom article
4045602 - russian - stock - market - soars - 2016
Table 22 Summary Output of Regression Statistics (US Real GDP Rus sia Real GDP US- Russia Exports Imports and Total Trade)
Regression Statistics
Multiple R 0056445768
R Square 0003186125
Adjusted R Square minus0042123597
Standard Error 2616043923
Observations 24
Sources IMF statistics authorrsquos computation
594-71613_ch01_4Pindd 8 102017 404 PM
Vadim Grishin 9
previously allowed for 30 days) Similarly US persons are prohibited from taking on any new debt
that has a maturity greater than 60 days (previously it was 90 days) with Rus sian energy compa-
nies currently under sanctions10
According to the Trea sury Department Rus sia held $1029 billion in US Trea sury securities in
June 201711 Could Rus sia withdraw all its reserves from the United States and use this action as a
retaliatory mea sure Such a scenario is unlikely since there is no comparable safe- haven alterna-
tive to US dollars When Rus siarsquos US Trea sury holdings dropped 50 percent from $176 billion
(October 2010) to $90 billion (November 2011) the market did not notice12 Nevertheless Rus sian
authorities have announced they will decrease dependence on assets and payments in US dollars13
10 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364
11 US Department of Trea sury Major Foreign Holders of Trea sury Securities September 18 2017 http ticdata
treasury gov Publish mfh txt
12 Ibid
13 ldquoНовый виток санкций Россия откажется от доллараrdquo [A new round of sanctions Rus sia will abandon the dollar]
Газетару August 7 2017 https wwwgazeta ru business 2017 08 07 10821937 shtml
Figure 23 Rus sia Outward FDI Position United States Equities and Debt Million US$ 2009ndash2016
Source Central Bank of the Rus sian Federation External Sector Statistics Rus sian Direct Investments
Abroad accessed September 27 2017 https wwwcbr ru localization switchlanguage urlshy=shy news
ampfromshy=shyru - ruamptoshy=shyen - gb
$6000
$8000
$10000
$12000
$14000
$16000
$18000
$20000
$22000
2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 9 102017 404 PM
US-Russia Economic Relations10
Officially the country does not invest in the US stock exchange although some Rus sian oligarchs
have bought US corporate bonds and equities in large amounts The new sanctions law requires
the secretary of trea sury in consultation with the director of national intelligence and the secretary
of state to issue reports on Rus sian se nior po liti cal figures and oligarchs based on their closeness
to the Rus sian regime and their net worth as well as the exposure of key economic sectors of the
United States to Rus sian po liti cally exposed persons and parastatal entities including at a mini-
mum the banking securities insurance and real estate sectors14
Only three Rus sian companies are listed in the US exchanges
Overall the scale and scope of US- Russia economic interaction and business activity is much greater
than officially appreciated but not significant enough to be taken into consideration by policymakers
14 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364
594-71613_ch01_4Pindd 10 102017 404 PM
11
03
Politics in the Driverrsquos Seat
Bilateral economic relations depend to a great extent on global and national economic cycles
After the recent global financial crisis the US economy has shown surprisingly sustainable GDP
growth while the Rus sian economy was the most afected among BRICS countries by the turbu-
lence of a worldwide economic downturn in 2008ndash2009 and after a short- term rebound slipped
into stagnation (2012ndash2013) and then into full- scale recession (2014ndash2016) The countryrsquos eco-
nomic cycle however appears to be changing once again with the economy returning to a
pattern of growth albeit uneven and gradual (Figures 31 and 32) Even with sanctions still in place
conditions have improved as a result of the stabilization of Urals oil to an average annual price of
$419 per barrel in 2016 The gains were sparked in part by major crude producers agreeing to cut
production after hefty price drops in 2014 and 2015 Supported by easier financial conditions
higher oil prices and growing macro- stability Rus sia is heading toward a moderate growth rate
that is expected to reach 14 percent this year according to forecasts of the World Bank Group
(WBG) and the IMF1
Because of the significant role that politics plays in any bilateral interaction it is impor tant to
combine economic and po liti cal cycles applying a ldquoresetrdquo to bilateral economic cooperation in
addition to the po liti cal relationship I have compared po liti cal cycles and trade dynamics using the
following graphs ( Table 31 and Figure 33) These charts do not pretend to reflect with mathemati-
cal precision all shifts in the bilateral po liti cal relationship but rather attempt to visually align
impor tant economic and po liti cal moments to detect the efects of po liti cal events on the size of
bilateral trade
Figure 33 shows all pos si ble combinations economic trends at the intersection of po liti cal devel-
opments oppose or support each other in synchronization It is evident that po liti cal interference
1 International Monetary Fund Rus sian Federation Staff Concluding Statement of the 2017 Article IV Mission (Wash-
ington DC IMF 2017) World Bank Group From Recession to Recovery Rus sia Economic Report no 37 (Washington
DC World Bank 2017) http pubdocsworldbank org en 383241495487103815 RER - 37 - May26 - FINAL - with - summary
594-71613_ch01_4Pindd 11 102017 404 PM
US-Russia Economic Relations12
in bilateral business afairs in the early 2000s was less significant than in later years As result
growing po liti cal tensions from 2003 to 2008 did not dramatically afect bilateral economic inter-
action It is also easier to explain why 2011ndash2012 resulted in rec ord trade and investmentmdash a con-
sequence of very high oil prices GDP growth in both countries improved legislation after Rus siarsquos
accession to the WTO and the Obamandash Medvedev po liti cal reset From 2014 to 2016 a perfect
storm of developments added efficiency to Western sanctions and augmented the damaging
consequences of counter- sanction mea sures
Figure 33 also confirms that in times of reduced economic cooperation po liti cal pressures can
easily change bilateral economic trends Moreover business interests along with economic inter-
actions have a limited capacity to reverse the po liti cal mainstream
Figure 31 Economic Cycle 2014ndash2016
Source Authorrsquos evaluation of international financial institutions (IFI) data and sources from respective
countries
Sustainable Growth
Brazil
Negative Growth
Unstable Growth
Mexico
Descending Growth
Argentina
EU
US
Russia
Vietnam
China
594-71613_ch01_4Pindd 12 102017 404 PM
Vadim Grishin 13
Table 31 Po liti cal Cycles in Bilateral US- Russia Relations 1999ndash2016
2001ndash2002 The George W Bushndash Vladimir Putin Reset Rus sia supported ldquoglobal war on terrorismrdquo launched by the United States after 911 the SORT nuclear arms reduction treaty was signed by the United States and Rus sia and a successful business dialogue was developed that created the current structure of economic relations
2003ndash2008 Deterioration in bilateral relations brought on by the Iraq War Georgiarsquos ldquoRose Revolutionrdquo Mikhail Khodorkovskyrsquos arrest Ukrainersquos ldquoOrange Revolutionrdquo Kosovorsquos in de pen dence and the Georgian War
2009ndash2010 The Barack Obamandash Dmitry Medvedev Reset Rus sia served as a logistical hub for transportation and supply of US forces in Af ghan i stan United States and Rus sia signed the new START nuclear arms reduction treaty Rus sia backed tighter economic sanctions on Iran Rus sia gained access to the WTO after 18 years of negotiations
2011ndash2016 Deterioration in bilateral relations caused by the Ukrainian crisis which were followed by sanctions and counter- sanctions along with the Syrian crises and cyber- enabled activities
Source Authorrsquos evaluation of po liti cal and economic data
Note SORTthinsp=thinspStrategic Ofensive Reductions Treaty STARTthinsp=thinspStrategic Arms Reduction Treaty
Figure 32 Economic Cycle 2017ndash2019
Source Authorrsquos evaluation of IFI data and sources from respective countries
Egypt
VenezuelaEU
South Africa
Brazil
Russia
India
US
Descending Growth
Korea
China
Negative Growth
Unstable Growth
Sustainable Growth
594-71613_ch01_4Pindd 13 102017 404 PM
US-Russia Economic Relations14
Figure 33 US- Russia Trade Million US$ vs Po liti cal Cycle 2000ndash2016
Sources US Census Bureau ldquoTrade in Goods with Rus siardquo Foreign Trade last modified June 29 2017
https wwwcensus gov foreign - trade balance c4621 html (see data for 2000ndash2016) authorrsquos evaluation
of po liti cal and economic data
Orange Revolution
Khodorkovskys arrest
GeorgianWar
Bush- Putin Reset
Iraq War Global Financial Crisis
Obama-Medvedev Reset
Russias WTO accession
New START Treaty
A Pefect Storm the Ukranian Crisis Oil Prices Crashing
Sanctions and Counter-Sanctions
$3000
$8000
$13000
$18000
$23000
$28000
$33000
$38000
$43000
2000 2002 2004 2006 2008 2010 2012 2014 2016
594-71613_ch01_4Pindd 14 102017 404 PM
15
The current structure of US- Russia economic relations emerged in the early 2000s when the
model of trade and investment interaction took on a character similar to that which existed be-
tween the United States and developing economies US imports from Rus sia centered on com-
modities while technology along with food products lead American exports The primary
exception was that Rus sia supplied nuclear fuel including highly enriched uranium extracted from
nuclear weapons for US power plants and provided ser vices to the aerospace industry primarily
in satellite launches However both these exceptions can be explained as a legacy of the Soviet
past and not a harbinger of the future economic relationship (Figure 41)
In the last 15 years this trade structure has not changed significantly The only noticeable shift in
trade was a dramatic drop (to practically nothing) in exports of US agricultural products a result
of Rus siarsquos policy of import substitution and so- called counter- sanction mea sures it took in re-
sponse to US sanctions over the Ukraine crisis (Figure 42)
Promising new directions of cooperation in the IT sector and in engineering ser vices for the
aerospace industry appeared in the early 2000s1 but did not spill into other sectors and conse-
quently did little to renew economic cooperation on the whole The integration of Rus sian high-
tech ser vices into large- scale global production and value chains was constrained by the usual
culprits a lack of financial resources managerial experience skilled labor modern infrastructure
RampD investments and an adequate business environment High commodity prices incentivized the
restoration of an economic system centered on resource rents The leading role of oil and gas
extraction and transportation discouraged the development of a nonenergy sector that might
have created advanced and complex production and ser vices An import substitution policy could
not work efficiently in an economic environment plagued by the Dutch disease where currency
1 The Boeing Design Center was created in Moscow It consists of nearly 250 Boeing employees managing
a team of 1200 contract engineers from Rus sian and Ukrainian aerospace companies ldquoBackgrounder Boeing in
Rus siardquo Boeing last modified January 2017 http wwwboeing com resources boeingdotcom company key _ orgs
boeing - international pdf russia - cisbackgrounder pdf
Are the United States and Rus sia ldquoNatu ralrdquo Trading Partners A Little Bit of History
04
594-71613_ch01_4Pindd 15 102017 404 PM
US-Russia Economic Relations16
inflows (oil money) lead to ruble appreciation and render a countryrsquos production less competitive
During that time Rus siarsquos industry did not receive preferential access to larger markets and could
not expand its share in the global economy particularly because of its self- isolation from the
regional trade agreements (except for its participation in the Eurasian Economic Union with some
neighboring countries of the former Soviet Union) As a result neither import substitution nor
export- led strategy promoted growth and specialization in nonoil production A long- awaited
modernization and reallocation of resources from an inefficient nontrade sector to a trade sector
did not materialize
These limits were later augmented with sanctions and an extension of domestic restrictions on
cooperation with Western partners Importantly the rapid growth of state- monopoly structures in
the Rus sian economy over the past 15 years has created additional obstacles to the development
and diversification of US- Russia economic ties
Figure 41 US Imports from Rus sia US$ 2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2016)
Fish and shellfish 3
Crude oil 5
Fuel oil 37
Petroleum products other
8
Nuclear fuel materials
7
Chemicals-fertilizers 4
Steelmaking materials 5
Iron and steel mill products 4
Bauxite and aluminum 9
Other precious metals 4
Nonferrous metals other 1
Finished metal shapes 1
Synthetic rubber--primary
1
Spacecraftexcluding military
594-71613_ch01_4Pindd 16 102017 404 PM
Fig
ure
42
U
S E
xpo
rts
to R
us s
ia U
S$ 2
016
Sou
rce
US
Ce
nsu
s B
ure
au ldquo
Trad
e in
Go
od
s w
ith
Ru
s sia
rdquo (s
ee
dat
a fo
r 2
016
)
Bak
ery
pro
du
cts
Win
e b
eer
an
d r
elat
ed
pro
du
cts
New
spri
nt
Pla
stic
mat
eria
ls
Ch
emic
als-
fert
ilize
rs
Ch
emic
als-
ino
rgan
icC
hem
ical
s-o
rgan
ic
Ch
emic
als-
oth
erC
ott
on
fib
er c
loth
In
du
stri
al r
ub
ber
pro
du
cts
Min
eral
su
pp
lies-
man
ufa
ctu
red
Gen
erat
ors
acc
esso
ries
Ele
ctri
c ap
par
atu
s
Dri
llin
g amp
oilfi
eld
eq
uip
men
t Sp
ecia
lized
min
ing
Exc
avat
ing
mac
hin
ery
No
nfa
rm t
ract
ors
an
d p
arts
In
du
stri
al e
ng
ines
Fo
od
to
bac
co m
ach
iner
y M
etal
wo
rkin
g m
ach
ine
too
ls
Tex
tile
sew
ing
m
ach
ines
W
oo
d g
lass
p
last
ic
Pu
lp a
nd
pap
er
mac
hin
ery
Mea
suri
ng
tes
tin
g
con
tro
l in
stru
men
ts
Mat
eria
ls h
and
ling
equ
ipm
ent
Ind
ust
rial
mac
hin
es
oth
er
Ph
oto
ser
vice
ind
ust
ry m
ach
iner
y A
gri
cult
ura
l mac
hin
ery
eq
uip
men
t C
om
pu
ters
Co
mp
ute
r ac
cess
ori
es
Sem
ico
nd
uct
ors
Tel
eco
mm
un
icat
ion
seq
uip
men
t
Bu
sin
ess
mac
hin
es a
nd
eq
uip
men
t
Lab
ora
tory
tes
tin
g in
stru
men
ts
Med
icin
al e
qu
ipm
ent
Civ
ilian
air
craf
t e
ng
ines
eq
uip
men
t a
nd
par
ts
Rai
lway
tra
nsp
ort
atio
n
equ
ipm
ent
Ves
sels
exc
lud
ing
scr
ap
Co
mm
erci
al v
esse
ls o
ther
M
arin
e en
gin
es p
arts
Spac
ecra
ft e
xclu
din
g
mili
tary
Pas
sen
ger
car
s
new
an
d u
sed
Tru
cks
bu
ses
and
sp
ecia
l p
urp
ose
ve
hic
les
En
gin
es a
nd
en
gin
e p
arts
(c
arb
ure
tors
pis
ton
s r
ing
s
and
val
ves)
B
od
ies
and
ch
assi
s fo
r p
asse
ng
er c
ars
Au
tom
oti
ve t
ires
an
d t
ub
es
Oth
er p
arts
an
d a
cces
sori
es o
f ve
hic
les
Ap
par
el h
ou
seh
old
go
od
s -
text
ile
Ph
arm
aceu
tica
lp
rep
arat
ion
s
Furn
itu
re h
ou
seh
old
go
od
s
etc
R
ug
s
Cel
l ph
on
es a
nd
oth
er
ho
use
ho
ld g
oo
ds
ne
c
594-71613_ch01_4Pindd 17 102017 404 PM
US-Russia Economic Relations18
Figure 43 US Trade in Goods with Rus sia Million US$ 1992ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
Russian Financial Crisis
Oil price Increased from$2446 USD per barrel (2001)
to $9694 USD per barrel(2008)
Global Financial Crisis
Oil price high record in2011-2012
(more that $111 USD perbarrel)
Oil price crashed
$-
$5000
$10000
$15000
$20000
$25000
$30000
$35000
$40000
$45000
$50000
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia US Exports to Russia US-Russia Trade in Goods
No doubt po liti cal ups and downs add volatility to US- Russia trade Nevertheless Rus siarsquos eco-
nomic structure exhausted itself before the Ukrainian crisis and the recent Rus sian recession Its
limitations are not only due to some mistakes in policy or negative coincidences of circumstances
but rather to deeply rooted properties in the current bilateral trade model related to structural
issues in the Rus sian economy Structural constraints such as the weak enforcement of property
rights poor business regulation and nondiversified exports weighed on Rus sian trade with the
United States From this perspective the term ldquonaturalunnatural trading partnersrdquo does not ad-
dress the unused capacity of bilateral interaction or the real challenges that kind of interaction
faces It just adds metaphysical flavor to the very specific economic and po liti cal factors that
determine the US- Russia trajectory
Overall the outlines of bilateral trade (Figure 43) resemble the famous ldquoRus sian Mountainsrdquo that
were a pre de ces sor of the modern roller coaster icy hills supported by wooden constructionsmdash a
rigid and immobile structure that sooner or later would melt This unfortunately is what is hap-
pening to US- Russia trade cooperation now
594-71613_ch01_4Pindd 18 102017 404 PM
19
ARE LITTLE FISH REALLY SWEET
Low US- Russia economic interaction has at least two consequences First it limits the capacity of
policymakers to exploit trade as an instrument for geopo liti cal combat Even the question of a US
trade deficit which used to be a headache for many US trading partners has become so insig-
nificant in absolute terms (about $87 billion in 2016) that it seems hardly worth caring about
When the volume of trade between two countries becomes very small in absolute terms whether
a country is running a surplus or deficit is no longer relevant But it also renders another type of
confrontations (sometimes more dangerous) more likely since the two traders have little to lose
Second in an environment marked by low levels of bilateral trade both sides could incentivize (if
and when a desire for po liti cal rapprochement exists) the signing of new trade deals which are
elevated symbolically as a turning point in bilateral po liti cal relations (ie the sale of Boeings to
Rus sia or the delivery via tankers of Rus sian oil to US refineries) Sometimes markets themselves
pres ent ldquogiftsrdquo that can be capitalized on po liti cally US- USSR grain trade in the 1970s was one
such ldquogiftrdquo large sales of American grain to the Soviet Union helped US policymakers win favor
with the po liti cally impor tant American farming sector and permitted Soviet leaders to maintain
access to a dietary staple for the Soviet population
The strong 32 percent growth in value of US imports from Rus sia from January to May 2017
versus January to May 2016 ( Table 51) is an example of a development that has tempted officials
to pres ent it as a sign of positive change due to ldquogrowing business activitiesrdquo (this kind of statement
was heard before the bilateral summit in Germany in July 2017) although the reason for that leap
was evidently an increase in commodity prices (mainly of oilmdash see Table 52) and not a rise in
entrepreneurial interactions The primary beneficiaries of that upside rally have been two other
petro- economies Saudi Arabia and Venezuela ( Tables 53 and 54)
Sector Analyses
05
594-71613_ch01_4Pindd 19 102017 404 PM
US-Russia Economic Relations20
Table 51 US Imports from Rus sia Million US$ Januaryndash May 2016 vs Januaryndash May 2017
Year January February March April May Total
2016 9603 6871 11097 12257 10977 50805
2017 12215 10220 16979 13471 14147 67032
Change 271 487 530 99 289 319
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
Table 52 Change in Urals Crude Oil Prices US$ per Barrel Januaryndash May 2016 vs Januaryndash May 2017
Januaryndash May 2016 Januaryndash May 2017 Change ($) Change ()
3601 5129 1528 424
Source Ministry of Finance of the Rus sian Federation https wwwminfin ru ru ixzz4mMIZ7XtC
Table 53 US Imports from Saudi Arabia Million US$ Januaryndash May 2016 vs Januaryndash May 2017
Year January February March April May Total
2016 15114 9036 13555 10844 14679 63228
2017 19802 20298 21650 16211 19542 97503
Change 3101 12463 5972 495 331 542
Source US Census Bureau ldquoTrade in Goods with Saudi Arabiardquo Foreign Trade last modified June 29 2017
https wwwcensus gov foreign - trade balance c5170 html (see data for 2016ndash2017)
594-71613_ch01_4Pindd 20 102017 404 PM
Vadim Grishin 21
Table 54 US Imports from Venezuela Million US$ Januaryndash May 2016 vs Januaryndash May 2017
Year January February March April May Total
2016 6657 5560 7140 8007 7922 35286
2017 13041 10864 123500 11148 12243 59646
Change 9590 9540 7297 3923 5454 6903
Source US Census Bureau ldquoTrade in Goods with Venezuelardquo Foreign Trade last modified June 29 2017
https wwwcensus gov foreign - trade balance c3070 html (see data for 2016ndash2017)
Table 55 US Exports to Rus sia Million US$ Januaryndash May 2016 vs Januaryndash May 2017
Year January February March April May Total
2016 3628 3577 7298 4657 4947 24107
2017 3144 4277 5386 6670 4806 24283
Change minus133 196 minus262 432 minus29 minus07
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2016ndash2017)
At the same time US exports to Rus sia continue to stagnate ( Table 55) due to low levels of
consumption during a two-and- a- half-year economic crisis a deep ruble devaluation sanctions
and counter- sanctions
Given the very dif er ent economic structures and resource endowments of Rus sia and the United
States it is not surprising that US- Russia trade is asymmetric and oil driven (Figure 51) A
3 percent increase in Urals oil prices translates into a one percent increase in US import growth
from Rus sia Thus in 2016 every $10 increase in Urals crude oil added $15 billion to the value of
US imports or 11 percent to the total value of imports from Rus sia
OIL ADDICTION
Oil is a core pillar of US- Russia bilateral trade A bumpy ride in oil markets afects commerce
Nevertheless Rus sian oil exports to the United States in physical terms have been rather
594-71613_ch01_4Pindd 21 102017 404 PM
US-Russia Economic Relations22
sustainable Starting from 2005 average annual deliveries have been above 150 million barrels
(Figure 52) Crude and heating oil have dominated while petroleum products and liquefied petro-
leum gases have not (Figure 53) In 2011 oil exports peaked at 228 million barrels but declined to
159 million barrels in 2016mdash a drop of 30 percent Rec ord high shipments of Rus sian oil to the United
States coincided with an elevation in oil prices which made the subsequent decline in oil shipment
value between 2011 and 2016 (by about 72 percent as shown in Figure 54) seem more stark The
increase in price also raised the share of oil in Rus sian exports by 74 percent in 2011 (Figure 55)
The Rus sian share in total US oil imports was around 55 percent in 2011 and 43 percent in 2016
( Table 56) In the last five years the United States has relied exclusively on consumption of Rus sian
oil for the rough equivalent of one week out of the year (Figure 56)
It is unlikely that Rus sia can significantly increase its share of the US oil market and there is a real
possibility for a downward trend There are several reasons the historically high Rus sian hydrocar-
bon export threshold of 2011 will not soon if ever be surpassed
First US energy consumption will likely be flat According to the US Energy Information Adminis-
tration (EIA) demand for petroleum and other liquids in the United States will be about 35ndash36
quadrillion British thermal units (BTUs) with minimal variation over the next 25 years1
1 US EIA ldquoAnnual Energy Outlook 2017 with Projections to 2050rdquo January 5 2017 7ndash8
Figure 51 US- Russia Trade Growth () vs US and Rus sia Real GDP Growth () 1993ndash2016
Source IMF ldquoIMF Datardquo accessed September 27 2017 http wwwimf org en Data US Census Bureau
ldquoTrade in Goods with Rus siardquo
Note rGDPthinsp=thinspreal gross domestic product
Trade
USA rGDP growth
Russia rGDP growth
-60
-40
-20
0
20
40
60
80
100
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Gro
wth
All spikes in US-Russia trade have been connected with two main
variables volume and price of crude oil
594-71613_ch01_4Pindd 22 102017 404 PM
Vadim Grishin 23
Second the United States will become a net energy exporter between 2020 and 2030 in most
cases under dif er ent combinations of oil and natu ral gas prices GDP growth technological
breakthroughs and the availability of energy resources The role of oil imports will dramatically
fall2
Third oil price scenarios as described by the International Energy Agency (IEA) international
financial organ izations (IFIs) and many national agencies are very cautious and assume that even
by 2035 to 2040 oil prices will not to recover to the levels of 2011ndash20123
Fourth Rus sian oil production and export growth will be modest and driven by Asian economic
expansion and will comprise a decreasing share of Western markets4 According to forecasts from
2 Ibid 15ndash18
3 Ibid table 3 ldquoEnergy Prices by Sector and Sourcesrdquo World Bank World Bank Commodity Markets Price Forecasts
(Washington DC World Bank 2017) httpswwwworldbank org en research commodity - markets Organ ization of the
Petroleum Exporting Countries (OPEC) World Oil Outlook 2016 (Vienna OPEC 2016)
4 E D Belotskaia et al Global and Rus sian Energy Outlook 2016 (Moscow Energy Research Institute of the Rus sian
Acad emy of Science Analytical Center for the Government of the Rus sian Federation 2016) http acgov ru files
publication a 12767 pdf
Figure 52 US Imports from Rus sia Crude Oil and Petroleum Products Thousands of Barrels 1995ndash2016
Source US EIA ldquoUS Imports by Country of Origin Rus siardquo Petroleum amp Other Liquids September 13
2017 http wwweia gov dnav pet PET _ MOVE _ IMPCUS _ D _ NUS _ NRS _ MBBL _ M htm
0
50000
100000
150000
200000
250000
Date 1995 1996 1997 1998 199920002001200220032004200520062007200820092010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 23 102017 404 PM
US-Russia Economic Relations24
the Organ ization of the Petroleum Exporting Countries (OPEC) crude oil exports from Rus sia and
the Caspian region to the United States will dis appear by 20255
So why does the Rus sian Urals blend continue to be attractive for oil traders and US refineries
which could pro cess greater volumes of domestically produced lighter crude There are two main
reasons One is related to the preference of US high conversion refineries (the most sophisticated
in the world) to work with heavy oil blends produced by Canada Mexico Iraq Venezuela and
Rus sia Pro cessing heavy crude now is as profitable as pro cessing lighter crude The so- called
crack spreadmdash the diference between the cost of relatively cheap heavy crude oil and the final
price of value- added consumer products (diesel gasoline jet fuel and heating oil)mdash has become
the same as the refinery margins of light sweet crude6 This has primarily afected light oil produc-
ing countries such as Angola Algeria and Nigeria
5 OPEC World Oil Outlook 2016 306ndash309
6 ldquoHow Much for That Heavy Oilrdquo Oil Sands Magazine December 26 2015 https wwwoilsandsmagazine com
news 2015 12 26 how - much - for - that - heavy - oil
Figure 53 US Imports from Rus sia Oil and Petroleum Products US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$-
$25000000000
$20000000000
$15000000000
$10000000000
$5000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Liquefied petroleum gases
Petroleum products other
Fuel oil
Crude oil
594-71613_ch01_4Pindd 24 102017 404 PM
Vadim Grishin 25
Another factor afecting purchase of Rus sian oil is a new trend among oil companies for further
consolidation of scale and for integrating operations of upstream and downstream business7
There have been several waves of separation and unification of production transportation and
pro cessing in the last 50 years The current business cycle can be seen as an adaptation to a
period of low prices and oversupply Companies that buy andor produce oil in Rus sia most likely
prefer to transport and pro cess this oil in their own modern refineries in the United States At the
same time some of the newest refinery designs specifically for pro cessing heavy oils have been
built in Asia thus extending the choices of heavy oil producing countries
We should also consider that leading US and international oil traders along with oil producing
companies working with or owning US refineries frequently buy Rus sian oil on the open market
and have long- term contracts on Rus sian crude oil delivery Many Rus sian oil companies prefer to
pay for purchases or ser vices with their future production instead of cash creating situations of
ldquostickyrdquo oil imports that are difficult to replace The best- known example is an interaction between
7 ldquoEnergy and Utilities Sectorrdquo Roundtable Financier Worldwide December 2015 https wwwfinancierworldwide
com roundtable - energy - utilities - sector - dec15
Figure 54 US Imports of Oil and Petroleum Products from Rus sia vs Oil Prices Eu rope Brent Spot Price Free on Board (FOB) 1996ndash2017
Source US EIA ldquoUS Imports by Country of Origin Rus siardquo
0
20
40
60
80
100
120
140
0
5000
10000
15000
20000
25000
30000
Jan
-19
96
Jun
-19
96
No
v-19
96
Ap
r-19
97
Sep
-19
97
Feb
-19
98
Jul-
199
8D
ec-1
99
8M
ay-1
99
9O
ct-1
99
9M
ar-2
00
0A
ug
-20
00
Jan
-20
01
Jun
-20
01
No
v-2
00
1A
pr-
20
02
Sep
-20
02
Feb
-20
03
Jul-
20
03
Dec
-20
03
May
-20
04
Oct
-20
04
Mar
-20
05
Au
g-2
00
5Ja
n-2
00
6Ju
n-2
00
6N
ov-
20
06
Ap
r-2
00
7Se
p-2
00
7Fe
b-2
00
8Ju
l-2
00
8D
ec-2
00
8M
ay-2
00
9O
ct-2
00
9M
ar-2
010
Au
g-2
010
Jan
-20
11Ju
n-2
011
No
v-2
011
Ap
r-2
012
Sep
-20
12Fe
b-2
013
Jul-
20
13D
ec-2
013
May
-20
14O
ct-2
014
Mar
-20
15A
ug
-20
15Ja
n-2
016
Jun
-20
16N
ov-
20
16
USD
per
Bar
rel
Th
ou
san
d B
arr
els
US Imports from Russia of Crude Oil and Petroleum Products (Thousand Barrels)
Europe Brent Spot Price FOB (Dollars per Barrel)
594-71613_ch01_4Pindd 25 102017 404 PM
US-Russia Economic Relations26
Table 56 US Oil Imports All Countries vs Rus sia Thousand Barrels per Day 2011ndash2016
Years 2011 2012 2013 2014 2015 2016
All Countries 11436 10598 9859 9241 9449 10058
Rus sia 624 477 460 330 371 433
Share 546 450 467 357 393 431
Sources US EIA ldquoUS Imports by Country of Origin Total Crude Oil and Productsrdquo Petroleum amp Other
Liquids September 13 2017 wwweia gov dnav pet pet_move_impcus_a2_nus_ep00_im0_mbbl_m htm
authorrsquos computation
Figure 55 US Imports from Rus sia Share of Crude Oil and Petroleum Products Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
57
64
73
72
74
73
72
59
52 50
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
$40000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil and Petroleum Products
594-71613_ch01_4Pindd 26 102017 404 PM
Vadim Grishin 27
the Rus sian state mono poly Rosneft and commodity trading and mining giant Glencore which
along with energy and commodities com pany Vitol participated in a $10 billion prepayment
deal with Rosneft for crude supplies in 2013
There have been a number of ongoing transactions between the Rus sian oil industry and interna-
tional oil companies including several that top the list of importers of Rus sian oil to the United
States ( Table 57) In December 2016 Glencore participated in a controversial privatization opera-
tion purchasing in tandem with the Qatar sovereign wealth fund a 195 percent stake in Rosneft
which was on the US and EU list of sanctioned firms8 Glencore has also taken a blocking stake in
midsize oil producer RussNeft BP owns a 1975 percent stake in Rosneft Chevron holds a
15 percent interest in the 935- mile- long CPC9 pipeline which transports an average of 959000
barrels of crude oil per day including 76000 barrels daily from Rus sia10 ExxonMobil has formed
8 E Mazneva and I Arkhipov ldquoRus sia Sells $11 Billion Stake in Rosneft to Glencore Qatarrdquo Bloomberg December 7
2016
9 CPCthinsp=thinspCaspian Pipeline Consortium
10 ldquoRus sia Highlights of Operations and Business Portfoliordquo Chevron accessed October 3 2017 https wwwchevron
com worldwide russia
Figure 56 Share of Rus sian Oil in Total US Oil Imports Thousands of Barrels per Day 1972ndash2016
Source US EIA ldquoUS Imports by Country of Origin Total Crude Oil and Productsrdquo
2000
4000
6000
8000
10000
12000
14000
16000
US Imports of Crude Oil and Petroleum Products (Thousand Barrels per Day)
US Imports from Russia of Crude Oil and Petroleum Products (Thousand Barrels per Day)19
7319
7419
7519
7619
7719
7819
7919
80
198
119
82
198
319
84
198
519
86
198
719
88
198
919
90
199
119
92
199
319
94
199
519
96
199
719
98
199
92
00
02
00
12
00
22
00
32
00
42
00
52
00
62
00
72
00
82
00
92
010
20
112
012
20
132
014
20
152
016
594-71613_ch01_4Pindd 27 102017 404 PM
Table 57 Top Importers of Rus sian Oil to the United States Thousands of Barrels 2016
VALERO MARKETING amp SUPPLY CO 54590 3616
EXXONMOBIL OIL CORP 17087 1130
CHEVRON USA INC 15217 1008
BP WEST COAST PRODUCTS LLC 10130 671
GEORGE E WARREN CORP 7272 48
PAULSBORO REFINING CO LLC 6838 453
TESORO CORP 5097 338
VITOL INC 5084 337
PHILLIPS 66 CO 4726 313
TRAFIGURA AG 4360 289
PAR HAWAII REFINING LLC 3893 258
MOTIVA ENTERPRISES LLC 3041 205
SHELL US TRADING CO 2863 19
MARATHON PETROLEUM CO LLC 2475 16
ATLANTIC TRADING amp MARKETING 2099 14
FREEPOINT COMMODITIES LLC 1439 1
GLENCORE LTD 1284 85
BEST PETROLEUM CORP 967 64
ROLYMPUS US COMMODITIES GROUP LLC 822 6
HUNT CRUDE OIL SUPPLY CO 666 4
GULF OIL LP 658 4
Source US EIA ldquoUS Imports by Country of Origin Crude Oilrdquo Petroleum amp Other Liquids September 13
2017 httpswwweiagovdnavpetpet_move_impcus_a2_nus_epc0_im0_mbblpd_ahtm authorrsquos
computation
594-71613_ch01_4Pindd 28 102017 404 PM
Vadim Grishin 29
several joint ventures with Rosneft to undertake ofshore exploration in the Black Sea and the Kara
Sea in Siberia11
According to the Sanctions Act US persons are prohibited from exporting or reexporting goods
ser vices (except financial ser vices) and technology in support of exploration or production of new
deep- water Arctic ofshore or shale oil proj ects that involve designated Rus sian entities or other
entities in which such sanctioned persons have a controlling interest or a substantial noncontrol-
ling owner ship interest defined as not less than 33 percent (previously it was 50 percent) The new
law also authorizesmdash but does not requiremdash the imposition of so- called secondary sanctions
against non- US entities that engage in activities involving the construction maintenance or
expansion of Rus sian energy export pipelines with a fair market value of $1 million or more or an
aggregate fair market value during a 12- month period of $5 million12 This provision has raised the
concerns of some Eu ro pean countries particularly Germany As result the final language of the
law included wording about coordination of this issue with allies of the United States
Shipments of Rus sian oil to the United States could be afected by activity in the US refinery
industry In early 2017 Saudi Aramco bought the United Statesrsquo largest oil refinery in Port Arthur
(Texas) and it announced plans to send more of its own crude to that refinery13 Serious concerns
exist however regarding the future of three refineries and nine pipelines owned by Citgo a US
branch of the Venezuelan state com pany PdVSA which is balancing precariously on the edge of
default Under certain conditions in the event of PdVSA bankruptcy Rosneft could claim a stake of
up to 499 percent in Citgo Such a possibility has raised concerns among politicians and US
government officials with Trea sury Secretary Steven Mnuchin calling it a ldquonational security issuerdquo14
Tables 58 59 and 510 show allocations of Rus sian oil imports to major US refineries some of
which work exclusively on Rus sian crude a total of two to three months per year In total 150940
thousand barrels of Rus sian oil were refined in 2016
Figure 57 confirms a leading position of Texas and Louisiana among the US states receiving
Rus sian crude followed by New Jersey California Mississippi Washington Hawaii and Delaware
In a paradoxical way Texas has dis appeared from the list of states as a main destination of US
imports from Rus sia (Figure 58) because Rus sian crude is mostly delivered to Louisiana ports and
registered there by US Customs as an import from Rus sia After that it transports to refineries in
Louisiana and Texas
Overall the short- term business rationale behind the sustainability of US oil imports from Rus sia
cannot overcome strong headwinds in the US energy sector facing all oil importers which will
inevitably lead to a contraction of Rus sian oil exports to the United States in the foreseeable future
11 Exxon eforts to receive a special US Trea sury waiver to drill in sanctioned Rus sia failed in 2017
12 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364
13 Sarp Ozkan ldquoSaudi Aramcorsquos Port Arthur Refinery and the US Refinery Fleetrdquo Drilling Info May 11 2017
https infodrillinginfo com saudi - aramcos - port - arthur - refinery - us - refinery - fleet
14 Graham Kates ldquoTrea sury Secretary Rus siarsquos Citgo Deal a National Security Issuerdquo CBS News May 1 2017
http wwwcbsnews com news rosneft - citgo - steven - mnuchin - national - security
594-71613_ch01_4Pindd 29 102017 404 PM
US-Russia Economic Relations30
Table 58 Valerorsquos Refineries Pro cessing Rus sian Oil Thousands of Barrels 2016
Saint Charles Louisiana 29206 535
Corpus Christi Texas 20626 378
Wilmington California 4250 78
Total USA 54590 100
Source US EIA ldquoRefinery Capacity Reportrdquo January 1 2017
table 5 wwweia gov petroleum refinerycapacity table5 pdf
authorrsquos computation
Table 59 ExxonMobil Refineries Pro cessing Rus sian Oil Thousands of Barrels 2016
Baytown Texas 15037 88
Baton Rouge Louisiana 2046 12
Total USA 17083 100
Source US EIA ldquoRefinery Capacity Reportrdquo authorrsquos computation
Table 510 Chevronrsquos Refineries Pro cessing Rus sian Oil Thousands of Barrels 2016
Pascagoula Mississippi 12767 840
El Segundo California 2372 155
Saint Rose Louisiana 78 05
Total USA 15217 100
Source US EIA ldquoRefinery Capacity Reportrdquo authorrsquos computation
594-71613_ch01_4Pindd 30 102017 404 PM
Vadim Grishin 31
HEAVY METAL
Taken together US imports of metals and US imports of oil compose about 80 percent of US
total imports from Rus sia (Figure 59) Trade of metals like other commodities is strongly afected
by market price fluctuations Nevertheless metal imports from Rus sia have been fairly resilient to
market volatility and their average annual value has hovered at about $4 billion in the last five years
(Figure 510) This market resilience was forged at the end of the 1990searly 2000s when Rus sian
metal producers gradually modernized their plants adjusting quality of production to Western
standards and enhancing integration into global value and supply chains Some of them conquered
their share of the highly competitive US market struggling with peers from Canada and certain
BRICS countries (China India and Brazil) To attract additional resources all Rus sian large metal-
producing companies became public and were listed on stock exchanges chiefly the London Stock
Exchange (Severstalrsquo PAO Evraz MMK OAO Novolipetsk Steel Norilsk Nikel and TMK PAO) one
on the New York Stock Exchange (Mechel) and one on the Hong Kong Stock Exchange (Rusal)
Business logic pushed some of them to invest in the US metal- making industry which was hit
hard by crisis Later on some of those assets were sold (eg two US steel mills acquired by
Severstal in 2004 were purchased 10 years later by Steel Dynamics Inc and AK Steel Corp)
Figure 57 Share of US States Rus sian Oil Imports 2016
Source US EIA ldquoUS Imports from Rus sia of Crude Oil and Petroleum Productsrdquo Petroleum amp Other
Liquids September 29 2017 https www eia gov dnav pet hist LeafHandler ashx nshy=shyPETampsshy=shyMTTIM _ NUS
- NRS _ 1ampfshy=shyM authorrsquos computation
0
10
20
30
40
50
60
70
80
90
100
Maine
Massachusetts
Maryland
Connecticut
Georgia
Rhode Island
Virginia
Florida
New York
Alabama
Puerto Rico
Pennsylvania
Delaware
Hawaii
Washington
Mississippi
California
New Jersey
Louisiana
Texas
594-71613_ch01_4Pindd 31 102017 404 PM
Figure 58 US Imports from Rus sia by State Million US$ 2013ndash2016
Source US Census Bureau ldquoState and Metropolitan Area Trade Datardquo Foreign Trade last modified
October 2 2017 https wwwcensus gov foreign - trade statistics state
Alaska
Connecticut
Delaware
Hawaii
Louisiana
Maryland
North Dakota 0
$1000
$2000
$3000
$4000
$5000
$6000
2013 2014 2015 2016
Alabama
Alaska
Connecticut
Delaware
Hawaii
Louisiana
Maryland
Maine
Mississippi
Montana
North Dakota
Mississippi
Figure 59 US Imports from Rus sia Share of Oil and Metals Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
83
82
85
86
87
88
85
82
7375
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
$40000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil and Metals
594-71613_ch01_4Pindd 32 102017 404 PM
Vadim Grishin 33
Obviously the market dynamic of dif er ent metals varies (eg iron steel aluminum platinum and
nickel) Caps to increase their trade and production in a ldquored oceanrdquo global environment with
anemic demand is rather limited despite Figure 510 showing a spike of iron and steel imports
from Rus sia in 2014 and aluminum in 2016 Some opportunities may exist for Russian- owned steel
plants in the United States (such as NLMK) to participate in energy proj ects resumed under Presi-
dent Trump who has required that new pipelines use only American- made steel15
Rus sia occupies a special niche in the US market for titanium products a high- end metal indus-
try Twenty years ago a long- term contract was signed between Rus sian titanium producer
VSMPO- AVISMA and Boeing The Rus sian com pany entered the selective club of Boeing suppliers
for the manufacture of components and semi- finished products Since the signing of this contract
VSMPO has delivered more than 35 percent of all titanium placed on Boeing civil aircraft16 They
are hidden in the trade data in an import category for Civilian Aircrafts and Parts (Figure 511) At
the end of 2016 Boeing announced an extension of its framework agreement with AVISMA
15 E Scheyder C Ngai and T Sylvester ldquoAmerican Steel Unlikely to Get Keystone Boost Despite Trump Orderrdquo
Reuters January 27 2017 http wwwreuters com article usa - trump - pipeline - transcanada - idUSL1N1FH1ZD
16 A Kramer ldquoTitanium Fills Vital Role for Boeing and Rus siardquo New York Times July 5 2013 http wwwnytimes com
2013 07 06 business global titanium - fills - vital - role - for - boeing - and - russia html mcubzshy=shy3
Figure 510 US Imports from Rus sia Iron Steel Bauxite Aluminum Nickel Nonferrous Metals and Other Precious Metals and Materials US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
0
$6000000000
$5000000000
$4000000000
$3000000000
$2000000000
$1000000000
2007 2008 2009 2010 2011 20122013
20142015
2016
Finished metal shapes
Iron and steel advanced
Iron and steel products nec
Nonferrous metals other
Other precious metals
Nickel
Bauxite and aluminum
Iron and steel mill products
Steelmaking materials
594-71613_ch01_4Pindd 33 102017 404 PM
US-Russia Economic Relations34
through 2022 and additional investments in the construction of a new robotic plant in Titanium
Valley a special economic zone located in the Sverdlovsk region that will open in 2018 The pro-
cessing of titanium forgings in all Boeing civil aircraft will be performed there including 787s 737
MAXs and 777Xs17 The contract extension with AVISMA may add several hundred million dollars
in value to annual US imports from Rus sia
How can such heavy reliance on imports of Rus sian titanium exist during a period of rising geopo-
liti cal tensions The answer is straightforward VSMPO- AVISMA is a highly specialized natu ral
mono poly producing 45 percent of the worldrsquos aerospace titanium Only four other countries
smelt high- grade titanium in industrial quantities the United States Germany Japan and China
Overall global production capacity is limited while demand is growing The United States cur-
rently imports around 79 percent of all the titanium it consumes each year18
17 ldquoBoeing and VSMPO Avisma to Launch Second Joint Production Siterdquo Rus sian Aviation Insider December 22 2016
http wwwrusaviainsider com boeing - and - vsmpo - avisma - to - launch - second - joint - production - site
18 Jon Ostrower and Andy Pasztor ldquoBoeing United Technologies Stockpile Titanium Partsrdquo Wall Street Journal
August 7 2014 https wwwwsj com articles boeing - united - technologies - stockpiling - titanium - parts - 1407441886
Figure 511 US Imports from Rus sia Civilian Aircrafts and Parts US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
$200000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Parts-civilian aircraft
Civilian aircraft
594-71613_ch01_4Pindd 34 102017 404 PM
Vadim Grishin 35
The Sanctions Act authorizes the secretary of the trea sury (in a nonmandatory way) to impose
restrictions (without specifying them) against Rus sian state- owned entities operating in the railway
metals and mining sectors of the Rus sian economy Despite the commanding heights of Rus siarsquos
state sector owner ship in its economy (70 percent of GDP) the metal- producing companies have
remained mostly in private hands
NUCLEAR AFFAIRS
Historically owners and operators of the 104 commercial nuclear power reactors in the United
States have purchased more than 80 percent of their uranium from foreign countries Uranium
shipping from Rus sia accounted for about 13 percent of the 58 million pounds of uranium pur-
chased overseas in 201219 At the same time the Rus sian state- owned mono poly Rosatom ac-
counts for 20 percent of Kazakhstanrsquos uranium production (which in turn comprises 11 percent of
all US uranium imports) and 20 percent of US domestic uranium production capacity (with
owner ship of exploration tracts in Wyoming)20
Nuclear fuel and nuclear power continue to be po liti cally sensitive topics both in the United
States and Rus sia Bilateral cooperation in this sector (being surprisingly stable with imports of
nuclear fuel from Rus sia at a level of $1 billion annually in the last five years [Figure 512 and 513])
is under constant po liti cal and lobbying pressure and has been a source of several po liti cal scan-
dals21 Consequently upside risks in this area of interaction are minimal and downside risks are
much higher especially when we are seeing more decommissioning of nuclear plants in the
United States than new constructions The US EIArsquos 2017 Annual Energy Outlook assumes
that about 25 percent of the nuclear capacity now operating will be removed from ser vice
by 205022
WHY IS THE GRASS GREENER ON THE OTHER SIDE
The United States continues to significantly reduce imports of chemical fertilizers as domestic pro-
duction increases In 2016 the United States imported 13 percent less ammonia and 11 percent
less urea and UAN which is a liquid urea and ammonium nitrate fertilizer Rus sia accounts for
around 40 percent of UAN imported by the United States The United States canceled antidumping
duties on imports of ammonium nitrate and urea from Rus sia in 2016 but it did not prevent import
19 US EIA ldquoThe US Relies on Foreign Uranium Enrichment Ser vices to Fuel Its Nuclear Power Plantsrdquo Today in
Energy August 28 2013 https wwweia gov todayinenergy detail php idshy=shy1273
20 Colin Chilcoat ldquoDoes Rus sia Really Own 20 Percent of the USrsquo Uranium Reservesrdquo OilPricecom May 6 2015
http oilpricecom Alternative - Energy Nuclear - Power Does - Russia - Really - Own - 20 - Of - The - US - Uranium - Reserves
html
21 Michelle Ye Hee Lee ldquoThe Facts behind Trumprsquos Repeated Claim about Hillary Clintonrsquos Role in the Rus sian Ura-
nium Dealrdquo Washington Post October 26 2016
22 US EIA ldquoAnnual Energy Outlook 2017 with Projections to 2050rdquo 81ndash82
594-71613_ch01_4Pindd 35 102017 404 PM
Figure 512 US Imports from Rus sia Share of Oil Metals and Nuclear Fuel Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
87
86
90
90
90
91
88
86
7882
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals and Nuclear Fuel
Figure 513 US Imports from Rus sia Nuclear Fuel Materials US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$-
$200000000
$400000000
$600000000
$800000000
$1200000000
$1000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 36 102017 404 PM
Vadim Grishin 37
drops twice last year (Figures 514 and 515) According to forecasts UAN imports are expected to
decline further to 15 million tons this year down over 46 percent from 28 million tons imported
last year23 The downside trend in imports of fertilizers will likely continue because of oversupply
BIG FISH
US imports of fish and shellfish from Rus sia are best understood in comparison with US fish
exports to the Rus sian market which slipped to zero in August 2014 after Rus sia issued an order
banning certain agricultural imports from the United States (Figure 516) While the volume of US
supply was not very large it was impor tant because it broke up the monopolistic dominance of a
few vertically integrated Rus sian companies that have kept prices high by restricting the entry of
new producers Seeking to implement import substitution policies Rus sia has tried to reduce
exports as well as imports of fish and seafood products in the last couple of years This symmetri-
cal approach was intended to ldquocompensaterdquo for a decrease of fish products in the domestic
23 Deepika Thapliyal ldquoPotashCorp Forecasts Sharp Drop in US Nitrogen Imports in 2017rdquo ICIS News February 7
2017 https wwwicis com resources news 2017 02 07 10076734 potashcorp - forecasts - sharp - drop - in - us - nitrogen
- imports - in - 2017
Figure 514 US Imports from Rus sia Share of Oil Metals Nuclear Fuel and Fertilizers Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
90
93
92
93
94
95
92
91
85
86
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals Nuclear Fuel and Fertilizers
594-71613_ch01_4Pindd 37 102017 404 PM
Figure 515 US Imports from Rus sia Chemical- Fertilizers US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
S-
$200000000
$400000000
$600000000
$800000000
$1000000000
$1200000000
$1400000000
$1600000000
$1800000000
$2000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Figure 516 US Exports to Rus sia Fish and Shellfish US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$10000000
$20000000
$30000000
$40000000
$50000000
$60000000
$70000000
$80000000
$90000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Fish and shellfish
594-71613_ch01_4Pindd 38 102017 404 PM
Vadim Grishin 39
consumer market caused by Rus siarsquos import ban but it has failed As result the group most af-
fected by the self- imposed counter- sanctions were Rus sian consumers
With a significant drop in fish imports a devaluation of the ruble and inflationary pressures on
seafood prices yearly consumption of fish in Rus sia has declined precipitously In 2015 alone
fish prices increased 20 percent and consumption dropped to 14 kilograms per person24 from
22 kilograms in 201425 In 2016 food rose to 355 percent of house hold expenditure as a result of
increases in food prices26 This has pushed vertically integrated fishing monopolies to sell even
more of their catch abroad rather than deliver to the Rus sian Federation (Figure 517) Thus we
cannot exclude the possibility of further growth in US fish and shellfish imports from Rus sia on a
marginal scale
24 Александр Савельев ldquoПотребление рыбы в России упало до 14 кг на человекаrdquo [Fish consumption in Rus sia fell to
14 kg per person] Экономика Интерфакс January 28 2015 http wwwinterfax ru business 492038
25 Илья Шестаков ldquoПотебление рыбы в России снизилось на 10 процентов из- за роста ценrdquo [Fish consumption in
Rus sia dropped by 10 percent due to price increases] RNS March 8 2017 https rnsonline consumer - market
Potreblenie - ribi - v - Rossii - snizilos - na - 10 - iz - za - rosta - tsen - 2017 - 03 - 08
26 Zoya Sheftalovich and Christian Oliver ldquoRus siarsquos Boom (Farming) Economyrdquo Politico November 8 2016 http
wwwpolitico eu article russias - boom - farming - economy
Figure 517 US Imports from Rus sia Fish and Shellfish US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$50000000
$100000000
$150000000
$200000000
$250000000
$300000000
$350000000
$400000000
$450000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 39 102017 404 PM
US-Russia Economic Relations40
SPACE ODYSSEY
Among high- end products beyond the top five groups of goods imported from Rus sia cheap and
efficient Rus sian engines have been used to launch US rockets into space for about 16 years
(Figure 518) There was a serious po liti cal strug gle around a 2014 ban on the purchase of Rus sian
RD-180 rocket engines revealing the conflicting business interests of power ful high- tech companies
This restrictive mea sure was temporary and was quickly lifted because of significant cost impacts
and risks of disruption to launch schedules27 For the same reason the Sanctions Act does not autho-
rize ldquothe imposition of any sanction or other condition limitation restriction or prohibition that
directly or indirectly impedes the supply by any entity of the Rus sian Federation of any product or
ser vice or the procurement of such product or ser vice by any contractor or subcontractor of the
United States or any other entity relating to or in connection with any space launch conducted for
the National Aeronautics and Space Administration or any other nonndash Department of Defense
customerrdquo28
Nevertheless many experts believe that US domestic alternatives to replace Rus sian engines will
be viable in five to eight years
27 Ken Dilanian ldquoWhy Does the US Use Rus sian Rockets to Launch Its Satellitesrdquo NBC News updated November 15
2016 http wwwnbcnews com why - does - u - s - use - russian - rockets - launch - its - satellites - n588526
28 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364
Figure 518 Spacecraft Excluding Military US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 40 102017 404 PM
41
Diversity and technological complexity are the most vis i ble advantages supporting US exports to
Rus sia Three major groups of export goods include civilian aircraft engines and parts (Figure 61)
drilling and oil field equipment (Figure 62) and industrial machines and engines (Figure 63)
Despite sanctions against the transfer of advanced oil producing and pro cessing technologies the
realization of US drilling and oil field equipment in Rus sia is sustainable although some bilateral
proj ects have been frozen
Another category of goods that has demonstrated resilience is the phar ma ceu ti cal industry (Fig-
ure 64) because most drugs in Rus sia are imported (about 70 percent of the Rus sian phar ma ceu-
ti cal market in value) Import substitution policies have had only modest results in this industry
As confirmed by American Chamber of Commerce surveys US exports to Rus sia are closely
connected to US FDI 30 percent of total imports of US companies working in the Rus sian
market come from the United States (more than $2 billion in 2016) In other words about
40 percent of all US exports to Rus sia are related to a US corporate- sector business pro cess in
the country The major sectors of activity of these companies are energy and natu ral resources
(52 percent) manufacturing (17 percent) information and communications technology or ICT
(13 percent) retail (7 percent) automotive industry (6 percent) phar ma ceu ti cal production
(1 percent) professional ser vices (05 percent) and other (2 percent)1
Some obvious constraints on US exports to Rus sia have resulted from a reduction in demand A
deterioration of bilateral relations and implementation of sanctions and counter- sanctions have
directly or indirectly afected all businesses Figures 65 and 66 provide data regarding a dramatic
drop in the sale of US agricultural production in Rus sia with all other categories of exports in
goods showing big cuts as well (see Figures 67ndash69)
Exports of civilian aircraft engines and parts put the state of Washington in first place among
other states as a leading exporter to the Rus sian market (Figure 610)
1 American Chamber of Commerce in Rus sia ldquoInvestment and Import to Rus sia 2nd Surveyrdquo 13
Diversity and Constraints
06
594-71613_ch01_4Pindd 41 102017 404 PM
Figure 61 US Exports of Civilian Aircraft Engines Equipment and Parts to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
$2500000000
$2000000000
$1500000000
$1000000000
$500000000
$-
Figure 62 US Exports of Drilling and Oil Field Equipment US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
$40000000
$45000000
$50000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 42 102017 404 PM
Figure 63 US Exports of Industrial Engines to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Figure 64 US Exports of Phar ma ceu ti cal Preparations to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 43 102017 404 PM
Figure 65 US Exports of Meat and Poultry to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Meat poultry etc
$1000000000
$800000000
$600000000
$400000000
$200000000
$-
$1200000000
$1400000000
$1600000000
Figure 66 US Exports of Soybeans to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
$200000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 44 102017 404 PM
Figure 67 US Exports of Vehicles Engines and Parts to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Other parts and accessories of vehicles
Automotive tires and tubes
Bodies and chassis for passenger cars
Engines and engine parts (carburetors pistonsrings and valves)
Trucks buses and special purpose vehicles
Passenger cars new and used
$2500000000
$2000000000
$1500000000
$500000000
$-
$1000000000
Figure 68 US Exports of Medicinal Equipment to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 45 102017 404 PM
Figure 610 US Exports to Rus sia by States (2016 US$ Value) Million US$ 2013ndash2016
Source US Census Bureau ldquoState and Metropolitan Area Trade Datardquo
Iowa Kentucky
North Dakota
Oklahoma
South Carolina
Washington
0
$500
$1000
$1500
$2000
2013 2014 2015 2016
District of Columbia
Iowa
Kentucky
North Dakota
Oklahoma
South Carolina
Washington
Figure 69 US Exports of Excavating Machinery to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
$40000000
$45000000
$50000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 46 102017 404 PM
47
Upon reviewing the current trend in US- Russia economic relations we must acknowledge that
the existing trade model is obsolete and exhausted Imports are resource- oriented and reflect
constraints of the Rus sian economic structure while five groups of goodsmdash oil metals nuclear
fuels fertilizers and fishmdash make up more than 90 percent of total imports from Rus sia (Figure 71)
Each of these industries has a limited capacity for growth in the foreseeable future
Rus siarsquos core export to the United Statesmdash oilmdash will inevitably decrease in the mid- term under any
scenario The value and volume of Rus sian exports to the United States are open to global market
volatility and po liti cal pressures with limited hedging mechanisms
Overall US exports to Rus sia are unsustainable due to bilateral po liti cal tensions the whims of
commodity markets and changing domestic policies Sanctions and counter- sanctions have
created additional barriers particularly in finance banking high- tech energy and agro- business
According to the American Chamber of Commerce 69 percent of US companies working in the
country consider the impact of US sanctions against Rus sia on their business as negative At the
same time 60 percent of companies do not expect big changes in business relations between
Rus sia and the United States under Trump1 as the new law codifies existing sanctions fortifies
them and extends them to new sectors
Current US investments are low due to the weak rule of law in Rus sia a lack of property right
protections and proper contract enforcement high levels of statization and monopolization in the
economy a poor business climate outdated capital stock dependence on natural- resource
sectors and of course sanction and counter- sanction mea sures Bloated administrative compo-
nents created as risk mitigation instruments have also served as impediments The countryrsquos
institutional weakness low level of productivity bud get constraints and a declining inflexible
workforce will restrain future economic growth even if commodity prices recover Rus sian eco-
nomic policy will likely continue to be statist and protectionist relying mostly on import
substitutions
1 Ibid 11
Existing Trends and Future Scenarios
07
594-71613_ch01_4Pindd 47 102017 404 PM
US-Russia Economic Relations48
What scenarios can be expected in such a challenging environment
One probability (no peace no war) is based on the assumption that matters will not deteriorate
further and implementation of the Sanctions Act will be cursory This will cause relatively slow
degradation in the economic field with occasional flashes of activity in selected areas (eg closer
cooperation against Islamist terrorist groups in Syria)
A second worse case or critical scenario is the intensive and full- scale execution of current sanc-
tion legislation and even the imposition of new economic punitive and restrictive mea sures which
could incite asymmetric retaliatory actions and lead to the introduction of additional protectionist
policies This in turn could trigger a further escalation of mutual confrontation and could eventu-
ally destroy the fundamentals of the current bilateral trade system Rus sian leadership has charac-
terized the Sanctions Act as a declaration of a trade war that ends all hope for improving bilateral
relations2
2 Дмитрий Медведев ldquoПодписание президентом США нового санкционного закона против России создает несколько
последствийrdquo [The US Presidentrsquos signing of the package of new sanctions against Rus sia will have a few conse-
quences] Facebook August 2 2017 https wwwfacebook com Dmitry Medvedev posts 10154587161801851
Figure 71 US Imports from Rus sia Share of Oil Metals Nuclear Fuel Fertilizers and Fish Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
93
94
93
94
95
96
93
92
87
89
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals Nuclear FuelFertilizers and Fish
594-71613_ch01_4Pindd 48 102017 404 PM
Vadim Grishin 49
The best case and most favorable scenario looks less probable now It assumes the realization of
structural reforms in Rus sia in such a way that would adapt Rus siarsquos foreign policy to national
economic needs reduce confrontations with the West and make a concerted efort to integrate
Rus sian businesses into global supply and value chains A revitalization of the structural reform
agendamdash including eforts to diversify economic activities through de- monopolization and support
for SMEs a restructuring of the banking sector the creation of a vibrant business climate to foster
entrepreneurships and innovation the implementation of administrative and judicial reforms to
tackle red tape and endemic corruption and the reduction of state control over key sectors of the
economy via wide- spread privatization could kick- start the development of a nonoil economy and
improve long- term growth prospects Despite ongoing discussion of reform strategies deep
economic and po liti cal changes are extremely complicated over the next po liti calelectoral cycle
(2018ndash2024) particularly because of re sis tance of vested interests and growing commodity prices
The urgency to tackle structural shortcomings in natu ral resource- dependent economies usually
correlates with the price of those resources and the degree to which resource rents drive eco-
nomic activity However there may be marginal improvements in the efficiency of the current
economic system
Future US- Russia relations can be thought of through three pillars one pillar focuses on areas
where both countries maintain a competitive rivalry another looks at potential areas of interaction
under pres ent conditions a third pillar and one that has evaporated from the current bilateral
agenda concentrates on future cooperation Stronger economic ties could not only be a kind of
po liti cal shock absorber but contribute to the building of this future (particularly business contacts
aim to support future structural reforms) although po liti cal factors are depressing the prospects
for cooperation To escape deadlock it will be impor tant to establish the right balance between
politics and economics and create a model of collaboration within the framework of contention
594-71613_ch01_4Pindd 49 102017 404 PM
About the Author
Vadim Grishin PhD MBA has been involved in the reform pro cess in Rus sia as adviser to the
deputy prime minister of Rus sia in 1992ndash1993 and 2006ndash2010 He has extensive experience
working with the Bretton Woods Institutions He was the board member of the World Bank Group
and served as se nior adviser at the International Monetary Fund Currently he is a con sul tant to the
chief economistrsquos office of the International Finance Corporation and teaches the economics of
transition at Georgetown University in Washington DC
50
594-71613_ch99_4Pindd 50 102017 403 PM
Blank
COVER PHOTO ADOBE STOCK
1616 Rhode Island Avenue NW
Washington DC 20036
202 887 0200 | wwwcsisorg
v++ISBN 978-1-4422-8035-9
Lanham bull Boulder bull New York bull London
4501 Forbes Boulevard
Lanham MD 20706
301 459 3366 | wwwrowmancom
A U T H O R
Vadim Grishin
Myths and Realities
A Report of the
CSIS RUSSIA AND EURASIA PROGRAM
US-RussiaEconomicRelations
O C T O B E R 2 0 1 7
Euml|xHSLEOCy280359z
The Man Pupu Nyor Rock Formations at the Northern Urals also known as Seven
Strong Man or Little Mountain of the God in the local tribe (Mansi) language
US-Russia Economic Relations2
Escalating geopo liti cal tensions have continued to significantly define Rus siarsquos economic prospects
however the countryrsquos economic model exhausted itself long before the dramatic deterioration of
relations with the West Structural bottlenecks have seriously limited Rus siarsquos growth capacity even
during the previous period of high oil prices4
The purpose of this report is to assess what has gone wrong with the US- Russia equation by
analyzing it through the prism of a bilateral economic and po liti cal trajectory while keeping in
mind the structural constraints of the Rus sian economy It will attempt to answer the following
questions
bull Do bilateral economic relations matter
bull Are the United States and Rus sia ldquonatu ralrdquo or ldquounnaturalrdquo trading partners
bull What future scenarios can we expect
In the vast lit er a ture on US- Russia economic relations analy sis of developing trends in bilateral
commerce has always been accompanied by discussions around impor tant po liti cal and eco-
nomic matters particularly regarding US legislation and regulation5 Over several de cades the
most controversial issues concerned the granting of permanent normal trading status to Rus sia
through legislation that eliminated the Jackson- Vanik Amendment and Rus siarsquos accession to
the World Trade Organ ization (WTO) The Magnitsky Act signed into law in 2012 repealed the
Jackson- Vanik provisions but added legislation providing authority for the US government to
withhold visas and freeze assets of Rus sians thought to have been involved with human rights
violations and later imposed sanctions on Rus sia because of its involvement in the Ukrainian and
Syrian crises and its cyber- enabled activities6
Some have observed deficiencies in Rus siarsquos participation in the international division of labor
(reliance on the export of energy and metals) which ldquo canrsquot serve any more as a basis for further
expansion of the countryrsquos position in world markets including the US marketrdquo7 Unfortunately
such observations have not been accompanied by quantitative and qualitative analy sis of structural
constraints in the Rus sian foreign trade model Many authors limit their policy recommendations
for fostering bilateral economic relations to a requirement for a strong initial push from respective
governments the creation of business working groups and the extension of bilateral and multilat-
eral legal grounds for economic cooperation Such instruments proved to be useful in facilitating
4 International Monetary Fund (IMF) Rus sian Federation Selected Issues (Washington DC IMF 2016)
5 ldquoAmer i carsquos New Economic Sanctions May Hurt Rus siarsquos Recoveryrdquo Economist August 5 2017 Andrey Kortunov and
Olga Oliker eds A Roadmap for US- Russia Relations (Washington DC CSISRIAC 2017) https csis - prods3
amazonaws com s3fs - public publication 170815 _ KortunovOliker _ USRussiaRelations _ Web pdf E0bdGVHlxxYRAxhO
w8zJ9tbRGwdWjEgV Самуйлов CM Братерский MB ldquoКонгресс и торговые отношения США с Россиейrdquo [US
Congressrsquos role in the US- RF trade relations] США и Канада экономика политика культура 5 no 533 (May 2014)
6 Andrew Weiss and Richard Nephew ldquoThe Role of Sanctions in US- Russian Relationsrdquo (Task Force White Paper
Car ne gie Endowment for International Peace Washington DC July 11 2016)
7 Глущенко ЮН ldquoСостояние проблемы и перспективы сотрудничества России и США в экономической сфереrdquo
[Status prob lems and prospects of Russia- US economic cooperation] Проблемы Национальной Стратегии 21 no 6
(2013) 148ndash164
594-71613_ch01_4Pindd 2 102017 404 PM
Vadim Grishin 3
trade and investment during several reset cycles in bilateral relations starting in the 1990s but
they were only partially successful
Several papers and books although focused primarily on bilateral po liti cal agendas or sectorial
analy sis underline the importance of Rus sian domestic realities Dr Angela Stent in her ldquoLimits of
Partnershiprdquo notes that state control of the commanding heights in the Rus sian economy creates
significant deterrents for US private- sector entrance into the market8 Thane Gustafson in the
ldquoWheel of Fortunerdquo asserts that Rus siarsquos growing dependence on revenue from oil exports along
with its inefficient and often- corrupt management of industry is unsustainable9 Andrew Kuchins
in his ldquoElevation and Calibration A New Rus sia Policy for Amer i cardquo has quoted some experts who
believe that the weakened Rus sian economic position may over time contribute to some rap-
prochement with the West and emphasized lack of reforms as ldquoa key obstacle not only for Rus sian
economic recovery but also for improving ties with the Westrdquo10
In a recent joint task force report Eugene Rumer Andrew S Weiss and Richard Sokolsky argue
that the concept of developing stronger economic ties with Rus sia as a foundation for improved
diplomatic relations has not worked ldquoClinton Bush and Obama all placed high hope on trade as
an engine of better relations with Rus sia All were frustrated by the fact that the two countries are
for the most part not natu ral trading partnersrdquo11 On a dif er ent note the former US envoy to
Rus sia Michael McFaul has defended the achievements of a reset policy under the Barack Obama
administration emphasizing that bilateral trade reached a rec ord level in 2011 Nevertheless he
also stresses that it was a one- time accomplishment unlikely to be repeated12
Voices of those who believe that extensive economic ties can provide stability to broader po liti cal
interaction are weaker than ever in an environment of growing protectionism and adversarial rivalry
8 Angela Stent The Limits of Partnerships US- Russian Relations in the XXI Century (Prince ton NJ Prince ton
University Press 2014) 98
9 Thane Gustafson Wheel of Fortune The Battle for Oil and Power in Rus sia (London Harvard University Press 2012)
10 Andrew Kuchins Elevation and Calibration A New Rus sia Policy for Amer i ca (Washington DC Center on Global
Interests 2016)
11 Eugene Rumer Richard Sokolsky and Andrew S Weiss ldquoTrump and Rus sia The Right Way to Manage Relationsrdquo
Foreign Affairs 96 no 2 (MarchApril 2017)
12 Michael McFaul ldquoUS- Russia Relationsrdquo (lecture Institute for Public Diplomacy and Global Communications
George Washington University Washington DC March 3 2017) https wwwc - span org video 424811 - 1 former
- ambassador - michael - mcfaul - discusses - state - usrussia - relations
594-71613_ch01_4Pindd 3 102017 404 PM
4
02
Does Bilateral Economic Interaction Matter
Economic relations do not emerge out of a vacuum There are many variables that define the final
configuration of economic interactions such as a par tic u lar countryrsquos level of economic develop-
ment its business environment legal framework po liti cal climate (regime) culture and religion
history and tradition demography and geography as well as global and national economic cycles
An impor tant driver of trade relations for many economies has become participation in global and
regional trade agreements
As many studies and anecdotal evidence show bilateral economic cooperation should be sizable
and should relate to the economic growth of two countries in a way that afects their policy
interests Let us take as a reference point the BRICS countries1 a community of large emerging
economies which Rus sia belongs to Table 21 pres ents official data on US trade and investments
with BRICS states US- Russia trade in goods is disproportionally lowmdash235 times less than US
trade with China 33 times smaller than US trade with India and 28 times less than US trade
with Brazil The size of the US- Russia trade balance is comparable to the size of the US trade
balance with South Africa whose economy is almost four times smaller than Rus siarsquos If we add
trade in ser vices to the trade of goods the gaps increase significantly (Figures 21 and 22) The
diference is not only quantitative but also qualitative
The quality of trade relations can be mea sured by its diversity its share of high- tech components
resilience to economic shocks and its contribution to GDP growth On average a 10 percent
increase in a nationrsquos two- way trade relative to GDP increases GDP through a variety of channels
by at least 16 percent2
Bilateral trade and real GDP growth in the United States and Rus sia are practically uncorrelated
as shown in the summary output of multifactorial regression The coefficient of multiple determi-
nation (R Square) is close to 0 ( Table 22) At the same time the correlation of US exports to India
1 BRICS is the acronym for a select group of five developing economies Brazil Rus sia India China and South Africa
2 World Economic Forum Foreign Direct Investment as a Key Driver for Trade Growth and Prosperity The Case for a
Multilateral Agreement on Investment (Geneva World Economic Forum 2013) 11
594-71613_ch01_4Pindd 4 102017 404 PM
Vadim Grishin 5
Table 21 US Trade and Foreign Direct Investments (FDI) with China India Brazil South Africa and Rus sia 2016
China India Brazil South Africa Rus sia
Total Goods Trade 5786 677 565 13 203
Imports 4628 460 262 73 145
Exports 1158 217 303 55 58
Trade in Ser vices 696 472 317 47 na
Imports 161 268 68 17 na
Exports 535 203 249 30 na
US FDI 746 283 653 62 141
BRICS FDI in the United States
148 93 043 076 63
Supported Jobs in the United States (thousand)
911 197 308 50 84
Source United States Trade Representative (USTR) ldquoCountries amp Regionsrdquo accessed September 27 2017
https ustrgov countries - regions See US- China Trade Facts US- India Trade Facts US- Brazil Trade
Facts US- South Africa Trade Facts and US- Russia Trade Facts
201520142013
and China with the real GDP growth of these big Asian economies is significant (05) In the case of
Brazil the correlation is even higher (07) By contrast South Africarsquos small open economy is quite
sensitive to US imports from South Africa (043)3
In marked contrast to other BRICS countries Rus sia is a poor choice for export- oriented opera-
tions As a recent International Monetary Fund (IMF) study highlights Rus sia is an outlier a rare
exception among emerging market (EM) economies with virtually no preferential access to major
markets and little meaningful change over three de cades4 This complicates Rus siarsquos integration
into the global value chain (GVC) which became a significant driving force toward economic
development and trade for certain BRICS economies
3 IMF statistics authorrsquos computation
4 IMF Rus sian Federation Selected Issues IMF Country Report N17198 (Washington DC IMF July 2017)
594-71613_ch01_4Pindd 5 102017 404 PM
US-Russia Economic Relations6
Trade is closely connected with foreign direct investment (FDI) and both are parts of a complex
interaction known as international production sharing According to publicly available official data
US FDI in Rus sia was about $131 billion for 2013 and $295 billion for 2016 with the top industrial
sectors being software and IT ser vices financial ser vices chemicals metals coal oil and gas
and business ser vices5 If we take into account US investments made through Eu ro pean branches
of US companies and ofshore firms this number would easily triple Another component
that usually is not tracked by official statistics is reinvestments The American Chamber of
Commerce surveys in 2016 and 2017 which include this component draw a completely dif er ent
picture accumulated US corporate FDI in 90 large US companies working in Rus sia reached
5 US Department of Commerce International Trade Administration ldquoRussiamdash94- Foreign Direct Investment and
Portfolio Investment Statisticsrdquo Rus sia Country Commercial Guide July 7 2017 https wwwexport gov article
id=shyRussia - foreign - direct - investment - statistics
Figure 21 US Trade in Goods with China India Brazil Rus sia and South Africa Billion US$ 2016
Source USTR ldquoCountries amp Regionsrdquo See US- China Trade Facts US- India Trade Facts US- Brazil Trade
Facts US- South Africa Trade Facts and US- Russia Trade Facts
0
$50
$100
$150
$200
$250
$300
$350
$400
$450
$500
$550
$600
China India Brazil Russia South Africa
Exports
Imports
594-71613_ch01_4Pindd 6 102017 404 PM
Vadim Grishin 7
$8244 billion in 20176 The real level from our perspective is usually between official and private
estimations around $40 billon But even this cumulative figure is less than the US FDI in Brazil
and China
The American Chamber of Commerce surveys have also revealed other impor tant data Eighty-
five percent of US companies doing business in Rus sia entered its market 10 or more years ago
while 60 percent of them ldquolandedrdquo there 20 years ago or earlier Only one percent have started
operations over the last five years confirming an obvious fact entry into the Rus sian market is
challenging because of growing monopolism risks associated with the business climate and a
stagnating economy7
6 American Chamber of Commerce in Rus sia ldquoInvestment and Import to Rus sia 2nd Surveyrdquo (Prepared by GfK for the
American Chamber of Commerce in Rus sia Moscow May 2017) 12
7 Ibid 4
Figure 22 US Trade in Goods and in Ser vices with China India Brazil Rus sia and South Africa Billion US$ 2016
Source USTR ldquoCountries amp Regionsrdquo See US- China Trade Facts US- India Trade Facts US- Brazil Trade
Facts US- South Africa Trade Facts and US- Russia Trade Facts
0
$100
$200
$300
$400
$500
$600
$700
China India Brazil Russia South Africa
Trade in Services
Total Goods Trade
594-71613_ch01_4Pindd 7 102017 404 PM
US-Russia Economic Relations8
Rus sian direct investment position toward the United States declined from $215 billion in 2013 to
$83 billion in 2015 (Figure 23) Taking into account dif er ent channels and instruments the actual
volume of Rus sian investments in the United States made through ofshore Eu ro pean Canadian
and US companies may be several times greater than the available official data
Foreign investment in financial assets or foreign portfolio investment (FPI) should be included
even though Central Bank of Rus sia statistics indicate they were also quite low US investments in
equity were $345 million and in debt instruments were about $65 million in the fourth quarter of
20168 However these numbers do not reflect the real level of FPI Rus siarsquos stocks are incredibly
inexpensive while there has been impressive growth of US investments in short- term securities
and in foreign exchange (FX) operations (cash- and- carry trade) Rus sia was among the top per-
forming emerging markets in 2016 gaining 4744 percent in US dollars9 Nevertheless the gen-
eral capitalization of the stock exchange is tiny (less than 20 percent of GDP) comparable to the
capitalization of just one large US com pany such as Coca- Cola Many private sources believe that
the US FPI in Rus sia could be as high as several billion US dollars but a new set of sanctions
approved by President Trump on August 2 2017 if implemented could reverse those flows It is
still not clear whether the secretary of trea sury will prohibit participation in the oferings of Rus siarsquos
sovereign debt and the full range of derivative products A report on this subject should be sub-
mitted no later than 180 days after enactment of the law which means no later than Febru-
ary 2018 New legislation tightens prohibition on Rus sian financial companies already under
sanctions by limiting any new equity or debt with a maturity greater than 14 days (a provision that
8 Central Bank of Rus sia ldquoForeign Direct Investments in the Rus sian Federationrdquo accessed September 27 2017 www
cbr ru localization switchlanguage urlshy=shy news ampfromshy=shyru - ruamptoshy=shyen - gb
9 VanEck ldquoRus sian Stock Market Soars in 2016rdquo Seeking Alpha February 14 2017 https seekingalphacom article
4045602 - russian - stock - market - soars - 2016
Table 22 Summary Output of Regression Statistics (US Real GDP Rus sia Real GDP US- Russia Exports Imports and Total Trade)
Regression Statistics
Multiple R 0056445768
R Square 0003186125
Adjusted R Square minus0042123597
Standard Error 2616043923
Observations 24
Sources IMF statistics authorrsquos computation
594-71613_ch01_4Pindd 8 102017 404 PM
Vadim Grishin 9
previously allowed for 30 days) Similarly US persons are prohibited from taking on any new debt
that has a maturity greater than 60 days (previously it was 90 days) with Rus sian energy compa-
nies currently under sanctions10
According to the Trea sury Department Rus sia held $1029 billion in US Trea sury securities in
June 201711 Could Rus sia withdraw all its reserves from the United States and use this action as a
retaliatory mea sure Such a scenario is unlikely since there is no comparable safe- haven alterna-
tive to US dollars When Rus siarsquos US Trea sury holdings dropped 50 percent from $176 billion
(October 2010) to $90 billion (November 2011) the market did not notice12 Nevertheless Rus sian
authorities have announced they will decrease dependence on assets and payments in US dollars13
10 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364
11 US Department of Trea sury Major Foreign Holders of Trea sury Securities September 18 2017 http ticdata
treasury gov Publish mfh txt
12 Ibid
13 ldquoНовый виток санкций Россия откажется от доллараrdquo [A new round of sanctions Rus sia will abandon the dollar]
Газетару August 7 2017 https wwwgazeta ru business 2017 08 07 10821937 shtml
Figure 23 Rus sia Outward FDI Position United States Equities and Debt Million US$ 2009ndash2016
Source Central Bank of the Rus sian Federation External Sector Statistics Rus sian Direct Investments
Abroad accessed September 27 2017 https wwwcbr ru localization switchlanguage urlshy=shy news
ampfromshy=shyru - ruamptoshy=shyen - gb
$6000
$8000
$10000
$12000
$14000
$16000
$18000
$20000
$22000
2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 9 102017 404 PM
US-Russia Economic Relations10
Officially the country does not invest in the US stock exchange although some Rus sian oligarchs
have bought US corporate bonds and equities in large amounts The new sanctions law requires
the secretary of trea sury in consultation with the director of national intelligence and the secretary
of state to issue reports on Rus sian se nior po liti cal figures and oligarchs based on their closeness
to the Rus sian regime and their net worth as well as the exposure of key economic sectors of the
United States to Rus sian po liti cally exposed persons and parastatal entities including at a mini-
mum the banking securities insurance and real estate sectors14
Only three Rus sian companies are listed in the US exchanges
Overall the scale and scope of US- Russia economic interaction and business activity is much greater
than officially appreciated but not significant enough to be taken into consideration by policymakers
14 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364
594-71613_ch01_4Pindd 10 102017 404 PM
11
03
Politics in the Driverrsquos Seat
Bilateral economic relations depend to a great extent on global and national economic cycles
After the recent global financial crisis the US economy has shown surprisingly sustainable GDP
growth while the Rus sian economy was the most afected among BRICS countries by the turbu-
lence of a worldwide economic downturn in 2008ndash2009 and after a short- term rebound slipped
into stagnation (2012ndash2013) and then into full- scale recession (2014ndash2016) The countryrsquos eco-
nomic cycle however appears to be changing once again with the economy returning to a
pattern of growth albeit uneven and gradual (Figures 31 and 32) Even with sanctions still in place
conditions have improved as a result of the stabilization of Urals oil to an average annual price of
$419 per barrel in 2016 The gains were sparked in part by major crude producers agreeing to cut
production after hefty price drops in 2014 and 2015 Supported by easier financial conditions
higher oil prices and growing macro- stability Rus sia is heading toward a moderate growth rate
that is expected to reach 14 percent this year according to forecasts of the World Bank Group
(WBG) and the IMF1
Because of the significant role that politics plays in any bilateral interaction it is impor tant to
combine economic and po liti cal cycles applying a ldquoresetrdquo to bilateral economic cooperation in
addition to the po liti cal relationship I have compared po liti cal cycles and trade dynamics using the
following graphs ( Table 31 and Figure 33) These charts do not pretend to reflect with mathemati-
cal precision all shifts in the bilateral po liti cal relationship but rather attempt to visually align
impor tant economic and po liti cal moments to detect the efects of po liti cal events on the size of
bilateral trade
Figure 33 shows all pos si ble combinations economic trends at the intersection of po liti cal devel-
opments oppose or support each other in synchronization It is evident that po liti cal interference
1 International Monetary Fund Rus sian Federation Staff Concluding Statement of the 2017 Article IV Mission (Wash-
ington DC IMF 2017) World Bank Group From Recession to Recovery Rus sia Economic Report no 37 (Washington
DC World Bank 2017) http pubdocsworldbank org en 383241495487103815 RER - 37 - May26 - FINAL - with - summary
594-71613_ch01_4Pindd 11 102017 404 PM
US-Russia Economic Relations12
in bilateral business afairs in the early 2000s was less significant than in later years As result
growing po liti cal tensions from 2003 to 2008 did not dramatically afect bilateral economic inter-
action It is also easier to explain why 2011ndash2012 resulted in rec ord trade and investmentmdash a con-
sequence of very high oil prices GDP growth in both countries improved legislation after Rus siarsquos
accession to the WTO and the Obamandash Medvedev po liti cal reset From 2014 to 2016 a perfect
storm of developments added efficiency to Western sanctions and augmented the damaging
consequences of counter- sanction mea sures
Figure 33 also confirms that in times of reduced economic cooperation po liti cal pressures can
easily change bilateral economic trends Moreover business interests along with economic inter-
actions have a limited capacity to reverse the po liti cal mainstream
Figure 31 Economic Cycle 2014ndash2016
Source Authorrsquos evaluation of international financial institutions (IFI) data and sources from respective
countries
Sustainable Growth
Brazil
Negative Growth
Unstable Growth
Mexico
Descending Growth
Argentina
EU
US
Russia
Vietnam
China
594-71613_ch01_4Pindd 12 102017 404 PM
Vadim Grishin 13
Table 31 Po liti cal Cycles in Bilateral US- Russia Relations 1999ndash2016
2001ndash2002 The George W Bushndash Vladimir Putin Reset Rus sia supported ldquoglobal war on terrorismrdquo launched by the United States after 911 the SORT nuclear arms reduction treaty was signed by the United States and Rus sia and a successful business dialogue was developed that created the current structure of economic relations
2003ndash2008 Deterioration in bilateral relations brought on by the Iraq War Georgiarsquos ldquoRose Revolutionrdquo Mikhail Khodorkovskyrsquos arrest Ukrainersquos ldquoOrange Revolutionrdquo Kosovorsquos in de pen dence and the Georgian War
2009ndash2010 The Barack Obamandash Dmitry Medvedev Reset Rus sia served as a logistical hub for transportation and supply of US forces in Af ghan i stan United States and Rus sia signed the new START nuclear arms reduction treaty Rus sia backed tighter economic sanctions on Iran Rus sia gained access to the WTO after 18 years of negotiations
2011ndash2016 Deterioration in bilateral relations caused by the Ukrainian crisis which were followed by sanctions and counter- sanctions along with the Syrian crises and cyber- enabled activities
Source Authorrsquos evaluation of po liti cal and economic data
Note SORTthinsp=thinspStrategic Ofensive Reductions Treaty STARTthinsp=thinspStrategic Arms Reduction Treaty
Figure 32 Economic Cycle 2017ndash2019
Source Authorrsquos evaluation of IFI data and sources from respective countries
Egypt
VenezuelaEU
South Africa
Brazil
Russia
India
US
Descending Growth
Korea
China
Negative Growth
Unstable Growth
Sustainable Growth
594-71613_ch01_4Pindd 13 102017 404 PM
US-Russia Economic Relations14
Figure 33 US- Russia Trade Million US$ vs Po liti cal Cycle 2000ndash2016
Sources US Census Bureau ldquoTrade in Goods with Rus siardquo Foreign Trade last modified June 29 2017
https wwwcensus gov foreign - trade balance c4621 html (see data for 2000ndash2016) authorrsquos evaluation
of po liti cal and economic data
Orange Revolution
Khodorkovskys arrest
GeorgianWar
Bush- Putin Reset
Iraq War Global Financial Crisis
Obama-Medvedev Reset
Russias WTO accession
New START Treaty
A Pefect Storm the Ukranian Crisis Oil Prices Crashing
Sanctions and Counter-Sanctions
$3000
$8000
$13000
$18000
$23000
$28000
$33000
$38000
$43000
2000 2002 2004 2006 2008 2010 2012 2014 2016
594-71613_ch01_4Pindd 14 102017 404 PM
15
The current structure of US- Russia economic relations emerged in the early 2000s when the
model of trade and investment interaction took on a character similar to that which existed be-
tween the United States and developing economies US imports from Rus sia centered on com-
modities while technology along with food products lead American exports The primary
exception was that Rus sia supplied nuclear fuel including highly enriched uranium extracted from
nuclear weapons for US power plants and provided ser vices to the aerospace industry primarily
in satellite launches However both these exceptions can be explained as a legacy of the Soviet
past and not a harbinger of the future economic relationship (Figure 41)
In the last 15 years this trade structure has not changed significantly The only noticeable shift in
trade was a dramatic drop (to practically nothing) in exports of US agricultural products a result
of Rus siarsquos policy of import substitution and so- called counter- sanction mea sures it took in re-
sponse to US sanctions over the Ukraine crisis (Figure 42)
Promising new directions of cooperation in the IT sector and in engineering ser vices for the
aerospace industry appeared in the early 2000s1 but did not spill into other sectors and conse-
quently did little to renew economic cooperation on the whole The integration of Rus sian high-
tech ser vices into large- scale global production and value chains was constrained by the usual
culprits a lack of financial resources managerial experience skilled labor modern infrastructure
RampD investments and an adequate business environment High commodity prices incentivized the
restoration of an economic system centered on resource rents The leading role of oil and gas
extraction and transportation discouraged the development of a nonenergy sector that might
have created advanced and complex production and ser vices An import substitution policy could
not work efficiently in an economic environment plagued by the Dutch disease where currency
1 The Boeing Design Center was created in Moscow It consists of nearly 250 Boeing employees managing
a team of 1200 contract engineers from Rus sian and Ukrainian aerospace companies ldquoBackgrounder Boeing in
Rus siardquo Boeing last modified January 2017 http wwwboeing com resources boeingdotcom company key _ orgs
boeing - international pdf russia - cisbackgrounder pdf
Are the United States and Rus sia ldquoNatu ralrdquo Trading Partners A Little Bit of History
04
594-71613_ch01_4Pindd 15 102017 404 PM
US-Russia Economic Relations16
inflows (oil money) lead to ruble appreciation and render a countryrsquos production less competitive
During that time Rus siarsquos industry did not receive preferential access to larger markets and could
not expand its share in the global economy particularly because of its self- isolation from the
regional trade agreements (except for its participation in the Eurasian Economic Union with some
neighboring countries of the former Soviet Union) As a result neither import substitution nor
export- led strategy promoted growth and specialization in nonoil production A long- awaited
modernization and reallocation of resources from an inefficient nontrade sector to a trade sector
did not materialize
These limits were later augmented with sanctions and an extension of domestic restrictions on
cooperation with Western partners Importantly the rapid growth of state- monopoly structures in
the Rus sian economy over the past 15 years has created additional obstacles to the development
and diversification of US- Russia economic ties
Figure 41 US Imports from Rus sia US$ 2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2016)
Fish and shellfish 3
Crude oil 5
Fuel oil 37
Petroleum products other
8
Nuclear fuel materials
7
Chemicals-fertilizers 4
Steelmaking materials 5
Iron and steel mill products 4
Bauxite and aluminum 9
Other precious metals 4
Nonferrous metals other 1
Finished metal shapes 1
Synthetic rubber--primary
1
Spacecraftexcluding military
594-71613_ch01_4Pindd 16 102017 404 PM
Fig
ure
42
U
S E
xpo
rts
to R
us s
ia U
S$ 2
016
Sou
rce
US
Ce
nsu
s B
ure
au ldquo
Trad
e in
Go
od
s w
ith
Ru
s sia
rdquo (s
ee
dat
a fo
r 2
016
)
Bak
ery
pro
du
cts
Win
e b
eer
an
d r
elat
ed
pro
du
cts
New
spri
nt
Pla
stic
mat
eria
ls
Ch
emic
als-
fert
ilize
rs
Ch
emic
als-
ino
rgan
icC
hem
ical
s-o
rgan
ic
Ch
emic
als-
oth
erC
ott
on
fib
er c
loth
In
du
stri
al r
ub
ber
pro
du
cts
Min
eral
su
pp
lies-
man
ufa
ctu
red
Gen
erat
ors
acc
esso
ries
Ele
ctri
c ap
par
atu
s
Dri
llin
g amp
oilfi
eld
eq
uip
men
t Sp
ecia
lized
min
ing
Exc
avat
ing
mac
hin
ery
No
nfa
rm t
ract
ors
an
d p
arts
In
du
stri
al e
ng
ines
Fo
od
to
bac
co m
ach
iner
y M
etal
wo
rkin
g m
ach
ine
too
ls
Tex
tile
sew
ing
m
ach
ines
W
oo
d g
lass
p
last
ic
Pu
lp a
nd
pap
er
mac
hin
ery
Mea
suri
ng
tes
tin
g
con
tro
l in
stru
men
ts
Mat
eria
ls h
and
ling
equ
ipm
ent
Ind
ust
rial
mac
hin
es
oth
er
Ph
oto
ser
vice
ind
ust
ry m
ach
iner
y A
gri
cult
ura
l mac
hin
ery
eq
uip
men
t C
om
pu
ters
Co
mp
ute
r ac
cess
ori
es
Sem
ico
nd
uct
ors
Tel
eco
mm
un
icat
ion
seq
uip
men
t
Bu
sin
ess
mac
hin
es a
nd
eq
uip
men
t
Lab
ora
tory
tes
tin
g in
stru
men
ts
Med
icin
al e
qu
ipm
ent
Civ
ilian
air
craf
t e
ng
ines
eq
uip
men
t a
nd
par
ts
Rai
lway
tra
nsp
ort
atio
n
equ
ipm
ent
Ves
sels
exc
lud
ing
scr
ap
Co
mm
erci
al v
esse
ls o
ther
M
arin
e en
gin
es p
arts
Spac
ecra
ft e
xclu
din
g
mili
tary
Pas
sen
ger
car
s
new
an
d u
sed
Tru
cks
bu
ses
and
sp
ecia
l p
urp
ose
ve
hic
les
En
gin
es a
nd
en
gin
e p
arts
(c
arb
ure
tors
pis
ton
s r
ing
s
and
val
ves)
B
od
ies
and
ch
assi
s fo
r p
asse
ng
er c
ars
Au
tom
oti
ve t
ires
an
d t
ub
es
Oth
er p
arts
an
d a
cces
sori
es o
f ve
hic
les
Ap
par
el h
ou
seh
old
go
od
s -
text
ile
Ph
arm
aceu
tica
lp
rep
arat
ion
s
Furn
itu
re h
ou
seh
old
go
od
s
etc
R
ug
s
Cel
l ph
on
es a
nd
oth
er
ho
use
ho
ld g
oo
ds
ne
c
594-71613_ch01_4Pindd 17 102017 404 PM
US-Russia Economic Relations18
Figure 43 US Trade in Goods with Rus sia Million US$ 1992ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
Russian Financial Crisis
Oil price Increased from$2446 USD per barrel (2001)
to $9694 USD per barrel(2008)
Global Financial Crisis
Oil price high record in2011-2012
(more that $111 USD perbarrel)
Oil price crashed
$-
$5000
$10000
$15000
$20000
$25000
$30000
$35000
$40000
$45000
$50000
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia US Exports to Russia US-Russia Trade in Goods
No doubt po liti cal ups and downs add volatility to US- Russia trade Nevertheless Rus siarsquos eco-
nomic structure exhausted itself before the Ukrainian crisis and the recent Rus sian recession Its
limitations are not only due to some mistakes in policy or negative coincidences of circumstances
but rather to deeply rooted properties in the current bilateral trade model related to structural
issues in the Rus sian economy Structural constraints such as the weak enforcement of property
rights poor business regulation and nondiversified exports weighed on Rus sian trade with the
United States From this perspective the term ldquonaturalunnatural trading partnersrdquo does not ad-
dress the unused capacity of bilateral interaction or the real challenges that kind of interaction
faces It just adds metaphysical flavor to the very specific economic and po liti cal factors that
determine the US- Russia trajectory
Overall the outlines of bilateral trade (Figure 43) resemble the famous ldquoRus sian Mountainsrdquo that
were a pre de ces sor of the modern roller coaster icy hills supported by wooden constructionsmdash a
rigid and immobile structure that sooner or later would melt This unfortunately is what is hap-
pening to US- Russia trade cooperation now
594-71613_ch01_4Pindd 18 102017 404 PM
19
ARE LITTLE FISH REALLY SWEET
Low US- Russia economic interaction has at least two consequences First it limits the capacity of
policymakers to exploit trade as an instrument for geopo liti cal combat Even the question of a US
trade deficit which used to be a headache for many US trading partners has become so insig-
nificant in absolute terms (about $87 billion in 2016) that it seems hardly worth caring about
When the volume of trade between two countries becomes very small in absolute terms whether
a country is running a surplus or deficit is no longer relevant But it also renders another type of
confrontations (sometimes more dangerous) more likely since the two traders have little to lose
Second in an environment marked by low levels of bilateral trade both sides could incentivize (if
and when a desire for po liti cal rapprochement exists) the signing of new trade deals which are
elevated symbolically as a turning point in bilateral po liti cal relations (ie the sale of Boeings to
Rus sia or the delivery via tankers of Rus sian oil to US refineries) Sometimes markets themselves
pres ent ldquogiftsrdquo that can be capitalized on po liti cally US- USSR grain trade in the 1970s was one
such ldquogiftrdquo large sales of American grain to the Soviet Union helped US policymakers win favor
with the po liti cally impor tant American farming sector and permitted Soviet leaders to maintain
access to a dietary staple for the Soviet population
The strong 32 percent growth in value of US imports from Rus sia from January to May 2017
versus January to May 2016 ( Table 51) is an example of a development that has tempted officials
to pres ent it as a sign of positive change due to ldquogrowing business activitiesrdquo (this kind of statement
was heard before the bilateral summit in Germany in July 2017) although the reason for that leap
was evidently an increase in commodity prices (mainly of oilmdash see Table 52) and not a rise in
entrepreneurial interactions The primary beneficiaries of that upside rally have been two other
petro- economies Saudi Arabia and Venezuela ( Tables 53 and 54)
Sector Analyses
05
594-71613_ch01_4Pindd 19 102017 404 PM
US-Russia Economic Relations20
Table 51 US Imports from Rus sia Million US$ Januaryndash May 2016 vs Januaryndash May 2017
Year January February March April May Total
2016 9603 6871 11097 12257 10977 50805
2017 12215 10220 16979 13471 14147 67032
Change 271 487 530 99 289 319
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
Table 52 Change in Urals Crude Oil Prices US$ per Barrel Januaryndash May 2016 vs Januaryndash May 2017
Januaryndash May 2016 Januaryndash May 2017 Change ($) Change ()
3601 5129 1528 424
Source Ministry of Finance of the Rus sian Federation https wwwminfin ru ru ixzz4mMIZ7XtC
Table 53 US Imports from Saudi Arabia Million US$ Januaryndash May 2016 vs Januaryndash May 2017
Year January February March April May Total
2016 15114 9036 13555 10844 14679 63228
2017 19802 20298 21650 16211 19542 97503
Change 3101 12463 5972 495 331 542
Source US Census Bureau ldquoTrade in Goods with Saudi Arabiardquo Foreign Trade last modified June 29 2017
https wwwcensus gov foreign - trade balance c5170 html (see data for 2016ndash2017)
594-71613_ch01_4Pindd 20 102017 404 PM
Vadim Grishin 21
Table 54 US Imports from Venezuela Million US$ Januaryndash May 2016 vs Januaryndash May 2017
Year January February March April May Total
2016 6657 5560 7140 8007 7922 35286
2017 13041 10864 123500 11148 12243 59646
Change 9590 9540 7297 3923 5454 6903
Source US Census Bureau ldquoTrade in Goods with Venezuelardquo Foreign Trade last modified June 29 2017
https wwwcensus gov foreign - trade balance c3070 html (see data for 2016ndash2017)
Table 55 US Exports to Rus sia Million US$ Januaryndash May 2016 vs Januaryndash May 2017
Year January February March April May Total
2016 3628 3577 7298 4657 4947 24107
2017 3144 4277 5386 6670 4806 24283
Change minus133 196 minus262 432 minus29 minus07
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2016ndash2017)
At the same time US exports to Rus sia continue to stagnate ( Table 55) due to low levels of
consumption during a two-and- a- half-year economic crisis a deep ruble devaluation sanctions
and counter- sanctions
Given the very dif er ent economic structures and resource endowments of Rus sia and the United
States it is not surprising that US- Russia trade is asymmetric and oil driven (Figure 51) A
3 percent increase in Urals oil prices translates into a one percent increase in US import growth
from Rus sia Thus in 2016 every $10 increase in Urals crude oil added $15 billion to the value of
US imports or 11 percent to the total value of imports from Rus sia
OIL ADDICTION
Oil is a core pillar of US- Russia bilateral trade A bumpy ride in oil markets afects commerce
Nevertheless Rus sian oil exports to the United States in physical terms have been rather
594-71613_ch01_4Pindd 21 102017 404 PM
US-Russia Economic Relations22
sustainable Starting from 2005 average annual deliveries have been above 150 million barrels
(Figure 52) Crude and heating oil have dominated while petroleum products and liquefied petro-
leum gases have not (Figure 53) In 2011 oil exports peaked at 228 million barrels but declined to
159 million barrels in 2016mdash a drop of 30 percent Rec ord high shipments of Rus sian oil to the United
States coincided with an elevation in oil prices which made the subsequent decline in oil shipment
value between 2011 and 2016 (by about 72 percent as shown in Figure 54) seem more stark The
increase in price also raised the share of oil in Rus sian exports by 74 percent in 2011 (Figure 55)
The Rus sian share in total US oil imports was around 55 percent in 2011 and 43 percent in 2016
( Table 56) In the last five years the United States has relied exclusively on consumption of Rus sian
oil for the rough equivalent of one week out of the year (Figure 56)
It is unlikely that Rus sia can significantly increase its share of the US oil market and there is a real
possibility for a downward trend There are several reasons the historically high Rus sian hydrocar-
bon export threshold of 2011 will not soon if ever be surpassed
First US energy consumption will likely be flat According to the US Energy Information Adminis-
tration (EIA) demand for petroleum and other liquids in the United States will be about 35ndash36
quadrillion British thermal units (BTUs) with minimal variation over the next 25 years1
1 US EIA ldquoAnnual Energy Outlook 2017 with Projections to 2050rdquo January 5 2017 7ndash8
Figure 51 US- Russia Trade Growth () vs US and Rus sia Real GDP Growth () 1993ndash2016
Source IMF ldquoIMF Datardquo accessed September 27 2017 http wwwimf org en Data US Census Bureau
ldquoTrade in Goods with Rus siardquo
Note rGDPthinsp=thinspreal gross domestic product
Trade
USA rGDP growth
Russia rGDP growth
-60
-40
-20
0
20
40
60
80
100
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Gro
wth
All spikes in US-Russia trade have been connected with two main
variables volume and price of crude oil
594-71613_ch01_4Pindd 22 102017 404 PM
Vadim Grishin 23
Second the United States will become a net energy exporter between 2020 and 2030 in most
cases under dif er ent combinations of oil and natu ral gas prices GDP growth technological
breakthroughs and the availability of energy resources The role of oil imports will dramatically
fall2
Third oil price scenarios as described by the International Energy Agency (IEA) international
financial organ izations (IFIs) and many national agencies are very cautious and assume that even
by 2035 to 2040 oil prices will not to recover to the levels of 2011ndash20123
Fourth Rus sian oil production and export growth will be modest and driven by Asian economic
expansion and will comprise a decreasing share of Western markets4 According to forecasts from
2 Ibid 15ndash18
3 Ibid table 3 ldquoEnergy Prices by Sector and Sourcesrdquo World Bank World Bank Commodity Markets Price Forecasts
(Washington DC World Bank 2017) httpswwwworldbank org en research commodity - markets Organ ization of the
Petroleum Exporting Countries (OPEC) World Oil Outlook 2016 (Vienna OPEC 2016)
4 E D Belotskaia et al Global and Rus sian Energy Outlook 2016 (Moscow Energy Research Institute of the Rus sian
Acad emy of Science Analytical Center for the Government of the Rus sian Federation 2016) http acgov ru files
publication a 12767 pdf
Figure 52 US Imports from Rus sia Crude Oil and Petroleum Products Thousands of Barrels 1995ndash2016
Source US EIA ldquoUS Imports by Country of Origin Rus siardquo Petroleum amp Other Liquids September 13
2017 http wwweia gov dnav pet PET _ MOVE _ IMPCUS _ D _ NUS _ NRS _ MBBL _ M htm
0
50000
100000
150000
200000
250000
Date 1995 1996 1997 1998 199920002001200220032004200520062007200820092010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 23 102017 404 PM
US-Russia Economic Relations24
the Organ ization of the Petroleum Exporting Countries (OPEC) crude oil exports from Rus sia and
the Caspian region to the United States will dis appear by 20255
So why does the Rus sian Urals blend continue to be attractive for oil traders and US refineries
which could pro cess greater volumes of domestically produced lighter crude There are two main
reasons One is related to the preference of US high conversion refineries (the most sophisticated
in the world) to work with heavy oil blends produced by Canada Mexico Iraq Venezuela and
Rus sia Pro cessing heavy crude now is as profitable as pro cessing lighter crude The so- called
crack spreadmdash the diference between the cost of relatively cheap heavy crude oil and the final
price of value- added consumer products (diesel gasoline jet fuel and heating oil)mdash has become
the same as the refinery margins of light sweet crude6 This has primarily afected light oil produc-
ing countries such as Angola Algeria and Nigeria
5 OPEC World Oil Outlook 2016 306ndash309
6 ldquoHow Much for That Heavy Oilrdquo Oil Sands Magazine December 26 2015 https wwwoilsandsmagazine com
news 2015 12 26 how - much - for - that - heavy - oil
Figure 53 US Imports from Rus sia Oil and Petroleum Products US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$-
$25000000000
$20000000000
$15000000000
$10000000000
$5000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Liquefied petroleum gases
Petroleum products other
Fuel oil
Crude oil
594-71613_ch01_4Pindd 24 102017 404 PM
Vadim Grishin 25
Another factor afecting purchase of Rus sian oil is a new trend among oil companies for further
consolidation of scale and for integrating operations of upstream and downstream business7
There have been several waves of separation and unification of production transportation and
pro cessing in the last 50 years The current business cycle can be seen as an adaptation to a
period of low prices and oversupply Companies that buy andor produce oil in Rus sia most likely
prefer to transport and pro cess this oil in their own modern refineries in the United States At the
same time some of the newest refinery designs specifically for pro cessing heavy oils have been
built in Asia thus extending the choices of heavy oil producing countries
We should also consider that leading US and international oil traders along with oil producing
companies working with or owning US refineries frequently buy Rus sian oil on the open market
and have long- term contracts on Rus sian crude oil delivery Many Rus sian oil companies prefer to
pay for purchases or ser vices with their future production instead of cash creating situations of
ldquostickyrdquo oil imports that are difficult to replace The best- known example is an interaction between
7 ldquoEnergy and Utilities Sectorrdquo Roundtable Financier Worldwide December 2015 https wwwfinancierworldwide
com roundtable - energy - utilities - sector - dec15
Figure 54 US Imports of Oil and Petroleum Products from Rus sia vs Oil Prices Eu rope Brent Spot Price Free on Board (FOB) 1996ndash2017
Source US EIA ldquoUS Imports by Country of Origin Rus siardquo
0
20
40
60
80
100
120
140
0
5000
10000
15000
20000
25000
30000
Jan
-19
96
Jun
-19
96
No
v-19
96
Ap
r-19
97
Sep
-19
97
Feb
-19
98
Jul-
199
8D
ec-1
99
8M
ay-1
99
9O
ct-1
99
9M
ar-2
00
0A
ug
-20
00
Jan
-20
01
Jun
-20
01
No
v-2
00
1A
pr-
20
02
Sep
-20
02
Feb
-20
03
Jul-
20
03
Dec
-20
03
May
-20
04
Oct
-20
04
Mar
-20
05
Au
g-2
00
5Ja
n-2
00
6Ju
n-2
00
6N
ov-
20
06
Ap
r-2
00
7Se
p-2
00
7Fe
b-2
00
8Ju
l-2
00
8D
ec-2
00
8M
ay-2
00
9O
ct-2
00
9M
ar-2
010
Au
g-2
010
Jan
-20
11Ju
n-2
011
No
v-2
011
Ap
r-2
012
Sep
-20
12Fe
b-2
013
Jul-
20
13D
ec-2
013
May
-20
14O
ct-2
014
Mar
-20
15A
ug
-20
15Ja
n-2
016
Jun
-20
16N
ov-
20
16
USD
per
Bar
rel
Th
ou
san
d B
arr
els
US Imports from Russia of Crude Oil and Petroleum Products (Thousand Barrels)
Europe Brent Spot Price FOB (Dollars per Barrel)
594-71613_ch01_4Pindd 25 102017 404 PM
US-Russia Economic Relations26
Table 56 US Oil Imports All Countries vs Rus sia Thousand Barrels per Day 2011ndash2016
Years 2011 2012 2013 2014 2015 2016
All Countries 11436 10598 9859 9241 9449 10058
Rus sia 624 477 460 330 371 433
Share 546 450 467 357 393 431
Sources US EIA ldquoUS Imports by Country of Origin Total Crude Oil and Productsrdquo Petroleum amp Other
Liquids September 13 2017 wwweia gov dnav pet pet_move_impcus_a2_nus_ep00_im0_mbbl_m htm
authorrsquos computation
Figure 55 US Imports from Rus sia Share of Crude Oil and Petroleum Products Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
57
64
73
72
74
73
72
59
52 50
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
$40000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil and Petroleum Products
594-71613_ch01_4Pindd 26 102017 404 PM
Vadim Grishin 27
the Rus sian state mono poly Rosneft and commodity trading and mining giant Glencore which
along with energy and commodities com pany Vitol participated in a $10 billion prepayment
deal with Rosneft for crude supplies in 2013
There have been a number of ongoing transactions between the Rus sian oil industry and interna-
tional oil companies including several that top the list of importers of Rus sian oil to the United
States ( Table 57) In December 2016 Glencore participated in a controversial privatization opera-
tion purchasing in tandem with the Qatar sovereign wealth fund a 195 percent stake in Rosneft
which was on the US and EU list of sanctioned firms8 Glencore has also taken a blocking stake in
midsize oil producer RussNeft BP owns a 1975 percent stake in Rosneft Chevron holds a
15 percent interest in the 935- mile- long CPC9 pipeline which transports an average of 959000
barrels of crude oil per day including 76000 barrels daily from Rus sia10 ExxonMobil has formed
8 E Mazneva and I Arkhipov ldquoRus sia Sells $11 Billion Stake in Rosneft to Glencore Qatarrdquo Bloomberg December 7
2016
9 CPCthinsp=thinspCaspian Pipeline Consortium
10 ldquoRus sia Highlights of Operations and Business Portfoliordquo Chevron accessed October 3 2017 https wwwchevron
com worldwide russia
Figure 56 Share of Rus sian Oil in Total US Oil Imports Thousands of Barrels per Day 1972ndash2016
Source US EIA ldquoUS Imports by Country of Origin Total Crude Oil and Productsrdquo
2000
4000
6000
8000
10000
12000
14000
16000
US Imports of Crude Oil and Petroleum Products (Thousand Barrels per Day)
US Imports from Russia of Crude Oil and Petroleum Products (Thousand Barrels per Day)19
7319
7419
7519
7619
7719
7819
7919
80
198
119
82
198
319
84
198
519
86
198
719
88
198
919
90
199
119
92
199
319
94
199
519
96
199
719
98
199
92
00
02
00
12
00
22
00
32
00
42
00
52
00
62
00
72
00
82
00
92
010
20
112
012
20
132
014
20
152
016
594-71613_ch01_4Pindd 27 102017 404 PM
Table 57 Top Importers of Rus sian Oil to the United States Thousands of Barrels 2016
VALERO MARKETING amp SUPPLY CO 54590 3616
EXXONMOBIL OIL CORP 17087 1130
CHEVRON USA INC 15217 1008
BP WEST COAST PRODUCTS LLC 10130 671
GEORGE E WARREN CORP 7272 48
PAULSBORO REFINING CO LLC 6838 453
TESORO CORP 5097 338
VITOL INC 5084 337
PHILLIPS 66 CO 4726 313
TRAFIGURA AG 4360 289
PAR HAWAII REFINING LLC 3893 258
MOTIVA ENTERPRISES LLC 3041 205
SHELL US TRADING CO 2863 19
MARATHON PETROLEUM CO LLC 2475 16
ATLANTIC TRADING amp MARKETING 2099 14
FREEPOINT COMMODITIES LLC 1439 1
GLENCORE LTD 1284 85
BEST PETROLEUM CORP 967 64
ROLYMPUS US COMMODITIES GROUP LLC 822 6
HUNT CRUDE OIL SUPPLY CO 666 4
GULF OIL LP 658 4
Source US EIA ldquoUS Imports by Country of Origin Crude Oilrdquo Petroleum amp Other Liquids September 13
2017 httpswwweiagovdnavpetpet_move_impcus_a2_nus_epc0_im0_mbblpd_ahtm authorrsquos
computation
594-71613_ch01_4Pindd 28 102017 404 PM
Vadim Grishin 29
several joint ventures with Rosneft to undertake ofshore exploration in the Black Sea and the Kara
Sea in Siberia11
According to the Sanctions Act US persons are prohibited from exporting or reexporting goods
ser vices (except financial ser vices) and technology in support of exploration or production of new
deep- water Arctic ofshore or shale oil proj ects that involve designated Rus sian entities or other
entities in which such sanctioned persons have a controlling interest or a substantial noncontrol-
ling owner ship interest defined as not less than 33 percent (previously it was 50 percent) The new
law also authorizesmdash but does not requiremdash the imposition of so- called secondary sanctions
against non- US entities that engage in activities involving the construction maintenance or
expansion of Rus sian energy export pipelines with a fair market value of $1 million or more or an
aggregate fair market value during a 12- month period of $5 million12 This provision has raised the
concerns of some Eu ro pean countries particularly Germany As result the final language of the
law included wording about coordination of this issue with allies of the United States
Shipments of Rus sian oil to the United States could be afected by activity in the US refinery
industry In early 2017 Saudi Aramco bought the United Statesrsquo largest oil refinery in Port Arthur
(Texas) and it announced plans to send more of its own crude to that refinery13 Serious concerns
exist however regarding the future of three refineries and nine pipelines owned by Citgo a US
branch of the Venezuelan state com pany PdVSA which is balancing precariously on the edge of
default Under certain conditions in the event of PdVSA bankruptcy Rosneft could claim a stake of
up to 499 percent in Citgo Such a possibility has raised concerns among politicians and US
government officials with Trea sury Secretary Steven Mnuchin calling it a ldquonational security issuerdquo14
Tables 58 59 and 510 show allocations of Rus sian oil imports to major US refineries some of
which work exclusively on Rus sian crude a total of two to three months per year In total 150940
thousand barrels of Rus sian oil were refined in 2016
Figure 57 confirms a leading position of Texas and Louisiana among the US states receiving
Rus sian crude followed by New Jersey California Mississippi Washington Hawaii and Delaware
In a paradoxical way Texas has dis appeared from the list of states as a main destination of US
imports from Rus sia (Figure 58) because Rus sian crude is mostly delivered to Louisiana ports and
registered there by US Customs as an import from Rus sia After that it transports to refineries in
Louisiana and Texas
Overall the short- term business rationale behind the sustainability of US oil imports from Rus sia
cannot overcome strong headwinds in the US energy sector facing all oil importers which will
inevitably lead to a contraction of Rus sian oil exports to the United States in the foreseeable future
11 Exxon eforts to receive a special US Trea sury waiver to drill in sanctioned Rus sia failed in 2017
12 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364
13 Sarp Ozkan ldquoSaudi Aramcorsquos Port Arthur Refinery and the US Refinery Fleetrdquo Drilling Info May 11 2017
https infodrillinginfo com saudi - aramcos - port - arthur - refinery - us - refinery - fleet
14 Graham Kates ldquoTrea sury Secretary Rus siarsquos Citgo Deal a National Security Issuerdquo CBS News May 1 2017
http wwwcbsnews com news rosneft - citgo - steven - mnuchin - national - security
594-71613_ch01_4Pindd 29 102017 404 PM
US-Russia Economic Relations30
Table 58 Valerorsquos Refineries Pro cessing Rus sian Oil Thousands of Barrels 2016
Saint Charles Louisiana 29206 535
Corpus Christi Texas 20626 378
Wilmington California 4250 78
Total USA 54590 100
Source US EIA ldquoRefinery Capacity Reportrdquo January 1 2017
table 5 wwweia gov petroleum refinerycapacity table5 pdf
authorrsquos computation
Table 59 ExxonMobil Refineries Pro cessing Rus sian Oil Thousands of Barrels 2016
Baytown Texas 15037 88
Baton Rouge Louisiana 2046 12
Total USA 17083 100
Source US EIA ldquoRefinery Capacity Reportrdquo authorrsquos computation
Table 510 Chevronrsquos Refineries Pro cessing Rus sian Oil Thousands of Barrels 2016
Pascagoula Mississippi 12767 840
El Segundo California 2372 155
Saint Rose Louisiana 78 05
Total USA 15217 100
Source US EIA ldquoRefinery Capacity Reportrdquo authorrsquos computation
594-71613_ch01_4Pindd 30 102017 404 PM
Vadim Grishin 31
HEAVY METAL
Taken together US imports of metals and US imports of oil compose about 80 percent of US
total imports from Rus sia (Figure 59) Trade of metals like other commodities is strongly afected
by market price fluctuations Nevertheless metal imports from Rus sia have been fairly resilient to
market volatility and their average annual value has hovered at about $4 billion in the last five years
(Figure 510) This market resilience was forged at the end of the 1990searly 2000s when Rus sian
metal producers gradually modernized their plants adjusting quality of production to Western
standards and enhancing integration into global value and supply chains Some of them conquered
their share of the highly competitive US market struggling with peers from Canada and certain
BRICS countries (China India and Brazil) To attract additional resources all Rus sian large metal-
producing companies became public and were listed on stock exchanges chiefly the London Stock
Exchange (Severstalrsquo PAO Evraz MMK OAO Novolipetsk Steel Norilsk Nikel and TMK PAO) one
on the New York Stock Exchange (Mechel) and one on the Hong Kong Stock Exchange (Rusal)
Business logic pushed some of them to invest in the US metal- making industry which was hit
hard by crisis Later on some of those assets were sold (eg two US steel mills acquired by
Severstal in 2004 were purchased 10 years later by Steel Dynamics Inc and AK Steel Corp)
Figure 57 Share of US States Rus sian Oil Imports 2016
Source US EIA ldquoUS Imports from Rus sia of Crude Oil and Petroleum Productsrdquo Petroleum amp Other
Liquids September 29 2017 https www eia gov dnav pet hist LeafHandler ashx nshy=shyPETampsshy=shyMTTIM _ NUS
- NRS _ 1ampfshy=shyM authorrsquos computation
0
10
20
30
40
50
60
70
80
90
100
Maine
Massachusetts
Maryland
Connecticut
Georgia
Rhode Island
Virginia
Florida
New York
Alabama
Puerto Rico
Pennsylvania
Delaware
Hawaii
Washington
Mississippi
California
New Jersey
Louisiana
Texas
594-71613_ch01_4Pindd 31 102017 404 PM
Figure 58 US Imports from Rus sia by State Million US$ 2013ndash2016
Source US Census Bureau ldquoState and Metropolitan Area Trade Datardquo Foreign Trade last modified
October 2 2017 https wwwcensus gov foreign - trade statistics state
Alaska
Connecticut
Delaware
Hawaii
Louisiana
Maryland
North Dakota 0
$1000
$2000
$3000
$4000
$5000
$6000
2013 2014 2015 2016
Alabama
Alaska
Connecticut
Delaware
Hawaii
Louisiana
Maryland
Maine
Mississippi
Montana
North Dakota
Mississippi
Figure 59 US Imports from Rus sia Share of Oil and Metals Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
83
82
85
86
87
88
85
82
7375
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
$40000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil and Metals
594-71613_ch01_4Pindd 32 102017 404 PM
Vadim Grishin 33
Obviously the market dynamic of dif er ent metals varies (eg iron steel aluminum platinum and
nickel) Caps to increase their trade and production in a ldquored oceanrdquo global environment with
anemic demand is rather limited despite Figure 510 showing a spike of iron and steel imports
from Rus sia in 2014 and aluminum in 2016 Some opportunities may exist for Russian- owned steel
plants in the United States (such as NLMK) to participate in energy proj ects resumed under Presi-
dent Trump who has required that new pipelines use only American- made steel15
Rus sia occupies a special niche in the US market for titanium products a high- end metal indus-
try Twenty years ago a long- term contract was signed between Rus sian titanium producer
VSMPO- AVISMA and Boeing The Rus sian com pany entered the selective club of Boeing suppliers
for the manufacture of components and semi- finished products Since the signing of this contract
VSMPO has delivered more than 35 percent of all titanium placed on Boeing civil aircraft16 They
are hidden in the trade data in an import category for Civilian Aircrafts and Parts (Figure 511) At
the end of 2016 Boeing announced an extension of its framework agreement with AVISMA
15 E Scheyder C Ngai and T Sylvester ldquoAmerican Steel Unlikely to Get Keystone Boost Despite Trump Orderrdquo
Reuters January 27 2017 http wwwreuters com article usa - trump - pipeline - transcanada - idUSL1N1FH1ZD
16 A Kramer ldquoTitanium Fills Vital Role for Boeing and Rus siardquo New York Times July 5 2013 http wwwnytimes com
2013 07 06 business global titanium - fills - vital - role - for - boeing - and - russia html mcubzshy=shy3
Figure 510 US Imports from Rus sia Iron Steel Bauxite Aluminum Nickel Nonferrous Metals and Other Precious Metals and Materials US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
0
$6000000000
$5000000000
$4000000000
$3000000000
$2000000000
$1000000000
2007 2008 2009 2010 2011 20122013
20142015
2016
Finished metal shapes
Iron and steel advanced
Iron and steel products nec
Nonferrous metals other
Other precious metals
Nickel
Bauxite and aluminum
Iron and steel mill products
Steelmaking materials
594-71613_ch01_4Pindd 33 102017 404 PM
US-Russia Economic Relations34
through 2022 and additional investments in the construction of a new robotic plant in Titanium
Valley a special economic zone located in the Sverdlovsk region that will open in 2018 The pro-
cessing of titanium forgings in all Boeing civil aircraft will be performed there including 787s 737
MAXs and 777Xs17 The contract extension with AVISMA may add several hundred million dollars
in value to annual US imports from Rus sia
How can such heavy reliance on imports of Rus sian titanium exist during a period of rising geopo-
liti cal tensions The answer is straightforward VSMPO- AVISMA is a highly specialized natu ral
mono poly producing 45 percent of the worldrsquos aerospace titanium Only four other countries
smelt high- grade titanium in industrial quantities the United States Germany Japan and China
Overall global production capacity is limited while demand is growing The United States cur-
rently imports around 79 percent of all the titanium it consumes each year18
17 ldquoBoeing and VSMPO Avisma to Launch Second Joint Production Siterdquo Rus sian Aviation Insider December 22 2016
http wwwrusaviainsider com boeing - and - vsmpo - avisma - to - launch - second - joint - production - site
18 Jon Ostrower and Andy Pasztor ldquoBoeing United Technologies Stockpile Titanium Partsrdquo Wall Street Journal
August 7 2014 https wwwwsj com articles boeing - united - technologies - stockpiling - titanium - parts - 1407441886
Figure 511 US Imports from Rus sia Civilian Aircrafts and Parts US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
$200000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Parts-civilian aircraft
Civilian aircraft
594-71613_ch01_4Pindd 34 102017 404 PM
Vadim Grishin 35
The Sanctions Act authorizes the secretary of the trea sury (in a nonmandatory way) to impose
restrictions (without specifying them) against Rus sian state- owned entities operating in the railway
metals and mining sectors of the Rus sian economy Despite the commanding heights of Rus siarsquos
state sector owner ship in its economy (70 percent of GDP) the metal- producing companies have
remained mostly in private hands
NUCLEAR AFFAIRS
Historically owners and operators of the 104 commercial nuclear power reactors in the United
States have purchased more than 80 percent of their uranium from foreign countries Uranium
shipping from Rus sia accounted for about 13 percent of the 58 million pounds of uranium pur-
chased overseas in 201219 At the same time the Rus sian state- owned mono poly Rosatom ac-
counts for 20 percent of Kazakhstanrsquos uranium production (which in turn comprises 11 percent of
all US uranium imports) and 20 percent of US domestic uranium production capacity (with
owner ship of exploration tracts in Wyoming)20
Nuclear fuel and nuclear power continue to be po liti cally sensitive topics both in the United
States and Rus sia Bilateral cooperation in this sector (being surprisingly stable with imports of
nuclear fuel from Rus sia at a level of $1 billion annually in the last five years [Figure 512 and 513])
is under constant po liti cal and lobbying pressure and has been a source of several po liti cal scan-
dals21 Consequently upside risks in this area of interaction are minimal and downside risks are
much higher especially when we are seeing more decommissioning of nuclear plants in the
United States than new constructions The US EIArsquos 2017 Annual Energy Outlook assumes
that about 25 percent of the nuclear capacity now operating will be removed from ser vice
by 205022
WHY IS THE GRASS GREENER ON THE OTHER SIDE
The United States continues to significantly reduce imports of chemical fertilizers as domestic pro-
duction increases In 2016 the United States imported 13 percent less ammonia and 11 percent
less urea and UAN which is a liquid urea and ammonium nitrate fertilizer Rus sia accounts for
around 40 percent of UAN imported by the United States The United States canceled antidumping
duties on imports of ammonium nitrate and urea from Rus sia in 2016 but it did not prevent import
19 US EIA ldquoThe US Relies on Foreign Uranium Enrichment Ser vices to Fuel Its Nuclear Power Plantsrdquo Today in
Energy August 28 2013 https wwweia gov todayinenergy detail php idshy=shy1273
20 Colin Chilcoat ldquoDoes Rus sia Really Own 20 Percent of the USrsquo Uranium Reservesrdquo OilPricecom May 6 2015
http oilpricecom Alternative - Energy Nuclear - Power Does - Russia - Really - Own - 20 - Of - The - US - Uranium - Reserves
html
21 Michelle Ye Hee Lee ldquoThe Facts behind Trumprsquos Repeated Claim about Hillary Clintonrsquos Role in the Rus sian Ura-
nium Dealrdquo Washington Post October 26 2016
22 US EIA ldquoAnnual Energy Outlook 2017 with Projections to 2050rdquo 81ndash82
594-71613_ch01_4Pindd 35 102017 404 PM
Figure 512 US Imports from Rus sia Share of Oil Metals and Nuclear Fuel Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
87
86
90
90
90
91
88
86
7882
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals and Nuclear Fuel
Figure 513 US Imports from Rus sia Nuclear Fuel Materials US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$-
$200000000
$400000000
$600000000
$800000000
$1200000000
$1000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 36 102017 404 PM
Vadim Grishin 37
drops twice last year (Figures 514 and 515) According to forecasts UAN imports are expected to
decline further to 15 million tons this year down over 46 percent from 28 million tons imported
last year23 The downside trend in imports of fertilizers will likely continue because of oversupply
BIG FISH
US imports of fish and shellfish from Rus sia are best understood in comparison with US fish
exports to the Rus sian market which slipped to zero in August 2014 after Rus sia issued an order
banning certain agricultural imports from the United States (Figure 516) While the volume of US
supply was not very large it was impor tant because it broke up the monopolistic dominance of a
few vertically integrated Rus sian companies that have kept prices high by restricting the entry of
new producers Seeking to implement import substitution policies Rus sia has tried to reduce
exports as well as imports of fish and seafood products in the last couple of years This symmetri-
cal approach was intended to ldquocompensaterdquo for a decrease of fish products in the domestic
23 Deepika Thapliyal ldquoPotashCorp Forecasts Sharp Drop in US Nitrogen Imports in 2017rdquo ICIS News February 7
2017 https wwwicis com resources news 2017 02 07 10076734 potashcorp - forecasts - sharp - drop - in - us - nitrogen
- imports - in - 2017
Figure 514 US Imports from Rus sia Share of Oil Metals Nuclear Fuel and Fertilizers Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
90
93
92
93
94
95
92
91
85
86
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals Nuclear Fuel and Fertilizers
594-71613_ch01_4Pindd 37 102017 404 PM
Figure 515 US Imports from Rus sia Chemical- Fertilizers US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
S-
$200000000
$400000000
$600000000
$800000000
$1000000000
$1200000000
$1400000000
$1600000000
$1800000000
$2000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Figure 516 US Exports to Rus sia Fish and Shellfish US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$10000000
$20000000
$30000000
$40000000
$50000000
$60000000
$70000000
$80000000
$90000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Fish and shellfish
594-71613_ch01_4Pindd 38 102017 404 PM
Vadim Grishin 39
consumer market caused by Rus siarsquos import ban but it has failed As result the group most af-
fected by the self- imposed counter- sanctions were Rus sian consumers
With a significant drop in fish imports a devaluation of the ruble and inflationary pressures on
seafood prices yearly consumption of fish in Rus sia has declined precipitously In 2015 alone
fish prices increased 20 percent and consumption dropped to 14 kilograms per person24 from
22 kilograms in 201425 In 2016 food rose to 355 percent of house hold expenditure as a result of
increases in food prices26 This has pushed vertically integrated fishing monopolies to sell even
more of their catch abroad rather than deliver to the Rus sian Federation (Figure 517) Thus we
cannot exclude the possibility of further growth in US fish and shellfish imports from Rus sia on a
marginal scale
24 Александр Савельев ldquoПотребление рыбы в России упало до 14 кг на человекаrdquo [Fish consumption in Rus sia fell to
14 kg per person] Экономика Интерфакс January 28 2015 http wwwinterfax ru business 492038
25 Илья Шестаков ldquoПотебление рыбы в России снизилось на 10 процентов из- за роста ценrdquo [Fish consumption in
Rus sia dropped by 10 percent due to price increases] RNS March 8 2017 https rnsonline consumer - market
Potreblenie - ribi - v - Rossii - snizilos - na - 10 - iz - za - rosta - tsen - 2017 - 03 - 08
26 Zoya Sheftalovich and Christian Oliver ldquoRus siarsquos Boom (Farming) Economyrdquo Politico November 8 2016 http
wwwpolitico eu article russias - boom - farming - economy
Figure 517 US Imports from Rus sia Fish and Shellfish US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$50000000
$100000000
$150000000
$200000000
$250000000
$300000000
$350000000
$400000000
$450000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 39 102017 404 PM
US-Russia Economic Relations40
SPACE ODYSSEY
Among high- end products beyond the top five groups of goods imported from Rus sia cheap and
efficient Rus sian engines have been used to launch US rockets into space for about 16 years
(Figure 518) There was a serious po liti cal strug gle around a 2014 ban on the purchase of Rus sian
RD-180 rocket engines revealing the conflicting business interests of power ful high- tech companies
This restrictive mea sure was temporary and was quickly lifted because of significant cost impacts
and risks of disruption to launch schedules27 For the same reason the Sanctions Act does not autho-
rize ldquothe imposition of any sanction or other condition limitation restriction or prohibition that
directly or indirectly impedes the supply by any entity of the Rus sian Federation of any product or
ser vice or the procurement of such product or ser vice by any contractor or subcontractor of the
United States or any other entity relating to or in connection with any space launch conducted for
the National Aeronautics and Space Administration or any other nonndash Department of Defense
customerrdquo28
Nevertheless many experts believe that US domestic alternatives to replace Rus sian engines will
be viable in five to eight years
27 Ken Dilanian ldquoWhy Does the US Use Rus sian Rockets to Launch Its Satellitesrdquo NBC News updated November 15
2016 http wwwnbcnews com why - does - u - s - use - russian - rockets - launch - its - satellites - n588526
28 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364
Figure 518 Spacecraft Excluding Military US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 40 102017 404 PM
41
Diversity and technological complexity are the most vis i ble advantages supporting US exports to
Rus sia Three major groups of export goods include civilian aircraft engines and parts (Figure 61)
drilling and oil field equipment (Figure 62) and industrial machines and engines (Figure 63)
Despite sanctions against the transfer of advanced oil producing and pro cessing technologies the
realization of US drilling and oil field equipment in Rus sia is sustainable although some bilateral
proj ects have been frozen
Another category of goods that has demonstrated resilience is the phar ma ceu ti cal industry (Fig-
ure 64) because most drugs in Rus sia are imported (about 70 percent of the Rus sian phar ma ceu-
ti cal market in value) Import substitution policies have had only modest results in this industry
As confirmed by American Chamber of Commerce surveys US exports to Rus sia are closely
connected to US FDI 30 percent of total imports of US companies working in the Rus sian
market come from the United States (more than $2 billion in 2016) In other words about
40 percent of all US exports to Rus sia are related to a US corporate- sector business pro cess in
the country The major sectors of activity of these companies are energy and natu ral resources
(52 percent) manufacturing (17 percent) information and communications technology or ICT
(13 percent) retail (7 percent) automotive industry (6 percent) phar ma ceu ti cal production
(1 percent) professional ser vices (05 percent) and other (2 percent)1
Some obvious constraints on US exports to Rus sia have resulted from a reduction in demand A
deterioration of bilateral relations and implementation of sanctions and counter- sanctions have
directly or indirectly afected all businesses Figures 65 and 66 provide data regarding a dramatic
drop in the sale of US agricultural production in Rus sia with all other categories of exports in
goods showing big cuts as well (see Figures 67ndash69)
Exports of civilian aircraft engines and parts put the state of Washington in first place among
other states as a leading exporter to the Rus sian market (Figure 610)
1 American Chamber of Commerce in Rus sia ldquoInvestment and Import to Rus sia 2nd Surveyrdquo 13
Diversity and Constraints
06
594-71613_ch01_4Pindd 41 102017 404 PM
Figure 61 US Exports of Civilian Aircraft Engines Equipment and Parts to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
$2500000000
$2000000000
$1500000000
$1000000000
$500000000
$-
Figure 62 US Exports of Drilling and Oil Field Equipment US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
$40000000
$45000000
$50000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 42 102017 404 PM
Figure 63 US Exports of Industrial Engines to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Figure 64 US Exports of Phar ma ceu ti cal Preparations to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 43 102017 404 PM
Figure 65 US Exports of Meat and Poultry to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Meat poultry etc
$1000000000
$800000000
$600000000
$400000000
$200000000
$-
$1200000000
$1400000000
$1600000000
Figure 66 US Exports of Soybeans to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
$200000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 44 102017 404 PM
Figure 67 US Exports of Vehicles Engines and Parts to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Other parts and accessories of vehicles
Automotive tires and tubes
Bodies and chassis for passenger cars
Engines and engine parts (carburetors pistonsrings and valves)
Trucks buses and special purpose vehicles
Passenger cars new and used
$2500000000
$2000000000
$1500000000
$500000000
$-
$1000000000
Figure 68 US Exports of Medicinal Equipment to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 45 102017 404 PM
Figure 610 US Exports to Rus sia by States (2016 US$ Value) Million US$ 2013ndash2016
Source US Census Bureau ldquoState and Metropolitan Area Trade Datardquo
Iowa Kentucky
North Dakota
Oklahoma
South Carolina
Washington
0
$500
$1000
$1500
$2000
2013 2014 2015 2016
District of Columbia
Iowa
Kentucky
North Dakota
Oklahoma
South Carolina
Washington
Figure 69 US Exports of Excavating Machinery to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
$40000000
$45000000
$50000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 46 102017 404 PM
47
Upon reviewing the current trend in US- Russia economic relations we must acknowledge that
the existing trade model is obsolete and exhausted Imports are resource- oriented and reflect
constraints of the Rus sian economic structure while five groups of goodsmdash oil metals nuclear
fuels fertilizers and fishmdash make up more than 90 percent of total imports from Rus sia (Figure 71)
Each of these industries has a limited capacity for growth in the foreseeable future
Rus siarsquos core export to the United Statesmdash oilmdash will inevitably decrease in the mid- term under any
scenario The value and volume of Rus sian exports to the United States are open to global market
volatility and po liti cal pressures with limited hedging mechanisms
Overall US exports to Rus sia are unsustainable due to bilateral po liti cal tensions the whims of
commodity markets and changing domestic policies Sanctions and counter- sanctions have
created additional barriers particularly in finance banking high- tech energy and agro- business
According to the American Chamber of Commerce 69 percent of US companies working in the
country consider the impact of US sanctions against Rus sia on their business as negative At the
same time 60 percent of companies do not expect big changes in business relations between
Rus sia and the United States under Trump1 as the new law codifies existing sanctions fortifies
them and extends them to new sectors
Current US investments are low due to the weak rule of law in Rus sia a lack of property right
protections and proper contract enforcement high levels of statization and monopolization in the
economy a poor business climate outdated capital stock dependence on natural- resource
sectors and of course sanction and counter- sanction mea sures Bloated administrative compo-
nents created as risk mitigation instruments have also served as impediments The countryrsquos
institutional weakness low level of productivity bud get constraints and a declining inflexible
workforce will restrain future economic growth even if commodity prices recover Rus sian eco-
nomic policy will likely continue to be statist and protectionist relying mostly on import
substitutions
1 Ibid 11
Existing Trends and Future Scenarios
07
594-71613_ch01_4Pindd 47 102017 404 PM
US-Russia Economic Relations48
What scenarios can be expected in such a challenging environment
One probability (no peace no war) is based on the assumption that matters will not deteriorate
further and implementation of the Sanctions Act will be cursory This will cause relatively slow
degradation in the economic field with occasional flashes of activity in selected areas (eg closer
cooperation against Islamist terrorist groups in Syria)
A second worse case or critical scenario is the intensive and full- scale execution of current sanc-
tion legislation and even the imposition of new economic punitive and restrictive mea sures which
could incite asymmetric retaliatory actions and lead to the introduction of additional protectionist
policies This in turn could trigger a further escalation of mutual confrontation and could eventu-
ally destroy the fundamentals of the current bilateral trade system Rus sian leadership has charac-
terized the Sanctions Act as a declaration of a trade war that ends all hope for improving bilateral
relations2
2 Дмитрий Медведев ldquoПодписание президентом США нового санкционного закона против России создает несколько
последствийrdquo [The US Presidentrsquos signing of the package of new sanctions against Rus sia will have a few conse-
quences] Facebook August 2 2017 https wwwfacebook com Dmitry Medvedev posts 10154587161801851
Figure 71 US Imports from Rus sia Share of Oil Metals Nuclear Fuel Fertilizers and Fish Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
93
94
93
94
95
96
93
92
87
89
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals Nuclear FuelFertilizers and Fish
594-71613_ch01_4Pindd 48 102017 404 PM
Vadim Grishin 49
The best case and most favorable scenario looks less probable now It assumes the realization of
structural reforms in Rus sia in such a way that would adapt Rus siarsquos foreign policy to national
economic needs reduce confrontations with the West and make a concerted efort to integrate
Rus sian businesses into global supply and value chains A revitalization of the structural reform
agendamdash including eforts to diversify economic activities through de- monopolization and support
for SMEs a restructuring of the banking sector the creation of a vibrant business climate to foster
entrepreneurships and innovation the implementation of administrative and judicial reforms to
tackle red tape and endemic corruption and the reduction of state control over key sectors of the
economy via wide- spread privatization could kick- start the development of a nonoil economy and
improve long- term growth prospects Despite ongoing discussion of reform strategies deep
economic and po liti cal changes are extremely complicated over the next po liti calelectoral cycle
(2018ndash2024) particularly because of re sis tance of vested interests and growing commodity prices
The urgency to tackle structural shortcomings in natu ral resource- dependent economies usually
correlates with the price of those resources and the degree to which resource rents drive eco-
nomic activity However there may be marginal improvements in the efficiency of the current
economic system
Future US- Russia relations can be thought of through three pillars one pillar focuses on areas
where both countries maintain a competitive rivalry another looks at potential areas of interaction
under pres ent conditions a third pillar and one that has evaporated from the current bilateral
agenda concentrates on future cooperation Stronger economic ties could not only be a kind of
po liti cal shock absorber but contribute to the building of this future (particularly business contacts
aim to support future structural reforms) although po liti cal factors are depressing the prospects
for cooperation To escape deadlock it will be impor tant to establish the right balance between
politics and economics and create a model of collaboration within the framework of contention
594-71613_ch01_4Pindd 49 102017 404 PM
About the Author
Vadim Grishin PhD MBA has been involved in the reform pro cess in Rus sia as adviser to the
deputy prime minister of Rus sia in 1992ndash1993 and 2006ndash2010 He has extensive experience
working with the Bretton Woods Institutions He was the board member of the World Bank Group
and served as se nior adviser at the International Monetary Fund Currently he is a con sul tant to the
chief economistrsquos office of the International Finance Corporation and teaches the economics of
transition at Georgetown University in Washington DC
50
594-71613_ch99_4Pindd 50 102017 403 PM
Blank
COVER PHOTO ADOBE STOCK
1616 Rhode Island Avenue NW
Washington DC 20036
202 887 0200 | wwwcsisorg
v++ISBN 978-1-4422-8035-9
Lanham bull Boulder bull New York bull London
4501 Forbes Boulevard
Lanham MD 20706
301 459 3366 | wwwrowmancom
A U T H O R
Vadim Grishin
Myths and Realities
A Report of the
CSIS RUSSIA AND EURASIA PROGRAM
US-RussiaEconomicRelations
O C T O B E R 2 0 1 7
Euml|xHSLEOCy280359z
The Man Pupu Nyor Rock Formations at the Northern Urals also known as Seven
Strong Man or Little Mountain of the God in the local tribe (Mansi) language
Vadim Grishin 3
trade and investment during several reset cycles in bilateral relations starting in the 1990s but
they were only partially successful
Several papers and books although focused primarily on bilateral po liti cal agendas or sectorial
analy sis underline the importance of Rus sian domestic realities Dr Angela Stent in her ldquoLimits of
Partnershiprdquo notes that state control of the commanding heights in the Rus sian economy creates
significant deterrents for US private- sector entrance into the market8 Thane Gustafson in the
ldquoWheel of Fortunerdquo asserts that Rus siarsquos growing dependence on revenue from oil exports along
with its inefficient and often- corrupt management of industry is unsustainable9 Andrew Kuchins
in his ldquoElevation and Calibration A New Rus sia Policy for Amer i cardquo has quoted some experts who
believe that the weakened Rus sian economic position may over time contribute to some rap-
prochement with the West and emphasized lack of reforms as ldquoa key obstacle not only for Rus sian
economic recovery but also for improving ties with the Westrdquo10
In a recent joint task force report Eugene Rumer Andrew S Weiss and Richard Sokolsky argue
that the concept of developing stronger economic ties with Rus sia as a foundation for improved
diplomatic relations has not worked ldquoClinton Bush and Obama all placed high hope on trade as
an engine of better relations with Rus sia All were frustrated by the fact that the two countries are
for the most part not natu ral trading partnersrdquo11 On a dif er ent note the former US envoy to
Rus sia Michael McFaul has defended the achievements of a reset policy under the Barack Obama
administration emphasizing that bilateral trade reached a rec ord level in 2011 Nevertheless he
also stresses that it was a one- time accomplishment unlikely to be repeated12
Voices of those who believe that extensive economic ties can provide stability to broader po liti cal
interaction are weaker than ever in an environment of growing protectionism and adversarial rivalry
8 Angela Stent The Limits of Partnerships US- Russian Relations in the XXI Century (Prince ton NJ Prince ton
University Press 2014) 98
9 Thane Gustafson Wheel of Fortune The Battle for Oil and Power in Rus sia (London Harvard University Press 2012)
10 Andrew Kuchins Elevation and Calibration A New Rus sia Policy for Amer i ca (Washington DC Center on Global
Interests 2016)
11 Eugene Rumer Richard Sokolsky and Andrew S Weiss ldquoTrump and Rus sia The Right Way to Manage Relationsrdquo
Foreign Affairs 96 no 2 (MarchApril 2017)
12 Michael McFaul ldquoUS- Russia Relationsrdquo (lecture Institute for Public Diplomacy and Global Communications
George Washington University Washington DC March 3 2017) https wwwc - span org video 424811 - 1 former
- ambassador - michael - mcfaul - discusses - state - usrussia - relations
594-71613_ch01_4Pindd 3 102017 404 PM
4
02
Does Bilateral Economic Interaction Matter
Economic relations do not emerge out of a vacuum There are many variables that define the final
configuration of economic interactions such as a par tic u lar countryrsquos level of economic develop-
ment its business environment legal framework po liti cal climate (regime) culture and religion
history and tradition demography and geography as well as global and national economic cycles
An impor tant driver of trade relations for many economies has become participation in global and
regional trade agreements
As many studies and anecdotal evidence show bilateral economic cooperation should be sizable
and should relate to the economic growth of two countries in a way that afects their policy
interests Let us take as a reference point the BRICS countries1 a community of large emerging
economies which Rus sia belongs to Table 21 pres ents official data on US trade and investments
with BRICS states US- Russia trade in goods is disproportionally lowmdash235 times less than US
trade with China 33 times smaller than US trade with India and 28 times less than US trade
with Brazil The size of the US- Russia trade balance is comparable to the size of the US trade
balance with South Africa whose economy is almost four times smaller than Rus siarsquos If we add
trade in ser vices to the trade of goods the gaps increase significantly (Figures 21 and 22) The
diference is not only quantitative but also qualitative
The quality of trade relations can be mea sured by its diversity its share of high- tech components
resilience to economic shocks and its contribution to GDP growth On average a 10 percent
increase in a nationrsquos two- way trade relative to GDP increases GDP through a variety of channels
by at least 16 percent2
Bilateral trade and real GDP growth in the United States and Rus sia are practically uncorrelated
as shown in the summary output of multifactorial regression The coefficient of multiple determi-
nation (R Square) is close to 0 ( Table 22) At the same time the correlation of US exports to India
1 BRICS is the acronym for a select group of five developing economies Brazil Rus sia India China and South Africa
2 World Economic Forum Foreign Direct Investment as a Key Driver for Trade Growth and Prosperity The Case for a
Multilateral Agreement on Investment (Geneva World Economic Forum 2013) 11
594-71613_ch01_4Pindd 4 102017 404 PM
Vadim Grishin 5
Table 21 US Trade and Foreign Direct Investments (FDI) with China India Brazil South Africa and Rus sia 2016
China India Brazil South Africa Rus sia
Total Goods Trade 5786 677 565 13 203
Imports 4628 460 262 73 145
Exports 1158 217 303 55 58
Trade in Ser vices 696 472 317 47 na
Imports 161 268 68 17 na
Exports 535 203 249 30 na
US FDI 746 283 653 62 141
BRICS FDI in the United States
148 93 043 076 63
Supported Jobs in the United States (thousand)
911 197 308 50 84
Source United States Trade Representative (USTR) ldquoCountries amp Regionsrdquo accessed September 27 2017
https ustrgov countries - regions See US- China Trade Facts US- India Trade Facts US- Brazil Trade
Facts US- South Africa Trade Facts and US- Russia Trade Facts
201520142013
and China with the real GDP growth of these big Asian economies is significant (05) In the case of
Brazil the correlation is even higher (07) By contrast South Africarsquos small open economy is quite
sensitive to US imports from South Africa (043)3
In marked contrast to other BRICS countries Rus sia is a poor choice for export- oriented opera-
tions As a recent International Monetary Fund (IMF) study highlights Rus sia is an outlier a rare
exception among emerging market (EM) economies with virtually no preferential access to major
markets and little meaningful change over three de cades4 This complicates Rus siarsquos integration
into the global value chain (GVC) which became a significant driving force toward economic
development and trade for certain BRICS economies
3 IMF statistics authorrsquos computation
4 IMF Rus sian Federation Selected Issues IMF Country Report N17198 (Washington DC IMF July 2017)
594-71613_ch01_4Pindd 5 102017 404 PM
US-Russia Economic Relations6
Trade is closely connected with foreign direct investment (FDI) and both are parts of a complex
interaction known as international production sharing According to publicly available official data
US FDI in Rus sia was about $131 billion for 2013 and $295 billion for 2016 with the top industrial
sectors being software and IT ser vices financial ser vices chemicals metals coal oil and gas
and business ser vices5 If we take into account US investments made through Eu ro pean branches
of US companies and ofshore firms this number would easily triple Another component
that usually is not tracked by official statistics is reinvestments The American Chamber of
Commerce surveys in 2016 and 2017 which include this component draw a completely dif er ent
picture accumulated US corporate FDI in 90 large US companies working in Rus sia reached
5 US Department of Commerce International Trade Administration ldquoRussiamdash94- Foreign Direct Investment and
Portfolio Investment Statisticsrdquo Rus sia Country Commercial Guide July 7 2017 https wwwexport gov article
id=shyRussia - foreign - direct - investment - statistics
Figure 21 US Trade in Goods with China India Brazil Rus sia and South Africa Billion US$ 2016
Source USTR ldquoCountries amp Regionsrdquo See US- China Trade Facts US- India Trade Facts US- Brazil Trade
Facts US- South Africa Trade Facts and US- Russia Trade Facts
0
$50
$100
$150
$200
$250
$300
$350
$400
$450
$500
$550
$600
China India Brazil Russia South Africa
Exports
Imports
594-71613_ch01_4Pindd 6 102017 404 PM
Vadim Grishin 7
$8244 billion in 20176 The real level from our perspective is usually between official and private
estimations around $40 billon But even this cumulative figure is less than the US FDI in Brazil
and China
The American Chamber of Commerce surveys have also revealed other impor tant data Eighty-
five percent of US companies doing business in Rus sia entered its market 10 or more years ago
while 60 percent of them ldquolandedrdquo there 20 years ago or earlier Only one percent have started
operations over the last five years confirming an obvious fact entry into the Rus sian market is
challenging because of growing monopolism risks associated with the business climate and a
stagnating economy7
6 American Chamber of Commerce in Rus sia ldquoInvestment and Import to Rus sia 2nd Surveyrdquo (Prepared by GfK for the
American Chamber of Commerce in Rus sia Moscow May 2017) 12
7 Ibid 4
Figure 22 US Trade in Goods and in Ser vices with China India Brazil Rus sia and South Africa Billion US$ 2016
Source USTR ldquoCountries amp Regionsrdquo See US- China Trade Facts US- India Trade Facts US- Brazil Trade
Facts US- South Africa Trade Facts and US- Russia Trade Facts
0
$100
$200
$300
$400
$500
$600
$700
China India Brazil Russia South Africa
Trade in Services
Total Goods Trade
594-71613_ch01_4Pindd 7 102017 404 PM
US-Russia Economic Relations8
Rus sian direct investment position toward the United States declined from $215 billion in 2013 to
$83 billion in 2015 (Figure 23) Taking into account dif er ent channels and instruments the actual
volume of Rus sian investments in the United States made through ofshore Eu ro pean Canadian
and US companies may be several times greater than the available official data
Foreign investment in financial assets or foreign portfolio investment (FPI) should be included
even though Central Bank of Rus sia statistics indicate they were also quite low US investments in
equity were $345 million and in debt instruments were about $65 million in the fourth quarter of
20168 However these numbers do not reflect the real level of FPI Rus siarsquos stocks are incredibly
inexpensive while there has been impressive growth of US investments in short- term securities
and in foreign exchange (FX) operations (cash- and- carry trade) Rus sia was among the top per-
forming emerging markets in 2016 gaining 4744 percent in US dollars9 Nevertheless the gen-
eral capitalization of the stock exchange is tiny (less than 20 percent of GDP) comparable to the
capitalization of just one large US com pany such as Coca- Cola Many private sources believe that
the US FPI in Rus sia could be as high as several billion US dollars but a new set of sanctions
approved by President Trump on August 2 2017 if implemented could reverse those flows It is
still not clear whether the secretary of trea sury will prohibit participation in the oferings of Rus siarsquos
sovereign debt and the full range of derivative products A report on this subject should be sub-
mitted no later than 180 days after enactment of the law which means no later than Febru-
ary 2018 New legislation tightens prohibition on Rus sian financial companies already under
sanctions by limiting any new equity or debt with a maturity greater than 14 days (a provision that
8 Central Bank of Rus sia ldquoForeign Direct Investments in the Rus sian Federationrdquo accessed September 27 2017 www
cbr ru localization switchlanguage urlshy=shy news ampfromshy=shyru - ruamptoshy=shyen - gb
9 VanEck ldquoRus sian Stock Market Soars in 2016rdquo Seeking Alpha February 14 2017 https seekingalphacom article
4045602 - russian - stock - market - soars - 2016
Table 22 Summary Output of Regression Statistics (US Real GDP Rus sia Real GDP US- Russia Exports Imports and Total Trade)
Regression Statistics
Multiple R 0056445768
R Square 0003186125
Adjusted R Square minus0042123597
Standard Error 2616043923
Observations 24
Sources IMF statistics authorrsquos computation
594-71613_ch01_4Pindd 8 102017 404 PM
Vadim Grishin 9
previously allowed for 30 days) Similarly US persons are prohibited from taking on any new debt
that has a maturity greater than 60 days (previously it was 90 days) with Rus sian energy compa-
nies currently under sanctions10
According to the Trea sury Department Rus sia held $1029 billion in US Trea sury securities in
June 201711 Could Rus sia withdraw all its reserves from the United States and use this action as a
retaliatory mea sure Such a scenario is unlikely since there is no comparable safe- haven alterna-
tive to US dollars When Rus siarsquos US Trea sury holdings dropped 50 percent from $176 billion
(October 2010) to $90 billion (November 2011) the market did not notice12 Nevertheless Rus sian
authorities have announced they will decrease dependence on assets and payments in US dollars13
10 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364
11 US Department of Trea sury Major Foreign Holders of Trea sury Securities September 18 2017 http ticdata
treasury gov Publish mfh txt
12 Ibid
13 ldquoНовый виток санкций Россия откажется от доллараrdquo [A new round of sanctions Rus sia will abandon the dollar]
Газетару August 7 2017 https wwwgazeta ru business 2017 08 07 10821937 shtml
Figure 23 Rus sia Outward FDI Position United States Equities and Debt Million US$ 2009ndash2016
Source Central Bank of the Rus sian Federation External Sector Statistics Rus sian Direct Investments
Abroad accessed September 27 2017 https wwwcbr ru localization switchlanguage urlshy=shy news
ampfromshy=shyru - ruamptoshy=shyen - gb
$6000
$8000
$10000
$12000
$14000
$16000
$18000
$20000
$22000
2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 9 102017 404 PM
US-Russia Economic Relations10
Officially the country does not invest in the US stock exchange although some Rus sian oligarchs
have bought US corporate bonds and equities in large amounts The new sanctions law requires
the secretary of trea sury in consultation with the director of national intelligence and the secretary
of state to issue reports on Rus sian se nior po liti cal figures and oligarchs based on their closeness
to the Rus sian regime and their net worth as well as the exposure of key economic sectors of the
United States to Rus sian po liti cally exposed persons and parastatal entities including at a mini-
mum the banking securities insurance and real estate sectors14
Only three Rus sian companies are listed in the US exchanges
Overall the scale and scope of US- Russia economic interaction and business activity is much greater
than officially appreciated but not significant enough to be taken into consideration by policymakers
14 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364
594-71613_ch01_4Pindd 10 102017 404 PM
11
03
Politics in the Driverrsquos Seat
Bilateral economic relations depend to a great extent on global and national economic cycles
After the recent global financial crisis the US economy has shown surprisingly sustainable GDP
growth while the Rus sian economy was the most afected among BRICS countries by the turbu-
lence of a worldwide economic downturn in 2008ndash2009 and after a short- term rebound slipped
into stagnation (2012ndash2013) and then into full- scale recession (2014ndash2016) The countryrsquos eco-
nomic cycle however appears to be changing once again with the economy returning to a
pattern of growth albeit uneven and gradual (Figures 31 and 32) Even with sanctions still in place
conditions have improved as a result of the stabilization of Urals oil to an average annual price of
$419 per barrel in 2016 The gains were sparked in part by major crude producers agreeing to cut
production after hefty price drops in 2014 and 2015 Supported by easier financial conditions
higher oil prices and growing macro- stability Rus sia is heading toward a moderate growth rate
that is expected to reach 14 percent this year according to forecasts of the World Bank Group
(WBG) and the IMF1
Because of the significant role that politics plays in any bilateral interaction it is impor tant to
combine economic and po liti cal cycles applying a ldquoresetrdquo to bilateral economic cooperation in
addition to the po liti cal relationship I have compared po liti cal cycles and trade dynamics using the
following graphs ( Table 31 and Figure 33) These charts do not pretend to reflect with mathemati-
cal precision all shifts in the bilateral po liti cal relationship but rather attempt to visually align
impor tant economic and po liti cal moments to detect the efects of po liti cal events on the size of
bilateral trade
Figure 33 shows all pos si ble combinations economic trends at the intersection of po liti cal devel-
opments oppose or support each other in synchronization It is evident that po liti cal interference
1 International Monetary Fund Rus sian Federation Staff Concluding Statement of the 2017 Article IV Mission (Wash-
ington DC IMF 2017) World Bank Group From Recession to Recovery Rus sia Economic Report no 37 (Washington
DC World Bank 2017) http pubdocsworldbank org en 383241495487103815 RER - 37 - May26 - FINAL - with - summary
594-71613_ch01_4Pindd 11 102017 404 PM
US-Russia Economic Relations12
in bilateral business afairs in the early 2000s was less significant than in later years As result
growing po liti cal tensions from 2003 to 2008 did not dramatically afect bilateral economic inter-
action It is also easier to explain why 2011ndash2012 resulted in rec ord trade and investmentmdash a con-
sequence of very high oil prices GDP growth in both countries improved legislation after Rus siarsquos
accession to the WTO and the Obamandash Medvedev po liti cal reset From 2014 to 2016 a perfect
storm of developments added efficiency to Western sanctions and augmented the damaging
consequences of counter- sanction mea sures
Figure 33 also confirms that in times of reduced economic cooperation po liti cal pressures can
easily change bilateral economic trends Moreover business interests along with economic inter-
actions have a limited capacity to reverse the po liti cal mainstream
Figure 31 Economic Cycle 2014ndash2016
Source Authorrsquos evaluation of international financial institutions (IFI) data and sources from respective
countries
Sustainable Growth
Brazil
Negative Growth
Unstable Growth
Mexico
Descending Growth
Argentina
EU
US
Russia
Vietnam
China
594-71613_ch01_4Pindd 12 102017 404 PM
Vadim Grishin 13
Table 31 Po liti cal Cycles in Bilateral US- Russia Relations 1999ndash2016
2001ndash2002 The George W Bushndash Vladimir Putin Reset Rus sia supported ldquoglobal war on terrorismrdquo launched by the United States after 911 the SORT nuclear arms reduction treaty was signed by the United States and Rus sia and a successful business dialogue was developed that created the current structure of economic relations
2003ndash2008 Deterioration in bilateral relations brought on by the Iraq War Georgiarsquos ldquoRose Revolutionrdquo Mikhail Khodorkovskyrsquos arrest Ukrainersquos ldquoOrange Revolutionrdquo Kosovorsquos in de pen dence and the Georgian War
2009ndash2010 The Barack Obamandash Dmitry Medvedev Reset Rus sia served as a logistical hub for transportation and supply of US forces in Af ghan i stan United States and Rus sia signed the new START nuclear arms reduction treaty Rus sia backed tighter economic sanctions on Iran Rus sia gained access to the WTO after 18 years of negotiations
2011ndash2016 Deterioration in bilateral relations caused by the Ukrainian crisis which were followed by sanctions and counter- sanctions along with the Syrian crises and cyber- enabled activities
Source Authorrsquos evaluation of po liti cal and economic data
Note SORTthinsp=thinspStrategic Ofensive Reductions Treaty STARTthinsp=thinspStrategic Arms Reduction Treaty
Figure 32 Economic Cycle 2017ndash2019
Source Authorrsquos evaluation of IFI data and sources from respective countries
Egypt
VenezuelaEU
South Africa
Brazil
Russia
India
US
Descending Growth
Korea
China
Negative Growth
Unstable Growth
Sustainable Growth
594-71613_ch01_4Pindd 13 102017 404 PM
US-Russia Economic Relations14
Figure 33 US- Russia Trade Million US$ vs Po liti cal Cycle 2000ndash2016
Sources US Census Bureau ldquoTrade in Goods with Rus siardquo Foreign Trade last modified June 29 2017
https wwwcensus gov foreign - trade balance c4621 html (see data for 2000ndash2016) authorrsquos evaluation
of po liti cal and economic data
Orange Revolution
Khodorkovskys arrest
GeorgianWar
Bush- Putin Reset
Iraq War Global Financial Crisis
Obama-Medvedev Reset
Russias WTO accession
New START Treaty
A Pefect Storm the Ukranian Crisis Oil Prices Crashing
Sanctions and Counter-Sanctions
$3000
$8000
$13000
$18000
$23000
$28000
$33000
$38000
$43000
2000 2002 2004 2006 2008 2010 2012 2014 2016
594-71613_ch01_4Pindd 14 102017 404 PM
15
The current structure of US- Russia economic relations emerged in the early 2000s when the
model of trade and investment interaction took on a character similar to that which existed be-
tween the United States and developing economies US imports from Rus sia centered on com-
modities while technology along with food products lead American exports The primary
exception was that Rus sia supplied nuclear fuel including highly enriched uranium extracted from
nuclear weapons for US power plants and provided ser vices to the aerospace industry primarily
in satellite launches However both these exceptions can be explained as a legacy of the Soviet
past and not a harbinger of the future economic relationship (Figure 41)
In the last 15 years this trade structure has not changed significantly The only noticeable shift in
trade was a dramatic drop (to practically nothing) in exports of US agricultural products a result
of Rus siarsquos policy of import substitution and so- called counter- sanction mea sures it took in re-
sponse to US sanctions over the Ukraine crisis (Figure 42)
Promising new directions of cooperation in the IT sector and in engineering ser vices for the
aerospace industry appeared in the early 2000s1 but did not spill into other sectors and conse-
quently did little to renew economic cooperation on the whole The integration of Rus sian high-
tech ser vices into large- scale global production and value chains was constrained by the usual
culprits a lack of financial resources managerial experience skilled labor modern infrastructure
RampD investments and an adequate business environment High commodity prices incentivized the
restoration of an economic system centered on resource rents The leading role of oil and gas
extraction and transportation discouraged the development of a nonenergy sector that might
have created advanced and complex production and ser vices An import substitution policy could
not work efficiently in an economic environment plagued by the Dutch disease where currency
1 The Boeing Design Center was created in Moscow It consists of nearly 250 Boeing employees managing
a team of 1200 contract engineers from Rus sian and Ukrainian aerospace companies ldquoBackgrounder Boeing in
Rus siardquo Boeing last modified January 2017 http wwwboeing com resources boeingdotcom company key _ orgs
boeing - international pdf russia - cisbackgrounder pdf
Are the United States and Rus sia ldquoNatu ralrdquo Trading Partners A Little Bit of History
04
594-71613_ch01_4Pindd 15 102017 404 PM
US-Russia Economic Relations16
inflows (oil money) lead to ruble appreciation and render a countryrsquos production less competitive
During that time Rus siarsquos industry did not receive preferential access to larger markets and could
not expand its share in the global economy particularly because of its self- isolation from the
regional trade agreements (except for its participation in the Eurasian Economic Union with some
neighboring countries of the former Soviet Union) As a result neither import substitution nor
export- led strategy promoted growth and specialization in nonoil production A long- awaited
modernization and reallocation of resources from an inefficient nontrade sector to a trade sector
did not materialize
These limits were later augmented with sanctions and an extension of domestic restrictions on
cooperation with Western partners Importantly the rapid growth of state- monopoly structures in
the Rus sian economy over the past 15 years has created additional obstacles to the development
and diversification of US- Russia economic ties
Figure 41 US Imports from Rus sia US$ 2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2016)
Fish and shellfish 3
Crude oil 5
Fuel oil 37
Petroleum products other
8
Nuclear fuel materials
7
Chemicals-fertilizers 4
Steelmaking materials 5
Iron and steel mill products 4
Bauxite and aluminum 9
Other precious metals 4
Nonferrous metals other 1
Finished metal shapes 1
Synthetic rubber--primary
1
Spacecraftexcluding military
594-71613_ch01_4Pindd 16 102017 404 PM
Fig
ure
42
U
S E
xpo
rts
to R
us s
ia U
S$ 2
016
Sou
rce
US
Ce
nsu
s B
ure
au ldquo
Trad
e in
Go
od
s w
ith
Ru
s sia
rdquo (s
ee
dat
a fo
r 2
016
)
Bak
ery
pro
du
cts
Win
e b
eer
an
d r
elat
ed
pro
du
cts
New
spri
nt
Pla
stic
mat
eria
ls
Ch
emic
als-
fert
ilize
rs
Ch
emic
als-
ino
rgan
icC
hem
ical
s-o
rgan
ic
Ch
emic
als-
oth
erC
ott
on
fib
er c
loth
In
du
stri
al r
ub
ber
pro
du
cts
Min
eral
su
pp
lies-
man
ufa
ctu
red
Gen
erat
ors
acc
esso
ries
Ele
ctri
c ap
par
atu
s
Dri
llin
g amp
oilfi
eld
eq
uip
men
t Sp
ecia
lized
min
ing
Exc
avat
ing
mac
hin
ery
No
nfa
rm t
ract
ors
an
d p
arts
In
du
stri
al e
ng
ines
Fo
od
to
bac
co m
ach
iner
y M
etal
wo
rkin
g m
ach
ine
too
ls
Tex
tile
sew
ing
m
ach
ines
W
oo
d g
lass
p
last
ic
Pu
lp a
nd
pap
er
mac
hin
ery
Mea
suri
ng
tes
tin
g
con
tro
l in
stru
men
ts
Mat
eria
ls h
and
ling
equ
ipm
ent
Ind
ust
rial
mac
hin
es
oth
er
Ph
oto
ser
vice
ind
ust
ry m
ach
iner
y A
gri
cult
ura
l mac
hin
ery
eq
uip
men
t C
om
pu
ters
Co
mp
ute
r ac
cess
ori
es
Sem
ico
nd
uct
ors
Tel
eco
mm
un
icat
ion
seq
uip
men
t
Bu
sin
ess
mac
hin
es a
nd
eq
uip
men
t
Lab
ora
tory
tes
tin
g in
stru
men
ts
Med
icin
al e
qu
ipm
ent
Civ
ilian
air
craf
t e
ng
ines
eq
uip
men
t a
nd
par
ts
Rai
lway
tra
nsp
ort
atio
n
equ
ipm
ent
Ves
sels
exc
lud
ing
scr
ap
Co
mm
erci
al v
esse
ls o
ther
M
arin
e en
gin
es p
arts
Spac
ecra
ft e
xclu
din
g
mili
tary
Pas
sen
ger
car
s
new
an
d u
sed
Tru
cks
bu
ses
and
sp
ecia
l p
urp
ose
ve
hic
les
En
gin
es a
nd
en
gin
e p
arts
(c
arb
ure
tors
pis
ton
s r
ing
s
and
val
ves)
B
od
ies
and
ch
assi
s fo
r p
asse
ng
er c
ars
Au
tom
oti
ve t
ires
an
d t
ub
es
Oth
er p
arts
an
d a
cces
sori
es o
f ve
hic
les
Ap
par
el h
ou
seh
old
go
od
s -
text
ile
Ph
arm
aceu
tica
lp
rep
arat
ion
s
Furn
itu
re h
ou
seh
old
go
od
s
etc
R
ug
s
Cel
l ph
on
es a
nd
oth
er
ho
use
ho
ld g
oo
ds
ne
c
594-71613_ch01_4Pindd 17 102017 404 PM
US-Russia Economic Relations18
Figure 43 US Trade in Goods with Rus sia Million US$ 1992ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
Russian Financial Crisis
Oil price Increased from$2446 USD per barrel (2001)
to $9694 USD per barrel(2008)
Global Financial Crisis
Oil price high record in2011-2012
(more that $111 USD perbarrel)
Oil price crashed
$-
$5000
$10000
$15000
$20000
$25000
$30000
$35000
$40000
$45000
$50000
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia US Exports to Russia US-Russia Trade in Goods
No doubt po liti cal ups and downs add volatility to US- Russia trade Nevertheless Rus siarsquos eco-
nomic structure exhausted itself before the Ukrainian crisis and the recent Rus sian recession Its
limitations are not only due to some mistakes in policy or negative coincidences of circumstances
but rather to deeply rooted properties in the current bilateral trade model related to structural
issues in the Rus sian economy Structural constraints such as the weak enforcement of property
rights poor business regulation and nondiversified exports weighed on Rus sian trade with the
United States From this perspective the term ldquonaturalunnatural trading partnersrdquo does not ad-
dress the unused capacity of bilateral interaction or the real challenges that kind of interaction
faces It just adds metaphysical flavor to the very specific economic and po liti cal factors that
determine the US- Russia trajectory
Overall the outlines of bilateral trade (Figure 43) resemble the famous ldquoRus sian Mountainsrdquo that
were a pre de ces sor of the modern roller coaster icy hills supported by wooden constructionsmdash a
rigid and immobile structure that sooner or later would melt This unfortunately is what is hap-
pening to US- Russia trade cooperation now
594-71613_ch01_4Pindd 18 102017 404 PM
19
ARE LITTLE FISH REALLY SWEET
Low US- Russia economic interaction has at least two consequences First it limits the capacity of
policymakers to exploit trade as an instrument for geopo liti cal combat Even the question of a US
trade deficit which used to be a headache for many US trading partners has become so insig-
nificant in absolute terms (about $87 billion in 2016) that it seems hardly worth caring about
When the volume of trade between two countries becomes very small in absolute terms whether
a country is running a surplus or deficit is no longer relevant But it also renders another type of
confrontations (sometimes more dangerous) more likely since the two traders have little to lose
Second in an environment marked by low levels of bilateral trade both sides could incentivize (if
and when a desire for po liti cal rapprochement exists) the signing of new trade deals which are
elevated symbolically as a turning point in bilateral po liti cal relations (ie the sale of Boeings to
Rus sia or the delivery via tankers of Rus sian oil to US refineries) Sometimes markets themselves
pres ent ldquogiftsrdquo that can be capitalized on po liti cally US- USSR grain trade in the 1970s was one
such ldquogiftrdquo large sales of American grain to the Soviet Union helped US policymakers win favor
with the po liti cally impor tant American farming sector and permitted Soviet leaders to maintain
access to a dietary staple for the Soviet population
The strong 32 percent growth in value of US imports from Rus sia from January to May 2017
versus January to May 2016 ( Table 51) is an example of a development that has tempted officials
to pres ent it as a sign of positive change due to ldquogrowing business activitiesrdquo (this kind of statement
was heard before the bilateral summit in Germany in July 2017) although the reason for that leap
was evidently an increase in commodity prices (mainly of oilmdash see Table 52) and not a rise in
entrepreneurial interactions The primary beneficiaries of that upside rally have been two other
petro- economies Saudi Arabia and Venezuela ( Tables 53 and 54)
Sector Analyses
05
594-71613_ch01_4Pindd 19 102017 404 PM
US-Russia Economic Relations20
Table 51 US Imports from Rus sia Million US$ Januaryndash May 2016 vs Januaryndash May 2017
Year January February March April May Total
2016 9603 6871 11097 12257 10977 50805
2017 12215 10220 16979 13471 14147 67032
Change 271 487 530 99 289 319
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
Table 52 Change in Urals Crude Oil Prices US$ per Barrel Januaryndash May 2016 vs Januaryndash May 2017
Januaryndash May 2016 Januaryndash May 2017 Change ($) Change ()
3601 5129 1528 424
Source Ministry of Finance of the Rus sian Federation https wwwminfin ru ru ixzz4mMIZ7XtC
Table 53 US Imports from Saudi Arabia Million US$ Januaryndash May 2016 vs Januaryndash May 2017
Year January February March April May Total
2016 15114 9036 13555 10844 14679 63228
2017 19802 20298 21650 16211 19542 97503
Change 3101 12463 5972 495 331 542
Source US Census Bureau ldquoTrade in Goods with Saudi Arabiardquo Foreign Trade last modified June 29 2017
https wwwcensus gov foreign - trade balance c5170 html (see data for 2016ndash2017)
594-71613_ch01_4Pindd 20 102017 404 PM
Vadim Grishin 21
Table 54 US Imports from Venezuela Million US$ Januaryndash May 2016 vs Januaryndash May 2017
Year January February March April May Total
2016 6657 5560 7140 8007 7922 35286
2017 13041 10864 123500 11148 12243 59646
Change 9590 9540 7297 3923 5454 6903
Source US Census Bureau ldquoTrade in Goods with Venezuelardquo Foreign Trade last modified June 29 2017
https wwwcensus gov foreign - trade balance c3070 html (see data for 2016ndash2017)
Table 55 US Exports to Rus sia Million US$ Januaryndash May 2016 vs Januaryndash May 2017
Year January February March April May Total
2016 3628 3577 7298 4657 4947 24107
2017 3144 4277 5386 6670 4806 24283
Change minus133 196 minus262 432 minus29 minus07
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2016ndash2017)
At the same time US exports to Rus sia continue to stagnate ( Table 55) due to low levels of
consumption during a two-and- a- half-year economic crisis a deep ruble devaluation sanctions
and counter- sanctions
Given the very dif er ent economic structures and resource endowments of Rus sia and the United
States it is not surprising that US- Russia trade is asymmetric and oil driven (Figure 51) A
3 percent increase in Urals oil prices translates into a one percent increase in US import growth
from Rus sia Thus in 2016 every $10 increase in Urals crude oil added $15 billion to the value of
US imports or 11 percent to the total value of imports from Rus sia
OIL ADDICTION
Oil is a core pillar of US- Russia bilateral trade A bumpy ride in oil markets afects commerce
Nevertheless Rus sian oil exports to the United States in physical terms have been rather
594-71613_ch01_4Pindd 21 102017 404 PM
US-Russia Economic Relations22
sustainable Starting from 2005 average annual deliveries have been above 150 million barrels
(Figure 52) Crude and heating oil have dominated while petroleum products and liquefied petro-
leum gases have not (Figure 53) In 2011 oil exports peaked at 228 million barrels but declined to
159 million barrels in 2016mdash a drop of 30 percent Rec ord high shipments of Rus sian oil to the United
States coincided with an elevation in oil prices which made the subsequent decline in oil shipment
value between 2011 and 2016 (by about 72 percent as shown in Figure 54) seem more stark The
increase in price also raised the share of oil in Rus sian exports by 74 percent in 2011 (Figure 55)
The Rus sian share in total US oil imports was around 55 percent in 2011 and 43 percent in 2016
( Table 56) In the last five years the United States has relied exclusively on consumption of Rus sian
oil for the rough equivalent of one week out of the year (Figure 56)
It is unlikely that Rus sia can significantly increase its share of the US oil market and there is a real
possibility for a downward trend There are several reasons the historically high Rus sian hydrocar-
bon export threshold of 2011 will not soon if ever be surpassed
First US energy consumption will likely be flat According to the US Energy Information Adminis-
tration (EIA) demand for petroleum and other liquids in the United States will be about 35ndash36
quadrillion British thermal units (BTUs) with minimal variation over the next 25 years1
1 US EIA ldquoAnnual Energy Outlook 2017 with Projections to 2050rdquo January 5 2017 7ndash8
Figure 51 US- Russia Trade Growth () vs US and Rus sia Real GDP Growth () 1993ndash2016
Source IMF ldquoIMF Datardquo accessed September 27 2017 http wwwimf org en Data US Census Bureau
ldquoTrade in Goods with Rus siardquo
Note rGDPthinsp=thinspreal gross domestic product
Trade
USA rGDP growth
Russia rGDP growth
-60
-40
-20
0
20
40
60
80
100
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Gro
wth
All spikes in US-Russia trade have been connected with two main
variables volume and price of crude oil
594-71613_ch01_4Pindd 22 102017 404 PM
Vadim Grishin 23
Second the United States will become a net energy exporter between 2020 and 2030 in most
cases under dif er ent combinations of oil and natu ral gas prices GDP growth technological
breakthroughs and the availability of energy resources The role of oil imports will dramatically
fall2
Third oil price scenarios as described by the International Energy Agency (IEA) international
financial organ izations (IFIs) and many national agencies are very cautious and assume that even
by 2035 to 2040 oil prices will not to recover to the levels of 2011ndash20123
Fourth Rus sian oil production and export growth will be modest and driven by Asian economic
expansion and will comprise a decreasing share of Western markets4 According to forecasts from
2 Ibid 15ndash18
3 Ibid table 3 ldquoEnergy Prices by Sector and Sourcesrdquo World Bank World Bank Commodity Markets Price Forecasts
(Washington DC World Bank 2017) httpswwwworldbank org en research commodity - markets Organ ization of the
Petroleum Exporting Countries (OPEC) World Oil Outlook 2016 (Vienna OPEC 2016)
4 E D Belotskaia et al Global and Rus sian Energy Outlook 2016 (Moscow Energy Research Institute of the Rus sian
Acad emy of Science Analytical Center for the Government of the Rus sian Federation 2016) http acgov ru files
publication a 12767 pdf
Figure 52 US Imports from Rus sia Crude Oil and Petroleum Products Thousands of Barrels 1995ndash2016
Source US EIA ldquoUS Imports by Country of Origin Rus siardquo Petroleum amp Other Liquids September 13
2017 http wwweia gov dnav pet PET _ MOVE _ IMPCUS _ D _ NUS _ NRS _ MBBL _ M htm
0
50000
100000
150000
200000
250000
Date 1995 1996 1997 1998 199920002001200220032004200520062007200820092010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 23 102017 404 PM
US-Russia Economic Relations24
the Organ ization of the Petroleum Exporting Countries (OPEC) crude oil exports from Rus sia and
the Caspian region to the United States will dis appear by 20255
So why does the Rus sian Urals blend continue to be attractive for oil traders and US refineries
which could pro cess greater volumes of domestically produced lighter crude There are two main
reasons One is related to the preference of US high conversion refineries (the most sophisticated
in the world) to work with heavy oil blends produced by Canada Mexico Iraq Venezuela and
Rus sia Pro cessing heavy crude now is as profitable as pro cessing lighter crude The so- called
crack spreadmdash the diference between the cost of relatively cheap heavy crude oil and the final
price of value- added consumer products (diesel gasoline jet fuel and heating oil)mdash has become
the same as the refinery margins of light sweet crude6 This has primarily afected light oil produc-
ing countries such as Angola Algeria and Nigeria
5 OPEC World Oil Outlook 2016 306ndash309
6 ldquoHow Much for That Heavy Oilrdquo Oil Sands Magazine December 26 2015 https wwwoilsandsmagazine com
news 2015 12 26 how - much - for - that - heavy - oil
Figure 53 US Imports from Rus sia Oil and Petroleum Products US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$-
$25000000000
$20000000000
$15000000000
$10000000000
$5000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Liquefied petroleum gases
Petroleum products other
Fuel oil
Crude oil
594-71613_ch01_4Pindd 24 102017 404 PM
Vadim Grishin 25
Another factor afecting purchase of Rus sian oil is a new trend among oil companies for further
consolidation of scale and for integrating operations of upstream and downstream business7
There have been several waves of separation and unification of production transportation and
pro cessing in the last 50 years The current business cycle can be seen as an adaptation to a
period of low prices and oversupply Companies that buy andor produce oil in Rus sia most likely
prefer to transport and pro cess this oil in their own modern refineries in the United States At the
same time some of the newest refinery designs specifically for pro cessing heavy oils have been
built in Asia thus extending the choices of heavy oil producing countries
We should also consider that leading US and international oil traders along with oil producing
companies working with or owning US refineries frequently buy Rus sian oil on the open market
and have long- term contracts on Rus sian crude oil delivery Many Rus sian oil companies prefer to
pay for purchases or ser vices with their future production instead of cash creating situations of
ldquostickyrdquo oil imports that are difficult to replace The best- known example is an interaction between
7 ldquoEnergy and Utilities Sectorrdquo Roundtable Financier Worldwide December 2015 https wwwfinancierworldwide
com roundtable - energy - utilities - sector - dec15
Figure 54 US Imports of Oil and Petroleum Products from Rus sia vs Oil Prices Eu rope Brent Spot Price Free on Board (FOB) 1996ndash2017
Source US EIA ldquoUS Imports by Country of Origin Rus siardquo
0
20
40
60
80
100
120
140
0
5000
10000
15000
20000
25000
30000
Jan
-19
96
Jun
-19
96
No
v-19
96
Ap
r-19
97
Sep
-19
97
Feb
-19
98
Jul-
199
8D
ec-1
99
8M
ay-1
99
9O
ct-1
99
9M
ar-2
00
0A
ug
-20
00
Jan
-20
01
Jun
-20
01
No
v-2
00
1A
pr-
20
02
Sep
-20
02
Feb
-20
03
Jul-
20
03
Dec
-20
03
May
-20
04
Oct
-20
04
Mar
-20
05
Au
g-2
00
5Ja
n-2
00
6Ju
n-2
00
6N
ov-
20
06
Ap
r-2
00
7Se
p-2
00
7Fe
b-2
00
8Ju
l-2
00
8D
ec-2
00
8M
ay-2
00
9O
ct-2
00
9M
ar-2
010
Au
g-2
010
Jan
-20
11Ju
n-2
011
No
v-2
011
Ap
r-2
012
Sep
-20
12Fe
b-2
013
Jul-
20
13D
ec-2
013
May
-20
14O
ct-2
014
Mar
-20
15A
ug
-20
15Ja
n-2
016
Jun
-20
16N
ov-
20
16
USD
per
Bar
rel
Th
ou
san
d B
arr
els
US Imports from Russia of Crude Oil and Petroleum Products (Thousand Barrels)
Europe Brent Spot Price FOB (Dollars per Barrel)
594-71613_ch01_4Pindd 25 102017 404 PM
US-Russia Economic Relations26
Table 56 US Oil Imports All Countries vs Rus sia Thousand Barrels per Day 2011ndash2016
Years 2011 2012 2013 2014 2015 2016
All Countries 11436 10598 9859 9241 9449 10058
Rus sia 624 477 460 330 371 433
Share 546 450 467 357 393 431
Sources US EIA ldquoUS Imports by Country of Origin Total Crude Oil and Productsrdquo Petroleum amp Other
Liquids September 13 2017 wwweia gov dnav pet pet_move_impcus_a2_nus_ep00_im0_mbbl_m htm
authorrsquos computation
Figure 55 US Imports from Rus sia Share of Crude Oil and Petroleum Products Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
57
64
73
72
74
73
72
59
52 50
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
$40000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil and Petroleum Products
594-71613_ch01_4Pindd 26 102017 404 PM
Vadim Grishin 27
the Rus sian state mono poly Rosneft and commodity trading and mining giant Glencore which
along with energy and commodities com pany Vitol participated in a $10 billion prepayment
deal with Rosneft for crude supplies in 2013
There have been a number of ongoing transactions between the Rus sian oil industry and interna-
tional oil companies including several that top the list of importers of Rus sian oil to the United
States ( Table 57) In December 2016 Glencore participated in a controversial privatization opera-
tion purchasing in tandem with the Qatar sovereign wealth fund a 195 percent stake in Rosneft
which was on the US and EU list of sanctioned firms8 Glencore has also taken a blocking stake in
midsize oil producer RussNeft BP owns a 1975 percent stake in Rosneft Chevron holds a
15 percent interest in the 935- mile- long CPC9 pipeline which transports an average of 959000
barrels of crude oil per day including 76000 barrels daily from Rus sia10 ExxonMobil has formed
8 E Mazneva and I Arkhipov ldquoRus sia Sells $11 Billion Stake in Rosneft to Glencore Qatarrdquo Bloomberg December 7
2016
9 CPCthinsp=thinspCaspian Pipeline Consortium
10 ldquoRus sia Highlights of Operations and Business Portfoliordquo Chevron accessed October 3 2017 https wwwchevron
com worldwide russia
Figure 56 Share of Rus sian Oil in Total US Oil Imports Thousands of Barrels per Day 1972ndash2016
Source US EIA ldquoUS Imports by Country of Origin Total Crude Oil and Productsrdquo
2000
4000
6000
8000
10000
12000
14000
16000
US Imports of Crude Oil and Petroleum Products (Thousand Barrels per Day)
US Imports from Russia of Crude Oil and Petroleum Products (Thousand Barrels per Day)19
7319
7419
7519
7619
7719
7819
7919
80
198
119
82
198
319
84
198
519
86
198
719
88
198
919
90
199
119
92
199
319
94
199
519
96
199
719
98
199
92
00
02
00
12
00
22
00
32
00
42
00
52
00
62
00
72
00
82
00
92
010
20
112
012
20
132
014
20
152
016
594-71613_ch01_4Pindd 27 102017 404 PM
Table 57 Top Importers of Rus sian Oil to the United States Thousands of Barrels 2016
VALERO MARKETING amp SUPPLY CO 54590 3616
EXXONMOBIL OIL CORP 17087 1130
CHEVRON USA INC 15217 1008
BP WEST COAST PRODUCTS LLC 10130 671
GEORGE E WARREN CORP 7272 48
PAULSBORO REFINING CO LLC 6838 453
TESORO CORP 5097 338
VITOL INC 5084 337
PHILLIPS 66 CO 4726 313
TRAFIGURA AG 4360 289
PAR HAWAII REFINING LLC 3893 258
MOTIVA ENTERPRISES LLC 3041 205
SHELL US TRADING CO 2863 19
MARATHON PETROLEUM CO LLC 2475 16
ATLANTIC TRADING amp MARKETING 2099 14
FREEPOINT COMMODITIES LLC 1439 1
GLENCORE LTD 1284 85
BEST PETROLEUM CORP 967 64
ROLYMPUS US COMMODITIES GROUP LLC 822 6
HUNT CRUDE OIL SUPPLY CO 666 4
GULF OIL LP 658 4
Source US EIA ldquoUS Imports by Country of Origin Crude Oilrdquo Petroleum amp Other Liquids September 13
2017 httpswwweiagovdnavpetpet_move_impcus_a2_nus_epc0_im0_mbblpd_ahtm authorrsquos
computation
594-71613_ch01_4Pindd 28 102017 404 PM
Vadim Grishin 29
several joint ventures with Rosneft to undertake ofshore exploration in the Black Sea and the Kara
Sea in Siberia11
According to the Sanctions Act US persons are prohibited from exporting or reexporting goods
ser vices (except financial ser vices) and technology in support of exploration or production of new
deep- water Arctic ofshore or shale oil proj ects that involve designated Rus sian entities or other
entities in which such sanctioned persons have a controlling interest or a substantial noncontrol-
ling owner ship interest defined as not less than 33 percent (previously it was 50 percent) The new
law also authorizesmdash but does not requiremdash the imposition of so- called secondary sanctions
against non- US entities that engage in activities involving the construction maintenance or
expansion of Rus sian energy export pipelines with a fair market value of $1 million or more or an
aggregate fair market value during a 12- month period of $5 million12 This provision has raised the
concerns of some Eu ro pean countries particularly Germany As result the final language of the
law included wording about coordination of this issue with allies of the United States
Shipments of Rus sian oil to the United States could be afected by activity in the US refinery
industry In early 2017 Saudi Aramco bought the United Statesrsquo largest oil refinery in Port Arthur
(Texas) and it announced plans to send more of its own crude to that refinery13 Serious concerns
exist however regarding the future of three refineries and nine pipelines owned by Citgo a US
branch of the Venezuelan state com pany PdVSA which is balancing precariously on the edge of
default Under certain conditions in the event of PdVSA bankruptcy Rosneft could claim a stake of
up to 499 percent in Citgo Such a possibility has raised concerns among politicians and US
government officials with Trea sury Secretary Steven Mnuchin calling it a ldquonational security issuerdquo14
Tables 58 59 and 510 show allocations of Rus sian oil imports to major US refineries some of
which work exclusively on Rus sian crude a total of two to three months per year In total 150940
thousand barrels of Rus sian oil were refined in 2016
Figure 57 confirms a leading position of Texas and Louisiana among the US states receiving
Rus sian crude followed by New Jersey California Mississippi Washington Hawaii and Delaware
In a paradoxical way Texas has dis appeared from the list of states as a main destination of US
imports from Rus sia (Figure 58) because Rus sian crude is mostly delivered to Louisiana ports and
registered there by US Customs as an import from Rus sia After that it transports to refineries in
Louisiana and Texas
Overall the short- term business rationale behind the sustainability of US oil imports from Rus sia
cannot overcome strong headwinds in the US energy sector facing all oil importers which will
inevitably lead to a contraction of Rus sian oil exports to the United States in the foreseeable future
11 Exxon eforts to receive a special US Trea sury waiver to drill in sanctioned Rus sia failed in 2017
12 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364
13 Sarp Ozkan ldquoSaudi Aramcorsquos Port Arthur Refinery and the US Refinery Fleetrdquo Drilling Info May 11 2017
https infodrillinginfo com saudi - aramcos - port - arthur - refinery - us - refinery - fleet
14 Graham Kates ldquoTrea sury Secretary Rus siarsquos Citgo Deal a National Security Issuerdquo CBS News May 1 2017
http wwwcbsnews com news rosneft - citgo - steven - mnuchin - national - security
594-71613_ch01_4Pindd 29 102017 404 PM
US-Russia Economic Relations30
Table 58 Valerorsquos Refineries Pro cessing Rus sian Oil Thousands of Barrels 2016
Saint Charles Louisiana 29206 535
Corpus Christi Texas 20626 378
Wilmington California 4250 78
Total USA 54590 100
Source US EIA ldquoRefinery Capacity Reportrdquo January 1 2017
table 5 wwweia gov petroleum refinerycapacity table5 pdf
authorrsquos computation
Table 59 ExxonMobil Refineries Pro cessing Rus sian Oil Thousands of Barrels 2016
Baytown Texas 15037 88
Baton Rouge Louisiana 2046 12
Total USA 17083 100
Source US EIA ldquoRefinery Capacity Reportrdquo authorrsquos computation
Table 510 Chevronrsquos Refineries Pro cessing Rus sian Oil Thousands of Barrels 2016
Pascagoula Mississippi 12767 840
El Segundo California 2372 155
Saint Rose Louisiana 78 05
Total USA 15217 100
Source US EIA ldquoRefinery Capacity Reportrdquo authorrsquos computation
594-71613_ch01_4Pindd 30 102017 404 PM
Vadim Grishin 31
HEAVY METAL
Taken together US imports of metals and US imports of oil compose about 80 percent of US
total imports from Rus sia (Figure 59) Trade of metals like other commodities is strongly afected
by market price fluctuations Nevertheless metal imports from Rus sia have been fairly resilient to
market volatility and their average annual value has hovered at about $4 billion in the last five years
(Figure 510) This market resilience was forged at the end of the 1990searly 2000s when Rus sian
metal producers gradually modernized their plants adjusting quality of production to Western
standards and enhancing integration into global value and supply chains Some of them conquered
their share of the highly competitive US market struggling with peers from Canada and certain
BRICS countries (China India and Brazil) To attract additional resources all Rus sian large metal-
producing companies became public and were listed on stock exchanges chiefly the London Stock
Exchange (Severstalrsquo PAO Evraz MMK OAO Novolipetsk Steel Norilsk Nikel and TMK PAO) one
on the New York Stock Exchange (Mechel) and one on the Hong Kong Stock Exchange (Rusal)
Business logic pushed some of them to invest in the US metal- making industry which was hit
hard by crisis Later on some of those assets were sold (eg two US steel mills acquired by
Severstal in 2004 were purchased 10 years later by Steel Dynamics Inc and AK Steel Corp)
Figure 57 Share of US States Rus sian Oil Imports 2016
Source US EIA ldquoUS Imports from Rus sia of Crude Oil and Petroleum Productsrdquo Petroleum amp Other
Liquids September 29 2017 https www eia gov dnav pet hist LeafHandler ashx nshy=shyPETampsshy=shyMTTIM _ NUS
- NRS _ 1ampfshy=shyM authorrsquos computation
0
10
20
30
40
50
60
70
80
90
100
Maine
Massachusetts
Maryland
Connecticut
Georgia
Rhode Island
Virginia
Florida
New York
Alabama
Puerto Rico
Pennsylvania
Delaware
Hawaii
Washington
Mississippi
California
New Jersey
Louisiana
Texas
594-71613_ch01_4Pindd 31 102017 404 PM
Figure 58 US Imports from Rus sia by State Million US$ 2013ndash2016
Source US Census Bureau ldquoState and Metropolitan Area Trade Datardquo Foreign Trade last modified
October 2 2017 https wwwcensus gov foreign - trade statistics state
Alaska
Connecticut
Delaware
Hawaii
Louisiana
Maryland
North Dakota 0
$1000
$2000
$3000
$4000
$5000
$6000
2013 2014 2015 2016
Alabama
Alaska
Connecticut
Delaware
Hawaii
Louisiana
Maryland
Maine
Mississippi
Montana
North Dakota
Mississippi
Figure 59 US Imports from Rus sia Share of Oil and Metals Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
83
82
85
86
87
88
85
82
7375
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
$40000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil and Metals
594-71613_ch01_4Pindd 32 102017 404 PM
Vadim Grishin 33
Obviously the market dynamic of dif er ent metals varies (eg iron steel aluminum platinum and
nickel) Caps to increase their trade and production in a ldquored oceanrdquo global environment with
anemic demand is rather limited despite Figure 510 showing a spike of iron and steel imports
from Rus sia in 2014 and aluminum in 2016 Some opportunities may exist for Russian- owned steel
plants in the United States (such as NLMK) to participate in energy proj ects resumed under Presi-
dent Trump who has required that new pipelines use only American- made steel15
Rus sia occupies a special niche in the US market for titanium products a high- end metal indus-
try Twenty years ago a long- term contract was signed between Rus sian titanium producer
VSMPO- AVISMA and Boeing The Rus sian com pany entered the selective club of Boeing suppliers
for the manufacture of components and semi- finished products Since the signing of this contract
VSMPO has delivered more than 35 percent of all titanium placed on Boeing civil aircraft16 They
are hidden in the trade data in an import category for Civilian Aircrafts and Parts (Figure 511) At
the end of 2016 Boeing announced an extension of its framework agreement with AVISMA
15 E Scheyder C Ngai and T Sylvester ldquoAmerican Steel Unlikely to Get Keystone Boost Despite Trump Orderrdquo
Reuters January 27 2017 http wwwreuters com article usa - trump - pipeline - transcanada - idUSL1N1FH1ZD
16 A Kramer ldquoTitanium Fills Vital Role for Boeing and Rus siardquo New York Times July 5 2013 http wwwnytimes com
2013 07 06 business global titanium - fills - vital - role - for - boeing - and - russia html mcubzshy=shy3
Figure 510 US Imports from Rus sia Iron Steel Bauxite Aluminum Nickel Nonferrous Metals and Other Precious Metals and Materials US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
0
$6000000000
$5000000000
$4000000000
$3000000000
$2000000000
$1000000000
2007 2008 2009 2010 2011 20122013
20142015
2016
Finished metal shapes
Iron and steel advanced
Iron and steel products nec
Nonferrous metals other
Other precious metals
Nickel
Bauxite and aluminum
Iron and steel mill products
Steelmaking materials
594-71613_ch01_4Pindd 33 102017 404 PM
US-Russia Economic Relations34
through 2022 and additional investments in the construction of a new robotic plant in Titanium
Valley a special economic zone located in the Sverdlovsk region that will open in 2018 The pro-
cessing of titanium forgings in all Boeing civil aircraft will be performed there including 787s 737
MAXs and 777Xs17 The contract extension with AVISMA may add several hundred million dollars
in value to annual US imports from Rus sia
How can such heavy reliance on imports of Rus sian titanium exist during a period of rising geopo-
liti cal tensions The answer is straightforward VSMPO- AVISMA is a highly specialized natu ral
mono poly producing 45 percent of the worldrsquos aerospace titanium Only four other countries
smelt high- grade titanium in industrial quantities the United States Germany Japan and China
Overall global production capacity is limited while demand is growing The United States cur-
rently imports around 79 percent of all the titanium it consumes each year18
17 ldquoBoeing and VSMPO Avisma to Launch Second Joint Production Siterdquo Rus sian Aviation Insider December 22 2016
http wwwrusaviainsider com boeing - and - vsmpo - avisma - to - launch - second - joint - production - site
18 Jon Ostrower and Andy Pasztor ldquoBoeing United Technologies Stockpile Titanium Partsrdquo Wall Street Journal
August 7 2014 https wwwwsj com articles boeing - united - technologies - stockpiling - titanium - parts - 1407441886
Figure 511 US Imports from Rus sia Civilian Aircrafts and Parts US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
$200000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Parts-civilian aircraft
Civilian aircraft
594-71613_ch01_4Pindd 34 102017 404 PM
Vadim Grishin 35
The Sanctions Act authorizes the secretary of the trea sury (in a nonmandatory way) to impose
restrictions (without specifying them) against Rus sian state- owned entities operating in the railway
metals and mining sectors of the Rus sian economy Despite the commanding heights of Rus siarsquos
state sector owner ship in its economy (70 percent of GDP) the metal- producing companies have
remained mostly in private hands
NUCLEAR AFFAIRS
Historically owners and operators of the 104 commercial nuclear power reactors in the United
States have purchased more than 80 percent of their uranium from foreign countries Uranium
shipping from Rus sia accounted for about 13 percent of the 58 million pounds of uranium pur-
chased overseas in 201219 At the same time the Rus sian state- owned mono poly Rosatom ac-
counts for 20 percent of Kazakhstanrsquos uranium production (which in turn comprises 11 percent of
all US uranium imports) and 20 percent of US domestic uranium production capacity (with
owner ship of exploration tracts in Wyoming)20
Nuclear fuel and nuclear power continue to be po liti cally sensitive topics both in the United
States and Rus sia Bilateral cooperation in this sector (being surprisingly stable with imports of
nuclear fuel from Rus sia at a level of $1 billion annually in the last five years [Figure 512 and 513])
is under constant po liti cal and lobbying pressure and has been a source of several po liti cal scan-
dals21 Consequently upside risks in this area of interaction are minimal and downside risks are
much higher especially when we are seeing more decommissioning of nuclear plants in the
United States than new constructions The US EIArsquos 2017 Annual Energy Outlook assumes
that about 25 percent of the nuclear capacity now operating will be removed from ser vice
by 205022
WHY IS THE GRASS GREENER ON THE OTHER SIDE
The United States continues to significantly reduce imports of chemical fertilizers as domestic pro-
duction increases In 2016 the United States imported 13 percent less ammonia and 11 percent
less urea and UAN which is a liquid urea and ammonium nitrate fertilizer Rus sia accounts for
around 40 percent of UAN imported by the United States The United States canceled antidumping
duties on imports of ammonium nitrate and urea from Rus sia in 2016 but it did not prevent import
19 US EIA ldquoThe US Relies on Foreign Uranium Enrichment Ser vices to Fuel Its Nuclear Power Plantsrdquo Today in
Energy August 28 2013 https wwweia gov todayinenergy detail php idshy=shy1273
20 Colin Chilcoat ldquoDoes Rus sia Really Own 20 Percent of the USrsquo Uranium Reservesrdquo OilPricecom May 6 2015
http oilpricecom Alternative - Energy Nuclear - Power Does - Russia - Really - Own - 20 - Of - The - US - Uranium - Reserves
html
21 Michelle Ye Hee Lee ldquoThe Facts behind Trumprsquos Repeated Claim about Hillary Clintonrsquos Role in the Rus sian Ura-
nium Dealrdquo Washington Post October 26 2016
22 US EIA ldquoAnnual Energy Outlook 2017 with Projections to 2050rdquo 81ndash82
594-71613_ch01_4Pindd 35 102017 404 PM
Figure 512 US Imports from Rus sia Share of Oil Metals and Nuclear Fuel Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
87
86
90
90
90
91
88
86
7882
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals and Nuclear Fuel
Figure 513 US Imports from Rus sia Nuclear Fuel Materials US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$-
$200000000
$400000000
$600000000
$800000000
$1200000000
$1000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 36 102017 404 PM
Vadim Grishin 37
drops twice last year (Figures 514 and 515) According to forecasts UAN imports are expected to
decline further to 15 million tons this year down over 46 percent from 28 million tons imported
last year23 The downside trend in imports of fertilizers will likely continue because of oversupply
BIG FISH
US imports of fish and shellfish from Rus sia are best understood in comparison with US fish
exports to the Rus sian market which slipped to zero in August 2014 after Rus sia issued an order
banning certain agricultural imports from the United States (Figure 516) While the volume of US
supply was not very large it was impor tant because it broke up the monopolistic dominance of a
few vertically integrated Rus sian companies that have kept prices high by restricting the entry of
new producers Seeking to implement import substitution policies Rus sia has tried to reduce
exports as well as imports of fish and seafood products in the last couple of years This symmetri-
cal approach was intended to ldquocompensaterdquo for a decrease of fish products in the domestic
23 Deepika Thapliyal ldquoPotashCorp Forecasts Sharp Drop in US Nitrogen Imports in 2017rdquo ICIS News February 7
2017 https wwwicis com resources news 2017 02 07 10076734 potashcorp - forecasts - sharp - drop - in - us - nitrogen
- imports - in - 2017
Figure 514 US Imports from Rus sia Share of Oil Metals Nuclear Fuel and Fertilizers Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
90
93
92
93
94
95
92
91
85
86
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals Nuclear Fuel and Fertilizers
594-71613_ch01_4Pindd 37 102017 404 PM
Figure 515 US Imports from Rus sia Chemical- Fertilizers US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
S-
$200000000
$400000000
$600000000
$800000000
$1000000000
$1200000000
$1400000000
$1600000000
$1800000000
$2000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Figure 516 US Exports to Rus sia Fish and Shellfish US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$10000000
$20000000
$30000000
$40000000
$50000000
$60000000
$70000000
$80000000
$90000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Fish and shellfish
594-71613_ch01_4Pindd 38 102017 404 PM
Vadim Grishin 39
consumer market caused by Rus siarsquos import ban but it has failed As result the group most af-
fected by the self- imposed counter- sanctions were Rus sian consumers
With a significant drop in fish imports a devaluation of the ruble and inflationary pressures on
seafood prices yearly consumption of fish in Rus sia has declined precipitously In 2015 alone
fish prices increased 20 percent and consumption dropped to 14 kilograms per person24 from
22 kilograms in 201425 In 2016 food rose to 355 percent of house hold expenditure as a result of
increases in food prices26 This has pushed vertically integrated fishing monopolies to sell even
more of their catch abroad rather than deliver to the Rus sian Federation (Figure 517) Thus we
cannot exclude the possibility of further growth in US fish and shellfish imports from Rus sia on a
marginal scale
24 Александр Савельев ldquoПотребление рыбы в России упало до 14 кг на человекаrdquo [Fish consumption in Rus sia fell to
14 kg per person] Экономика Интерфакс January 28 2015 http wwwinterfax ru business 492038
25 Илья Шестаков ldquoПотебление рыбы в России снизилось на 10 процентов из- за роста ценrdquo [Fish consumption in
Rus sia dropped by 10 percent due to price increases] RNS March 8 2017 https rnsonline consumer - market
Potreblenie - ribi - v - Rossii - snizilos - na - 10 - iz - za - rosta - tsen - 2017 - 03 - 08
26 Zoya Sheftalovich and Christian Oliver ldquoRus siarsquos Boom (Farming) Economyrdquo Politico November 8 2016 http
wwwpolitico eu article russias - boom - farming - economy
Figure 517 US Imports from Rus sia Fish and Shellfish US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$50000000
$100000000
$150000000
$200000000
$250000000
$300000000
$350000000
$400000000
$450000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 39 102017 404 PM
US-Russia Economic Relations40
SPACE ODYSSEY
Among high- end products beyond the top five groups of goods imported from Rus sia cheap and
efficient Rus sian engines have been used to launch US rockets into space for about 16 years
(Figure 518) There was a serious po liti cal strug gle around a 2014 ban on the purchase of Rus sian
RD-180 rocket engines revealing the conflicting business interests of power ful high- tech companies
This restrictive mea sure was temporary and was quickly lifted because of significant cost impacts
and risks of disruption to launch schedules27 For the same reason the Sanctions Act does not autho-
rize ldquothe imposition of any sanction or other condition limitation restriction or prohibition that
directly or indirectly impedes the supply by any entity of the Rus sian Federation of any product or
ser vice or the procurement of such product or ser vice by any contractor or subcontractor of the
United States or any other entity relating to or in connection with any space launch conducted for
the National Aeronautics and Space Administration or any other nonndash Department of Defense
customerrdquo28
Nevertheless many experts believe that US domestic alternatives to replace Rus sian engines will
be viable in five to eight years
27 Ken Dilanian ldquoWhy Does the US Use Rus sian Rockets to Launch Its Satellitesrdquo NBC News updated November 15
2016 http wwwnbcnews com why - does - u - s - use - russian - rockets - launch - its - satellites - n588526
28 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364
Figure 518 Spacecraft Excluding Military US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 40 102017 404 PM
41
Diversity and technological complexity are the most vis i ble advantages supporting US exports to
Rus sia Three major groups of export goods include civilian aircraft engines and parts (Figure 61)
drilling and oil field equipment (Figure 62) and industrial machines and engines (Figure 63)
Despite sanctions against the transfer of advanced oil producing and pro cessing technologies the
realization of US drilling and oil field equipment in Rus sia is sustainable although some bilateral
proj ects have been frozen
Another category of goods that has demonstrated resilience is the phar ma ceu ti cal industry (Fig-
ure 64) because most drugs in Rus sia are imported (about 70 percent of the Rus sian phar ma ceu-
ti cal market in value) Import substitution policies have had only modest results in this industry
As confirmed by American Chamber of Commerce surveys US exports to Rus sia are closely
connected to US FDI 30 percent of total imports of US companies working in the Rus sian
market come from the United States (more than $2 billion in 2016) In other words about
40 percent of all US exports to Rus sia are related to a US corporate- sector business pro cess in
the country The major sectors of activity of these companies are energy and natu ral resources
(52 percent) manufacturing (17 percent) information and communications technology or ICT
(13 percent) retail (7 percent) automotive industry (6 percent) phar ma ceu ti cal production
(1 percent) professional ser vices (05 percent) and other (2 percent)1
Some obvious constraints on US exports to Rus sia have resulted from a reduction in demand A
deterioration of bilateral relations and implementation of sanctions and counter- sanctions have
directly or indirectly afected all businesses Figures 65 and 66 provide data regarding a dramatic
drop in the sale of US agricultural production in Rus sia with all other categories of exports in
goods showing big cuts as well (see Figures 67ndash69)
Exports of civilian aircraft engines and parts put the state of Washington in first place among
other states as a leading exporter to the Rus sian market (Figure 610)
1 American Chamber of Commerce in Rus sia ldquoInvestment and Import to Rus sia 2nd Surveyrdquo 13
Diversity and Constraints
06
594-71613_ch01_4Pindd 41 102017 404 PM
Figure 61 US Exports of Civilian Aircraft Engines Equipment and Parts to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
$2500000000
$2000000000
$1500000000
$1000000000
$500000000
$-
Figure 62 US Exports of Drilling and Oil Field Equipment US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
$40000000
$45000000
$50000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 42 102017 404 PM
Figure 63 US Exports of Industrial Engines to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Figure 64 US Exports of Phar ma ceu ti cal Preparations to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 43 102017 404 PM
Figure 65 US Exports of Meat and Poultry to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Meat poultry etc
$1000000000
$800000000
$600000000
$400000000
$200000000
$-
$1200000000
$1400000000
$1600000000
Figure 66 US Exports of Soybeans to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
$200000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 44 102017 404 PM
Figure 67 US Exports of Vehicles Engines and Parts to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Other parts and accessories of vehicles
Automotive tires and tubes
Bodies and chassis for passenger cars
Engines and engine parts (carburetors pistonsrings and valves)
Trucks buses and special purpose vehicles
Passenger cars new and used
$2500000000
$2000000000
$1500000000
$500000000
$-
$1000000000
Figure 68 US Exports of Medicinal Equipment to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 45 102017 404 PM
Figure 610 US Exports to Rus sia by States (2016 US$ Value) Million US$ 2013ndash2016
Source US Census Bureau ldquoState and Metropolitan Area Trade Datardquo
Iowa Kentucky
North Dakota
Oklahoma
South Carolina
Washington
0
$500
$1000
$1500
$2000
2013 2014 2015 2016
District of Columbia
Iowa
Kentucky
North Dakota
Oklahoma
South Carolina
Washington
Figure 69 US Exports of Excavating Machinery to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
$40000000
$45000000
$50000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 46 102017 404 PM
47
Upon reviewing the current trend in US- Russia economic relations we must acknowledge that
the existing trade model is obsolete and exhausted Imports are resource- oriented and reflect
constraints of the Rus sian economic structure while five groups of goodsmdash oil metals nuclear
fuels fertilizers and fishmdash make up more than 90 percent of total imports from Rus sia (Figure 71)
Each of these industries has a limited capacity for growth in the foreseeable future
Rus siarsquos core export to the United Statesmdash oilmdash will inevitably decrease in the mid- term under any
scenario The value and volume of Rus sian exports to the United States are open to global market
volatility and po liti cal pressures with limited hedging mechanisms
Overall US exports to Rus sia are unsustainable due to bilateral po liti cal tensions the whims of
commodity markets and changing domestic policies Sanctions and counter- sanctions have
created additional barriers particularly in finance banking high- tech energy and agro- business
According to the American Chamber of Commerce 69 percent of US companies working in the
country consider the impact of US sanctions against Rus sia on their business as negative At the
same time 60 percent of companies do not expect big changes in business relations between
Rus sia and the United States under Trump1 as the new law codifies existing sanctions fortifies
them and extends them to new sectors
Current US investments are low due to the weak rule of law in Rus sia a lack of property right
protections and proper contract enforcement high levels of statization and monopolization in the
economy a poor business climate outdated capital stock dependence on natural- resource
sectors and of course sanction and counter- sanction mea sures Bloated administrative compo-
nents created as risk mitigation instruments have also served as impediments The countryrsquos
institutional weakness low level of productivity bud get constraints and a declining inflexible
workforce will restrain future economic growth even if commodity prices recover Rus sian eco-
nomic policy will likely continue to be statist and protectionist relying mostly on import
substitutions
1 Ibid 11
Existing Trends and Future Scenarios
07
594-71613_ch01_4Pindd 47 102017 404 PM
US-Russia Economic Relations48
What scenarios can be expected in such a challenging environment
One probability (no peace no war) is based on the assumption that matters will not deteriorate
further and implementation of the Sanctions Act will be cursory This will cause relatively slow
degradation in the economic field with occasional flashes of activity in selected areas (eg closer
cooperation against Islamist terrorist groups in Syria)
A second worse case or critical scenario is the intensive and full- scale execution of current sanc-
tion legislation and even the imposition of new economic punitive and restrictive mea sures which
could incite asymmetric retaliatory actions and lead to the introduction of additional protectionist
policies This in turn could trigger a further escalation of mutual confrontation and could eventu-
ally destroy the fundamentals of the current bilateral trade system Rus sian leadership has charac-
terized the Sanctions Act as a declaration of a trade war that ends all hope for improving bilateral
relations2
2 Дмитрий Медведев ldquoПодписание президентом США нового санкционного закона против России создает несколько
последствийrdquo [The US Presidentrsquos signing of the package of new sanctions against Rus sia will have a few conse-
quences] Facebook August 2 2017 https wwwfacebook com Dmitry Medvedev posts 10154587161801851
Figure 71 US Imports from Rus sia Share of Oil Metals Nuclear Fuel Fertilizers and Fish Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
93
94
93
94
95
96
93
92
87
89
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals Nuclear FuelFertilizers and Fish
594-71613_ch01_4Pindd 48 102017 404 PM
Vadim Grishin 49
The best case and most favorable scenario looks less probable now It assumes the realization of
structural reforms in Rus sia in such a way that would adapt Rus siarsquos foreign policy to national
economic needs reduce confrontations with the West and make a concerted efort to integrate
Rus sian businesses into global supply and value chains A revitalization of the structural reform
agendamdash including eforts to diversify economic activities through de- monopolization and support
for SMEs a restructuring of the banking sector the creation of a vibrant business climate to foster
entrepreneurships and innovation the implementation of administrative and judicial reforms to
tackle red tape and endemic corruption and the reduction of state control over key sectors of the
economy via wide- spread privatization could kick- start the development of a nonoil economy and
improve long- term growth prospects Despite ongoing discussion of reform strategies deep
economic and po liti cal changes are extremely complicated over the next po liti calelectoral cycle
(2018ndash2024) particularly because of re sis tance of vested interests and growing commodity prices
The urgency to tackle structural shortcomings in natu ral resource- dependent economies usually
correlates with the price of those resources and the degree to which resource rents drive eco-
nomic activity However there may be marginal improvements in the efficiency of the current
economic system
Future US- Russia relations can be thought of through three pillars one pillar focuses on areas
where both countries maintain a competitive rivalry another looks at potential areas of interaction
under pres ent conditions a third pillar and one that has evaporated from the current bilateral
agenda concentrates on future cooperation Stronger economic ties could not only be a kind of
po liti cal shock absorber but contribute to the building of this future (particularly business contacts
aim to support future structural reforms) although po liti cal factors are depressing the prospects
for cooperation To escape deadlock it will be impor tant to establish the right balance between
politics and economics and create a model of collaboration within the framework of contention
594-71613_ch01_4Pindd 49 102017 404 PM
About the Author
Vadim Grishin PhD MBA has been involved in the reform pro cess in Rus sia as adviser to the
deputy prime minister of Rus sia in 1992ndash1993 and 2006ndash2010 He has extensive experience
working with the Bretton Woods Institutions He was the board member of the World Bank Group
and served as se nior adviser at the International Monetary Fund Currently he is a con sul tant to the
chief economistrsquos office of the International Finance Corporation and teaches the economics of
transition at Georgetown University in Washington DC
50
594-71613_ch99_4Pindd 50 102017 403 PM
Blank
COVER PHOTO ADOBE STOCK
1616 Rhode Island Avenue NW
Washington DC 20036
202 887 0200 | wwwcsisorg
v++ISBN 978-1-4422-8035-9
Lanham bull Boulder bull New York bull London
4501 Forbes Boulevard
Lanham MD 20706
301 459 3366 | wwwrowmancom
A U T H O R
Vadim Grishin
Myths and Realities
A Report of the
CSIS RUSSIA AND EURASIA PROGRAM
US-RussiaEconomicRelations
O C T O B E R 2 0 1 7
Euml|xHSLEOCy280359z
The Man Pupu Nyor Rock Formations at the Northern Urals also known as Seven
Strong Man or Little Mountain of the God in the local tribe (Mansi) language
4
02
Does Bilateral Economic Interaction Matter
Economic relations do not emerge out of a vacuum There are many variables that define the final
configuration of economic interactions such as a par tic u lar countryrsquos level of economic develop-
ment its business environment legal framework po liti cal climate (regime) culture and religion
history and tradition demography and geography as well as global and national economic cycles
An impor tant driver of trade relations for many economies has become participation in global and
regional trade agreements
As many studies and anecdotal evidence show bilateral economic cooperation should be sizable
and should relate to the economic growth of two countries in a way that afects their policy
interests Let us take as a reference point the BRICS countries1 a community of large emerging
economies which Rus sia belongs to Table 21 pres ents official data on US trade and investments
with BRICS states US- Russia trade in goods is disproportionally lowmdash235 times less than US
trade with China 33 times smaller than US trade with India and 28 times less than US trade
with Brazil The size of the US- Russia trade balance is comparable to the size of the US trade
balance with South Africa whose economy is almost four times smaller than Rus siarsquos If we add
trade in ser vices to the trade of goods the gaps increase significantly (Figures 21 and 22) The
diference is not only quantitative but also qualitative
The quality of trade relations can be mea sured by its diversity its share of high- tech components
resilience to economic shocks and its contribution to GDP growth On average a 10 percent
increase in a nationrsquos two- way trade relative to GDP increases GDP through a variety of channels
by at least 16 percent2
Bilateral trade and real GDP growth in the United States and Rus sia are practically uncorrelated
as shown in the summary output of multifactorial regression The coefficient of multiple determi-
nation (R Square) is close to 0 ( Table 22) At the same time the correlation of US exports to India
1 BRICS is the acronym for a select group of five developing economies Brazil Rus sia India China and South Africa
2 World Economic Forum Foreign Direct Investment as a Key Driver for Trade Growth and Prosperity The Case for a
Multilateral Agreement on Investment (Geneva World Economic Forum 2013) 11
594-71613_ch01_4Pindd 4 102017 404 PM
Vadim Grishin 5
Table 21 US Trade and Foreign Direct Investments (FDI) with China India Brazil South Africa and Rus sia 2016
China India Brazil South Africa Rus sia
Total Goods Trade 5786 677 565 13 203
Imports 4628 460 262 73 145
Exports 1158 217 303 55 58
Trade in Ser vices 696 472 317 47 na
Imports 161 268 68 17 na
Exports 535 203 249 30 na
US FDI 746 283 653 62 141
BRICS FDI in the United States
148 93 043 076 63
Supported Jobs in the United States (thousand)
911 197 308 50 84
Source United States Trade Representative (USTR) ldquoCountries amp Regionsrdquo accessed September 27 2017
https ustrgov countries - regions See US- China Trade Facts US- India Trade Facts US- Brazil Trade
Facts US- South Africa Trade Facts and US- Russia Trade Facts
201520142013
and China with the real GDP growth of these big Asian economies is significant (05) In the case of
Brazil the correlation is even higher (07) By contrast South Africarsquos small open economy is quite
sensitive to US imports from South Africa (043)3
In marked contrast to other BRICS countries Rus sia is a poor choice for export- oriented opera-
tions As a recent International Monetary Fund (IMF) study highlights Rus sia is an outlier a rare
exception among emerging market (EM) economies with virtually no preferential access to major
markets and little meaningful change over three de cades4 This complicates Rus siarsquos integration
into the global value chain (GVC) which became a significant driving force toward economic
development and trade for certain BRICS economies
3 IMF statistics authorrsquos computation
4 IMF Rus sian Federation Selected Issues IMF Country Report N17198 (Washington DC IMF July 2017)
594-71613_ch01_4Pindd 5 102017 404 PM
US-Russia Economic Relations6
Trade is closely connected with foreign direct investment (FDI) and both are parts of a complex
interaction known as international production sharing According to publicly available official data
US FDI in Rus sia was about $131 billion for 2013 and $295 billion for 2016 with the top industrial
sectors being software and IT ser vices financial ser vices chemicals metals coal oil and gas
and business ser vices5 If we take into account US investments made through Eu ro pean branches
of US companies and ofshore firms this number would easily triple Another component
that usually is not tracked by official statistics is reinvestments The American Chamber of
Commerce surveys in 2016 and 2017 which include this component draw a completely dif er ent
picture accumulated US corporate FDI in 90 large US companies working in Rus sia reached
5 US Department of Commerce International Trade Administration ldquoRussiamdash94- Foreign Direct Investment and
Portfolio Investment Statisticsrdquo Rus sia Country Commercial Guide July 7 2017 https wwwexport gov article
id=shyRussia - foreign - direct - investment - statistics
Figure 21 US Trade in Goods with China India Brazil Rus sia and South Africa Billion US$ 2016
Source USTR ldquoCountries amp Regionsrdquo See US- China Trade Facts US- India Trade Facts US- Brazil Trade
Facts US- South Africa Trade Facts and US- Russia Trade Facts
0
$50
$100
$150
$200
$250
$300
$350
$400
$450
$500
$550
$600
China India Brazil Russia South Africa
Exports
Imports
594-71613_ch01_4Pindd 6 102017 404 PM
Vadim Grishin 7
$8244 billion in 20176 The real level from our perspective is usually between official and private
estimations around $40 billon But even this cumulative figure is less than the US FDI in Brazil
and China
The American Chamber of Commerce surveys have also revealed other impor tant data Eighty-
five percent of US companies doing business in Rus sia entered its market 10 or more years ago
while 60 percent of them ldquolandedrdquo there 20 years ago or earlier Only one percent have started
operations over the last five years confirming an obvious fact entry into the Rus sian market is
challenging because of growing monopolism risks associated with the business climate and a
stagnating economy7
6 American Chamber of Commerce in Rus sia ldquoInvestment and Import to Rus sia 2nd Surveyrdquo (Prepared by GfK for the
American Chamber of Commerce in Rus sia Moscow May 2017) 12
7 Ibid 4
Figure 22 US Trade in Goods and in Ser vices with China India Brazil Rus sia and South Africa Billion US$ 2016
Source USTR ldquoCountries amp Regionsrdquo See US- China Trade Facts US- India Trade Facts US- Brazil Trade
Facts US- South Africa Trade Facts and US- Russia Trade Facts
0
$100
$200
$300
$400
$500
$600
$700
China India Brazil Russia South Africa
Trade in Services
Total Goods Trade
594-71613_ch01_4Pindd 7 102017 404 PM
US-Russia Economic Relations8
Rus sian direct investment position toward the United States declined from $215 billion in 2013 to
$83 billion in 2015 (Figure 23) Taking into account dif er ent channels and instruments the actual
volume of Rus sian investments in the United States made through ofshore Eu ro pean Canadian
and US companies may be several times greater than the available official data
Foreign investment in financial assets or foreign portfolio investment (FPI) should be included
even though Central Bank of Rus sia statistics indicate they were also quite low US investments in
equity were $345 million and in debt instruments were about $65 million in the fourth quarter of
20168 However these numbers do not reflect the real level of FPI Rus siarsquos stocks are incredibly
inexpensive while there has been impressive growth of US investments in short- term securities
and in foreign exchange (FX) operations (cash- and- carry trade) Rus sia was among the top per-
forming emerging markets in 2016 gaining 4744 percent in US dollars9 Nevertheless the gen-
eral capitalization of the stock exchange is tiny (less than 20 percent of GDP) comparable to the
capitalization of just one large US com pany such as Coca- Cola Many private sources believe that
the US FPI in Rus sia could be as high as several billion US dollars but a new set of sanctions
approved by President Trump on August 2 2017 if implemented could reverse those flows It is
still not clear whether the secretary of trea sury will prohibit participation in the oferings of Rus siarsquos
sovereign debt and the full range of derivative products A report on this subject should be sub-
mitted no later than 180 days after enactment of the law which means no later than Febru-
ary 2018 New legislation tightens prohibition on Rus sian financial companies already under
sanctions by limiting any new equity or debt with a maturity greater than 14 days (a provision that
8 Central Bank of Rus sia ldquoForeign Direct Investments in the Rus sian Federationrdquo accessed September 27 2017 www
cbr ru localization switchlanguage urlshy=shy news ampfromshy=shyru - ruamptoshy=shyen - gb
9 VanEck ldquoRus sian Stock Market Soars in 2016rdquo Seeking Alpha February 14 2017 https seekingalphacom article
4045602 - russian - stock - market - soars - 2016
Table 22 Summary Output of Regression Statistics (US Real GDP Rus sia Real GDP US- Russia Exports Imports and Total Trade)
Regression Statistics
Multiple R 0056445768
R Square 0003186125
Adjusted R Square minus0042123597
Standard Error 2616043923
Observations 24
Sources IMF statistics authorrsquos computation
594-71613_ch01_4Pindd 8 102017 404 PM
Vadim Grishin 9
previously allowed for 30 days) Similarly US persons are prohibited from taking on any new debt
that has a maturity greater than 60 days (previously it was 90 days) with Rus sian energy compa-
nies currently under sanctions10
According to the Trea sury Department Rus sia held $1029 billion in US Trea sury securities in
June 201711 Could Rus sia withdraw all its reserves from the United States and use this action as a
retaliatory mea sure Such a scenario is unlikely since there is no comparable safe- haven alterna-
tive to US dollars When Rus siarsquos US Trea sury holdings dropped 50 percent from $176 billion
(October 2010) to $90 billion (November 2011) the market did not notice12 Nevertheless Rus sian
authorities have announced they will decrease dependence on assets and payments in US dollars13
10 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364
11 US Department of Trea sury Major Foreign Holders of Trea sury Securities September 18 2017 http ticdata
treasury gov Publish mfh txt
12 Ibid
13 ldquoНовый виток санкций Россия откажется от доллараrdquo [A new round of sanctions Rus sia will abandon the dollar]
Газетару August 7 2017 https wwwgazeta ru business 2017 08 07 10821937 shtml
Figure 23 Rus sia Outward FDI Position United States Equities and Debt Million US$ 2009ndash2016
Source Central Bank of the Rus sian Federation External Sector Statistics Rus sian Direct Investments
Abroad accessed September 27 2017 https wwwcbr ru localization switchlanguage urlshy=shy news
ampfromshy=shyru - ruamptoshy=shyen - gb
$6000
$8000
$10000
$12000
$14000
$16000
$18000
$20000
$22000
2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 9 102017 404 PM
US-Russia Economic Relations10
Officially the country does not invest in the US stock exchange although some Rus sian oligarchs
have bought US corporate bonds and equities in large amounts The new sanctions law requires
the secretary of trea sury in consultation with the director of national intelligence and the secretary
of state to issue reports on Rus sian se nior po liti cal figures and oligarchs based on their closeness
to the Rus sian regime and their net worth as well as the exposure of key economic sectors of the
United States to Rus sian po liti cally exposed persons and parastatal entities including at a mini-
mum the banking securities insurance and real estate sectors14
Only three Rus sian companies are listed in the US exchanges
Overall the scale and scope of US- Russia economic interaction and business activity is much greater
than officially appreciated but not significant enough to be taken into consideration by policymakers
14 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364
594-71613_ch01_4Pindd 10 102017 404 PM
11
03
Politics in the Driverrsquos Seat
Bilateral economic relations depend to a great extent on global and national economic cycles
After the recent global financial crisis the US economy has shown surprisingly sustainable GDP
growth while the Rus sian economy was the most afected among BRICS countries by the turbu-
lence of a worldwide economic downturn in 2008ndash2009 and after a short- term rebound slipped
into stagnation (2012ndash2013) and then into full- scale recession (2014ndash2016) The countryrsquos eco-
nomic cycle however appears to be changing once again with the economy returning to a
pattern of growth albeit uneven and gradual (Figures 31 and 32) Even with sanctions still in place
conditions have improved as a result of the stabilization of Urals oil to an average annual price of
$419 per barrel in 2016 The gains were sparked in part by major crude producers agreeing to cut
production after hefty price drops in 2014 and 2015 Supported by easier financial conditions
higher oil prices and growing macro- stability Rus sia is heading toward a moderate growth rate
that is expected to reach 14 percent this year according to forecasts of the World Bank Group
(WBG) and the IMF1
Because of the significant role that politics plays in any bilateral interaction it is impor tant to
combine economic and po liti cal cycles applying a ldquoresetrdquo to bilateral economic cooperation in
addition to the po liti cal relationship I have compared po liti cal cycles and trade dynamics using the
following graphs ( Table 31 and Figure 33) These charts do not pretend to reflect with mathemati-
cal precision all shifts in the bilateral po liti cal relationship but rather attempt to visually align
impor tant economic and po liti cal moments to detect the efects of po liti cal events on the size of
bilateral trade
Figure 33 shows all pos si ble combinations economic trends at the intersection of po liti cal devel-
opments oppose or support each other in synchronization It is evident that po liti cal interference
1 International Monetary Fund Rus sian Federation Staff Concluding Statement of the 2017 Article IV Mission (Wash-
ington DC IMF 2017) World Bank Group From Recession to Recovery Rus sia Economic Report no 37 (Washington
DC World Bank 2017) http pubdocsworldbank org en 383241495487103815 RER - 37 - May26 - FINAL - with - summary
594-71613_ch01_4Pindd 11 102017 404 PM
US-Russia Economic Relations12
in bilateral business afairs in the early 2000s was less significant than in later years As result
growing po liti cal tensions from 2003 to 2008 did not dramatically afect bilateral economic inter-
action It is also easier to explain why 2011ndash2012 resulted in rec ord trade and investmentmdash a con-
sequence of very high oil prices GDP growth in both countries improved legislation after Rus siarsquos
accession to the WTO and the Obamandash Medvedev po liti cal reset From 2014 to 2016 a perfect
storm of developments added efficiency to Western sanctions and augmented the damaging
consequences of counter- sanction mea sures
Figure 33 also confirms that in times of reduced economic cooperation po liti cal pressures can
easily change bilateral economic trends Moreover business interests along with economic inter-
actions have a limited capacity to reverse the po liti cal mainstream
Figure 31 Economic Cycle 2014ndash2016
Source Authorrsquos evaluation of international financial institutions (IFI) data and sources from respective
countries
Sustainable Growth
Brazil
Negative Growth
Unstable Growth
Mexico
Descending Growth
Argentina
EU
US
Russia
Vietnam
China
594-71613_ch01_4Pindd 12 102017 404 PM
Vadim Grishin 13
Table 31 Po liti cal Cycles in Bilateral US- Russia Relations 1999ndash2016
2001ndash2002 The George W Bushndash Vladimir Putin Reset Rus sia supported ldquoglobal war on terrorismrdquo launched by the United States after 911 the SORT nuclear arms reduction treaty was signed by the United States and Rus sia and a successful business dialogue was developed that created the current structure of economic relations
2003ndash2008 Deterioration in bilateral relations brought on by the Iraq War Georgiarsquos ldquoRose Revolutionrdquo Mikhail Khodorkovskyrsquos arrest Ukrainersquos ldquoOrange Revolutionrdquo Kosovorsquos in de pen dence and the Georgian War
2009ndash2010 The Barack Obamandash Dmitry Medvedev Reset Rus sia served as a logistical hub for transportation and supply of US forces in Af ghan i stan United States and Rus sia signed the new START nuclear arms reduction treaty Rus sia backed tighter economic sanctions on Iran Rus sia gained access to the WTO after 18 years of negotiations
2011ndash2016 Deterioration in bilateral relations caused by the Ukrainian crisis which were followed by sanctions and counter- sanctions along with the Syrian crises and cyber- enabled activities
Source Authorrsquos evaluation of po liti cal and economic data
Note SORTthinsp=thinspStrategic Ofensive Reductions Treaty STARTthinsp=thinspStrategic Arms Reduction Treaty
Figure 32 Economic Cycle 2017ndash2019
Source Authorrsquos evaluation of IFI data and sources from respective countries
Egypt
VenezuelaEU
South Africa
Brazil
Russia
India
US
Descending Growth
Korea
China
Negative Growth
Unstable Growth
Sustainable Growth
594-71613_ch01_4Pindd 13 102017 404 PM
US-Russia Economic Relations14
Figure 33 US- Russia Trade Million US$ vs Po liti cal Cycle 2000ndash2016
Sources US Census Bureau ldquoTrade in Goods with Rus siardquo Foreign Trade last modified June 29 2017
https wwwcensus gov foreign - trade balance c4621 html (see data for 2000ndash2016) authorrsquos evaluation
of po liti cal and economic data
Orange Revolution
Khodorkovskys arrest
GeorgianWar
Bush- Putin Reset
Iraq War Global Financial Crisis
Obama-Medvedev Reset
Russias WTO accession
New START Treaty
A Pefect Storm the Ukranian Crisis Oil Prices Crashing
Sanctions and Counter-Sanctions
$3000
$8000
$13000
$18000
$23000
$28000
$33000
$38000
$43000
2000 2002 2004 2006 2008 2010 2012 2014 2016
594-71613_ch01_4Pindd 14 102017 404 PM
15
The current structure of US- Russia economic relations emerged in the early 2000s when the
model of trade and investment interaction took on a character similar to that which existed be-
tween the United States and developing economies US imports from Rus sia centered on com-
modities while technology along with food products lead American exports The primary
exception was that Rus sia supplied nuclear fuel including highly enriched uranium extracted from
nuclear weapons for US power plants and provided ser vices to the aerospace industry primarily
in satellite launches However both these exceptions can be explained as a legacy of the Soviet
past and not a harbinger of the future economic relationship (Figure 41)
In the last 15 years this trade structure has not changed significantly The only noticeable shift in
trade was a dramatic drop (to practically nothing) in exports of US agricultural products a result
of Rus siarsquos policy of import substitution and so- called counter- sanction mea sures it took in re-
sponse to US sanctions over the Ukraine crisis (Figure 42)
Promising new directions of cooperation in the IT sector and in engineering ser vices for the
aerospace industry appeared in the early 2000s1 but did not spill into other sectors and conse-
quently did little to renew economic cooperation on the whole The integration of Rus sian high-
tech ser vices into large- scale global production and value chains was constrained by the usual
culprits a lack of financial resources managerial experience skilled labor modern infrastructure
RampD investments and an adequate business environment High commodity prices incentivized the
restoration of an economic system centered on resource rents The leading role of oil and gas
extraction and transportation discouraged the development of a nonenergy sector that might
have created advanced and complex production and ser vices An import substitution policy could
not work efficiently in an economic environment plagued by the Dutch disease where currency
1 The Boeing Design Center was created in Moscow It consists of nearly 250 Boeing employees managing
a team of 1200 contract engineers from Rus sian and Ukrainian aerospace companies ldquoBackgrounder Boeing in
Rus siardquo Boeing last modified January 2017 http wwwboeing com resources boeingdotcom company key _ orgs
boeing - international pdf russia - cisbackgrounder pdf
Are the United States and Rus sia ldquoNatu ralrdquo Trading Partners A Little Bit of History
04
594-71613_ch01_4Pindd 15 102017 404 PM
US-Russia Economic Relations16
inflows (oil money) lead to ruble appreciation and render a countryrsquos production less competitive
During that time Rus siarsquos industry did not receive preferential access to larger markets and could
not expand its share in the global economy particularly because of its self- isolation from the
regional trade agreements (except for its participation in the Eurasian Economic Union with some
neighboring countries of the former Soviet Union) As a result neither import substitution nor
export- led strategy promoted growth and specialization in nonoil production A long- awaited
modernization and reallocation of resources from an inefficient nontrade sector to a trade sector
did not materialize
These limits were later augmented with sanctions and an extension of domestic restrictions on
cooperation with Western partners Importantly the rapid growth of state- monopoly structures in
the Rus sian economy over the past 15 years has created additional obstacles to the development
and diversification of US- Russia economic ties
Figure 41 US Imports from Rus sia US$ 2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2016)
Fish and shellfish 3
Crude oil 5
Fuel oil 37
Petroleum products other
8
Nuclear fuel materials
7
Chemicals-fertilizers 4
Steelmaking materials 5
Iron and steel mill products 4
Bauxite and aluminum 9
Other precious metals 4
Nonferrous metals other 1
Finished metal shapes 1
Synthetic rubber--primary
1
Spacecraftexcluding military
594-71613_ch01_4Pindd 16 102017 404 PM
Fig
ure
42
U
S E
xpo
rts
to R
us s
ia U
S$ 2
016
Sou
rce
US
Ce
nsu
s B
ure
au ldquo
Trad
e in
Go
od
s w
ith
Ru
s sia
rdquo (s
ee
dat
a fo
r 2
016
)
Bak
ery
pro
du
cts
Win
e b
eer
an
d r
elat
ed
pro
du
cts
New
spri
nt
Pla
stic
mat
eria
ls
Ch
emic
als-
fert
ilize
rs
Ch
emic
als-
ino
rgan
icC
hem
ical
s-o
rgan
ic
Ch
emic
als-
oth
erC
ott
on
fib
er c
loth
In
du
stri
al r
ub
ber
pro
du
cts
Min
eral
su
pp
lies-
man
ufa
ctu
red
Gen
erat
ors
acc
esso
ries
Ele
ctri
c ap
par
atu
s
Dri
llin
g amp
oilfi
eld
eq
uip
men
t Sp
ecia
lized
min
ing
Exc
avat
ing
mac
hin
ery
No
nfa
rm t
ract
ors
an
d p
arts
In
du
stri
al e
ng
ines
Fo
od
to
bac
co m
ach
iner
y M
etal
wo
rkin
g m
ach
ine
too
ls
Tex
tile
sew
ing
m
ach
ines
W
oo
d g
lass
p
last
ic
Pu
lp a
nd
pap
er
mac
hin
ery
Mea
suri
ng
tes
tin
g
con
tro
l in
stru
men
ts
Mat
eria
ls h
and
ling
equ
ipm
ent
Ind
ust
rial
mac
hin
es
oth
er
Ph
oto
ser
vice
ind
ust
ry m
ach
iner
y A
gri
cult
ura
l mac
hin
ery
eq
uip
men
t C
om
pu
ters
Co
mp
ute
r ac
cess
ori
es
Sem
ico
nd
uct
ors
Tel
eco
mm
un
icat
ion
seq
uip
men
t
Bu
sin
ess
mac
hin
es a
nd
eq
uip
men
t
Lab
ora
tory
tes
tin
g in
stru
men
ts
Med
icin
al e
qu
ipm
ent
Civ
ilian
air
craf
t e
ng
ines
eq
uip
men
t a
nd
par
ts
Rai
lway
tra
nsp
ort
atio
n
equ
ipm
ent
Ves
sels
exc
lud
ing
scr
ap
Co
mm
erci
al v
esse
ls o
ther
M
arin
e en
gin
es p
arts
Spac
ecra
ft e
xclu
din
g
mili
tary
Pas
sen
ger
car
s
new
an
d u
sed
Tru
cks
bu
ses
and
sp
ecia
l p
urp
ose
ve
hic
les
En
gin
es a
nd
en
gin
e p
arts
(c
arb
ure
tors
pis
ton
s r
ing
s
and
val
ves)
B
od
ies
and
ch
assi
s fo
r p
asse
ng
er c
ars
Au
tom
oti
ve t
ires
an
d t
ub
es
Oth
er p
arts
an
d a
cces
sori
es o
f ve
hic
les
Ap
par
el h
ou
seh
old
go
od
s -
text
ile
Ph
arm
aceu
tica
lp
rep
arat
ion
s
Furn
itu
re h
ou
seh
old
go
od
s
etc
R
ug
s
Cel
l ph
on
es a
nd
oth
er
ho
use
ho
ld g
oo
ds
ne
c
594-71613_ch01_4Pindd 17 102017 404 PM
US-Russia Economic Relations18
Figure 43 US Trade in Goods with Rus sia Million US$ 1992ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
Russian Financial Crisis
Oil price Increased from$2446 USD per barrel (2001)
to $9694 USD per barrel(2008)
Global Financial Crisis
Oil price high record in2011-2012
(more that $111 USD perbarrel)
Oil price crashed
$-
$5000
$10000
$15000
$20000
$25000
$30000
$35000
$40000
$45000
$50000
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia US Exports to Russia US-Russia Trade in Goods
No doubt po liti cal ups and downs add volatility to US- Russia trade Nevertheless Rus siarsquos eco-
nomic structure exhausted itself before the Ukrainian crisis and the recent Rus sian recession Its
limitations are not only due to some mistakes in policy or negative coincidences of circumstances
but rather to deeply rooted properties in the current bilateral trade model related to structural
issues in the Rus sian economy Structural constraints such as the weak enforcement of property
rights poor business regulation and nondiversified exports weighed on Rus sian trade with the
United States From this perspective the term ldquonaturalunnatural trading partnersrdquo does not ad-
dress the unused capacity of bilateral interaction or the real challenges that kind of interaction
faces It just adds metaphysical flavor to the very specific economic and po liti cal factors that
determine the US- Russia trajectory
Overall the outlines of bilateral trade (Figure 43) resemble the famous ldquoRus sian Mountainsrdquo that
were a pre de ces sor of the modern roller coaster icy hills supported by wooden constructionsmdash a
rigid and immobile structure that sooner or later would melt This unfortunately is what is hap-
pening to US- Russia trade cooperation now
594-71613_ch01_4Pindd 18 102017 404 PM
19
ARE LITTLE FISH REALLY SWEET
Low US- Russia economic interaction has at least two consequences First it limits the capacity of
policymakers to exploit trade as an instrument for geopo liti cal combat Even the question of a US
trade deficit which used to be a headache for many US trading partners has become so insig-
nificant in absolute terms (about $87 billion in 2016) that it seems hardly worth caring about
When the volume of trade between two countries becomes very small in absolute terms whether
a country is running a surplus or deficit is no longer relevant But it also renders another type of
confrontations (sometimes more dangerous) more likely since the two traders have little to lose
Second in an environment marked by low levels of bilateral trade both sides could incentivize (if
and when a desire for po liti cal rapprochement exists) the signing of new trade deals which are
elevated symbolically as a turning point in bilateral po liti cal relations (ie the sale of Boeings to
Rus sia or the delivery via tankers of Rus sian oil to US refineries) Sometimes markets themselves
pres ent ldquogiftsrdquo that can be capitalized on po liti cally US- USSR grain trade in the 1970s was one
such ldquogiftrdquo large sales of American grain to the Soviet Union helped US policymakers win favor
with the po liti cally impor tant American farming sector and permitted Soviet leaders to maintain
access to a dietary staple for the Soviet population
The strong 32 percent growth in value of US imports from Rus sia from January to May 2017
versus January to May 2016 ( Table 51) is an example of a development that has tempted officials
to pres ent it as a sign of positive change due to ldquogrowing business activitiesrdquo (this kind of statement
was heard before the bilateral summit in Germany in July 2017) although the reason for that leap
was evidently an increase in commodity prices (mainly of oilmdash see Table 52) and not a rise in
entrepreneurial interactions The primary beneficiaries of that upside rally have been two other
petro- economies Saudi Arabia and Venezuela ( Tables 53 and 54)
Sector Analyses
05
594-71613_ch01_4Pindd 19 102017 404 PM
US-Russia Economic Relations20
Table 51 US Imports from Rus sia Million US$ Januaryndash May 2016 vs Januaryndash May 2017
Year January February March April May Total
2016 9603 6871 11097 12257 10977 50805
2017 12215 10220 16979 13471 14147 67032
Change 271 487 530 99 289 319
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
Table 52 Change in Urals Crude Oil Prices US$ per Barrel Januaryndash May 2016 vs Januaryndash May 2017
Januaryndash May 2016 Januaryndash May 2017 Change ($) Change ()
3601 5129 1528 424
Source Ministry of Finance of the Rus sian Federation https wwwminfin ru ru ixzz4mMIZ7XtC
Table 53 US Imports from Saudi Arabia Million US$ Januaryndash May 2016 vs Januaryndash May 2017
Year January February March April May Total
2016 15114 9036 13555 10844 14679 63228
2017 19802 20298 21650 16211 19542 97503
Change 3101 12463 5972 495 331 542
Source US Census Bureau ldquoTrade in Goods with Saudi Arabiardquo Foreign Trade last modified June 29 2017
https wwwcensus gov foreign - trade balance c5170 html (see data for 2016ndash2017)
594-71613_ch01_4Pindd 20 102017 404 PM
Vadim Grishin 21
Table 54 US Imports from Venezuela Million US$ Januaryndash May 2016 vs Januaryndash May 2017
Year January February March April May Total
2016 6657 5560 7140 8007 7922 35286
2017 13041 10864 123500 11148 12243 59646
Change 9590 9540 7297 3923 5454 6903
Source US Census Bureau ldquoTrade in Goods with Venezuelardquo Foreign Trade last modified June 29 2017
https wwwcensus gov foreign - trade balance c3070 html (see data for 2016ndash2017)
Table 55 US Exports to Rus sia Million US$ Januaryndash May 2016 vs Januaryndash May 2017
Year January February March April May Total
2016 3628 3577 7298 4657 4947 24107
2017 3144 4277 5386 6670 4806 24283
Change minus133 196 minus262 432 minus29 minus07
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2016ndash2017)
At the same time US exports to Rus sia continue to stagnate ( Table 55) due to low levels of
consumption during a two-and- a- half-year economic crisis a deep ruble devaluation sanctions
and counter- sanctions
Given the very dif er ent economic structures and resource endowments of Rus sia and the United
States it is not surprising that US- Russia trade is asymmetric and oil driven (Figure 51) A
3 percent increase in Urals oil prices translates into a one percent increase in US import growth
from Rus sia Thus in 2016 every $10 increase in Urals crude oil added $15 billion to the value of
US imports or 11 percent to the total value of imports from Rus sia
OIL ADDICTION
Oil is a core pillar of US- Russia bilateral trade A bumpy ride in oil markets afects commerce
Nevertheless Rus sian oil exports to the United States in physical terms have been rather
594-71613_ch01_4Pindd 21 102017 404 PM
US-Russia Economic Relations22
sustainable Starting from 2005 average annual deliveries have been above 150 million barrels
(Figure 52) Crude and heating oil have dominated while petroleum products and liquefied petro-
leum gases have not (Figure 53) In 2011 oil exports peaked at 228 million barrels but declined to
159 million barrels in 2016mdash a drop of 30 percent Rec ord high shipments of Rus sian oil to the United
States coincided with an elevation in oil prices which made the subsequent decline in oil shipment
value between 2011 and 2016 (by about 72 percent as shown in Figure 54) seem more stark The
increase in price also raised the share of oil in Rus sian exports by 74 percent in 2011 (Figure 55)
The Rus sian share in total US oil imports was around 55 percent in 2011 and 43 percent in 2016
( Table 56) In the last five years the United States has relied exclusively on consumption of Rus sian
oil for the rough equivalent of one week out of the year (Figure 56)
It is unlikely that Rus sia can significantly increase its share of the US oil market and there is a real
possibility for a downward trend There are several reasons the historically high Rus sian hydrocar-
bon export threshold of 2011 will not soon if ever be surpassed
First US energy consumption will likely be flat According to the US Energy Information Adminis-
tration (EIA) demand for petroleum and other liquids in the United States will be about 35ndash36
quadrillion British thermal units (BTUs) with minimal variation over the next 25 years1
1 US EIA ldquoAnnual Energy Outlook 2017 with Projections to 2050rdquo January 5 2017 7ndash8
Figure 51 US- Russia Trade Growth () vs US and Rus sia Real GDP Growth () 1993ndash2016
Source IMF ldquoIMF Datardquo accessed September 27 2017 http wwwimf org en Data US Census Bureau
ldquoTrade in Goods with Rus siardquo
Note rGDPthinsp=thinspreal gross domestic product
Trade
USA rGDP growth
Russia rGDP growth
-60
-40
-20
0
20
40
60
80
100
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Gro
wth
All spikes in US-Russia trade have been connected with two main
variables volume and price of crude oil
594-71613_ch01_4Pindd 22 102017 404 PM
Vadim Grishin 23
Second the United States will become a net energy exporter between 2020 and 2030 in most
cases under dif er ent combinations of oil and natu ral gas prices GDP growth technological
breakthroughs and the availability of energy resources The role of oil imports will dramatically
fall2
Third oil price scenarios as described by the International Energy Agency (IEA) international
financial organ izations (IFIs) and many national agencies are very cautious and assume that even
by 2035 to 2040 oil prices will not to recover to the levels of 2011ndash20123
Fourth Rus sian oil production and export growth will be modest and driven by Asian economic
expansion and will comprise a decreasing share of Western markets4 According to forecasts from
2 Ibid 15ndash18
3 Ibid table 3 ldquoEnergy Prices by Sector and Sourcesrdquo World Bank World Bank Commodity Markets Price Forecasts
(Washington DC World Bank 2017) httpswwwworldbank org en research commodity - markets Organ ization of the
Petroleum Exporting Countries (OPEC) World Oil Outlook 2016 (Vienna OPEC 2016)
4 E D Belotskaia et al Global and Rus sian Energy Outlook 2016 (Moscow Energy Research Institute of the Rus sian
Acad emy of Science Analytical Center for the Government of the Rus sian Federation 2016) http acgov ru files
publication a 12767 pdf
Figure 52 US Imports from Rus sia Crude Oil and Petroleum Products Thousands of Barrels 1995ndash2016
Source US EIA ldquoUS Imports by Country of Origin Rus siardquo Petroleum amp Other Liquids September 13
2017 http wwweia gov dnav pet PET _ MOVE _ IMPCUS _ D _ NUS _ NRS _ MBBL _ M htm
0
50000
100000
150000
200000
250000
Date 1995 1996 1997 1998 199920002001200220032004200520062007200820092010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 23 102017 404 PM
US-Russia Economic Relations24
the Organ ization of the Petroleum Exporting Countries (OPEC) crude oil exports from Rus sia and
the Caspian region to the United States will dis appear by 20255
So why does the Rus sian Urals blend continue to be attractive for oil traders and US refineries
which could pro cess greater volumes of domestically produced lighter crude There are two main
reasons One is related to the preference of US high conversion refineries (the most sophisticated
in the world) to work with heavy oil blends produced by Canada Mexico Iraq Venezuela and
Rus sia Pro cessing heavy crude now is as profitable as pro cessing lighter crude The so- called
crack spreadmdash the diference between the cost of relatively cheap heavy crude oil and the final
price of value- added consumer products (diesel gasoline jet fuel and heating oil)mdash has become
the same as the refinery margins of light sweet crude6 This has primarily afected light oil produc-
ing countries such as Angola Algeria and Nigeria
5 OPEC World Oil Outlook 2016 306ndash309
6 ldquoHow Much for That Heavy Oilrdquo Oil Sands Magazine December 26 2015 https wwwoilsandsmagazine com
news 2015 12 26 how - much - for - that - heavy - oil
Figure 53 US Imports from Rus sia Oil and Petroleum Products US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$-
$25000000000
$20000000000
$15000000000
$10000000000
$5000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Liquefied petroleum gases
Petroleum products other
Fuel oil
Crude oil
594-71613_ch01_4Pindd 24 102017 404 PM
Vadim Grishin 25
Another factor afecting purchase of Rus sian oil is a new trend among oil companies for further
consolidation of scale and for integrating operations of upstream and downstream business7
There have been several waves of separation and unification of production transportation and
pro cessing in the last 50 years The current business cycle can be seen as an adaptation to a
period of low prices and oversupply Companies that buy andor produce oil in Rus sia most likely
prefer to transport and pro cess this oil in their own modern refineries in the United States At the
same time some of the newest refinery designs specifically for pro cessing heavy oils have been
built in Asia thus extending the choices of heavy oil producing countries
We should also consider that leading US and international oil traders along with oil producing
companies working with or owning US refineries frequently buy Rus sian oil on the open market
and have long- term contracts on Rus sian crude oil delivery Many Rus sian oil companies prefer to
pay for purchases or ser vices with their future production instead of cash creating situations of
ldquostickyrdquo oil imports that are difficult to replace The best- known example is an interaction between
7 ldquoEnergy and Utilities Sectorrdquo Roundtable Financier Worldwide December 2015 https wwwfinancierworldwide
com roundtable - energy - utilities - sector - dec15
Figure 54 US Imports of Oil and Petroleum Products from Rus sia vs Oil Prices Eu rope Brent Spot Price Free on Board (FOB) 1996ndash2017
Source US EIA ldquoUS Imports by Country of Origin Rus siardquo
0
20
40
60
80
100
120
140
0
5000
10000
15000
20000
25000
30000
Jan
-19
96
Jun
-19
96
No
v-19
96
Ap
r-19
97
Sep
-19
97
Feb
-19
98
Jul-
199
8D
ec-1
99
8M
ay-1
99
9O
ct-1
99
9M
ar-2
00
0A
ug
-20
00
Jan
-20
01
Jun
-20
01
No
v-2
00
1A
pr-
20
02
Sep
-20
02
Feb
-20
03
Jul-
20
03
Dec
-20
03
May
-20
04
Oct
-20
04
Mar
-20
05
Au
g-2
00
5Ja
n-2
00
6Ju
n-2
00
6N
ov-
20
06
Ap
r-2
00
7Se
p-2
00
7Fe
b-2
00
8Ju
l-2
00
8D
ec-2
00
8M
ay-2
00
9O
ct-2
00
9M
ar-2
010
Au
g-2
010
Jan
-20
11Ju
n-2
011
No
v-2
011
Ap
r-2
012
Sep
-20
12Fe
b-2
013
Jul-
20
13D
ec-2
013
May
-20
14O
ct-2
014
Mar
-20
15A
ug
-20
15Ja
n-2
016
Jun
-20
16N
ov-
20
16
USD
per
Bar
rel
Th
ou
san
d B
arr
els
US Imports from Russia of Crude Oil and Petroleum Products (Thousand Barrels)
Europe Brent Spot Price FOB (Dollars per Barrel)
594-71613_ch01_4Pindd 25 102017 404 PM
US-Russia Economic Relations26
Table 56 US Oil Imports All Countries vs Rus sia Thousand Barrels per Day 2011ndash2016
Years 2011 2012 2013 2014 2015 2016
All Countries 11436 10598 9859 9241 9449 10058
Rus sia 624 477 460 330 371 433
Share 546 450 467 357 393 431
Sources US EIA ldquoUS Imports by Country of Origin Total Crude Oil and Productsrdquo Petroleum amp Other
Liquids September 13 2017 wwweia gov dnav pet pet_move_impcus_a2_nus_ep00_im0_mbbl_m htm
authorrsquos computation
Figure 55 US Imports from Rus sia Share of Crude Oil and Petroleum Products Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
57
64
73
72
74
73
72
59
52 50
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
$40000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil and Petroleum Products
594-71613_ch01_4Pindd 26 102017 404 PM
Vadim Grishin 27
the Rus sian state mono poly Rosneft and commodity trading and mining giant Glencore which
along with energy and commodities com pany Vitol participated in a $10 billion prepayment
deal with Rosneft for crude supplies in 2013
There have been a number of ongoing transactions between the Rus sian oil industry and interna-
tional oil companies including several that top the list of importers of Rus sian oil to the United
States ( Table 57) In December 2016 Glencore participated in a controversial privatization opera-
tion purchasing in tandem with the Qatar sovereign wealth fund a 195 percent stake in Rosneft
which was on the US and EU list of sanctioned firms8 Glencore has also taken a blocking stake in
midsize oil producer RussNeft BP owns a 1975 percent stake in Rosneft Chevron holds a
15 percent interest in the 935- mile- long CPC9 pipeline which transports an average of 959000
barrels of crude oil per day including 76000 barrels daily from Rus sia10 ExxonMobil has formed
8 E Mazneva and I Arkhipov ldquoRus sia Sells $11 Billion Stake in Rosneft to Glencore Qatarrdquo Bloomberg December 7
2016
9 CPCthinsp=thinspCaspian Pipeline Consortium
10 ldquoRus sia Highlights of Operations and Business Portfoliordquo Chevron accessed October 3 2017 https wwwchevron
com worldwide russia
Figure 56 Share of Rus sian Oil in Total US Oil Imports Thousands of Barrels per Day 1972ndash2016
Source US EIA ldquoUS Imports by Country of Origin Total Crude Oil and Productsrdquo
2000
4000
6000
8000
10000
12000
14000
16000
US Imports of Crude Oil and Petroleum Products (Thousand Barrels per Day)
US Imports from Russia of Crude Oil and Petroleum Products (Thousand Barrels per Day)19
7319
7419
7519
7619
7719
7819
7919
80
198
119
82
198
319
84
198
519
86
198
719
88
198
919
90
199
119
92
199
319
94
199
519
96
199
719
98
199
92
00
02
00
12
00
22
00
32
00
42
00
52
00
62
00
72
00
82
00
92
010
20
112
012
20
132
014
20
152
016
594-71613_ch01_4Pindd 27 102017 404 PM
Table 57 Top Importers of Rus sian Oil to the United States Thousands of Barrels 2016
VALERO MARKETING amp SUPPLY CO 54590 3616
EXXONMOBIL OIL CORP 17087 1130
CHEVRON USA INC 15217 1008
BP WEST COAST PRODUCTS LLC 10130 671
GEORGE E WARREN CORP 7272 48
PAULSBORO REFINING CO LLC 6838 453
TESORO CORP 5097 338
VITOL INC 5084 337
PHILLIPS 66 CO 4726 313
TRAFIGURA AG 4360 289
PAR HAWAII REFINING LLC 3893 258
MOTIVA ENTERPRISES LLC 3041 205
SHELL US TRADING CO 2863 19
MARATHON PETROLEUM CO LLC 2475 16
ATLANTIC TRADING amp MARKETING 2099 14
FREEPOINT COMMODITIES LLC 1439 1
GLENCORE LTD 1284 85
BEST PETROLEUM CORP 967 64
ROLYMPUS US COMMODITIES GROUP LLC 822 6
HUNT CRUDE OIL SUPPLY CO 666 4
GULF OIL LP 658 4
Source US EIA ldquoUS Imports by Country of Origin Crude Oilrdquo Petroleum amp Other Liquids September 13
2017 httpswwweiagovdnavpetpet_move_impcus_a2_nus_epc0_im0_mbblpd_ahtm authorrsquos
computation
594-71613_ch01_4Pindd 28 102017 404 PM
Vadim Grishin 29
several joint ventures with Rosneft to undertake ofshore exploration in the Black Sea and the Kara
Sea in Siberia11
According to the Sanctions Act US persons are prohibited from exporting or reexporting goods
ser vices (except financial ser vices) and technology in support of exploration or production of new
deep- water Arctic ofshore or shale oil proj ects that involve designated Rus sian entities or other
entities in which such sanctioned persons have a controlling interest or a substantial noncontrol-
ling owner ship interest defined as not less than 33 percent (previously it was 50 percent) The new
law also authorizesmdash but does not requiremdash the imposition of so- called secondary sanctions
against non- US entities that engage in activities involving the construction maintenance or
expansion of Rus sian energy export pipelines with a fair market value of $1 million or more or an
aggregate fair market value during a 12- month period of $5 million12 This provision has raised the
concerns of some Eu ro pean countries particularly Germany As result the final language of the
law included wording about coordination of this issue with allies of the United States
Shipments of Rus sian oil to the United States could be afected by activity in the US refinery
industry In early 2017 Saudi Aramco bought the United Statesrsquo largest oil refinery in Port Arthur
(Texas) and it announced plans to send more of its own crude to that refinery13 Serious concerns
exist however regarding the future of three refineries and nine pipelines owned by Citgo a US
branch of the Venezuelan state com pany PdVSA which is balancing precariously on the edge of
default Under certain conditions in the event of PdVSA bankruptcy Rosneft could claim a stake of
up to 499 percent in Citgo Such a possibility has raised concerns among politicians and US
government officials with Trea sury Secretary Steven Mnuchin calling it a ldquonational security issuerdquo14
Tables 58 59 and 510 show allocations of Rus sian oil imports to major US refineries some of
which work exclusively on Rus sian crude a total of two to three months per year In total 150940
thousand barrels of Rus sian oil were refined in 2016
Figure 57 confirms a leading position of Texas and Louisiana among the US states receiving
Rus sian crude followed by New Jersey California Mississippi Washington Hawaii and Delaware
In a paradoxical way Texas has dis appeared from the list of states as a main destination of US
imports from Rus sia (Figure 58) because Rus sian crude is mostly delivered to Louisiana ports and
registered there by US Customs as an import from Rus sia After that it transports to refineries in
Louisiana and Texas
Overall the short- term business rationale behind the sustainability of US oil imports from Rus sia
cannot overcome strong headwinds in the US energy sector facing all oil importers which will
inevitably lead to a contraction of Rus sian oil exports to the United States in the foreseeable future
11 Exxon eforts to receive a special US Trea sury waiver to drill in sanctioned Rus sia failed in 2017
12 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364
13 Sarp Ozkan ldquoSaudi Aramcorsquos Port Arthur Refinery and the US Refinery Fleetrdquo Drilling Info May 11 2017
https infodrillinginfo com saudi - aramcos - port - arthur - refinery - us - refinery - fleet
14 Graham Kates ldquoTrea sury Secretary Rus siarsquos Citgo Deal a National Security Issuerdquo CBS News May 1 2017
http wwwcbsnews com news rosneft - citgo - steven - mnuchin - national - security
594-71613_ch01_4Pindd 29 102017 404 PM
US-Russia Economic Relations30
Table 58 Valerorsquos Refineries Pro cessing Rus sian Oil Thousands of Barrels 2016
Saint Charles Louisiana 29206 535
Corpus Christi Texas 20626 378
Wilmington California 4250 78
Total USA 54590 100
Source US EIA ldquoRefinery Capacity Reportrdquo January 1 2017
table 5 wwweia gov petroleum refinerycapacity table5 pdf
authorrsquos computation
Table 59 ExxonMobil Refineries Pro cessing Rus sian Oil Thousands of Barrels 2016
Baytown Texas 15037 88
Baton Rouge Louisiana 2046 12
Total USA 17083 100
Source US EIA ldquoRefinery Capacity Reportrdquo authorrsquos computation
Table 510 Chevronrsquos Refineries Pro cessing Rus sian Oil Thousands of Barrels 2016
Pascagoula Mississippi 12767 840
El Segundo California 2372 155
Saint Rose Louisiana 78 05
Total USA 15217 100
Source US EIA ldquoRefinery Capacity Reportrdquo authorrsquos computation
594-71613_ch01_4Pindd 30 102017 404 PM
Vadim Grishin 31
HEAVY METAL
Taken together US imports of metals and US imports of oil compose about 80 percent of US
total imports from Rus sia (Figure 59) Trade of metals like other commodities is strongly afected
by market price fluctuations Nevertheless metal imports from Rus sia have been fairly resilient to
market volatility and their average annual value has hovered at about $4 billion in the last five years
(Figure 510) This market resilience was forged at the end of the 1990searly 2000s when Rus sian
metal producers gradually modernized their plants adjusting quality of production to Western
standards and enhancing integration into global value and supply chains Some of them conquered
their share of the highly competitive US market struggling with peers from Canada and certain
BRICS countries (China India and Brazil) To attract additional resources all Rus sian large metal-
producing companies became public and were listed on stock exchanges chiefly the London Stock
Exchange (Severstalrsquo PAO Evraz MMK OAO Novolipetsk Steel Norilsk Nikel and TMK PAO) one
on the New York Stock Exchange (Mechel) and one on the Hong Kong Stock Exchange (Rusal)
Business logic pushed some of them to invest in the US metal- making industry which was hit
hard by crisis Later on some of those assets were sold (eg two US steel mills acquired by
Severstal in 2004 were purchased 10 years later by Steel Dynamics Inc and AK Steel Corp)
Figure 57 Share of US States Rus sian Oil Imports 2016
Source US EIA ldquoUS Imports from Rus sia of Crude Oil and Petroleum Productsrdquo Petroleum amp Other
Liquids September 29 2017 https www eia gov dnav pet hist LeafHandler ashx nshy=shyPETampsshy=shyMTTIM _ NUS
- NRS _ 1ampfshy=shyM authorrsquos computation
0
10
20
30
40
50
60
70
80
90
100
Maine
Massachusetts
Maryland
Connecticut
Georgia
Rhode Island
Virginia
Florida
New York
Alabama
Puerto Rico
Pennsylvania
Delaware
Hawaii
Washington
Mississippi
California
New Jersey
Louisiana
Texas
594-71613_ch01_4Pindd 31 102017 404 PM
Figure 58 US Imports from Rus sia by State Million US$ 2013ndash2016
Source US Census Bureau ldquoState and Metropolitan Area Trade Datardquo Foreign Trade last modified
October 2 2017 https wwwcensus gov foreign - trade statistics state
Alaska
Connecticut
Delaware
Hawaii
Louisiana
Maryland
North Dakota 0
$1000
$2000
$3000
$4000
$5000
$6000
2013 2014 2015 2016
Alabama
Alaska
Connecticut
Delaware
Hawaii
Louisiana
Maryland
Maine
Mississippi
Montana
North Dakota
Mississippi
Figure 59 US Imports from Rus sia Share of Oil and Metals Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
83
82
85
86
87
88
85
82
7375
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
$40000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil and Metals
594-71613_ch01_4Pindd 32 102017 404 PM
Vadim Grishin 33
Obviously the market dynamic of dif er ent metals varies (eg iron steel aluminum platinum and
nickel) Caps to increase their trade and production in a ldquored oceanrdquo global environment with
anemic demand is rather limited despite Figure 510 showing a spike of iron and steel imports
from Rus sia in 2014 and aluminum in 2016 Some opportunities may exist for Russian- owned steel
plants in the United States (such as NLMK) to participate in energy proj ects resumed under Presi-
dent Trump who has required that new pipelines use only American- made steel15
Rus sia occupies a special niche in the US market for titanium products a high- end metal indus-
try Twenty years ago a long- term contract was signed between Rus sian titanium producer
VSMPO- AVISMA and Boeing The Rus sian com pany entered the selective club of Boeing suppliers
for the manufacture of components and semi- finished products Since the signing of this contract
VSMPO has delivered more than 35 percent of all titanium placed on Boeing civil aircraft16 They
are hidden in the trade data in an import category for Civilian Aircrafts and Parts (Figure 511) At
the end of 2016 Boeing announced an extension of its framework agreement with AVISMA
15 E Scheyder C Ngai and T Sylvester ldquoAmerican Steel Unlikely to Get Keystone Boost Despite Trump Orderrdquo
Reuters January 27 2017 http wwwreuters com article usa - trump - pipeline - transcanada - idUSL1N1FH1ZD
16 A Kramer ldquoTitanium Fills Vital Role for Boeing and Rus siardquo New York Times July 5 2013 http wwwnytimes com
2013 07 06 business global titanium - fills - vital - role - for - boeing - and - russia html mcubzshy=shy3
Figure 510 US Imports from Rus sia Iron Steel Bauxite Aluminum Nickel Nonferrous Metals and Other Precious Metals and Materials US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
0
$6000000000
$5000000000
$4000000000
$3000000000
$2000000000
$1000000000
2007 2008 2009 2010 2011 20122013
20142015
2016
Finished metal shapes
Iron and steel advanced
Iron and steel products nec
Nonferrous metals other
Other precious metals
Nickel
Bauxite and aluminum
Iron and steel mill products
Steelmaking materials
594-71613_ch01_4Pindd 33 102017 404 PM
US-Russia Economic Relations34
through 2022 and additional investments in the construction of a new robotic plant in Titanium
Valley a special economic zone located in the Sverdlovsk region that will open in 2018 The pro-
cessing of titanium forgings in all Boeing civil aircraft will be performed there including 787s 737
MAXs and 777Xs17 The contract extension with AVISMA may add several hundred million dollars
in value to annual US imports from Rus sia
How can such heavy reliance on imports of Rus sian titanium exist during a period of rising geopo-
liti cal tensions The answer is straightforward VSMPO- AVISMA is a highly specialized natu ral
mono poly producing 45 percent of the worldrsquos aerospace titanium Only four other countries
smelt high- grade titanium in industrial quantities the United States Germany Japan and China
Overall global production capacity is limited while demand is growing The United States cur-
rently imports around 79 percent of all the titanium it consumes each year18
17 ldquoBoeing and VSMPO Avisma to Launch Second Joint Production Siterdquo Rus sian Aviation Insider December 22 2016
http wwwrusaviainsider com boeing - and - vsmpo - avisma - to - launch - second - joint - production - site
18 Jon Ostrower and Andy Pasztor ldquoBoeing United Technologies Stockpile Titanium Partsrdquo Wall Street Journal
August 7 2014 https wwwwsj com articles boeing - united - technologies - stockpiling - titanium - parts - 1407441886
Figure 511 US Imports from Rus sia Civilian Aircrafts and Parts US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
$200000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Parts-civilian aircraft
Civilian aircraft
594-71613_ch01_4Pindd 34 102017 404 PM
Vadim Grishin 35
The Sanctions Act authorizes the secretary of the trea sury (in a nonmandatory way) to impose
restrictions (without specifying them) against Rus sian state- owned entities operating in the railway
metals and mining sectors of the Rus sian economy Despite the commanding heights of Rus siarsquos
state sector owner ship in its economy (70 percent of GDP) the metal- producing companies have
remained mostly in private hands
NUCLEAR AFFAIRS
Historically owners and operators of the 104 commercial nuclear power reactors in the United
States have purchased more than 80 percent of their uranium from foreign countries Uranium
shipping from Rus sia accounted for about 13 percent of the 58 million pounds of uranium pur-
chased overseas in 201219 At the same time the Rus sian state- owned mono poly Rosatom ac-
counts for 20 percent of Kazakhstanrsquos uranium production (which in turn comprises 11 percent of
all US uranium imports) and 20 percent of US domestic uranium production capacity (with
owner ship of exploration tracts in Wyoming)20
Nuclear fuel and nuclear power continue to be po liti cally sensitive topics both in the United
States and Rus sia Bilateral cooperation in this sector (being surprisingly stable with imports of
nuclear fuel from Rus sia at a level of $1 billion annually in the last five years [Figure 512 and 513])
is under constant po liti cal and lobbying pressure and has been a source of several po liti cal scan-
dals21 Consequently upside risks in this area of interaction are minimal and downside risks are
much higher especially when we are seeing more decommissioning of nuclear plants in the
United States than new constructions The US EIArsquos 2017 Annual Energy Outlook assumes
that about 25 percent of the nuclear capacity now operating will be removed from ser vice
by 205022
WHY IS THE GRASS GREENER ON THE OTHER SIDE
The United States continues to significantly reduce imports of chemical fertilizers as domestic pro-
duction increases In 2016 the United States imported 13 percent less ammonia and 11 percent
less urea and UAN which is a liquid urea and ammonium nitrate fertilizer Rus sia accounts for
around 40 percent of UAN imported by the United States The United States canceled antidumping
duties on imports of ammonium nitrate and urea from Rus sia in 2016 but it did not prevent import
19 US EIA ldquoThe US Relies on Foreign Uranium Enrichment Ser vices to Fuel Its Nuclear Power Plantsrdquo Today in
Energy August 28 2013 https wwweia gov todayinenergy detail php idshy=shy1273
20 Colin Chilcoat ldquoDoes Rus sia Really Own 20 Percent of the USrsquo Uranium Reservesrdquo OilPricecom May 6 2015
http oilpricecom Alternative - Energy Nuclear - Power Does - Russia - Really - Own - 20 - Of - The - US - Uranium - Reserves
html
21 Michelle Ye Hee Lee ldquoThe Facts behind Trumprsquos Repeated Claim about Hillary Clintonrsquos Role in the Rus sian Ura-
nium Dealrdquo Washington Post October 26 2016
22 US EIA ldquoAnnual Energy Outlook 2017 with Projections to 2050rdquo 81ndash82
594-71613_ch01_4Pindd 35 102017 404 PM
Figure 512 US Imports from Rus sia Share of Oil Metals and Nuclear Fuel Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
87
86
90
90
90
91
88
86
7882
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals and Nuclear Fuel
Figure 513 US Imports from Rus sia Nuclear Fuel Materials US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$-
$200000000
$400000000
$600000000
$800000000
$1200000000
$1000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 36 102017 404 PM
Vadim Grishin 37
drops twice last year (Figures 514 and 515) According to forecasts UAN imports are expected to
decline further to 15 million tons this year down over 46 percent from 28 million tons imported
last year23 The downside trend in imports of fertilizers will likely continue because of oversupply
BIG FISH
US imports of fish and shellfish from Rus sia are best understood in comparison with US fish
exports to the Rus sian market which slipped to zero in August 2014 after Rus sia issued an order
banning certain agricultural imports from the United States (Figure 516) While the volume of US
supply was not very large it was impor tant because it broke up the monopolistic dominance of a
few vertically integrated Rus sian companies that have kept prices high by restricting the entry of
new producers Seeking to implement import substitution policies Rus sia has tried to reduce
exports as well as imports of fish and seafood products in the last couple of years This symmetri-
cal approach was intended to ldquocompensaterdquo for a decrease of fish products in the domestic
23 Deepika Thapliyal ldquoPotashCorp Forecasts Sharp Drop in US Nitrogen Imports in 2017rdquo ICIS News February 7
2017 https wwwicis com resources news 2017 02 07 10076734 potashcorp - forecasts - sharp - drop - in - us - nitrogen
- imports - in - 2017
Figure 514 US Imports from Rus sia Share of Oil Metals Nuclear Fuel and Fertilizers Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
90
93
92
93
94
95
92
91
85
86
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals Nuclear Fuel and Fertilizers
594-71613_ch01_4Pindd 37 102017 404 PM
Figure 515 US Imports from Rus sia Chemical- Fertilizers US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
S-
$200000000
$400000000
$600000000
$800000000
$1000000000
$1200000000
$1400000000
$1600000000
$1800000000
$2000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Figure 516 US Exports to Rus sia Fish and Shellfish US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$10000000
$20000000
$30000000
$40000000
$50000000
$60000000
$70000000
$80000000
$90000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Fish and shellfish
594-71613_ch01_4Pindd 38 102017 404 PM
Vadim Grishin 39
consumer market caused by Rus siarsquos import ban but it has failed As result the group most af-
fected by the self- imposed counter- sanctions were Rus sian consumers
With a significant drop in fish imports a devaluation of the ruble and inflationary pressures on
seafood prices yearly consumption of fish in Rus sia has declined precipitously In 2015 alone
fish prices increased 20 percent and consumption dropped to 14 kilograms per person24 from
22 kilograms in 201425 In 2016 food rose to 355 percent of house hold expenditure as a result of
increases in food prices26 This has pushed vertically integrated fishing monopolies to sell even
more of their catch abroad rather than deliver to the Rus sian Federation (Figure 517) Thus we
cannot exclude the possibility of further growth in US fish and shellfish imports from Rus sia on a
marginal scale
24 Александр Савельев ldquoПотребление рыбы в России упало до 14 кг на человекаrdquo [Fish consumption in Rus sia fell to
14 kg per person] Экономика Интерфакс January 28 2015 http wwwinterfax ru business 492038
25 Илья Шестаков ldquoПотебление рыбы в России снизилось на 10 процентов из- за роста ценrdquo [Fish consumption in
Rus sia dropped by 10 percent due to price increases] RNS March 8 2017 https rnsonline consumer - market
Potreblenie - ribi - v - Rossii - snizilos - na - 10 - iz - za - rosta - tsen - 2017 - 03 - 08
26 Zoya Sheftalovich and Christian Oliver ldquoRus siarsquos Boom (Farming) Economyrdquo Politico November 8 2016 http
wwwpolitico eu article russias - boom - farming - economy
Figure 517 US Imports from Rus sia Fish and Shellfish US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$50000000
$100000000
$150000000
$200000000
$250000000
$300000000
$350000000
$400000000
$450000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 39 102017 404 PM
US-Russia Economic Relations40
SPACE ODYSSEY
Among high- end products beyond the top five groups of goods imported from Rus sia cheap and
efficient Rus sian engines have been used to launch US rockets into space for about 16 years
(Figure 518) There was a serious po liti cal strug gle around a 2014 ban on the purchase of Rus sian
RD-180 rocket engines revealing the conflicting business interests of power ful high- tech companies
This restrictive mea sure was temporary and was quickly lifted because of significant cost impacts
and risks of disruption to launch schedules27 For the same reason the Sanctions Act does not autho-
rize ldquothe imposition of any sanction or other condition limitation restriction or prohibition that
directly or indirectly impedes the supply by any entity of the Rus sian Federation of any product or
ser vice or the procurement of such product or ser vice by any contractor or subcontractor of the
United States or any other entity relating to or in connection with any space launch conducted for
the National Aeronautics and Space Administration or any other nonndash Department of Defense
customerrdquo28
Nevertheless many experts believe that US domestic alternatives to replace Rus sian engines will
be viable in five to eight years
27 Ken Dilanian ldquoWhy Does the US Use Rus sian Rockets to Launch Its Satellitesrdquo NBC News updated November 15
2016 http wwwnbcnews com why - does - u - s - use - russian - rockets - launch - its - satellites - n588526
28 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364
Figure 518 Spacecraft Excluding Military US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 40 102017 404 PM
41
Diversity and technological complexity are the most vis i ble advantages supporting US exports to
Rus sia Three major groups of export goods include civilian aircraft engines and parts (Figure 61)
drilling and oil field equipment (Figure 62) and industrial machines and engines (Figure 63)
Despite sanctions against the transfer of advanced oil producing and pro cessing technologies the
realization of US drilling and oil field equipment in Rus sia is sustainable although some bilateral
proj ects have been frozen
Another category of goods that has demonstrated resilience is the phar ma ceu ti cal industry (Fig-
ure 64) because most drugs in Rus sia are imported (about 70 percent of the Rus sian phar ma ceu-
ti cal market in value) Import substitution policies have had only modest results in this industry
As confirmed by American Chamber of Commerce surveys US exports to Rus sia are closely
connected to US FDI 30 percent of total imports of US companies working in the Rus sian
market come from the United States (more than $2 billion in 2016) In other words about
40 percent of all US exports to Rus sia are related to a US corporate- sector business pro cess in
the country The major sectors of activity of these companies are energy and natu ral resources
(52 percent) manufacturing (17 percent) information and communications technology or ICT
(13 percent) retail (7 percent) automotive industry (6 percent) phar ma ceu ti cal production
(1 percent) professional ser vices (05 percent) and other (2 percent)1
Some obvious constraints on US exports to Rus sia have resulted from a reduction in demand A
deterioration of bilateral relations and implementation of sanctions and counter- sanctions have
directly or indirectly afected all businesses Figures 65 and 66 provide data regarding a dramatic
drop in the sale of US agricultural production in Rus sia with all other categories of exports in
goods showing big cuts as well (see Figures 67ndash69)
Exports of civilian aircraft engines and parts put the state of Washington in first place among
other states as a leading exporter to the Rus sian market (Figure 610)
1 American Chamber of Commerce in Rus sia ldquoInvestment and Import to Rus sia 2nd Surveyrdquo 13
Diversity and Constraints
06
594-71613_ch01_4Pindd 41 102017 404 PM
Figure 61 US Exports of Civilian Aircraft Engines Equipment and Parts to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
$2500000000
$2000000000
$1500000000
$1000000000
$500000000
$-
Figure 62 US Exports of Drilling and Oil Field Equipment US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
$40000000
$45000000
$50000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 42 102017 404 PM
Figure 63 US Exports of Industrial Engines to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Figure 64 US Exports of Phar ma ceu ti cal Preparations to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 43 102017 404 PM
Figure 65 US Exports of Meat and Poultry to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Meat poultry etc
$1000000000
$800000000
$600000000
$400000000
$200000000
$-
$1200000000
$1400000000
$1600000000
Figure 66 US Exports of Soybeans to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
$200000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 44 102017 404 PM
Figure 67 US Exports of Vehicles Engines and Parts to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Other parts and accessories of vehicles
Automotive tires and tubes
Bodies and chassis for passenger cars
Engines and engine parts (carburetors pistonsrings and valves)
Trucks buses and special purpose vehicles
Passenger cars new and used
$2500000000
$2000000000
$1500000000
$500000000
$-
$1000000000
Figure 68 US Exports of Medicinal Equipment to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 45 102017 404 PM
Figure 610 US Exports to Rus sia by States (2016 US$ Value) Million US$ 2013ndash2016
Source US Census Bureau ldquoState and Metropolitan Area Trade Datardquo
Iowa Kentucky
North Dakota
Oklahoma
South Carolina
Washington
0
$500
$1000
$1500
$2000
2013 2014 2015 2016
District of Columbia
Iowa
Kentucky
North Dakota
Oklahoma
South Carolina
Washington
Figure 69 US Exports of Excavating Machinery to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
$40000000
$45000000
$50000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 46 102017 404 PM
47
Upon reviewing the current trend in US- Russia economic relations we must acknowledge that
the existing trade model is obsolete and exhausted Imports are resource- oriented and reflect
constraints of the Rus sian economic structure while five groups of goodsmdash oil metals nuclear
fuels fertilizers and fishmdash make up more than 90 percent of total imports from Rus sia (Figure 71)
Each of these industries has a limited capacity for growth in the foreseeable future
Rus siarsquos core export to the United Statesmdash oilmdash will inevitably decrease in the mid- term under any
scenario The value and volume of Rus sian exports to the United States are open to global market
volatility and po liti cal pressures with limited hedging mechanisms
Overall US exports to Rus sia are unsustainable due to bilateral po liti cal tensions the whims of
commodity markets and changing domestic policies Sanctions and counter- sanctions have
created additional barriers particularly in finance banking high- tech energy and agro- business
According to the American Chamber of Commerce 69 percent of US companies working in the
country consider the impact of US sanctions against Rus sia on their business as negative At the
same time 60 percent of companies do not expect big changes in business relations between
Rus sia and the United States under Trump1 as the new law codifies existing sanctions fortifies
them and extends them to new sectors
Current US investments are low due to the weak rule of law in Rus sia a lack of property right
protections and proper contract enforcement high levels of statization and monopolization in the
economy a poor business climate outdated capital stock dependence on natural- resource
sectors and of course sanction and counter- sanction mea sures Bloated administrative compo-
nents created as risk mitigation instruments have also served as impediments The countryrsquos
institutional weakness low level of productivity bud get constraints and a declining inflexible
workforce will restrain future economic growth even if commodity prices recover Rus sian eco-
nomic policy will likely continue to be statist and protectionist relying mostly on import
substitutions
1 Ibid 11
Existing Trends and Future Scenarios
07
594-71613_ch01_4Pindd 47 102017 404 PM
US-Russia Economic Relations48
What scenarios can be expected in such a challenging environment
One probability (no peace no war) is based on the assumption that matters will not deteriorate
further and implementation of the Sanctions Act will be cursory This will cause relatively slow
degradation in the economic field with occasional flashes of activity in selected areas (eg closer
cooperation against Islamist terrorist groups in Syria)
A second worse case or critical scenario is the intensive and full- scale execution of current sanc-
tion legislation and even the imposition of new economic punitive and restrictive mea sures which
could incite asymmetric retaliatory actions and lead to the introduction of additional protectionist
policies This in turn could trigger a further escalation of mutual confrontation and could eventu-
ally destroy the fundamentals of the current bilateral trade system Rus sian leadership has charac-
terized the Sanctions Act as a declaration of a trade war that ends all hope for improving bilateral
relations2
2 Дмитрий Медведев ldquoПодписание президентом США нового санкционного закона против России создает несколько
последствийrdquo [The US Presidentrsquos signing of the package of new sanctions against Rus sia will have a few conse-
quences] Facebook August 2 2017 https wwwfacebook com Dmitry Medvedev posts 10154587161801851
Figure 71 US Imports from Rus sia Share of Oil Metals Nuclear Fuel Fertilizers and Fish Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
93
94
93
94
95
96
93
92
87
89
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals Nuclear FuelFertilizers and Fish
594-71613_ch01_4Pindd 48 102017 404 PM
Vadim Grishin 49
The best case and most favorable scenario looks less probable now It assumes the realization of
structural reforms in Rus sia in such a way that would adapt Rus siarsquos foreign policy to national
economic needs reduce confrontations with the West and make a concerted efort to integrate
Rus sian businesses into global supply and value chains A revitalization of the structural reform
agendamdash including eforts to diversify economic activities through de- monopolization and support
for SMEs a restructuring of the banking sector the creation of a vibrant business climate to foster
entrepreneurships and innovation the implementation of administrative and judicial reforms to
tackle red tape and endemic corruption and the reduction of state control over key sectors of the
economy via wide- spread privatization could kick- start the development of a nonoil economy and
improve long- term growth prospects Despite ongoing discussion of reform strategies deep
economic and po liti cal changes are extremely complicated over the next po liti calelectoral cycle
(2018ndash2024) particularly because of re sis tance of vested interests and growing commodity prices
The urgency to tackle structural shortcomings in natu ral resource- dependent economies usually
correlates with the price of those resources and the degree to which resource rents drive eco-
nomic activity However there may be marginal improvements in the efficiency of the current
economic system
Future US- Russia relations can be thought of through three pillars one pillar focuses on areas
where both countries maintain a competitive rivalry another looks at potential areas of interaction
under pres ent conditions a third pillar and one that has evaporated from the current bilateral
agenda concentrates on future cooperation Stronger economic ties could not only be a kind of
po liti cal shock absorber but contribute to the building of this future (particularly business contacts
aim to support future structural reforms) although po liti cal factors are depressing the prospects
for cooperation To escape deadlock it will be impor tant to establish the right balance between
politics and economics and create a model of collaboration within the framework of contention
594-71613_ch01_4Pindd 49 102017 404 PM
About the Author
Vadim Grishin PhD MBA has been involved in the reform pro cess in Rus sia as adviser to the
deputy prime minister of Rus sia in 1992ndash1993 and 2006ndash2010 He has extensive experience
working with the Bretton Woods Institutions He was the board member of the World Bank Group
and served as se nior adviser at the International Monetary Fund Currently he is a con sul tant to the
chief economistrsquos office of the International Finance Corporation and teaches the economics of
transition at Georgetown University in Washington DC
50
594-71613_ch99_4Pindd 50 102017 403 PM
Blank
COVER PHOTO ADOBE STOCK
1616 Rhode Island Avenue NW
Washington DC 20036
202 887 0200 | wwwcsisorg
v++ISBN 978-1-4422-8035-9
Lanham bull Boulder bull New York bull London
4501 Forbes Boulevard
Lanham MD 20706
301 459 3366 | wwwrowmancom
A U T H O R
Vadim Grishin
Myths and Realities
A Report of the
CSIS RUSSIA AND EURASIA PROGRAM
US-RussiaEconomicRelations
O C T O B E R 2 0 1 7
Euml|xHSLEOCy280359z
The Man Pupu Nyor Rock Formations at the Northern Urals also known as Seven
Strong Man or Little Mountain of the God in the local tribe (Mansi) language
Vadim Grishin 5
Table 21 US Trade and Foreign Direct Investments (FDI) with China India Brazil South Africa and Rus sia 2016
China India Brazil South Africa Rus sia
Total Goods Trade 5786 677 565 13 203
Imports 4628 460 262 73 145
Exports 1158 217 303 55 58
Trade in Ser vices 696 472 317 47 na
Imports 161 268 68 17 na
Exports 535 203 249 30 na
US FDI 746 283 653 62 141
BRICS FDI in the United States
148 93 043 076 63
Supported Jobs in the United States (thousand)
911 197 308 50 84
Source United States Trade Representative (USTR) ldquoCountries amp Regionsrdquo accessed September 27 2017
https ustrgov countries - regions See US- China Trade Facts US- India Trade Facts US- Brazil Trade
Facts US- South Africa Trade Facts and US- Russia Trade Facts
201520142013
and China with the real GDP growth of these big Asian economies is significant (05) In the case of
Brazil the correlation is even higher (07) By contrast South Africarsquos small open economy is quite
sensitive to US imports from South Africa (043)3
In marked contrast to other BRICS countries Rus sia is a poor choice for export- oriented opera-
tions As a recent International Monetary Fund (IMF) study highlights Rus sia is an outlier a rare
exception among emerging market (EM) economies with virtually no preferential access to major
markets and little meaningful change over three de cades4 This complicates Rus siarsquos integration
into the global value chain (GVC) which became a significant driving force toward economic
development and trade for certain BRICS economies
3 IMF statistics authorrsquos computation
4 IMF Rus sian Federation Selected Issues IMF Country Report N17198 (Washington DC IMF July 2017)
594-71613_ch01_4Pindd 5 102017 404 PM
US-Russia Economic Relations6
Trade is closely connected with foreign direct investment (FDI) and both are parts of a complex
interaction known as international production sharing According to publicly available official data
US FDI in Rus sia was about $131 billion for 2013 and $295 billion for 2016 with the top industrial
sectors being software and IT ser vices financial ser vices chemicals metals coal oil and gas
and business ser vices5 If we take into account US investments made through Eu ro pean branches
of US companies and ofshore firms this number would easily triple Another component
that usually is not tracked by official statistics is reinvestments The American Chamber of
Commerce surveys in 2016 and 2017 which include this component draw a completely dif er ent
picture accumulated US corporate FDI in 90 large US companies working in Rus sia reached
5 US Department of Commerce International Trade Administration ldquoRussiamdash94- Foreign Direct Investment and
Portfolio Investment Statisticsrdquo Rus sia Country Commercial Guide July 7 2017 https wwwexport gov article
id=shyRussia - foreign - direct - investment - statistics
Figure 21 US Trade in Goods with China India Brazil Rus sia and South Africa Billion US$ 2016
Source USTR ldquoCountries amp Regionsrdquo See US- China Trade Facts US- India Trade Facts US- Brazil Trade
Facts US- South Africa Trade Facts and US- Russia Trade Facts
0
$50
$100
$150
$200
$250
$300
$350
$400
$450
$500
$550
$600
China India Brazil Russia South Africa
Exports
Imports
594-71613_ch01_4Pindd 6 102017 404 PM
Vadim Grishin 7
$8244 billion in 20176 The real level from our perspective is usually between official and private
estimations around $40 billon But even this cumulative figure is less than the US FDI in Brazil
and China
The American Chamber of Commerce surveys have also revealed other impor tant data Eighty-
five percent of US companies doing business in Rus sia entered its market 10 or more years ago
while 60 percent of them ldquolandedrdquo there 20 years ago or earlier Only one percent have started
operations over the last five years confirming an obvious fact entry into the Rus sian market is
challenging because of growing monopolism risks associated with the business climate and a
stagnating economy7
6 American Chamber of Commerce in Rus sia ldquoInvestment and Import to Rus sia 2nd Surveyrdquo (Prepared by GfK for the
American Chamber of Commerce in Rus sia Moscow May 2017) 12
7 Ibid 4
Figure 22 US Trade in Goods and in Ser vices with China India Brazil Rus sia and South Africa Billion US$ 2016
Source USTR ldquoCountries amp Regionsrdquo See US- China Trade Facts US- India Trade Facts US- Brazil Trade
Facts US- South Africa Trade Facts and US- Russia Trade Facts
0
$100
$200
$300
$400
$500
$600
$700
China India Brazil Russia South Africa
Trade in Services
Total Goods Trade
594-71613_ch01_4Pindd 7 102017 404 PM
US-Russia Economic Relations8
Rus sian direct investment position toward the United States declined from $215 billion in 2013 to
$83 billion in 2015 (Figure 23) Taking into account dif er ent channels and instruments the actual
volume of Rus sian investments in the United States made through ofshore Eu ro pean Canadian
and US companies may be several times greater than the available official data
Foreign investment in financial assets or foreign portfolio investment (FPI) should be included
even though Central Bank of Rus sia statistics indicate they were also quite low US investments in
equity were $345 million and in debt instruments were about $65 million in the fourth quarter of
20168 However these numbers do not reflect the real level of FPI Rus siarsquos stocks are incredibly
inexpensive while there has been impressive growth of US investments in short- term securities
and in foreign exchange (FX) operations (cash- and- carry trade) Rus sia was among the top per-
forming emerging markets in 2016 gaining 4744 percent in US dollars9 Nevertheless the gen-
eral capitalization of the stock exchange is tiny (less than 20 percent of GDP) comparable to the
capitalization of just one large US com pany such as Coca- Cola Many private sources believe that
the US FPI in Rus sia could be as high as several billion US dollars but a new set of sanctions
approved by President Trump on August 2 2017 if implemented could reverse those flows It is
still not clear whether the secretary of trea sury will prohibit participation in the oferings of Rus siarsquos
sovereign debt and the full range of derivative products A report on this subject should be sub-
mitted no later than 180 days after enactment of the law which means no later than Febru-
ary 2018 New legislation tightens prohibition on Rus sian financial companies already under
sanctions by limiting any new equity or debt with a maturity greater than 14 days (a provision that
8 Central Bank of Rus sia ldquoForeign Direct Investments in the Rus sian Federationrdquo accessed September 27 2017 www
cbr ru localization switchlanguage urlshy=shy news ampfromshy=shyru - ruamptoshy=shyen - gb
9 VanEck ldquoRus sian Stock Market Soars in 2016rdquo Seeking Alpha February 14 2017 https seekingalphacom article
4045602 - russian - stock - market - soars - 2016
Table 22 Summary Output of Regression Statistics (US Real GDP Rus sia Real GDP US- Russia Exports Imports and Total Trade)
Regression Statistics
Multiple R 0056445768
R Square 0003186125
Adjusted R Square minus0042123597
Standard Error 2616043923
Observations 24
Sources IMF statistics authorrsquos computation
594-71613_ch01_4Pindd 8 102017 404 PM
Vadim Grishin 9
previously allowed for 30 days) Similarly US persons are prohibited from taking on any new debt
that has a maturity greater than 60 days (previously it was 90 days) with Rus sian energy compa-
nies currently under sanctions10
According to the Trea sury Department Rus sia held $1029 billion in US Trea sury securities in
June 201711 Could Rus sia withdraw all its reserves from the United States and use this action as a
retaliatory mea sure Such a scenario is unlikely since there is no comparable safe- haven alterna-
tive to US dollars When Rus siarsquos US Trea sury holdings dropped 50 percent from $176 billion
(October 2010) to $90 billion (November 2011) the market did not notice12 Nevertheless Rus sian
authorities have announced they will decrease dependence on assets and payments in US dollars13
10 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364
11 US Department of Trea sury Major Foreign Holders of Trea sury Securities September 18 2017 http ticdata
treasury gov Publish mfh txt
12 Ibid
13 ldquoНовый виток санкций Россия откажется от доллараrdquo [A new round of sanctions Rus sia will abandon the dollar]
Газетару August 7 2017 https wwwgazeta ru business 2017 08 07 10821937 shtml
Figure 23 Rus sia Outward FDI Position United States Equities and Debt Million US$ 2009ndash2016
Source Central Bank of the Rus sian Federation External Sector Statistics Rus sian Direct Investments
Abroad accessed September 27 2017 https wwwcbr ru localization switchlanguage urlshy=shy news
ampfromshy=shyru - ruamptoshy=shyen - gb
$6000
$8000
$10000
$12000
$14000
$16000
$18000
$20000
$22000
2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 9 102017 404 PM
US-Russia Economic Relations10
Officially the country does not invest in the US stock exchange although some Rus sian oligarchs
have bought US corporate bonds and equities in large amounts The new sanctions law requires
the secretary of trea sury in consultation with the director of national intelligence and the secretary
of state to issue reports on Rus sian se nior po liti cal figures and oligarchs based on their closeness
to the Rus sian regime and their net worth as well as the exposure of key economic sectors of the
United States to Rus sian po liti cally exposed persons and parastatal entities including at a mini-
mum the banking securities insurance and real estate sectors14
Only three Rus sian companies are listed in the US exchanges
Overall the scale and scope of US- Russia economic interaction and business activity is much greater
than officially appreciated but not significant enough to be taken into consideration by policymakers
14 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364
594-71613_ch01_4Pindd 10 102017 404 PM
11
03
Politics in the Driverrsquos Seat
Bilateral economic relations depend to a great extent on global and national economic cycles
After the recent global financial crisis the US economy has shown surprisingly sustainable GDP
growth while the Rus sian economy was the most afected among BRICS countries by the turbu-
lence of a worldwide economic downturn in 2008ndash2009 and after a short- term rebound slipped
into stagnation (2012ndash2013) and then into full- scale recession (2014ndash2016) The countryrsquos eco-
nomic cycle however appears to be changing once again with the economy returning to a
pattern of growth albeit uneven and gradual (Figures 31 and 32) Even with sanctions still in place
conditions have improved as a result of the stabilization of Urals oil to an average annual price of
$419 per barrel in 2016 The gains were sparked in part by major crude producers agreeing to cut
production after hefty price drops in 2014 and 2015 Supported by easier financial conditions
higher oil prices and growing macro- stability Rus sia is heading toward a moderate growth rate
that is expected to reach 14 percent this year according to forecasts of the World Bank Group
(WBG) and the IMF1
Because of the significant role that politics plays in any bilateral interaction it is impor tant to
combine economic and po liti cal cycles applying a ldquoresetrdquo to bilateral economic cooperation in
addition to the po liti cal relationship I have compared po liti cal cycles and trade dynamics using the
following graphs ( Table 31 and Figure 33) These charts do not pretend to reflect with mathemati-
cal precision all shifts in the bilateral po liti cal relationship but rather attempt to visually align
impor tant economic and po liti cal moments to detect the efects of po liti cal events on the size of
bilateral trade
Figure 33 shows all pos si ble combinations economic trends at the intersection of po liti cal devel-
opments oppose or support each other in synchronization It is evident that po liti cal interference
1 International Monetary Fund Rus sian Federation Staff Concluding Statement of the 2017 Article IV Mission (Wash-
ington DC IMF 2017) World Bank Group From Recession to Recovery Rus sia Economic Report no 37 (Washington
DC World Bank 2017) http pubdocsworldbank org en 383241495487103815 RER - 37 - May26 - FINAL - with - summary
594-71613_ch01_4Pindd 11 102017 404 PM
US-Russia Economic Relations12
in bilateral business afairs in the early 2000s was less significant than in later years As result
growing po liti cal tensions from 2003 to 2008 did not dramatically afect bilateral economic inter-
action It is also easier to explain why 2011ndash2012 resulted in rec ord trade and investmentmdash a con-
sequence of very high oil prices GDP growth in both countries improved legislation after Rus siarsquos
accession to the WTO and the Obamandash Medvedev po liti cal reset From 2014 to 2016 a perfect
storm of developments added efficiency to Western sanctions and augmented the damaging
consequences of counter- sanction mea sures
Figure 33 also confirms that in times of reduced economic cooperation po liti cal pressures can
easily change bilateral economic trends Moreover business interests along with economic inter-
actions have a limited capacity to reverse the po liti cal mainstream
Figure 31 Economic Cycle 2014ndash2016
Source Authorrsquos evaluation of international financial institutions (IFI) data and sources from respective
countries
Sustainable Growth
Brazil
Negative Growth
Unstable Growth
Mexico
Descending Growth
Argentina
EU
US
Russia
Vietnam
China
594-71613_ch01_4Pindd 12 102017 404 PM
Vadim Grishin 13
Table 31 Po liti cal Cycles in Bilateral US- Russia Relations 1999ndash2016
2001ndash2002 The George W Bushndash Vladimir Putin Reset Rus sia supported ldquoglobal war on terrorismrdquo launched by the United States after 911 the SORT nuclear arms reduction treaty was signed by the United States and Rus sia and a successful business dialogue was developed that created the current structure of economic relations
2003ndash2008 Deterioration in bilateral relations brought on by the Iraq War Georgiarsquos ldquoRose Revolutionrdquo Mikhail Khodorkovskyrsquos arrest Ukrainersquos ldquoOrange Revolutionrdquo Kosovorsquos in de pen dence and the Georgian War
2009ndash2010 The Barack Obamandash Dmitry Medvedev Reset Rus sia served as a logistical hub for transportation and supply of US forces in Af ghan i stan United States and Rus sia signed the new START nuclear arms reduction treaty Rus sia backed tighter economic sanctions on Iran Rus sia gained access to the WTO after 18 years of negotiations
2011ndash2016 Deterioration in bilateral relations caused by the Ukrainian crisis which were followed by sanctions and counter- sanctions along with the Syrian crises and cyber- enabled activities
Source Authorrsquos evaluation of po liti cal and economic data
Note SORTthinsp=thinspStrategic Ofensive Reductions Treaty STARTthinsp=thinspStrategic Arms Reduction Treaty
Figure 32 Economic Cycle 2017ndash2019
Source Authorrsquos evaluation of IFI data and sources from respective countries
Egypt
VenezuelaEU
South Africa
Brazil
Russia
India
US
Descending Growth
Korea
China
Negative Growth
Unstable Growth
Sustainable Growth
594-71613_ch01_4Pindd 13 102017 404 PM
US-Russia Economic Relations14
Figure 33 US- Russia Trade Million US$ vs Po liti cal Cycle 2000ndash2016
Sources US Census Bureau ldquoTrade in Goods with Rus siardquo Foreign Trade last modified June 29 2017
https wwwcensus gov foreign - trade balance c4621 html (see data for 2000ndash2016) authorrsquos evaluation
of po liti cal and economic data
Orange Revolution
Khodorkovskys arrest
GeorgianWar
Bush- Putin Reset
Iraq War Global Financial Crisis
Obama-Medvedev Reset
Russias WTO accession
New START Treaty
A Pefect Storm the Ukranian Crisis Oil Prices Crashing
Sanctions and Counter-Sanctions
$3000
$8000
$13000
$18000
$23000
$28000
$33000
$38000
$43000
2000 2002 2004 2006 2008 2010 2012 2014 2016
594-71613_ch01_4Pindd 14 102017 404 PM
15
The current structure of US- Russia economic relations emerged in the early 2000s when the
model of trade and investment interaction took on a character similar to that which existed be-
tween the United States and developing economies US imports from Rus sia centered on com-
modities while technology along with food products lead American exports The primary
exception was that Rus sia supplied nuclear fuel including highly enriched uranium extracted from
nuclear weapons for US power plants and provided ser vices to the aerospace industry primarily
in satellite launches However both these exceptions can be explained as a legacy of the Soviet
past and not a harbinger of the future economic relationship (Figure 41)
In the last 15 years this trade structure has not changed significantly The only noticeable shift in
trade was a dramatic drop (to practically nothing) in exports of US agricultural products a result
of Rus siarsquos policy of import substitution and so- called counter- sanction mea sures it took in re-
sponse to US sanctions over the Ukraine crisis (Figure 42)
Promising new directions of cooperation in the IT sector and in engineering ser vices for the
aerospace industry appeared in the early 2000s1 but did not spill into other sectors and conse-
quently did little to renew economic cooperation on the whole The integration of Rus sian high-
tech ser vices into large- scale global production and value chains was constrained by the usual
culprits a lack of financial resources managerial experience skilled labor modern infrastructure
RampD investments and an adequate business environment High commodity prices incentivized the
restoration of an economic system centered on resource rents The leading role of oil and gas
extraction and transportation discouraged the development of a nonenergy sector that might
have created advanced and complex production and ser vices An import substitution policy could
not work efficiently in an economic environment plagued by the Dutch disease where currency
1 The Boeing Design Center was created in Moscow It consists of nearly 250 Boeing employees managing
a team of 1200 contract engineers from Rus sian and Ukrainian aerospace companies ldquoBackgrounder Boeing in
Rus siardquo Boeing last modified January 2017 http wwwboeing com resources boeingdotcom company key _ orgs
boeing - international pdf russia - cisbackgrounder pdf
Are the United States and Rus sia ldquoNatu ralrdquo Trading Partners A Little Bit of History
04
594-71613_ch01_4Pindd 15 102017 404 PM
US-Russia Economic Relations16
inflows (oil money) lead to ruble appreciation and render a countryrsquos production less competitive
During that time Rus siarsquos industry did not receive preferential access to larger markets and could
not expand its share in the global economy particularly because of its self- isolation from the
regional trade agreements (except for its participation in the Eurasian Economic Union with some
neighboring countries of the former Soviet Union) As a result neither import substitution nor
export- led strategy promoted growth and specialization in nonoil production A long- awaited
modernization and reallocation of resources from an inefficient nontrade sector to a trade sector
did not materialize
These limits were later augmented with sanctions and an extension of domestic restrictions on
cooperation with Western partners Importantly the rapid growth of state- monopoly structures in
the Rus sian economy over the past 15 years has created additional obstacles to the development
and diversification of US- Russia economic ties
Figure 41 US Imports from Rus sia US$ 2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2016)
Fish and shellfish 3
Crude oil 5
Fuel oil 37
Petroleum products other
8
Nuclear fuel materials
7
Chemicals-fertilizers 4
Steelmaking materials 5
Iron and steel mill products 4
Bauxite and aluminum 9
Other precious metals 4
Nonferrous metals other 1
Finished metal shapes 1
Synthetic rubber--primary
1
Spacecraftexcluding military
594-71613_ch01_4Pindd 16 102017 404 PM
Fig
ure
42
U
S E
xpo
rts
to R
us s
ia U
S$ 2
016
Sou
rce
US
Ce
nsu
s B
ure
au ldquo
Trad
e in
Go
od
s w
ith
Ru
s sia
rdquo (s
ee
dat
a fo
r 2
016
)
Bak
ery
pro
du
cts
Win
e b
eer
an
d r
elat
ed
pro
du
cts
New
spri
nt
Pla
stic
mat
eria
ls
Ch
emic
als-
fert
ilize
rs
Ch
emic
als-
ino
rgan
icC
hem
ical
s-o
rgan
ic
Ch
emic
als-
oth
erC
ott
on
fib
er c
loth
In
du
stri
al r
ub
ber
pro
du
cts
Min
eral
su
pp
lies-
man
ufa
ctu
red
Gen
erat
ors
acc
esso
ries
Ele
ctri
c ap
par
atu
s
Dri
llin
g amp
oilfi
eld
eq
uip
men
t Sp
ecia
lized
min
ing
Exc
avat
ing
mac
hin
ery
No
nfa
rm t
ract
ors
an
d p
arts
In
du
stri
al e
ng
ines
Fo
od
to
bac
co m
ach
iner
y M
etal
wo
rkin
g m
ach
ine
too
ls
Tex
tile
sew
ing
m
ach
ines
W
oo
d g
lass
p
last
ic
Pu
lp a
nd
pap
er
mac
hin
ery
Mea
suri
ng
tes
tin
g
con
tro
l in
stru
men
ts
Mat
eria
ls h
and
ling
equ
ipm
ent
Ind
ust
rial
mac
hin
es
oth
er
Ph
oto
ser
vice
ind
ust
ry m
ach
iner
y A
gri
cult
ura
l mac
hin
ery
eq
uip
men
t C
om
pu
ters
Co
mp
ute
r ac
cess
ori
es
Sem
ico
nd
uct
ors
Tel
eco
mm
un
icat
ion
seq
uip
men
t
Bu
sin
ess
mac
hin
es a
nd
eq
uip
men
t
Lab
ora
tory
tes
tin
g in
stru
men
ts
Med
icin
al e
qu
ipm
ent
Civ
ilian
air
craf
t e
ng
ines
eq
uip
men
t a
nd
par
ts
Rai
lway
tra
nsp
ort
atio
n
equ
ipm
ent
Ves
sels
exc
lud
ing
scr
ap
Co
mm
erci
al v
esse
ls o
ther
M
arin
e en
gin
es p
arts
Spac
ecra
ft e
xclu
din
g
mili
tary
Pas
sen
ger
car
s
new
an
d u
sed
Tru
cks
bu
ses
and
sp
ecia
l p
urp
ose
ve
hic
les
En
gin
es a
nd
en
gin
e p
arts
(c
arb
ure
tors
pis
ton
s r
ing
s
and
val
ves)
B
od
ies
and
ch
assi
s fo
r p
asse
ng
er c
ars
Au
tom
oti
ve t
ires
an
d t
ub
es
Oth
er p
arts
an
d a
cces
sori
es o
f ve
hic
les
Ap
par
el h
ou
seh
old
go
od
s -
text
ile
Ph
arm
aceu
tica
lp
rep
arat
ion
s
Furn
itu
re h
ou
seh
old
go
od
s
etc
R
ug
s
Cel
l ph
on
es a
nd
oth
er
ho
use
ho
ld g
oo
ds
ne
c
594-71613_ch01_4Pindd 17 102017 404 PM
US-Russia Economic Relations18
Figure 43 US Trade in Goods with Rus sia Million US$ 1992ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
Russian Financial Crisis
Oil price Increased from$2446 USD per barrel (2001)
to $9694 USD per barrel(2008)
Global Financial Crisis
Oil price high record in2011-2012
(more that $111 USD perbarrel)
Oil price crashed
$-
$5000
$10000
$15000
$20000
$25000
$30000
$35000
$40000
$45000
$50000
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia US Exports to Russia US-Russia Trade in Goods
No doubt po liti cal ups and downs add volatility to US- Russia trade Nevertheless Rus siarsquos eco-
nomic structure exhausted itself before the Ukrainian crisis and the recent Rus sian recession Its
limitations are not only due to some mistakes in policy or negative coincidences of circumstances
but rather to deeply rooted properties in the current bilateral trade model related to structural
issues in the Rus sian economy Structural constraints such as the weak enforcement of property
rights poor business regulation and nondiversified exports weighed on Rus sian trade with the
United States From this perspective the term ldquonaturalunnatural trading partnersrdquo does not ad-
dress the unused capacity of bilateral interaction or the real challenges that kind of interaction
faces It just adds metaphysical flavor to the very specific economic and po liti cal factors that
determine the US- Russia trajectory
Overall the outlines of bilateral trade (Figure 43) resemble the famous ldquoRus sian Mountainsrdquo that
were a pre de ces sor of the modern roller coaster icy hills supported by wooden constructionsmdash a
rigid and immobile structure that sooner or later would melt This unfortunately is what is hap-
pening to US- Russia trade cooperation now
594-71613_ch01_4Pindd 18 102017 404 PM
19
ARE LITTLE FISH REALLY SWEET
Low US- Russia economic interaction has at least two consequences First it limits the capacity of
policymakers to exploit trade as an instrument for geopo liti cal combat Even the question of a US
trade deficit which used to be a headache for many US trading partners has become so insig-
nificant in absolute terms (about $87 billion in 2016) that it seems hardly worth caring about
When the volume of trade between two countries becomes very small in absolute terms whether
a country is running a surplus or deficit is no longer relevant But it also renders another type of
confrontations (sometimes more dangerous) more likely since the two traders have little to lose
Second in an environment marked by low levels of bilateral trade both sides could incentivize (if
and when a desire for po liti cal rapprochement exists) the signing of new trade deals which are
elevated symbolically as a turning point in bilateral po liti cal relations (ie the sale of Boeings to
Rus sia or the delivery via tankers of Rus sian oil to US refineries) Sometimes markets themselves
pres ent ldquogiftsrdquo that can be capitalized on po liti cally US- USSR grain trade in the 1970s was one
such ldquogiftrdquo large sales of American grain to the Soviet Union helped US policymakers win favor
with the po liti cally impor tant American farming sector and permitted Soviet leaders to maintain
access to a dietary staple for the Soviet population
The strong 32 percent growth in value of US imports from Rus sia from January to May 2017
versus January to May 2016 ( Table 51) is an example of a development that has tempted officials
to pres ent it as a sign of positive change due to ldquogrowing business activitiesrdquo (this kind of statement
was heard before the bilateral summit in Germany in July 2017) although the reason for that leap
was evidently an increase in commodity prices (mainly of oilmdash see Table 52) and not a rise in
entrepreneurial interactions The primary beneficiaries of that upside rally have been two other
petro- economies Saudi Arabia and Venezuela ( Tables 53 and 54)
Sector Analyses
05
594-71613_ch01_4Pindd 19 102017 404 PM
US-Russia Economic Relations20
Table 51 US Imports from Rus sia Million US$ Januaryndash May 2016 vs Januaryndash May 2017
Year January February March April May Total
2016 9603 6871 11097 12257 10977 50805
2017 12215 10220 16979 13471 14147 67032
Change 271 487 530 99 289 319
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
Table 52 Change in Urals Crude Oil Prices US$ per Barrel Januaryndash May 2016 vs Januaryndash May 2017
Januaryndash May 2016 Januaryndash May 2017 Change ($) Change ()
3601 5129 1528 424
Source Ministry of Finance of the Rus sian Federation https wwwminfin ru ru ixzz4mMIZ7XtC
Table 53 US Imports from Saudi Arabia Million US$ Januaryndash May 2016 vs Januaryndash May 2017
Year January February March April May Total
2016 15114 9036 13555 10844 14679 63228
2017 19802 20298 21650 16211 19542 97503
Change 3101 12463 5972 495 331 542
Source US Census Bureau ldquoTrade in Goods with Saudi Arabiardquo Foreign Trade last modified June 29 2017
https wwwcensus gov foreign - trade balance c5170 html (see data for 2016ndash2017)
594-71613_ch01_4Pindd 20 102017 404 PM
Vadim Grishin 21
Table 54 US Imports from Venezuela Million US$ Januaryndash May 2016 vs Januaryndash May 2017
Year January February March April May Total
2016 6657 5560 7140 8007 7922 35286
2017 13041 10864 123500 11148 12243 59646
Change 9590 9540 7297 3923 5454 6903
Source US Census Bureau ldquoTrade in Goods with Venezuelardquo Foreign Trade last modified June 29 2017
https wwwcensus gov foreign - trade balance c3070 html (see data for 2016ndash2017)
Table 55 US Exports to Rus sia Million US$ Januaryndash May 2016 vs Januaryndash May 2017
Year January February March April May Total
2016 3628 3577 7298 4657 4947 24107
2017 3144 4277 5386 6670 4806 24283
Change minus133 196 minus262 432 minus29 minus07
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2016ndash2017)
At the same time US exports to Rus sia continue to stagnate ( Table 55) due to low levels of
consumption during a two-and- a- half-year economic crisis a deep ruble devaluation sanctions
and counter- sanctions
Given the very dif er ent economic structures and resource endowments of Rus sia and the United
States it is not surprising that US- Russia trade is asymmetric and oil driven (Figure 51) A
3 percent increase in Urals oil prices translates into a one percent increase in US import growth
from Rus sia Thus in 2016 every $10 increase in Urals crude oil added $15 billion to the value of
US imports or 11 percent to the total value of imports from Rus sia
OIL ADDICTION
Oil is a core pillar of US- Russia bilateral trade A bumpy ride in oil markets afects commerce
Nevertheless Rus sian oil exports to the United States in physical terms have been rather
594-71613_ch01_4Pindd 21 102017 404 PM
US-Russia Economic Relations22
sustainable Starting from 2005 average annual deliveries have been above 150 million barrels
(Figure 52) Crude and heating oil have dominated while petroleum products and liquefied petro-
leum gases have not (Figure 53) In 2011 oil exports peaked at 228 million barrels but declined to
159 million barrels in 2016mdash a drop of 30 percent Rec ord high shipments of Rus sian oil to the United
States coincided with an elevation in oil prices which made the subsequent decline in oil shipment
value between 2011 and 2016 (by about 72 percent as shown in Figure 54) seem more stark The
increase in price also raised the share of oil in Rus sian exports by 74 percent in 2011 (Figure 55)
The Rus sian share in total US oil imports was around 55 percent in 2011 and 43 percent in 2016
( Table 56) In the last five years the United States has relied exclusively on consumption of Rus sian
oil for the rough equivalent of one week out of the year (Figure 56)
It is unlikely that Rus sia can significantly increase its share of the US oil market and there is a real
possibility for a downward trend There are several reasons the historically high Rus sian hydrocar-
bon export threshold of 2011 will not soon if ever be surpassed
First US energy consumption will likely be flat According to the US Energy Information Adminis-
tration (EIA) demand for petroleum and other liquids in the United States will be about 35ndash36
quadrillion British thermal units (BTUs) with minimal variation over the next 25 years1
1 US EIA ldquoAnnual Energy Outlook 2017 with Projections to 2050rdquo January 5 2017 7ndash8
Figure 51 US- Russia Trade Growth () vs US and Rus sia Real GDP Growth () 1993ndash2016
Source IMF ldquoIMF Datardquo accessed September 27 2017 http wwwimf org en Data US Census Bureau
ldquoTrade in Goods with Rus siardquo
Note rGDPthinsp=thinspreal gross domestic product
Trade
USA rGDP growth
Russia rGDP growth
-60
-40
-20
0
20
40
60
80
100
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Gro
wth
All spikes in US-Russia trade have been connected with two main
variables volume and price of crude oil
594-71613_ch01_4Pindd 22 102017 404 PM
Vadim Grishin 23
Second the United States will become a net energy exporter between 2020 and 2030 in most
cases under dif er ent combinations of oil and natu ral gas prices GDP growth technological
breakthroughs and the availability of energy resources The role of oil imports will dramatically
fall2
Third oil price scenarios as described by the International Energy Agency (IEA) international
financial organ izations (IFIs) and many national agencies are very cautious and assume that even
by 2035 to 2040 oil prices will not to recover to the levels of 2011ndash20123
Fourth Rus sian oil production and export growth will be modest and driven by Asian economic
expansion and will comprise a decreasing share of Western markets4 According to forecasts from
2 Ibid 15ndash18
3 Ibid table 3 ldquoEnergy Prices by Sector and Sourcesrdquo World Bank World Bank Commodity Markets Price Forecasts
(Washington DC World Bank 2017) httpswwwworldbank org en research commodity - markets Organ ization of the
Petroleum Exporting Countries (OPEC) World Oil Outlook 2016 (Vienna OPEC 2016)
4 E D Belotskaia et al Global and Rus sian Energy Outlook 2016 (Moscow Energy Research Institute of the Rus sian
Acad emy of Science Analytical Center for the Government of the Rus sian Federation 2016) http acgov ru files
publication a 12767 pdf
Figure 52 US Imports from Rus sia Crude Oil and Petroleum Products Thousands of Barrels 1995ndash2016
Source US EIA ldquoUS Imports by Country of Origin Rus siardquo Petroleum amp Other Liquids September 13
2017 http wwweia gov dnav pet PET _ MOVE _ IMPCUS _ D _ NUS _ NRS _ MBBL _ M htm
0
50000
100000
150000
200000
250000
Date 1995 1996 1997 1998 199920002001200220032004200520062007200820092010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 23 102017 404 PM
US-Russia Economic Relations24
the Organ ization of the Petroleum Exporting Countries (OPEC) crude oil exports from Rus sia and
the Caspian region to the United States will dis appear by 20255
So why does the Rus sian Urals blend continue to be attractive for oil traders and US refineries
which could pro cess greater volumes of domestically produced lighter crude There are two main
reasons One is related to the preference of US high conversion refineries (the most sophisticated
in the world) to work with heavy oil blends produced by Canada Mexico Iraq Venezuela and
Rus sia Pro cessing heavy crude now is as profitable as pro cessing lighter crude The so- called
crack spreadmdash the diference between the cost of relatively cheap heavy crude oil and the final
price of value- added consumer products (diesel gasoline jet fuel and heating oil)mdash has become
the same as the refinery margins of light sweet crude6 This has primarily afected light oil produc-
ing countries such as Angola Algeria and Nigeria
5 OPEC World Oil Outlook 2016 306ndash309
6 ldquoHow Much for That Heavy Oilrdquo Oil Sands Magazine December 26 2015 https wwwoilsandsmagazine com
news 2015 12 26 how - much - for - that - heavy - oil
Figure 53 US Imports from Rus sia Oil and Petroleum Products US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$-
$25000000000
$20000000000
$15000000000
$10000000000
$5000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Liquefied petroleum gases
Petroleum products other
Fuel oil
Crude oil
594-71613_ch01_4Pindd 24 102017 404 PM
Vadim Grishin 25
Another factor afecting purchase of Rus sian oil is a new trend among oil companies for further
consolidation of scale and for integrating operations of upstream and downstream business7
There have been several waves of separation and unification of production transportation and
pro cessing in the last 50 years The current business cycle can be seen as an adaptation to a
period of low prices and oversupply Companies that buy andor produce oil in Rus sia most likely
prefer to transport and pro cess this oil in their own modern refineries in the United States At the
same time some of the newest refinery designs specifically for pro cessing heavy oils have been
built in Asia thus extending the choices of heavy oil producing countries
We should also consider that leading US and international oil traders along with oil producing
companies working with or owning US refineries frequently buy Rus sian oil on the open market
and have long- term contracts on Rus sian crude oil delivery Many Rus sian oil companies prefer to
pay for purchases or ser vices with their future production instead of cash creating situations of
ldquostickyrdquo oil imports that are difficult to replace The best- known example is an interaction between
7 ldquoEnergy and Utilities Sectorrdquo Roundtable Financier Worldwide December 2015 https wwwfinancierworldwide
com roundtable - energy - utilities - sector - dec15
Figure 54 US Imports of Oil and Petroleum Products from Rus sia vs Oil Prices Eu rope Brent Spot Price Free on Board (FOB) 1996ndash2017
Source US EIA ldquoUS Imports by Country of Origin Rus siardquo
0
20
40
60
80
100
120
140
0
5000
10000
15000
20000
25000
30000
Jan
-19
96
Jun
-19
96
No
v-19
96
Ap
r-19
97
Sep
-19
97
Feb
-19
98
Jul-
199
8D
ec-1
99
8M
ay-1
99
9O
ct-1
99
9M
ar-2
00
0A
ug
-20
00
Jan
-20
01
Jun
-20
01
No
v-2
00
1A
pr-
20
02
Sep
-20
02
Feb
-20
03
Jul-
20
03
Dec
-20
03
May
-20
04
Oct
-20
04
Mar
-20
05
Au
g-2
00
5Ja
n-2
00
6Ju
n-2
00
6N
ov-
20
06
Ap
r-2
00
7Se
p-2
00
7Fe
b-2
00
8Ju
l-2
00
8D
ec-2
00
8M
ay-2
00
9O
ct-2
00
9M
ar-2
010
Au
g-2
010
Jan
-20
11Ju
n-2
011
No
v-2
011
Ap
r-2
012
Sep
-20
12Fe
b-2
013
Jul-
20
13D
ec-2
013
May
-20
14O
ct-2
014
Mar
-20
15A
ug
-20
15Ja
n-2
016
Jun
-20
16N
ov-
20
16
USD
per
Bar
rel
Th
ou
san
d B
arr
els
US Imports from Russia of Crude Oil and Petroleum Products (Thousand Barrels)
Europe Brent Spot Price FOB (Dollars per Barrel)
594-71613_ch01_4Pindd 25 102017 404 PM
US-Russia Economic Relations26
Table 56 US Oil Imports All Countries vs Rus sia Thousand Barrels per Day 2011ndash2016
Years 2011 2012 2013 2014 2015 2016
All Countries 11436 10598 9859 9241 9449 10058
Rus sia 624 477 460 330 371 433
Share 546 450 467 357 393 431
Sources US EIA ldquoUS Imports by Country of Origin Total Crude Oil and Productsrdquo Petroleum amp Other
Liquids September 13 2017 wwweia gov dnav pet pet_move_impcus_a2_nus_ep00_im0_mbbl_m htm
authorrsquos computation
Figure 55 US Imports from Rus sia Share of Crude Oil and Petroleum Products Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
57
64
73
72
74
73
72
59
52 50
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
$40000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil and Petroleum Products
594-71613_ch01_4Pindd 26 102017 404 PM
Vadim Grishin 27
the Rus sian state mono poly Rosneft and commodity trading and mining giant Glencore which
along with energy and commodities com pany Vitol participated in a $10 billion prepayment
deal with Rosneft for crude supplies in 2013
There have been a number of ongoing transactions between the Rus sian oil industry and interna-
tional oil companies including several that top the list of importers of Rus sian oil to the United
States ( Table 57) In December 2016 Glencore participated in a controversial privatization opera-
tion purchasing in tandem with the Qatar sovereign wealth fund a 195 percent stake in Rosneft
which was on the US and EU list of sanctioned firms8 Glencore has also taken a blocking stake in
midsize oil producer RussNeft BP owns a 1975 percent stake in Rosneft Chevron holds a
15 percent interest in the 935- mile- long CPC9 pipeline which transports an average of 959000
barrels of crude oil per day including 76000 barrels daily from Rus sia10 ExxonMobil has formed
8 E Mazneva and I Arkhipov ldquoRus sia Sells $11 Billion Stake in Rosneft to Glencore Qatarrdquo Bloomberg December 7
2016
9 CPCthinsp=thinspCaspian Pipeline Consortium
10 ldquoRus sia Highlights of Operations and Business Portfoliordquo Chevron accessed October 3 2017 https wwwchevron
com worldwide russia
Figure 56 Share of Rus sian Oil in Total US Oil Imports Thousands of Barrels per Day 1972ndash2016
Source US EIA ldquoUS Imports by Country of Origin Total Crude Oil and Productsrdquo
2000
4000
6000
8000
10000
12000
14000
16000
US Imports of Crude Oil and Petroleum Products (Thousand Barrels per Day)
US Imports from Russia of Crude Oil and Petroleum Products (Thousand Barrels per Day)19
7319
7419
7519
7619
7719
7819
7919
80
198
119
82
198
319
84
198
519
86
198
719
88
198
919
90
199
119
92
199
319
94
199
519
96
199
719
98
199
92
00
02
00
12
00
22
00
32
00
42
00
52
00
62
00
72
00
82
00
92
010
20
112
012
20
132
014
20
152
016
594-71613_ch01_4Pindd 27 102017 404 PM
Table 57 Top Importers of Rus sian Oil to the United States Thousands of Barrels 2016
VALERO MARKETING amp SUPPLY CO 54590 3616
EXXONMOBIL OIL CORP 17087 1130
CHEVRON USA INC 15217 1008
BP WEST COAST PRODUCTS LLC 10130 671
GEORGE E WARREN CORP 7272 48
PAULSBORO REFINING CO LLC 6838 453
TESORO CORP 5097 338
VITOL INC 5084 337
PHILLIPS 66 CO 4726 313
TRAFIGURA AG 4360 289
PAR HAWAII REFINING LLC 3893 258
MOTIVA ENTERPRISES LLC 3041 205
SHELL US TRADING CO 2863 19
MARATHON PETROLEUM CO LLC 2475 16
ATLANTIC TRADING amp MARKETING 2099 14
FREEPOINT COMMODITIES LLC 1439 1
GLENCORE LTD 1284 85
BEST PETROLEUM CORP 967 64
ROLYMPUS US COMMODITIES GROUP LLC 822 6
HUNT CRUDE OIL SUPPLY CO 666 4
GULF OIL LP 658 4
Source US EIA ldquoUS Imports by Country of Origin Crude Oilrdquo Petroleum amp Other Liquids September 13
2017 httpswwweiagovdnavpetpet_move_impcus_a2_nus_epc0_im0_mbblpd_ahtm authorrsquos
computation
594-71613_ch01_4Pindd 28 102017 404 PM
Vadim Grishin 29
several joint ventures with Rosneft to undertake ofshore exploration in the Black Sea and the Kara
Sea in Siberia11
According to the Sanctions Act US persons are prohibited from exporting or reexporting goods
ser vices (except financial ser vices) and technology in support of exploration or production of new
deep- water Arctic ofshore or shale oil proj ects that involve designated Rus sian entities or other
entities in which such sanctioned persons have a controlling interest or a substantial noncontrol-
ling owner ship interest defined as not less than 33 percent (previously it was 50 percent) The new
law also authorizesmdash but does not requiremdash the imposition of so- called secondary sanctions
against non- US entities that engage in activities involving the construction maintenance or
expansion of Rus sian energy export pipelines with a fair market value of $1 million or more or an
aggregate fair market value during a 12- month period of $5 million12 This provision has raised the
concerns of some Eu ro pean countries particularly Germany As result the final language of the
law included wording about coordination of this issue with allies of the United States
Shipments of Rus sian oil to the United States could be afected by activity in the US refinery
industry In early 2017 Saudi Aramco bought the United Statesrsquo largest oil refinery in Port Arthur
(Texas) and it announced plans to send more of its own crude to that refinery13 Serious concerns
exist however regarding the future of three refineries and nine pipelines owned by Citgo a US
branch of the Venezuelan state com pany PdVSA which is balancing precariously on the edge of
default Under certain conditions in the event of PdVSA bankruptcy Rosneft could claim a stake of
up to 499 percent in Citgo Such a possibility has raised concerns among politicians and US
government officials with Trea sury Secretary Steven Mnuchin calling it a ldquonational security issuerdquo14
Tables 58 59 and 510 show allocations of Rus sian oil imports to major US refineries some of
which work exclusively on Rus sian crude a total of two to three months per year In total 150940
thousand barrels of Rus sian oil were refined in 2016
Figure 57 confirms a leading position of Texas and Louisiana among the US states receiving
Rus sian crude followed by New Jersey California Mississippi Washington Hawaii and Delaware
In a paradoxical way Texas has dis appeared from the list of states as a main destination of US
imports from Rus sia (Figure 58) because Rus sian crude is mostly delivered to Louisiana ports and
registered there by US Customs as an import from Rus sia After that it transports to refineries in
Louisiana and Texas
Overall the short- term business rationale behind the sustainability of US oil imports from Rus sia
cannot overcome strong headwinds in the US energy sector facing all oil importers which will
inevitably lead to a contraction of Rus sian oil exports to the United States in the foreseeable future
11 Exxon eforts to receive a special US Trea sury waiver to drill in sanctioned Rus sia failed in 2017
12 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364
13 Sarp Ozkan ldquoSaudi Aramcorsquos Port Arthur Refinery and the US Refinery Fleetrdquo Drilling Info May 11 2017
https infodrillinginfo com saudi - aramcos - port - arthur - refinery - us - refinery - fleet
14 Graham Kates ldquoTrea sury Secretary Rus siarsquos Citgo Deal a National Security Issuerdquo CBS News May 1 2017
http wwwcbsnews com news rosneft - citgo - steven - mnuchin - national - security
594-71613_ch01_4Pindd 29 102017 404 PM
US-Russia Economic Relations30
Table 58 Valerorsquos Refineries Pro cessing Rus sian Oil Thousands of Barrels 2016
Saint Charles Louisiana 29206 535
Corpus Christi Texas 20626 378
Wilmington California 4250 78
Total USA 54590 100
Source US EIA ldquoRefinery Capacity Reportrdquo January 1 2017
table 5 wwweia gov petroleum refinerycapacity table5 pdf
authorrsquos computation
Table 59 ExxonMobil Refineries Pro cessing Rus sian Oil Thousands of Barrels 2016
Baytown Texas 15037 88
Baton Rouge Louisiana 2046 12
Total USA 17083 100
Source US EIA ldquoRefinery Capacity Reportrdquo authorrsquos computation
Table 510 Chevronrsquos Refineries Pro cessing Rus sian Oil Thousands of Barrels 2016
Pascagoula Mississippi 12767 840
El Segundo California 2372 155
Saint Rose Louisiana 78 05
Total USA 15217 100
Source US EIA ldquoRefinery Capacity Reportrdquo authorrsquos computation
594-71613_ch01_4Pindd 30 102017 404 PM
Vadim Grishin 31
HEAVY METAL
Taken together US imports of metals and US imports of oil compose about 80 percent of US
total imports from Rus sia (Figure 59) Trade of metals like other commodities is strongly afected
by market price fluctuations Nevertheless metal imports from Rus sia have been fairly resilient to
market volatility and their average annual value has hovered at about $4 billion in the last five years
(Figure 510) This market resilience was forged at the end of the 1990searly 2000s when Rus sian
metal producers gradually modernized their plants adjusting quality of production to Western
standards and enhancing integration into global value and supply chains Some of them conquered
their share of the highly competitive US market struggling with peers from Canada and certain
BRICS countries (China India and Brazil) To attract additional resources all Rus sian large metal-
producing companies became public and were listed on stock exchanges chiefly the London Stock
Exchange (Severstalrsquo PAO Evraz MMK OAO Novolipetsk Steel Norilsk Nikel and TMK PAO) one
on the New York Stock Exchange (Mechel) and one on the Hong Kong Stock Exchange (Rusal)
Business logic pushed some of them to invest in the US metal- making industry which was hit
hard by crisis Later on some of those assets were sold (eg two US steel mills acquired by
Severstal in 2004 were purchased 10 years later by Steel Dynamics Inc and AK Steel Corp)
Figure 57 Share of US States Rus sian Oil Imports 2016
Source US EIA ldquoUS Imports from Rus sia of Crude Oil and Petroleum Productsrdquo Petroleum amp Other
Liquids September 29 2017 https www eia gov dnav pet hist LeafHandler ashx nshy=shyPETampsshy=shyMTTIM _ NUS
- NRS _ 1ampfshy=shyM authorrsquos computation
0
10
20
30
40
50
60
70
80
90
100
Maine
Massachusetts
Maryland
Connecticut
Georgia
Rhode Island
Virginia
Florida
New York
Alabama
Puerto Rico
Pennsylvania
Delaware
Hawaii
Washington
Mississippi
California
New Jersey
Louisiana
Texas
594-71613_ch01_4Pindd 31 102017 404 PM
Figure 58 US Imports from Rus sia by State Million US$ 2013ndash2016
Source US Census Bureau ldquoState and Metropolitan Area Trade Datardquo Foreign Trade last modified
October 2 2017 https wwwcensus gov foreign - trade statistics state
Alaska
Connecticut
Delaware
Hawaii
Louisiana
Maryland
North Dakota 0
$1000
$2000
$3000
$4000
$5000
$6000
2013 2014 2015 2016
Alabama
Alaska
Connecticut
Delaware
Hawaii
Louisiana
Maryland
Maine
Mississippi
Montana
North Dakota
Mississippi
Figure 59 US Imports from Rus sia Share of Oil and Metals Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
83
82
85
86
87
88
85
82
7375
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
$40000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil and Metals
594-71613_ch01_4Pindd 32 102017 404 PM
Vadim Grishin 33
Obviously the market dynamic of dif er ent metals varies (eg iron steel aluminum platinum and
nickel) Caps to increase their trade and production in a ldquored oceanrdquo global environment with
anemic demand is rather limited despite Figure 510 showing a spike of iron and steel imports
from Rus sia in 2014 and aluminum in 2016 Some opportunities may exist for Russian- owned steel
plants in the United States (such as NLMK) to participate in energy proj ects resumed under Presi-
dent Trump who has required that new pipelines use only American- made steel15
Rus sia occupies a special niche in the US market for titanium products a high- end metal indus-
try Twenty years ago a long- term contract was signed between Rus sian titanium producer
VSMPO- AVISMA and Boeing The Rus sian com pany entered the selective club of Boeing suppliers
for the manufacture of components and semi- finished products Since the signing of this contract
VSMPO has delivered more than 35 percent of all titanium placed on Boeing civil aircraft16 They
are hidden in the trade data in an import category for Civilian Aircrafts and Parts (Figure 511) At
the end of 2016 Boeing announced an extension of its framework agreement with AVISMA
15 E Scheyder C Ngai and T Sylvester ldquoAmerican Steel Unlikely to Get Keystone Boost Despite Trump Orderrdquo
Reuters January 27 2017 http wwwreuters com article usa - trump - pipeline - transcanada - idUSL1N1FH1ZD
16 A Kramer ldquoTitanium Fills Vital Role for Boeing and Rus siardquo New York Times July 5 2013 http wwwnytimes com
2013 07 06 business global titanium - fills - vital - role - for - boeing - and - russia html mcubzshy=shy3
Figure 510 US Imports from Rus sia Iron Steel Bauxite Aluminum Nickel Nonferrous Metals and Other Precious Metals and Materials US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
0
$6000000000
$5000000000
$4000000000
$3000000000
$2000000000
$1000000000
2007 2008 2009 2010 2011 20122013
20142015
2016
Finished metal shapes
Iron and steel advanced
Iron and steel products nec
Nonferrous metals other
Other precious metals
Nickel
Bauxite and aluminum
Iron and steel mill products
Steelmaking materials
594-71613_ch01_4Pindd 33 102017 404 PM
US-Russia Economic Relations34
through 2022 and additional investments in the construction of a new robotic plant in Titanium
Valley a special economic zone located in the Sverdlovsk region that will open in 2018 The pro-
cessing of titanium forgings in all Boeing civil aircraft will be performed there including 787s 737
MAXs and 777Xs17 The contract extension with AVISMA may add several hundred million dollars
in value to annual US imports from Rus sia
How can such heavy reliance on imports of Rus sian titanium exist during a period of rising geopo-
liti cal tensions The answer is straightforward VSMPO- AVISMA is a highly specialized natu ral
mono poly producing 45 percent of the worldrsquos aerospace titanium Only four other countries
smelt high- grade titanium in industrial quantities the United States Germany Japan and China
Overall global production capacity is limited while demand is growing The United States cur-
rently imports around 79 percent of all the titanium it consumes each year18
17 ldquoBoeing and VSMPO Avisma to Launch Second Joint Production Siterdquo Rus sian Aviation Insider December 22 2016
http wwwrusaviainsider com boeing - and - vsmpo - avisma - to - launch - second - joint - production - site
18 Jon Ostrower and Andy Pasztor ldquoBoeing United Technologies Stockpile Titanium Partsrdquo Wall Street Journal
August 7 2014 https wwwwsj com articles boeing - united - technologies - stockpiling - titanium - parts - 1407441886
Figure 511 US Imports from Rus sia Civilian Aircrafts and Parts US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
$200000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Parts-civilian aircraft
Civilian aircraft
594-71613_ch01_4Pindd 34 102017 404 PM
Vadim Grishin 35
The Sanctions Act authorizes the secretary of the trea sury (in a nonmandatory way) to impose
restrictions (without specifying them) against Rus sian state- owned entities operating in the railway
metals and mining sectors of the Rus sian economy Despite the commanding heights of Rus siarsquos
state sector owner ship in its economy (70 percent of GDP) the metal- producing companies have
remained mostly in private hands
NUCLEAR AFFAIRS
Historically owners and operators of the 104 commercial nuclear power reactors in the United
States have purchased more than 80 percent of their uranium from foreign countries Uranium
shipping from Rus sia accounted for about 13 percent of the 58 million pounds of uranium pur-
chased overseas in 201219 At the same time the Rus sian state- owned mono poly Rosatom ac-
counts for 20 percent of Kazakhstanrsquos uranium production (which in turn comprises 11 percent of
all US uranium imports) and 20 percent of US domestic uranium production capacity (with
owner ship of exploration tracts in Wyoming)20
Nuclear fuel and nuclear power continue to be po liti cally sensitive topics both in the United
States and Rus sia Bilateral cooperation in this sector (being surprisingly stable with imports of
nuclear fuel from Rus sia at a level of $1 billion annually in the last five years [Figure 512 and 513])
is under constant po liti cal and lobbying pressure and has been a source of several po liti cal scan-
dals21 Consequently upside risks in this area of interaction are minimal and downside risks are
much higher especially when we are seeing more decommissioning of nuclear plants in the
United States than new constructions The US EIArsquos 2017 Annual Energy Outlook assumes
that about 25 percent of the nuclear capacity now operating will be removed from ser vice
by 205022
WHY IS THE GRASS GREENER ON THE OTHER SIDE
The United States continues to significantly reduce imports of chemical fertilizers as domestic pro-
duction increases In 2016 the United States imported 13 percent less ammonia and 11 percent
less urea and UAN which is a liquid urea and ammonium nitrate fertilizer Rus sia accounts for
around 40 percent of UAN imported by the United States The United States canceled antidumping
duties on imports of ammonium nitrate and urea from Rus sia in 2016 but it did not prevent import
19 US EIA ldquoThe US Relies on Foreign Uranium Enrichment Ser vices to Fuel Its Nuclear Power Plantsrdquo Today in
Energy August 28 2013 https wwweia gov todayinenergy detail php idshy=shy1273
20 Colin Chilcoat ldquoDoes Rus sia Really Own 20 Percent of the USrsquo Uranium Reservesrdquo OilPricecom May 6 2015
http oilpricecom Alternative - Energy Nuclear - Power Does - Russia - Really - Own - 20 - Of - The - US - Uranium - Reserves
html
21 Michelle Ye Hee Lee ldquoThe Facts behind Trumprsquos Repeated Claim about Hillary Clintonrsquos Role in the Rus sian Ura-
nium Dealrdquo Washington Post October 26 2016
22 US EIA ldquoAnnual Energy Outlook 2017 with Projections to 2050rdquo 81ndash82
594-71613_ch01_4Pindd 35 102017 404 PM
Figure 512 US Imports from Rus sia Share of Oil Metals and Nuclear Fuel Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
87
86
90
90
90
91
88
86
7882
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals and Nuclear Fuel
Figure 513 US Imports from Rus sia Nuclear Fuel Materials US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$-
$200000000
$400000000
$600000000
$800000000
$1200000000
$1000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 36 102017 404 PM
Vadim Grishin 37
drops twice last year (Figures 514 and 515) According to forecasts UAN imports are expected to
decline further to 15 million tons this year down over 46 percent from 28 million tons imported
last year23 The downside trend in imports of fertilizers will likely continue because of oversupply
BIG FISH
US imports of fish and shellfish from Rus sia are best understood in comparison with US fish
exports to the Rus sian market which slipped to zero in August 2014 after Rus sia issued an order
banning certain agricultural imports from the United States (Figure 516) While the volume of US
supply was not very large it was impor tant because it broke up the monopolistic dominance of a
few vertically integrated Rus sian companies that have kept prices high by restricting the entry of
new producers Seeking to implement import substitution policies Rus sia has tried to reduce
exports as well as imports of fish and seafood products in the last couple of years This symmetri-
cal approach was intended to ldquocompensaterdquo for a decrease of fish products in the domestic
23 Deepika Thapliyal ldquoPotashCorp Forecasts Sharp Drop in US Nitrogen Imports in 2017rdquo ICIS News February 7
2017 https wwwicis com resources news 2017 02 07 10076734 potashcorp - forecasts - sharp - drop - in - us - nitrogen
- imports - in - 2017
Figure 514 US Imports from Rus sia Share of Oil Metals Nuclear Fuel and Fertilizers Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
90
93
92
93
94
95
92
91
85
86
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals Nuclear Fuel and Fertilizers
594-71613_ch01_4Pindd 37 102017 404 PM
Figure 515 US Imports from Rus sia Chemical- Fertilizers US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
S-
$200000000
$400000000
$600000000
$800000000
$1000000000
$1200000000
$1400000000
$1600000000
$1800000000
$2000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Figure 516 US Exports to Rus sia Fish and Shellfish US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$10000000
$20000000
$30000000
$40000000
$50000000
$60000000
$70000000
$80000000
$90000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Fish and shellfish
594-71613_ch01_4Pindd 38 102017 404 PM
Vadim Grishin 39
consumer market caused by Rus siarsquos import ban but it has failed As result the group most af-
fected by the self- imposed counter- sanctions were Rus sian consumers
With a significant drop in fish imports a devaluation of the ruble and inflationary pressures on
seafood prices yearly consumption of fish in Rus sia has declined precipitously In 2015 alone
fish prices increased 20 percent and consumption dropped to 14 kilograms per person24 from
22 kilograms in 201425 In 2016 food rose to 355 percent of house hold expenditure as a result of
increases in food prices26 This has pushed vertically integrated fishing monopolies to sell even
more of their catch abroad rather than deliver to the Rus sian Federation (Figure 517) Thus we
cannot exclude the possibility of further growth in US fish and shellfish imports from Rus sia on a
marginal scale
24 Александр Савельев ldquoПотребление рыбы в России упало до 14 кг на человекаrdquo [Fish consumption in Rus sia fell to
14 kg per person] Экономика Интерфакс January 28 2015 http wwwinterfax ru business 492038
25 Илья Шестаков ldquoПотебление рыбы в России снизилось на 10 процентов из- за роста ценrdquo [Fish consumption in
Rus sia dropped by 10 percent due to price increases] RNS March 8 2017 https rnsonline consumer - market
Potreblenie - ribi - v - Rossii - snizilos - na - 10 - iz - za - rosta - tsen - 2017 - 03 - 08
26 Zoya Sheftalovich and Christian Oliver ldquoRus siarsquos Boom (Farming) Economyrdquo Politico November 8 2016 http
wwwpolitico eu article russias - boom - farming - economy
Figure 517 US Imports from Rus sia Fish and Shellfish US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$50000000
$100000000
$150000000
$200000000
$250000000
$300000000
$350000000
$400000000
$450000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 39 102017 404 PM
US-Russia Economic Relations40
SPACE ODYSSEY
Among high- end products beyond the top five groups of goods imported from Rus sia cheap and
efficient Rus sian engines have been used to launch US rockets into space for about 16 years
(Figure 518) There was a serious po liti cal strug gle around a 2014 ban on the purchase of Rus sian
RD-180 rocket engines revealing the conflicting business interests of power ful high- tech companies
This restrictive mea sure was temporary and was quickly lifted because of significant cost impacts
and risks of disruption to launch schedules27 For the same reason the Sanctions Act does not autho-
rize ldquothe imposition of any sanction or other condition limitation restriction or prohibition that
directly or indirectly impedes the supply by any entity of the Rus sian Federation of any product or
ser vice or the procurement of such product or ser vice by any contractor or subcontractor of the
United States or any other entity relating to or in connection with any space launch conducted for
the National Aeronautics and Space Administration or any other nonndash Department of Defense
customerrdquo28
Nevertheless many experts believe that US domestic alternatives to replace Rus sian engines will
be viable in five to eight years
27 Ken Dilanian ldquoWhy Does the US Use Rus sian Rockets to Launch Its Satellitesrdquo NBC News updated November 15
2016 http wwwnbcnews com why - does - u - s - use - russian - rockets - launch - its - satellites - n588526
28 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364
Figure 518 Spacecraft Excluding Military US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 40 102017 404 PM
41
Diversity and technological complexity are the most vis i ble advantages supporting US exports to
Rus sia Three major groups of export goods include civilian aircraft engines and parts (Figure 61)
drilling and oil field equipment (Figure 62) and industrial machines and engines (Figure 63)
Despite sanctions against the transfer of advanced oil producing and pro cessing technologies the
realization of US drilling and oil field equipment in Rus sia is sustainable although some bilateral
proj ects have been frozen
Another category of goods that has demonstrated resilience is the phar ma ceu ti cal industry (Fig-
ure 64) because most drugs in Rus sia are imported (about 70 percent of the Rus sian phar ma ceu-
ti cal market in value) Import substitution policies have had only modest results in this industry
As confirmed by American Chamber of Commerce surveys US exports to Rus sia are closely
connected to US FDI 30 percent of total imports of US companies working in the Rus sian
market come from the United States (more than $2 billion in 2016) In other words about
40 percent of all US exports to Rus sia are related to a US corporate- sector business pro cess in
the country The major sectors of activity of these companies are energy and natu ral resources
(52 percent) manufacturing (17 percent) information and communications technology or ICT
(13 percent) retail (7 percent) automotive industry (6 percent) phar ma ceu ti cal production
(1 percent) professional ser vices (05 percent) and other (2 percent)1
Some obvious constraints on US exports to Rus sia have resulted from a reduction in demand A
deterioration of bilateral relations and implementation of sanctions and counter- sanctions have
directly or indirectly afected all businesses Figures 65 and 66 provide data regarding a dramatic
drop in the sale of US agricultural production in Rus sia with all other categories of exports in
goods showing big cuts as well (see Figures 67ndash69)
Exports of civilian aircraft engines and parts put the state of Washington in first place among
other states as a leading exporter to the Rus sian market (Figure 610)
1 American Chamber of Commerce in Rus sia ldquoInvestment and Import to Rus sia 2nd Surveyrdquo 13
Diversity and Constraints
06
594-71613_ch01_4Pindd 41 102017 404 PM
Figure 61 US Exports of Civilian Aircraft Engines Equipment and Parts to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
$2500000000
$2000000000
$1500000000
$1000000000
$500000000
$-
Figure 62 US Exports of Drilling and Oil Field Equipment US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
$40000000
$45000000
$50000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 42 102017 404 PM
Figure 63 US Exports of Industrial Engines to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Figure 64 US Exports of Phar ma ceu ti cal Preparations to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 43 102017 404 PM
Figure 65 US Exports of Meat and Poultry to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Meat poultry etc
$1000000000
$800000000
$600000000
$400000000
$200000000
$-
$1200000000
$1400000000
$1600000000
Figure 66 US Exports of Soybeans to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
$200000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 44 102017 404 PM
Figure 67 US Exports of Vehicles Engines and Parts to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Other parts and accessories of vehicles
Automotive tires and tubes
Bodies and chassis for passenger cars
Engines and engine parts (carburetors pistonsrings and valves)
Trucks buses and special purpose vehicles
Passenger cars new and used
$2500000000
$2000000000
$1500000000
$500000000
$-
$1000000000
Figure 68 US Exports of Medicinal Equipment to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 45 102017 404 PM
Figure 610 US Exports to Rus sia by States (2016 US$ Value) Million US$ 2013ndash2016
Source US Census Bureau ldquoState and Metropolitan Area Trade Datardquo
Iowa Kentucky
North Dakota
Oklahoma
South Carolina
Washington
0
$500
$1000
$1500
$2000
2013 2014 2015 2016
District of Columbia
Iowa
Kentucky
North Dakota
Oklahoma
South Carolina
Washington
Figure 69 US Exports of Excavating Machinery to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
$40000000
$45000000
$50000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 46 102017 404 PM
47
Upon reviewing the current trend in US- Russia economic relations we must acknowledge that
the existing trade model is obsolete and exhausted Imports are resource- oriented and reflect
constraints of the Rus sian economic structure while five groups of goodsmdash oil metals nuclear
fuels fertilizers and fishmdash make up more than 90 percent of total imports from Rus sia (Figure 71)
Each of these industries has a limited capacity for growth in the foreseeable future
Rus siarsquos core export to the United Statesmdash oilmdash will inevitably decrease in the mid- term under any
scenario The value and volume of Rus sian exports to the United States are open to global market
volatility and po liti cal pressures with limited hedging mechanisms
Overall US exports to Rus sia are unsustainable due to bilateral po liti cal tensions the whims of
commodity markets and changing domestic policies Sanctions and counter- sanctions have
created additional barriers particularly in finance banking high- tech energy and agro- business
According to the American Chamber of Commerce 69 percent of US companies working in the
country consider the impact of US sanctions against Rus sia on their business as negative At the
same time 60 percent of companies do not expect big changes in business relations between
Rus sia and the United States under Trump1 as the new law codifies existing sanctions fortifies
them and extends them to new sectors
Current US investments are low due to the weak rule of law in Rus sia a lack of property right
protections and proper contract enforcement high levels of statization and monopolization in the
economy a poor business climate outdated capital stock dependence on natural- resource
sectors and of course sanction and counter- sanction mea sures Bloated administrative compo-
nents created as risk mitigation instruments have also served as impediments The countryrsquos
institutional weakness low level of productivity bud get constraints and a declining inflexible
workforce will restrain future economic growth even if commodity prices recover Rus sian eco-
nomic policy will likely continue to be statist and protectionist relying mostly on import
substitutions
1 Ibid 11
Existing Trends and Future Scenarios
07
594-71613_ch01_4Pindd 47 102017 404 PM
US-Russia Economic Relations48
What scenarios can be expected in such a challenging environment
One probability (no peace no war) is based on the assumption that matters will not deteriorate
further and implementation of the Sanctions Act will be cursory This will cause relatively slow
degradation in the economic field with occasional flashes of activity in selected areas (eg closer
cooperation against Islamist terrorist groups in Syria)
A second worse case or critical scenario is the intensive and full- scale execution of current sanc-
tion legislation and even the imposition of new economic punitive and restrictive mea sures which
could incite asymmetric retaliatory actions and lead to the introduction of additional protectionist
policies This in turn could trigger a further escalation of mutual confrontation and could eventu-
ally destroy the fundamentals of the current bilateral trade system Rus sian leadership has charac-
terized the Sanctions Act as a declaration of a trade war that ends all hope for improving bilateral
relations2
2 Дмитрий Медведев ldquoПодписание президентом США нового санкционного закона против России создает несколько
последствийrdquo [The US Presidentrsquos signing of the package of new sanctions against Rus sia will have a few conse-
quences] Facebook August 2 2017 https wwwfacebook com Dmitry Medvedev posts 10154587161801851
Figure 71 US Imports from Rus sia Share of Oil Metals Nuclear Fuel Fertilizers and Fish Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
93
94
93
94
95
96
93
92
87
89
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals Nuclear FuelFertilizers and Fish
594-71613_ch01_4Pindd 48 102017 404 PM
Vadim Grishin 49
The best case and most favorable scenario looks less probable now It assumes the realization of
structural reforms in Rus sia in such a way that would adapt Rus siarsquos foreign policy to national
economic needs reduce confrontations with the West and make a concerted efort to integrate
Rus sian businesses into global supply and value chains A revitalization of the structural reform
agendamdash including eforts to diversify economic activities through de- monopolization and support
for SMEs a restructuring of the banking sector the creation of a vibrant business climate to foster
entrepreneurships and innovation the implementation of administrative and judicial reforms to
tackle red tape and endemic corruption and the reduction of state control over key sectors of the
economy via wide- spread privatization could kick- start the development of a nonoil economy and
improve long- term growth prospects Despite ongoing discussion of reform strategies deep
economic and po liti cal changes are extremely complicated over the next po liti calelectoral cycle
(2018ndash2024) particularly because of re sis tance of vested interests and growing commodity prices
The urgency to tackle structural shortcomings in natu ral resource- dependent economies usually
correlates with the price of those resources and the degree to which resource rents drive eco-
nomic activity However there may be marginal improvements in the efficiency of the current
economic system
Future US- Russia relations can be thought of through three pillars one pillar focuses on areas
where both countries maintain a competitive rivalry another looks at potential areas of interaction
under pres ent conditions a third pillar and one that has evaporated from the current bilateral
agenda concentrates on future cooperation Stronger economic ties could not only be a kind of
po liti cal shock absorber but contribute to the building of this future (particularly business contacts
aim to support future structural reforms) although po liti cal factors are depressing the prospects
for cooperation To escape deadlock it will be impor tant to establish the right balance between
politics and economics and create a model of collaboration within the framework of contention
594-71613_ch01_4Pindd 49 102017 404 PM
About the Author
Vadim Grishin PhD MBA has been involved in the reform pro cess in Rus sia as adviser to the
deputy prime minister of Rus sia in 1992ndash1993 and 2006ndash2010 He has extensive experience
working with the Bretton Woods Institutions He was the board member of the World Bank Group
and served as se nior adviser at the International Monetary Fund Currently he is a con sul tant to the
chief economistrsquos office of the International Finance Corporation and teaches the economics of
transition at Georgetown University in Washington DC
50
594-71613_ch99_4Pindd 50 102017 403 PM
Blank
COVER PHOTO ADOBE STOCK
1616 Rhode Island Avenue NW
Washington DC 20036
202 887 0200 | wwwcsisorg
v++ISBN 978-1-4422-8035-9
Lanham bull Boulder bull New York bull London
4501 Forbes Boulevard
Lanham MD 20706
301 459 3366 | wwwrowmancom
A U T H O R
Vadim Grishin
Myths and Realities
A Report of the
CSIS RUSSIA AND EURASIA PROGRAM
US-RussiaEconomicRelations
O C T O B E R 2 0 1 7
Euml|xHSLEOCy280359z
The Man Pupu Nyor Rock Formations at the Northern Urals also known as Seven
Strong Man or Little Mountain of the God in the local tribe (Mansi) language
US-Russia Economic Relations6
Trade is closely connected with foreign direct investment (FDI) and both are parts of a complex
interaction known as international production sharing According to publicly available official data
US FDI in Rus sia was about $131 billion for 2013 and $295 billion for 2016 with the top industrial
sectors being software and IT ser vices financial ser vices chemicals metals coal oil and gas
and business ser vices5 If we take into account US investments made through Eu ro pean branches
of US companies and ofshore firms this number would easily triple Another component
that usually is not tracked by official statistics is reinvestments The American Chamber of
Commerce surveys in 2016 and 2017 which include this component draw a completely dif er ent
picture accumulated US corporate FDI in 90 large US companies working in Rus sia reached
5 US Department of Commerce International Trade Administration ldquoRussiamdash94- Foreign Direct Investment and
Portfolio Investment Statisticsrdquo Rus sia Country Commercial Guide July 7 2017 https wwwexport gov article
id=shyRussia - foreign - direct - investment - statistics
Figure 21 US Trade in Goods with China India Brazil Rus sia and South Africa Billion US$ 2016
Source USTR ldquoCountries amp Regionsrdquo See US- China Trade Facts US- India Trade Facts US- Brazil Trade
Facts US- South Africa Trade Facts and US- Russia Trade Facts
0
$50
$100
$150
$200
$250
$300
$350
$400
$450
$500
$550
$600
China India Brazil Russia South Africa
Exports
Imports
594-71613_ch01_4Pindd 6 102017 404 PM
Vadim Grishin 7
$8244 billion in 20176 The real level from our perspective is usually between official and private
estimations around $40 billon But even this cumulative figure is less than the US FDI in Brazil
and China
The American Chamber of Commerce surveys have also revealed other impor tant data Eighty-
five percent of US companies doing business in Rus sia entered its market 10 or more years ago
while 60 percent of them ldquolandedrdquo there 20 years ago or earlier Only one percent have started
operations over the last five years confirming an obvious fact entry into the Rus sian market is
challenging because of growing monopolism risks associated with the business climate and a
stagnating economy7
6 American Chamber of Commerce in Rus sia ldquoInvestment and Import to Rus sia 2nd Surveyrdquo (Prepared by GfK for the
American Chamber of Commerce in Rus sia Moscow May 2017) 12
7 Ibid 4
Figure 22 US Trade in Goods and in Ser vices with China India Brazil Rus sia and South Africa Billion US$ 2016
Source USTR ldquoCountries amp Regionsrdquo See US- China Trade Facts US- India Trade Facts US- Brazil Trade
Facts US- South Africa Trade Facts and US- Russia Trade Facts
0
$100
$200
$300
$400
$500
$600
$700
China India Brazil Russia South Africa
Trade in Services
Total Goods Trade
594-71613_ch01_4Pindd 7 102017 404 PM
US-Russia Economic Relations8
Rus sian direct investment position toward the United States declined from $215 billion in 2013 to
$83 billion in 2015 (Figure 23) Taking into account dif er ent channels and instruments the actual
volume of Rus sian investments in the United States made through ofshore Eu ro pean Canadian
and US companies may be several times greater than the available official data
Foreign investment in financial assets or foreign portfolio investment (FPI) should be included
even though Central Bank of Rus sia statistics indicate they were also quite low US investments in
equity were $345 million and in debt instruments were about $65 million in the fourth quarter of
20168 However these numbers do not reflect the real level of FPI Rus siarsquos stocks are incredibly
inexpensive while there has been impressive growth of US investments in short- term securities
and in foreign exchange (FX) operations (cash- and- carry trade) Rus sia was among the top per-
forming emerging markets in 2016 gaining 4744 percent in US dollars9 Nevertheless the gen-
eral capitalization of the stock exchange is tiny (less than 20 percent of GDP) comparable to the
capitalization of just one large US com pany such as Coca- Cola Many private sources believe that
the US FPI in Rus sia could be as high as several billion US dollars but a new set of sanctions
approved by President Trump on August 2 2017 if implemented could reverse those flows It is
still not clear whether the secretary of trea sury will prohibit participation in the oferings of Rus siarsquos
sovereign debt and the full range of derivative products A report on this subject should be sub-
mitted no later than 180 days after enactment of the law which means no later than Febru-
ary 2018 New legislation tightens prohibition on Rus sian financial companies already under
sanctions by limiting any new equity or debt with a maturity greater than 14 days (a provision that
8 Central Bank of Rus sia ldquoForeign Direct Investments in the Rus sian Federationrdquo accessed September 27 2017 www
cbr ru localization switchlanguage urlshy=shy news ampfromshy=shyru - ruamptoshy=shyen - gb
9 VanEck ldquoRus sian Stock Market Soars in 2016rdquo Seeking Alpha February 14 2017 https seekingalphacom article
4045602 - russian - stock - market - soars - 2016
Table 22 Summary Output of Regression Statistics (US Real GDP Rus sia Real GDP US- Russia Exports Imports and Total Trade)
Regression Statistics
Multiple R 0056445768
R Square 0003186125
Adjusted R Square minus0042123597
Standard Error 2616043923
Observations 24
Sources IMF statistics authorrsquos computation
594-71613_ch01_4Pindd 8 102017 404 PM
Vadim Grishin 9
previously allowed for 30 days) Similarly US persons are prohibited from taking on any new debt
that has a maturity greater than 60 days (previously it was 90 days) with Rus sian energy compa-
nies currently under sanctions10
According to the Trea sury Department Rus sia held $1029 billion in US Trea sury securities in
June 201711 Could Rus sia withdraw all its reserves from the United States and use this action as a
retaliatory mea sure Such a scenario is unlikely since there is no comparable safe- haven alterna-
tive to US dollars When Rus siarsquos US Trea sury holdings dropped 50 percent from $176 billion
(October 2010) to $90 billion (November 2011) the market did not notice12 Nevertheless Rus sian
authorities have announced they will decrease dependence on assets and payments in US dollars13
10 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364
11 US Department of Trea sury Major Foreign Holders of Trea sury Securities September 18 2017 http ticdata
treasury gov Publish mfh txt
12 Ibid
13 ldquoНовый виток санкций Россия откажется от доллараrdquo [A new round of sanctions Rus sia will abandon the dollar]
Газетару August 7 2017 https wwwgazeta ru business 2017 08 07 10821937 shtml
Figure 23 Rus sia Outward FDI Position United States Equities and Debt Million US$ 2009ndash2016
Source Central Bank of the Rus sian Federation External Sector Statistics Rus sian Direct Investments
Abroad accessed September 27 2017 https wwwcbr ru localization switchlanguage urlshy=shy news
ampfromshy=shyru - ruamptoshy=shyen - gb
$6000
$8000
$10000
$12000
$14000
$16000
$18000
$20000
$22000
2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 9 102017 404 PM
US-Russia Economic Relations10
Officially the country does not invest in the US stock exchange although some Rus sian oligarchs
have bought US corporate bonds and equities in large amounts The new sanctions law requires
the secretary of trea sury in consultation with the director of national intelligence and the secretary
of state to issue reports on Rus sian se nior po liti cal figures and oligarchs based on their closeness
to the Rus sian regime and their net worth as well as the exposure of key economic sectors of the
United States to Rus sian po liti cally exposed persons and parastatal entities including at a mini-
mum the banking securities insurance and real estate sectors14
Only three Rus sian companies are listed in the US exchanges
Overall the scale and scope of US- Russia economic interaction and business activity is much greater
than officially appreciated but not significant enough to be taken into consideration by policymakers
14 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364
594-71613_ch01_4Pindd 10 102017 404 PM
11
03
Politics in the Driverrsquos Seat
Bilateral economic relations depend to a great extent on global and national economic cycles
After the recent global financial crisis the US economy has shown surprisingly sustainable GDP
growth while the Rus sian economy was the most afected among BRICS countries by the turbu-
lence of a worldwide economic downturn in 2008ndash2009 and after a short- term rebound slipped
into stagnation (2012ndash2013) and then into full- scale recession (2014ndash2016) The countryrsquos eco-
nomic cycle however appears to be changing once again with the economy returning to a
pattern of growth albeit uneven and gradual (Figures 31 and 32) Even with sanctions still in place
conditions have improved as a result of the stabilization of Urals oil to an average annual price of
$419 per barrel in 2016 The gains were sparked in part by major crude producers agreeing to cut
production after hefty price drops in 2014 and 2015 Supported by easier financial conditions
higher oil prices and growing macro- stability Rus sia is heading toward a moderate growth rate
that is expected to reach 14 percent this year according to forecasts of the World Bank Group
(WBG) and the IMF1
Because of the significant role that politics plays in any bilateral interaction it is impor tant to
combine economic and po liti cal cycles applying a ldquoresetrdquo to bilateral economic cooperation in
addition to the po liti cal relationship I have compared po liti cal cycles and trade dynamics using the
following graphs ( Table 31 and Figure 33) These charts do not pretend to reflect with mathemati-
cal precision all shifts in the bilateral po liti cal relationship but rather attempt to visually align
impor tant economic and po liti cal moments to detect the efects of po liti cal events on the size of
bilateral trade
Figure 33 shows all pos si ble combinations economic trends at the intersection of po liti cal devel-
opments oppose or support each other in synchronization It is evident that po liti cal interference
1 International Monetary Fund Rus sian Federation Staff Concluding Statement of the 2017 Article IV Mission (Wash-
ington DC IMF 2017) World Bank Group From Recession to Recovery Rus sia Economic Report no 37 (Washington
DC World Bank 2017) http pubdocsworldbank org en 383241495487103815 RER - 37 - May26 - FINAL - with - summary
594-71613_ch01_4Pindd 11 102017 404 PM
US-Russia Economic Relations12
in bilateral business afairs in the early 2000s was less significant than in later years As result
growing po liti cal tensions from 2003 to 2008 did not dramatically afect bilateral economic inter-
action It is also easier to explain why 2011ndash2012 resulted in rec ord trade and investmentmdash a con-
sequence of very high oil prices GDP growth in both countries improved legislation after Rus siarsquos
accession to the WTO and the Obamandash Medvedev po liti cal reset From 2014 to 2016 a perfect
storm of developments added efficiency to Western sanctions and augmented the damaging
consequences of counter- sanction mea sures
Figure 33 also confirms that in times of reduced economic cooperation po liti cal pressures can
easily change bilateral economic trends Moreover business interests along with economic inter-
actions have a limited capacity to reverse the po liti cal mainstream
Figure 31 Economic Cycle 2014ndash2016
Source Authorrsquos evaluation of international financial institutions (IFI) data and sources from respective
countries
Sustainable Growth
Brazil
Negative Growth
Unstable Growth
Mexico
Descending Growth
Argentina
EU
US
Russia
Vietnam
China
594-71613_ch01_4Pindd 12 102017 404 PM
Vadim Grishin 13
Table 31 Po liti cal Cycles in Bilateral US- Russia Relations 1999ndash2016
2001ndash2002 The George W Bushndash Vladimir Putin Reset Rus sia supported ldquoglobal war on terrorismrdquo launched by the United States after 911 the SORT nuclear arms reduction treaty was signed by the United States and Rus sia and a successful business dialogue was developed that created the current structure of economic relations
2003ndash2008 Deterioration in bilateral relations brought on by the Iraq War Georgiarsquos ldquoRose Revolutionrdquo Mikhail Khodorkovskyrsquos arrest Ukrainersquos ldquoOrange Revolutionrdquo Kosovorsquos in de pen dence and the Georgian War
2009ndash2010 The Barack Obamandash Dmitry Medvedev Reset Rus sia served as a logistical hub for transportation and supply of US forces in Af ghan i stan United States and Rus sia signed the new START nuclear arms reduction treaty Rus sia backed tighter economic sanctions on Iran Rus sia gained access to the WTO after 18 years of negotiations
2011ndash2016 Deterioration in bilateral relations caused by the Ukrainian crisis which were followed by sanctions and counter- sanctions along with the Syrian crises and cyber- enabled activities
Source Authorrsquos evaluation of po liti cal and economic data
Note SORTthinsp=thinspStrategic Ofensive Reductions Treaty STARTthinsp=thinspStrategic Arms Reduction Treaty
Figure 32 Economic Cycle 2017ndash2019
Source Authorrsquos evaluation of IFI data and sources from respective countries
Egypt
VenezuelaEU
South Africa
Brazil
Russia
India
US
Descending Growth
Korea
China
Negative Growth
Unstable Growth
Sustainable Growth
594-71613_ch01_4Pindd 13 102017 404 PM
US-Russia Economic Relations14
Figure 33 US- Russia Trade Million US$ vs Po liti cal Cycle 2000ndash2016
Sources US Census Bureau ldquoTrade in Goods with Rus siardquo Foreign Trade last modified June 29 2017
https wwwcensus gov foreign - trade balance c4621 html (see data for 2000ndash2016) authorrsquos evaluation
of po liti cal and economic data
Orange Revolution
Khodorkovskys arrest
GeorgianWar
Bush- Putin Reset
Iraq War Global Financial Crisis
Obama-Medvedev Reset
Russias WTO accession
New START Treaty
A Pefect Storm the Ukranian Crisis Oil Prices Crashing
Sanctions and Counter-Sanctions
$3000
$8000
$13000
$18000
$23000
$28000
$33000
$38000
$43000
2000 2002 2004 2006 2008 2010 2012 2014 2016
594-71613_ch01_4Pindd 14 102017 404 PM
15
The current structure of US- Russia economic relations emerged in the early 2000s when the
model of trade and investment interaction took on a character similar to that which existed be-
tween the United States and developing economies US imports from Rus sia centered on com-
modities while technology along with food products lead American exports The primary
exception was that Rus sia supplied nuclear fuel including highly enriched uranium extracted from
nuclear weapons for US power plants and provided ser vices to the aerospace industry primarily
in satellite launches However both these exceptions can be explained as a legacy of the Soviet
past and not a harbinger of the future economic relationship (Figure 41)
In the last 15 years this trade structure has not changed significantly The only noticeable shift in
trade was a dramatic drop (to practically nothing) in exports of US agricultural products a result
of Rus siarsquos policy of import substitution and so- called counter- sanction mea sures it took in re-
sponse to US sanctions over the Ukraine crisis (Figure 42)
Promising new directions of cooperation in the IT sector and in engineering ser vices for the
aerospace industry appeared in the early 2000s1 but did not spill into other sectors and conse-
quently did little to renew economic cooperation on the whole The integration of Rus sian high-
tech ser vices into large- scale global production and value chains was constrained by the usual
culprits a lack of financial resources managerial experience skilled labor modern infrastructure
RampD investments and an adequate business environment High commodity prices incentivized the
restoration of an economic system centered on resource rents The leading role of oil and gas
extraction and transportation discouraged the development of a nonenergy sector that might
have created advanced and complex production and ser vices An import substitution policy could
not work efficiently in an economic environment plagued by the Dutch disease where currency
1 The Boeing Design Center was created in Moscow It consists of nearly 250 Boeing employees managing
a team of 1200 contract engineers from Rus sian and Ukrainian aerospace companies ldquoBackgrounder Boeing in
Rus siardquo Boeing last modified January 2017 http wwwboeing com resources boeingdotcom company key _ orgs
boeing - international pdf russia - cisbackgrounder pdf
Are the United States and Rus sia ldquoNatu ralrdquo Trading Partners A Little Bit of History
04
594-71613_ch01_4Pindd 15 102017 404 PM
US-Russia Economic Relations16
inflows (oil money) lead to ruble appreciation and render a countryrsquos production less competitive
During that time Rus siarsquos industry did not receive preferential access to larger markets and could
not expand its share in the global economy particularly because of its self- isolation from the
regional trade agreements (except for its participation in the Eurasian Economic Union with some
neighboring countries of the former Soviet Union) As a result neither import substitution nor
export- led strategy promoted growth and specialization in nonoil production A long- awaited
modernization and reallocation of resources from an inefficient nontrade sector to a trade sector
did not materialize
These limits were later augmented with sanctions and an extension of domestic restrictions on
cooperation with Western partners Importantly the rapid growth of state- monopoly structures in
the Rus sian economy over the past 15 years has created additional obstacles to the development
and diversification of US- Russia economic ties
Figure 41 US Imports from Rus sia US$ 2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2016)
Fish and shellfish 3
Crude oil 5
Fuel oil 37
Petroleum products other
8
Nuclear fuel materials
7
Chemicals-fertilizers 4
Steelmaking materials 5
Iron and steel mill products 4
Bauxite and aluminum 9
Other precious metals 4
Nonferrous metals other 1
Finished metal shapes 1
Synthetic rubber--primary
1
Spacecraftexcluding military
594-71613_ch01_4Pindd 16 102017 404 PM
Fig
ure
42
U
S E
xpo
rts
to R
us s
ia U
S$ 2
016
Sou
rce
US
Ce
nsu
s B
ure
au ldquo
Trad
e in
Go
od
s w
ith
Ru
s sia
rdquo (s
ee
dat
a fo
r 2
016
)
Bak
ery
pro
du
cts
Win
e b
eer
an
d r
elat
ed
pro
du
cts
New
spri
nt
Pla
stic
mat
eria
ls
Ch
emic
als-
fert
ilize
rs
Ch
emic
als-
ino
rgan
icC
hem
ical
s-o
rgan
ic
Ch
emic
als-
oth
erC
ott
on
fib
er c
loth
In
du
stri
al r
ub
ber
pro
du
cts
Min
eral
su
pp
lies-
man
ufa
ctu
red
Gen
erat
ors
acc
esso
ries
Ele
ctri
c ap
par
atu
s
Dri
llin
g amp
oilfi
eld
eq
uip
men
t Sp
ecia
lized
min
ing
Exc
avat
ing
mac
hin
ery
No
nfa
rm t
ract
ors
an
d p
arts
In
du
stri
al e
ng
ines
Fo
od
to
bac
co m
ach
iner
y M
etal
wo
rkin
g m
ach
ine
too
ls
Tex
tile
sew
ing
m
ach
ines
W
oo
d g
lass
p
last
ic
Pu
lp a
nd
pap
er
mac
hin
ery
Mea
suri
ng
tes
tin
g
con
tro
l in
stru
men
ts
Mat
eria
ls h
and
ling
equ
ipm
ent
Ind
ust
rial
mac
hin
es
oth
er
Ph
oto
ser
vice
ind
ust
ry m
ach
iner
y A
gri
cult
ura
l mac
hin
ery
eq
uip
men
t C
om
pu
ters
Co
mp
ute
r ac
cess
ori
es
Sem
ico
nd
uct
ors
Tel
eco
mm
un
icat
ion
seq
uip
men
t
Bu
sin
ess
mac
hin
es a
nd
eq
uip
men
t
Lab
ora
tory
tes
tin
g in
stru
men
ts
Med
icin
al e
qu
ipm
ent
Civ
ilian
air
craf
t e
ng
ines
eq
uip
men
t a
nd
par
ts
Rai
lway
tra
nsp
ort
atio
n
equ
ipm
ent
Ves
sels
exc
lud
ing
scr
ap
Co
mm
erci
al v
esse
ls o
ther
M
arin
e en
gin
es p
arts
Spac
ecra
ft e
xclu
din
g
mili
tary
Pas
sen
ger
car
s
new
an
d u
sed
Tru
cks
bu
ses
and
sp
ecia
l p
urp
ose
ve
hic
les
En
gin
es a
nd
en
gin
e p
arts
(c
arb
ure
tors
pis
ton
s r
ing
s
and
val
ves)
B
od
ies
and
ch
assi
s fo
r p
asse
ng
er c
ars
Au
tom
oti
ve t
ires
an
d t
ub
es
Oth
er p
arts
an
d a
cces
sori
es o
f ve
hic
les
Ap
par
el h
ou
seh
old
go
od
s -
text
ile
Ph
arm
aceu
tica
lp
rep
arat
ion
s
Furn
itu
re h
ou
seh
old
go
od
s
etc
R
ug
s
Cel
l ph
on
es a
nd
oth
er
ho
use
ho
ld g
oo
ds
ne
c
594-71613_ch01_4Pindd 17 102017 404 PM
US-Russia Economic Relations18
Figure 43 US Trade in Goods with Rus sia Million US$ 1992ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
Russian Financial Crisis
Oil price Increased from$2446 USD per barrel (2001)
to $9694 USD per barrel(2008)
Global Financial Crisis
Oil price high record in2011-2012
(more that $111 USD perbarrel)
Oil price crashed
$-
$5000
$10000
$15000
$20000
$25000
$30000
$35000
$40000
$45000
$50000
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia US Exports to Russia US-Russia Trade in Goods
No doubt po liti cal ups and downs add volatility to US- Russia trade Nevertheless Rus siarsquos eco-
nomic structure exhausted itself before the Ukrainian crisis and the recent Rus sian recession Its
limitations are not only due to some mistakes in policy or negative coincidences of circumstances
but rather to deeply rooted properties in the current bilateral trade model related to structural
issues in the Rus sian economy Structural constraints such as the weak enforcement of property
rights poor business regulation and nondiversified exports weighed on Rus sian trade with the
United States From this perspective the term ldquonaturalunnatural trading partnersrdquo does not ad-
dress the unused capacity of bilateral interaction or the real challenges that kind of interaction
faces It just adds metaphysical flavor to the very specific economic and po liti cal factors that
determine the US- Russia trajectory
Overall the outlines of bilateral trade (Figure 43) resemble the famous ldquoRus sian Mountainsrdquo that
were a pre de ces sor of the modern roller coaster icy hills supported by wooden constructionsmdash a
rigid and immobile structure that sooner or later would melt This unfortunately is what is hap-
pening to US- Russia trade cooperation now
594-71613_ch01_4Pindd 18 102017 404 PM
19
ARE LITTLE FISH REALLY SWEET
Low US- Russia economic interaction has at least two consequences First it limits the capacity of
policymakers to exploit trade as an instrument for geopo liti cal combat Even the question of a US
trade deficit which used to be a headache for many US trading partners has become so insig-
nificant in absolute terms (about $87 billion in 2016) that it seems hardly worth caring about
When the volume of trade between two countries becomes very small in absolute terms whether
a country is running a surplus or deficit is no longer relevant But it also renders another type of
confrontations (sometimes more dangerous) more likely since the two traders have little to lose
Second in an environment marked by low levels of bilateral trade both sides could incentivize (if
and when a desire for po liti cal rapprochement exists) the signing of new trade deals which are
elevated symbolically as a turning point in bilateral po liti cal relations (ie the sale of Boeings to
Rus sia or the delivery via tankers of Rus sian oil to US refineries) Sometimes markets themselves
pres ent ldquogiftsrdquo that can be capitalized on po liti cally US- USSR grain trade in the 1970s was one
such ldquogiftrdquo large sales of American grain to the Soviet Union helped US policymakers win favor
with the po liti cally impor tant American farming sector and permitted Soviet leaders to maintain
access to a dietary staple for the Soviet population
The strong 32 percent growth in value of US imports from Rus sia from January to May 2017
versus January to May 2016 ( Table 51) is an example of a development that has tempted officials
to pres ent it as a sign of positive change due to ldquogrowing business activitiesrdquo (this kind of statement
was heard before the bilateral summit in Germany in July 2017) although the reason for that leap
was evidently an increase in commodity prices (mainly of oilmdash see Table 52) and not a rise in
entrepreneurial interactions The primary beneficiaries of that upside rally have been two other
petro- economies Saudi Arabia and Venezuela ( Tables 53 and 54)
Sector Analyses
05
594-71613_ch01_4Pindd 19 102017 404 PM
US-Russia Economic Relations20
Table 51 US Imports from Rus sia Million US$ Januaryndash May 2016 vs Januaryndash May 2017
Year January February March April May Total
2016 9603 6871 11097 12257 10977 50805
2017 12215 10220 16979 13471 14147 67032
Change 271 487 530 99 289 319
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
Table 52 Change in Urals Crude Oil Prices US$ per Barrel Januaryndash May 2016 vs Januaryndash May 2017
Januaryndash May 2016 Januaryndash May 2017 Change ($) Change ()
3601 5129 1528 424
Source Ministry of Finance of the Rus sian Federation https wwwminfin ru ru ixzz4mMIZ7XtC
Table 53 US Imports from Saudi Arabia Million US$ Januaryndash May 2016 vs Januaryndash May 2017
Year January February March April May Total
2016 15114 9036 13555 10844 14679 63228
2017 19802 20298 21650 16211 19542 97503
Change 3101 12463 5972 495 331 542
Source US Census Bureau ldquoTrade in Goods with Saudi Arabiardquo Foreign Trade last modified June 29 2017
https wwwcensus gov foreign - trade balance c5170 html (see data for 2016ndash2017)
594-71613_ch01_4Pindd 20 102017 404 PM
Vadim Grishin 21
Table 54 US Imports from Venezuela Million US$ Januaryndash May 2016 vs Januaryndash May 2017
Year January February March April May Total
2016 6657 5560 7140 8007 7922 35286
2017 13041 10864 123500 11148 12243 59646
Change 9590 9540 7297 3923 5454 6903
Source US Census Bureau ldquoTrade in Goods with Venezuelardquo Foreign Trade last modified June 29 2017
https wwwcensus gov foreign - trade balance c3070 html (see data for 2016ndash2017)
Table 55 US Exports to Rus sia Million US$ Januaryndash May 2016 vs Januaryndash May 2017
Year January February March April May Total
2016 3628 3577 7298 4657 4947 24107
2017 3144 4277 5386 6670 4806 24283
Change minus133 196 minus262 432 minus29 minus07
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2016ndash2017)
At the same time US exports to Rus sia continue to stagnate ( Table 55) due to low levels of
consumption during a two-and- a- half-year economic crisis a deep ruble devaluation sanctions
and counter- sanctions
Given the very dif er ent economic structures and resource endowments of Rus sia and the United
States it is not surprising that US- Russia trade is asymmetric and oil driven (Figure 51) A
3 percent increase in Urals oil prices translates into a one percent increase in US import growth
from Rus sia Thus in 2016 every $10 increase in Urals crude oil added $15 billion to the value of
US imports or 11 percent to the total value of imports from Rus sia
OIL ADDICTION
Oil is a core pillar of US- Russia bilateral trade A bumpy ride in oil markets afects commerce
Nevertheless Rus sian oil exports to the United States in physical terms have been rather
594-71613_ch01_4Pindd 21 102017 404 PM
US-Russia Economic Relations22
sustainable Starting from 2005 average annual deliveries have been above 150 million barrels
(Figure 52) Crude and heating oil have dominated while petroleum products and liquefied petro-
leum gases have not (Figure 53) In 2011 oil exports peaked at 228 million barrels but declined to
159 million barrels in 2016mdash a drop of 30 percent Rec ord high shipments of Rus sian oil to the United
States coincided with an elevation in oil prices which made the subsequent decline in oil shipment
value between 2011 and 2016 (by about 72 percent as shown in Figure 54) seem more stark The
increase in price also raised the share of oil in Rus sian exports by 74 percent in 2011 (Figure 55)
The Rus sian share in total US oil imports was around 55 percent in 2011 and 43 percent in 2016
( Table 56) In the last five years the United States has relied exclusively on consumption of Rus sian
oil for the rough equivalent of one week out of the year (Figure 56)
It is unlikely that Rus sia can significantly increase its share of the US oil market and there is a real
possibility for a downward trend There are several reasons the historically high Rus sian hydrocar-
bon export threshold of 2011 will not soon if ever be surpassed
First US energy consumption will likely be flat According to the US Energy Information Adminis-
tration (EIA) demand for petroleum and other liquids in the United States will be about 35ndash36
quadrillion British thermal units (BTUs) with minimal variation over the next 25 years1
1 US EIA ldquoAnnual Energy Outlook 2017 with Projections to 2050rdquo January 5 2017 7ndash8
Figure 51 US- Russia Trade Growth () vs US and Rus sia Real GDP Growth () 1993ndash2016
Source IMF ldquoIMF Datardquo accessed September 27 2017 http wwwimf org en Data US Census Bureau
ldquoTrade in Goods with Rus siardquo
Note rGDPthinsp=thinspreal gross domestic product
Trade
USA rGDP growth
Russia rGDP growth
-60
-40
-20
0
20
40
60
80
100
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Gro
wth
All spikes in US-Russia trade have been connected with two main
variables volume and price of crude oil
594-71613_ch01_4Pindd 22 102017 404 PM
Vadim Grishin 23
Second the United States will become a net energy exporter between 2020 and 2030 in most
cases under dif er ent combinations of oil and natu ral gas prices GDP growth technological
breakthroughs and the availability of energy resources The role of oil imports will dramatically
fall2
Third oil price scenarios as described by the International Energy Agency (IEA) international
financial organ izations (IFIs) and many national agencies are very cautious and assume that even
by 2035 to 2040 oil prices will not to recover to the levels of 2011ndash20123
Fourth Rus sian oil production and export growth will be modest and driven by Asian economic
expansion and will comprise a decreasing share of Western markets4 According to forecasts from
2 Ibid 15ndash18
3 Ibid table 3 ldquoEnergy Prices by Sector and Sourcesrdquo World Bank World Bank Commodity Markets Price Forecasts
(Washington DC World Bank 2017) httpswwwworldbank org en research commodity - markets Organ ization of the
Petroleum Exporting Countries (OPEC) World Oil Outlook 2016 (Vienna OPEC 2016)
4 E D Belotskaia et al Global and Rus sian Energy Outlook 2016 (Moscow Energy Research Institute of the Rus sian
Acad emy of Science Analytical Center for the Government of the Rus sian Federation 2016) http acgov ru files
publication a 12767 pdf
Figure 52 US Imports from Rus sia Crude Oil and Petroleum Products Thousands of Barrels 1995ndash2016
Source US EIA ldquoUS Imports by Country of Origin Rus siardquo Petroleum amp Other Liquids September 13
2017 http wwweia gov dnav pet PET _ MOVE _ IMPCUS _ D _ NUS _ NRS _ MBBL _ M htm
0
50000
100000
150000
200000
250000
Date 1995 1996 1997 1998 199920002001200220032004200520062007200820092010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 23 102017 404 PM
US-Russia Economic Relations24
the Organ ization of the Petroleum Exporting Countries (OPEC) crude oil exports from Rus sia and
the Caspian region to the United States will dis appear by 20255
So why does the Rus sian Urals blend continue to be attractive for oil traders and US refineries
which could pro cess greater volumes of domestically produced lighter crude There are two main
reasons One is related to the preference of US high conversion refineries (the most sophisticated
in the world) to work with heavy oil blends produced by Canada Mexico Iraq Venezuela and
Rus sia Pro cessing heavy crude now is as profitable as pro cessing lighter crude The so- called
crack spreadmdash the diference between the cost of relatively cheap heavy crude oil and the final
price of value- added consumer products (diesel gasoline jet fuel and heating oil)mdash has become
the same as the refinery margins of light sweet crude6 This has primarily afected light oil produc-
ing countries such as Angola Algeria and Nigeria
5 OPEC World Oil Outlook 2016 306ndash309
6 ldquoHow Much for That Heavy Oilrdquo Oil Sands Magazine December 26 2015 https wwwoilsandsmagazine com
news 2015 12 26 how - much - for - that - heavy - oil
Figure 53 US Imports from Rus sia Oil and Petroleum Products US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$-
$25000000000
$20000000000
$15000000000
$10000000000
$5000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Liquefied petroleum gases
Petroleum products other
Fuel oil
Crude oil
594-71613_ch01_4Pindd 24 102017 404 PM
Vadim Grishin 25
Another factor afecting purchase of Rus sian oil is a new trend among oil companies for further
consolidation of scale and for integrating operations of upstream and downstream business7
There have been several waves of separation and unification of production transportation and
pro cessing in the last 50 years The current business cycle can be seen as an adaptation to a
period of low prices and oversupply Companies that buy andor produce oil in Rus sia most likely
prefer to transport and pro cess this oil in their own modern refineries in the United States At the
same time some of the newest refinery designs specifically for pro cessing heavy oils have been
built in Asia thus extending the choices of heavy oil producing countries
We should also consider that leading US and international oil traders along with oil producing
companies working with or owning US refineries frequently buy Rus sian oil on the open market
and have long- term contracts on Rus sian crude oil delivery Many Rus sian oil companies prefer to
pay for purchases or ser vices with their future production instead of cash creating situations of
ldquostickyrdquo oil imports that are difficult to replace The best- known example is an interaction between
7 ldquoEnergy and Utilities Sectorrdquo Roundtable Financier Worldwide December 2015 https wwwfinancierworldwide
com roundtable - energy - utilities - sector - dec15
Figure 54 US Imports of Oil and Petroleum Products from Rus sia vs Oil Prices Eu rope Brent Spot Price Free on Board (FOB) 1996ndash2017
Source US EIA ldquoUS Imports by Country of Origin Rus siardquo
0
20
40
60
80
100
120
140
0
5000
10000
15000
20000
25000
30000
Jan
-19
96
Jun
-19
96
No
v-19
96
Ap
r-19
97
Sep
-19
97
Feb
-19
98
Jul-
199
8D
ec-1
99
8M
ay-1
99
9O
ct-1
99
9M
ar-2
00
0A
ug
-20
00
Jan
-20
01
Jun
-20
01
No
v-2
00
1A
pr-
20
02
Sep
-20
02
Feb
-20
03
Jul-
20
03
Dec
-20
03
May
-20
04
Oct
-20
04
Mar
-20
05
Au
g-2
00
5Ja
n-2
00
6Ju
n-2
00
6N
ov-
20
06
Ap
r-2
00
7Se
p-2
00
7Fe
b-2
00
8Ju
l-2
00
8D
ec-2
00
8M
ay-2
00
9O
ct-2
00
9M
ar-2
010
Au
g-2
010
Jan
-20
11Ju
n-2
011
No
v-2
011
Ap
r-2
012
Sep
-20
12Fe
b-2
013
Jul-
20
13D
ec-2
013
May
-20
14O
ct-2
014
Mar
-20
15A
ug
-20
15Ja
n-2
016
Jun
-20
16N
ov-
20
16
USD
per
Bar
rel
Th
ou
san
d B
arr
els
US Imports from Russia of Crude Oil and Petroleum Products (Thousand Barrels)
Europe Brent Spot Price FOB (Dollars per Barrel)
594-71613_ch01_4Pindd 25 102017 404 PM
US-Russia Economic Relations26
Table 56 US Oil Imports All Countries vs Rus sia Thousand Barrels per Day 2011ndash2016
Years 2011 2012 2013 2014 2015 2016
All Countries 11436 10598 9859 9241 9449 10058
Rus sia 624 477 460 330 371 433
Share 546 450 467 357 393 431
Sources US EIA ldquoUS Imports by Country of Origin Total Crude Oil and Productsrdquo Petroleum amp Other
Liquids September 13 2017 wwweia gov dnav pet pet_move_impcus_a2_nus_ep00_im0_mbbl_m htm
authorrsquos computation
Figure 55 US Imports from Rus sia Share of Crude Oil and Petroleum Products Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
57
64
73
72
74
73
72
59
52 50
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
$40000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil and Petroleum Products
594-71613_ch01_4Pindd 26 102017 404 PM
Vadim Grishin 27
the Rus sian state mono poly Rosneft and commodity trading and mining giant Glencore which
along with energy and commodities com pany Vitol participated in a $10 billion prepayment
deal with Rosneft for crude supplies in 2013
There have been a number of ongoing transactions between the Rus sian oil industry and interna-
tional oil companies including several that top the list of importers of Rus sian oil to the United
States ( Table 57) In December 2016 Glencore participated in a controversial privatization opera-
tion purchasing in tandem with the Qatar sovereign wealth fund a 195 percent stake in Rosneft
which was on the US and EU list of sanctioned firms8 Glencore has also taken a blocking stake in
midsize oil producer RussNeft BP owns a 1975 percent stake in Rosneft Chevron holds a
15 percent interest in the 935- mile- long CPC9 pipeline which transports an average of 959000
barrels of crude oil per day including 76000 barrels daily from Rus sia10 ExxonMobil has formed
8 E Mazneva and I Arkhipov ldquoRus sia Sells $11 Billion Stake in Rosneft to Glencore Qatarrdquo Bloomberg December 7
2016
9 CPCthinsp=thinspCaspian Pipeline Consortium
10 ldquoRus sia Highlights of Operations and Business Portfoliordquo Chevron accessed October 3 2017 https wwwchevron
com worldwide russia
Figure 56 Share of Rus sian Oil in Total US Oil Imports Thousands of Barrels per Day 1972ndash2016
Source US EIA ldquoUS Imports by Country of Origin Total Crude Oil and Productsrdquo
2000
4000
6000
8000
10000
12000
14000
16000
US Imports of Crude Oil and Petroleum Products (Thousand Barrels per Day)
US Imports from Russia of Crude Oil and Petroleum Products (Thousand Barrels per Day)19
7319
7419
7519
7619
7719
7819
7919
80
198
119
82
198
319
84
198
519
86
198
719
88
198
919
90
199
119
92
199
319
94
199
519
96
199
719
98
199
92
00
02
00
12
00
22
00
32
00
42
00
52
00
62
00
72
00
82
00
92
010
20
112
012
20
132
014
20
152
016
594-71613_ch01_4Pindd 27 102017 404 PM
Table 57 Top Importers of Rus sian Oil to the United States Thousands of Barrels 2016
VALERO MARKETING amp SUPPLY CO 54590 3616
EXXONMOBIL OIL CORP 17087 1130
CHEVRON USA INC 15217 1008
BP WEST COAST PRODUCTS LLC 10130 671
GEORGE E WARREN CORP 7272 48
PAULSBORO REFINING CO LLC 6838 453
TESORO CORP 5097 338
VITOL INC 5084 337
PHILLIPS 66 CO 4726 313
TRAFIGURA AG 4360 289
PAR HAWAII REFINING LLC 3893 258
MOTIVA ENTERPRISES LLC 3041 205
SHELL US TRADING CO 2863 19
MARATHON PETROLEUM CO LLC 2475 16
ATLANTIC TRADING amp MARKETING 2099 14
FREEPOINT COMMODITIES LLC 1439 1
GLENCORE LTD 1284 85
BEST PETROLEUM CORP 967 64
ROLYMPUS US COMMODITIES GROUP LLC 822 6
HUNT CRUDE OIL SUPPLY CO 666 4
GULF OIL LP 658 4
Source US EIA ldquoUS Imports by Country of Origin Crude Oilrdquo Petroleum amp Other Liquids September 13
2017 httpswwweiagovdnavpetpet_move_impcus_a2_nus_epc0_im0_mbblpd_ahtm authorrsquos
computation
594-71613_ch01_4Pindd 28 102017 404 PM
Vadim Grishin 29
several joint ventures with Rosneft to undertake ofshore exploration in the Black Sea and the Kara
Sea in Siberia11
According to the Sanctions Act US persons are prohibited from exporting or reexporting goods
ser vices (except financial ser vices) and technology in support of exploration or production of new
deep- water Arctic ofshore or shale oil proj ects that involve designated Rus sian entities or other
entities in which such sanctioned persons have a controlling interest or a substantial noncontrol-
ling owner ship interest defined as not less than 33 percent (previously it was 50 percent) The new
law also authorizesmdash but does not requiremdash the imposition of so- called secondary sanctions
against non- US entities that engage in activities involving the construction maintenance or
expansion of Rus sian energy export pipelines with a fair market value of $1 million or more or an
aggregate fair market value during a 12- month period of $5 million12 This provision has raised the
concerns of some Eu ro pean countries particularly Germany As result the final language of the
law included wording about coordination of this issue with allies of the United States
Shipments of Rus sian oil to the United States could be afected by activity in the US refinery
industry In early 2017 Saudi Aramco bought the United Statesrsquo largest oil refinery in Port Arthur
(Texas) and it announced plans to send more of its own crude to that refinery13 Serious concerns
exist however regarding the future of three refineries and nine pipelines owned by Citgo a US
branch of the Venezuelan state com pany PdVSA which is balancing precariously on the edge of
default Under certain conditions in the event of PdVSA bankruptcy Rosneft could claim a stake of
up to 499 percent in Citgo Such a possibility has raised concerns among politicians and US
government officials with Trea sury Secretary Steven Mnuchin calling it a ldquonational security issuerdquo14
Tables 58 59 and 510 show allocations of Rus sian oil imports to major US refineries some of
which work exclusively on Rus sian crude a total of two to three months per year In total 150940
thousand barrels of Rus sian oil were refined in 2016
Figure 57 confirms a leading position of Texas and Louisiana among the US states receiving
Rus sian crude followed by New Jersey California Mississippi Washington Hawaii and Delaware
In a paradoxical way Texas has dis appeared from the list of states as a main destination of US
imports from Rus sia (Figure 58) because Rus sian crude is mostly delivered to Louisiana ports and
registered there by US Customs as an import from Rus sia After that it transports to refineries in
Louisiana and Texas
Overall the short- term business rationale behind the sustainability of US oil imports from Rus sia
cannot overcome strong headwinds in the US energy sector facing all oil importers which will
inevitably lead to a contraction of Rus sian oil exports to the United States in the foreseeable future
11 Exxon eforts to receive a special US Trea sury waiver to drill in sanctioned Rus sia failed in 2017
12 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364
13 Sarp Ozkan ldquoSaudi Aramcorsquos Port Arthur Refinery and the US Refinery Fleetrdquo Drilling Info May 11 2017
https infodrillinginfo com saudi - aramcos - port - arthur - refinery - us - refinery - fleet
14 Graham Kates ldquoTrea sury Secretary Rus siarsquos Citgo Deal a National Security Issuerdquo CBS News May 1 2017
http wwwcbsnews com news rosneft - citgo - steven - mnuchin - national - security
594-71613_ch01_4Pindd 29 102017 404 PM
US-Russia Economic Relations30
Table 58 Valerorsquos Refineries Pro cessing Rus sian Oil Thousands of Barrels 2016
Saint Charles Louisiana 29206 535
Corpus Christi Texas 20626 378
Wilmington California 4250 78
Total USA 54590 100
Source US EIA ldquoRefinery Capacity Reportrdquo January 1 2017
table 5 wwweia gov petroleum refinerycapacity table5 pdf
authorrsquos computation
Table 59 ExxonMobil Refineries Pro cessing Rus sian Oil Thousands of Barrels 2016
Baytown Texas 15037 88
Baton Rouge Louisiana 2046 12
Total USA 17083 100
Source US EIA ldquoRefinery Capacity Reportrdquo authorrsquos computation
Table 510 Chevronrsquos Refineries Pro cessing Rus sian Oil Thousands of Barrels 2016
Pascagoula Mississippi 12767 840
El Segundo California 2372 155
Saint Rose Louisiana 78 05
Total USA 15217 100
Source US EIA ldquoRefinery Capacity Reportrdquo authorrsquos computation
594-71613_ch01_4Pindd 30 102017 404 PM
Vadim Grishin 31
HEAVY METAL
Taken together US imports of metals and US imports of oil compose about 80 percent of US
total imports from Rus sia (Figure 59) Trade of metals like other commodities is strongly afected
by market price fluctuations Nevertheless metal imports from Rus sia have been fairly resilient to
market volatility and their average annual value has hovered at about $4 billion in the last five years
(Figure 510) This market resilience was forged at the end of the 1990searly 2000s when Rus sian
metal producers gradually modernized their plants adjusting quality of production to Western
standards and enhancing integration into global value and supply chains Some of them conquered
their share of the highly competitive US market struggling with peers from Canada and certain
BRICS countries (China India and Brazil) To attract additional resources all Rus sian large metal-
producing companies became public and were listed on stock exchanges chiefly the London Stock
Exchange (Severstalrsquo PAO Evraz MMK OAO Novolipetsk Steel Norilsk Nikel and TMK PAO) one
on the New York Stock Exchange (Mechel) and one on the Hong Kong Stock Exchange (Rusal)
Business logic pushed some of them to invest in the US metal- making industry which was hit
hard by crisis Later on some of those assets were sold (eg two US steel mills acquired by
Severstal in 2004 were purchased 10 years later by Steel Dynamics Inc and AK Steel Corp)
Figure 57 Share of US States Rus sian Oil Imports 2016
Source US EIA ldquoUS Imports from Rus sia of Crude Oil and Petroleum Productsrdquo Petroleum amp Other
Liquids September 29 2017 https www eia gov dnav pet hist LeafHandler ashx nshy=shyPETampsshy=shyMTTIM _ NUS
- NRS _ 1ampfshy=shyM authorrsquos computation
0
10
20
30
40
50
60
70
80
90
100
Maine
Massachusetts
Maryland
Connecticut
Georgia
Rhode Island
Virginia
Florida
New York
Alabama
Puerto Rico
Pennsylvania
Delaware
Hawaii
Washington
Mississippi
California
New Jersey
Louisiana
Texas
594-71613_ch01_4Pindd 31 102017 404 PM
Figure 58 US Imports from Rus sia by State Million US$ 2013ndash2016
Source US Census Bureau ldquoState and Metropolitan Area Trade Datardquo Foreign Trade last modified
October 2 2017 https wwwcensus gov foreign - trade statistics state
Alaska
Connecticut
Delaware
Hawaii
Louisiana
Maryland
North Dakota 0
$1000
$2000
$3000
$4000
$5000
$6000
2013 2014 2015 2016
Alabama
Alaska
Connecticut
Delaware
Hawaii
Louisiana
Maryland
Maine
Mississippi
Montana
North Dakota
Mississippi
Figure 59 US Imports from Rus sia Share of Oil and Metals Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
83
82
85
86
87
88
85
82
7375
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
$40000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil and Metals
594-71613_ch01_4Pindd 32 102017 404 PM
Vadim Grishin 33
Obviously the market dynamic of dif er ent metals varies (eg iron steel aluminum platinum and
nickel) Caps to increase their trade and production in a ldquored oceanrdquo global environment with
anemic demand is rather limited despite Figure 510 showing a spike of iron and steel imports
from Rus sia in 2014 and aluminum in 2016 Some opportunities may exist for Russian- owned steel
plants in the United States (such as NLMK) to participate in energy proj ects resumed under Presi-
dent Trump who has required that new pipelines use only American- made steel15
Rus sia occupies a special niche in the US market for titanium products a high- end metal indus-
try Twenty years ago a long- term contract was signed between Rus sian titanium producer
VSMPO- AVISMA and Boeing The Rus sian com pany entered the selective club of Boeing suppliers
for the manufacture of components and semi- finished products Since the signing of this contract
VSMPO has delivered more than 35 percent of all titanium placed on Boeing civil aircraft16 They
are hidden in the trade data in an import category for Civilian Aircrafts and Parts (Figure 511) At
the end of 2016 Boeing announced an extension of its framework agreement with AVISMA
15 E Scheyder C Ngai and T Sylvester ldquoAmerican Steel Unlikely to Get Keystone Boost Despite Trump Orderrdquo
Reuters January 27 2017 http wwwreuters com article usa - trump - pipeline - transcanada - idUSL1N1FH1ZD
16 A Kramer ldquoTitanium Fills Vital Role for Boeing and Rus siardquo New York Times July 5 2013 http wwwnytimes com
2013 07 06 business global titanium - fills - vital - role - for - boeing - and - russia html mcubzshy=shy3
Figure 510 US Imports from Rus sia Iron Steel Bauxite Aluminum Nickel Nonferrous Metals and Other Precious Metals and Materials US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
0
$6000000000
$5000000000
$4000000000
$3000000000
$2000000000
$1000000000
2007 2008 2009 2010 2011 20122013
20142015
2016
Finished metal shapes
Iron and steel advanced
Iron and steel products nec
Nonferrous metals other
Other precious metals
Nickel
Bauxite and aluminum
Iron and steel mill products
Steelmaking materials
594-71613_ch01_4Pindd 33 102017 404 PM
US-Russia Economic Relations34
through 2022 and additional investments in the construction of a new robotic plant in Titanium
Valley a special economic zone located in the Sverdlovsk region that will open in 2018 The pro-
cessing of titanium forgings in all Boeing civil aircraft will be performed there including 787s 737
MAXs and 777Xs17 The contract extension with AVISMA may add several hundred million dollars
in value to annual US imports from Rus sia
How can such heavy reliance on imports of Rus sian titanium exist during a period of rising geopo-
liti cal tensions The answer is straightforward VSMPO- AVISMA is a highly specialized natu ral
mono poly producing 45 percent of the worldrsquos aerospace titanium Only four other countries
smelt high- grade titanium in industrial quantities the United States Germany Japan and China
Overall global production capacity is limited while demand is growing The United States cur-
rently imports around 79 percent of all the titanium it consumes each year18
17 ldquoBoeing and VSMPO Avisma to Launch Second Joint Production Siterdquo Rus sian Aviation Insider December 22 2016
http wwwrusaviainsider com boeing - and - vsmpo - avisma - to - launch - second - joint - production - site
18 Jon Ostrower and Andy Pasztor ldquoBoeing United Technologies Stockpile Titanium Partsrdquo Wall Street Journal
August 7 2014 https wwwwsj com articles boeing - united - technologies - stockpiling - titanium - parts - 1407441886
Figure 511 US Imports from Rus sia Civilian Aircrafts and Parts US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
$200000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Parts-civilian aircraft
Civilian aircraft
594-71613_ch01_4Pindd 34 102017 404 PM
Vadim Grishin 35
The Sanctions Act authorizes the secretary of the trea sury (in a nonmandatory way) to impose
restrictions (without specifying them) against Rus sian state- owned entities operating in the railway
metals and mining sectors of the Rus sian economy Despite the commanding heights of Rus siarsquos
state sector owner ship in its economy (70 percent of GDP) the metal- producing companies have
remained mostly in private hands
NUCLEAR AFFAIRS
Historically owners and operators of the 104 commercial nuclear power reactors in the United
States have purchased more than 80 percent of their uranium from foreign countries Uranium
shipping from Rus sia accounted for about 13 percent of the 58 million pounds of uranium pur-
chased overseas in 201219 At the same time the Rus sian state- owned mono poly Rosatom ac-
counts for 20 percent of Kazakhstanrsquos uranium production (which in turn comprises 11 percent of
all US uranium imports) and 20 percent of US domestic uranium production capacity (with
owner ship of exploration tracts in Wyoming)20
Nuclear fuel and nuclear power continue to be po liti cally sensitive topics both in the United
States and Rus sia Bilateral cooperation in this sector (being surprisingly stable with imports of
nuclear fuel from Rus sia at a level of $1 billion annually in the last five years [Figure 512 and 513])
is under constant po liti cal and lobbying pressure and has been a source of several po liti cal scan-
dals21 Consequently upside risks in this area of interaction are minimal and downside risks are
much higher especially when we are seeing more decommissioning of nuclear plants in the
United States than new constructions The US EIArsquos 2017 Annual Energy Outlook assumes
that about 25 percent of the nuclear capacity now operating will be removed from ser vice
by 205022
WHY IS THE GRASS GREENER ON THE OTHER SIDE
The United States continues to significantly reduce imports of chemical fertilizers as domestic pro-
duction increases In 2016 the United States imported 13 percent less ammonia and 11 percent
less urea and UAN which is a liquid urea and ammonium nitrate fertilizer Rus sia accounts for
around 40 percent of UAN imported by the United States The United States canceled antidumping
duties on imports of ammonium nitrate and urea from Rus sia in 2016 but it did not prevent import
19 US EIA ldquoThe US Relies on Foreign Uranium Enrichment Ser vices to Fuel Its Nuclear Power Plantsrdquo Today in
Energy August 28 2013 https wwweia gov todayinenergy detail php idshy=shy1273
20 Colin Chilcoat ldquoDoes Rus sia Really Own 20 Percent of the USrsquo Uranium Reservesrdquo OilPricecom May 6 2015
http oilpricecom Alternative - Energy Nuclear - Power Does - Russia - Really - Own - 20 - Of - The - US - Uranium - Reserves
html
21 Michelle Ye Hee Lee ldquoThe Facts behind Trumprsquos Repeated Claim about Hillary Clintonrsquos Role in the Rus sian Ura-
nium Dealrdquo Washington Post October 26 2016
22 US EIA ldquoAnnual Energy Outlook 2017 with Projections to 2050rdquo 81ndash82
594-71613_ch01_4Pindd 35 102017 404 PM
Figure 512 US Imports from Rus sia Share of Oil Metals and Nuclear Fuel Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
87
86
90
90
90
91
88
86
7882
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals and Nuclear Fuel
Figure 513 US Imports from Rus sia Nuclear Fuel Materials US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$-
$200000000
$400000000
$600000000
$800000000
$1200000000
$1000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 36 102017 404 PM
Vadim Grishin 37
drops twice last year (Figures 514 and 515) According to forecasts UAN imports are expected to
decline further to 15 million tons this year down over 46 percent from 28 million tons imported
last year23 The downside trend in imports of fertilizers will likely continue because of oversupply
BIG FISH
US imports of fish and shellfish from Rus sia are best understood in comparison with US fish
exports to the Rus sian market which slipped to zero in August 2014 after Rus sia issued an order
banning certain agricultural imports from the United States (Figure 516) While the volume of US
supply was not very large it was impor tant because it broke up the monopolistic dominance of a
few vertically integrated Rus sian companies that have kept prices high by restricting the entry of
new producers Seeking to implement import substitution policies Rus sia has tried to reduce
exports as well as imports of fish and seafood products in the last couple of years This symmetri-
cal approach was intended to ldquocompensaterdquo for a decrease of fish products in the domestic
23 Deepika Thapliyal ldquoPotashCorp Forecasts Sharp Drop in US Nitrogen Imports in 2017rdquo ICIS News February 7
2017 https wwwicis com resources news 2017 02 07 10076734 potashcorp - forecasts - sharp - drop - in - us - nitrogen
- imports - in - 2017
Figure 514 US Imports from Rus sia Share of Oil Metals Nuclear Fuel and Fertilizers Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
90
93
92
93
94
95
92
91
85
86
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals Nuclear Fuel and Fertilizers
594-71613_ch01_4Pindd 37 102017 404 PM
Figure 515 US Imports from Rus sia Chemical- Fertilizers US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
S-
$200000000
$400000000
$600000000
$800000000
$1000000000
$1200000000
$1400000000
$1600000000
$1800000000
$2000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Figure 516 US Exports to Rus sia Fish and Shellfish US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$10000000
$20000000
$30000000
$40000000
$50000000
$60000000
$70000000
$80000000
$90000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Fish and shellfish
594-71613_ch01_4Pindd 38 102017 404 PM
Vadim Grishin 39
consumer market caused by Rus siarsquos import ban but it has failed As result the group most af-
fected by the self- imposed counter- sanctions were Rus sian consumers
With a significant drop in fish imports a devaluation of the ruble and inflationary pressures on
seafood prices yearly consumption of fish in Rus sia has declined precipitously In 2015 alone
fish prices increased 20 percent and consumption dropped to 14 kilograms per person24 from
22 kilograms in 201425 In 2016 food rose to 355 percent of house hold expenditure as a result of
increases in food prices26 This has pushed vertically integrated fishing monopolies to sell even
more of their catch abroad rather than deliver to the Rus sian Federation (Figure 517) Thus we
cannot exclude the possibility of further growth in US fish and shellfish imports from Rus sia on a
marginal scale
24 Александр Савельев ldquoПотребление рыбы в России упало до 14 кг на человекаrdquo [Fish consumption in Rus sia fell to
14 kg per person] Экономика Интерфакс January 28 2015 http wwwinterfax ru business 492038
25 Илья Шестаков ldquoПотебление рыбы в России снизилось на 10 процентов из- за роста ценrdquo [Fish consumption in
Rus sia dropped by 10 percent due to price increases] RNS March 8 2017 https rnsonline consumer - market
Potreblenie - ribi - v - Rossii - snizilos - na - 10 - iz - za - rosta - tsen - 2017 - 03 - 08
26 Zoya Sheftalovich and Christian Oliver ldquoRus siarsquos Boom (Farming) Economyrdquo Politico November 8 2016 http
wwwpolitico eu article russias - boom - farming - economy
Figure 517 US Imports from Rus sia Fish and Shellfish US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$50000000
$100000000
$150000000
$200000000
$250000000
$300000000
$350000000
$400000000
$450000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 39 102017 404 PM
US-Russia Economic Relations40
SPACE ODYSSEY
Among high- end products beyond the top five groups of goods imported from Rus sia cheap and
efficient Rus sian engines have been used to launch US rockets into space for about 16 years
(Figure 518) There was a serious po liti cal strug gle around a 2014 ban on the purchase of Rus sian
RD-180 rocket engines revealing the conflicting business interests of power ful high- tech companies
This restrictive mea sure was temporary and was quickly lifted because of significant cost impacts
and risks of disruption to launch schedules27 For the same reason the Sanctions Act does not autho-
rize ldquothe imposition of any sanction or other condition limitation restriction or prohibition that
directly or indirectly impedes the supply by any entity of the Rus sian Federation of any product or
ser vice or the procurement of such product or ser vice by any contractor or subcontractor of the
United States or any other entity relating to or in connection with any space launch conducted for
the National Aeronautics and Space Administration or any other nonndash Department of Defense
customerrdquo28
Nevertheless many experts believe that US domestic alternatives to replace Rus sian engines will
be viable in five to eight years
27 Ken Dilanian ldquoWhy Does the US Use Rus sian Rockets to Launch Its Satellitesrdquo NBC News updated November 15
2016 http wwwnbcnews com why - does - u - s - use - russian - rockets - launch - its - satellites - n588526
28 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364
Figure 518 Spacecraft Excluding Military US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 40 102017 404 PM
41
Diversity and technological complexity are the most vis i ble advantages supporting US exports to
Rus sia Three major groups of export goods include civilian aircraft engines and parts (Figure 61)
drilling and oil field equipment (Figure 62) and industrial machines and engines (Figure 63)
Despite sanctions against the transfer of advanced oil producing and pro cessing technologies the
realization of US drilling and oil field equipment in Rus sia is sustainable although some bilateral
proj ects have been frozen
Another category of goods that has demonstrated resilience is the phar ma ceu ti cal industry (Fig-
ure 64) because most drugs in Rus sia are imported (about 70 percent of the Rus sian phar ma ceu-
ti cal market in value) Import substitution policies have had only modest results in this industry
As confirmed by American Chamber of Commerce surveys US exports to Rus sia are closely
connected to US FDI 30 percent of total imports of US companies working in the Rus sian
market come from the United States (more than $2 billion in 2016) In other words about
40 percent of all US exports to Rus sia are related to a US corporate- sector business pro cess in
the country The major sectors of activity of these companies are energy and natu ral resources
(52 percent) manufacturing (17 percent) information and communications technology or ICT
(13 percent) retail (7 percent) automotive industry (6 percent) phar ma ceu ti cal production
(1 percent) professional ser vices (05 percent) and other (2 percent)1
Some obvious constraints on US exports to Rus sia have resulted from a reduction in demand A
deterioration of bilateral relations and implementation of sanctions and counter- sanctions have
directly or indirectly afected all businesses Figures 65 and 66 provide data regarding a dramatic
drop in the sale of US agricultural production in Rus sia with all other categories of exports in
goods showing big cuts as well (see Figures 67ndash69)
Exports of civilian aircraft engines and parts put the state of Washington in first place among
other states as a leading exporter to the Rus sian market (Figure 610)
1 American Chamber of Commerce in Rus sia ldquoInvestment and Import to Rus sia 2nd Surveyrdquo 13
Diversity and Constraints
06
594-71613_ch01_4Pindd 41 102017 404 PM
Figure 61 US Exports of Civilian Aircraft Engines Equipment and Parts to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
$2500000000
$2000000000
$1500000000
$1000000000
$500000000
$-
Figure 62 US Exports of Drilling and Oil Field Equipment US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
$40000000
$45000000
$50000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 42 102017 404 PM
Figure 63 US Exports of Industrial Engines to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Figure 64 US Exports of Phar ma ceu ti cal Preparations to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 43 102017 404 PM
Figure 65 US Exports of Meat and Poultry to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Meat poultry etc
$1000000000
$800000000
$600000000
$400000000
$200000000
$-
$1200000000
$1400000000
$1600000000
Figure 66 US Exports of Soybeans to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
$200000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 44 102017 404 PM
Figure 67 US Exports of Vehicles Engines and Parts to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Other parts and accessories of vehicles
Automotive tires and tubes
Bodies and chassis for passenger cars
Engines and engine parts (carburetors pistonsrings and valves)
Trucks buses and special purpose vehicles
Passenger cars new and used
$2500000000
$2000000000
$1500000000
$500000000
$-
$1000000000
Figure 68 US Exports of Medicinal Equipment to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 45 102017 404 PM
Figure 610 US Exports to Rus sia by States (2016 US$ Value) Million US$ 2013ndash2016
Source US Census Bureau ldquoState and Metropolitan Area Trade Datardquo
Iowa Kentucky
North Dakota
Oklahoma
South Carolina
Washington
0
$500
$1000
$1500
$2000
2013 2014 2015 2016
District of Columbia
Iowa
Kentucky
North Dakota
Oklahoma
South Carolina
Washington
Figure 69 US Exports of Excavating Machinery to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
$40000000
$45000000
$50000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 46 102017 404 PM
47
Upon reviewing the current trend in US- Russia economic relations we must acknowledge that
the existing trade model is obsolete and exhausted Imports are resource- oriented and reflect
constraints of the Rus sian economic structure while five groups of goodsmdash oil metals nuclear
fuels fertilizers and fishmdash make up more than 90 percent of total imports from Rus sia (Figure 71)
Each of these industries has a limited capacity for growth in the foreseeable future
Rus siarsquos core export to the United Statesmdash oilmdash will inevitably decrease in the mid- term under any
scenario The value and volume of Rus sian exports to the United States are open to global market
volatility and po liti cal pressures with limited hedging mechanisms
Overall US exports to Rus sia are unsustainable due to bilateral po liti cal tensions the whims of
commodity markets and changing domestic policies Sanctions and counter- sanctions have
created additional barriers particularly in finance banking high- tech energy and agro- business
According to the American Chamber of Commerce 69 percent of US companies working in the
country consider the impact of US sanctions against Rus sia on their business as negative At the
same time 60 percent of companies do not expect big changes in business relations between
Rus sia and the United States under Trump1 as the new law codifies existing sanctions fortifies
them and extends them to new sectors
Current US investments are low due to the weak rule of law in Rus sia a lack of property right
protections and proper contract enforcement high levels of statization and monopolization in the
economy a poor business climate outdated capital stock dependence on natural- resource
sectors and of course sanction and counter- sanction mea sures Bloated administrative compo-
nents created as risk mitigation instruments have also served as impediments The countryrsquos
institutional weakness low level of productivity bud get constraints and a declining inflexible
workforce will restrain future economic growth even if commodity prices recover Rus sian eco-
nomic policy will likely continue to be statist and protectionist relying mostly on import
substitutions
1 Ibid 11
Existing Trends and Future Scenarios
07
594-71613_ch01_4Pindd 47 102017 404 PM
US-Russia Economic Relations48
What scenarios can be expected in such a challenging environment
One probability (no peace no war) is based on the assumption that matters will not deteriorate
further and implementation of the Sanctions Act will be cursory This will cause relatively slow
degradation in the economic field with occasional flashes of activity in selected areas (eg closer
cooperation against Islamist terrorist groups in Syria)
A second worse case or critical scenario is the intensive and full- scale execution of current sanc-
tion legislation and even the imposition of new economic punitive and restrictive mea sures which
could incite asymmetric retaliatory actions and lead to the introduction of additional protectionist
policies This in turn could trigger a further escalation of mutual confrontation and could eventu-
ally destroy the fundamentals of the current bilateral trade system Rus sian leadership has charac-
terized the Sanctions Act as a declaration of a trade war that ends all hope for improving bilateral
relations2
2 Дмитрий Медведев ldquoПодписание президентом США нового санкционного закона против России создает несколько
последствийrdquo [The US Presidentrsquos signing of the package of new sanctions against Rus sia will have a few conse-
quences] Facebook August 2 2017 https wwwfacebook com Dmitry Medvedev posts 10154587161801851
Figure 71 US Imports from Rus sia Share of Oil Metals Nuclear Fuel Fertilizers and Fish Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
93
94
93
94
95
96
93
92
87
89
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals Nuclear FuelFertilizers and Fish
594-71613_ch01_4Pindd 48 102017 404 PM
Vadim Grishin 49
The best case and most favorable scenario looks less probable now It assumes the realization of
structural reforms in Rus sia in such a way that would adapt Rus siarsquos foreign policy to national
economic needs reduce confrontations with the West and make a concerted efort to integrate
Rus sian businesses into global supply and value chains A revitalization of the structural reform
agendamdash including eforts to diversify economic activities through de- monopolization and support
for SMEs a restructuring of the banking sector the creation of a vibrant business climate to foster
entrepreneurships and innovation the implementation of administrative and judicial reforms to
tackle red tape and endemic corruption and the reduction of state control over key sectors of the
economy via wide- spread privatization could kick- start the development of a nonoil economy and
improve long- term growth prospects Despite ongoing discussion of reform strategies deep
economic and po liti cal changes are extremely complicated over the next po liti calelectoral cycle
(2018ndash2024) particularly because of re sis tance of vested interests and growing commodity prices
The urgency to tackle structural shortcomings in natu ral resource- dependent economies usually
correlates with the price of those resources and the degree to which resource rents drive eco-
nomic activity However there may be marginal improvements in the efficiency of the current
economic system
Future US- Russia relations can be thought of through three pillars one pillar focuses on areas
where both countries maintain a competitive rivalry another looks at potential areas of interaction
under pres ent conditions a third pillar and one that has evaporated from the current bilateral
agenda concentrates on future cooperation Stronger economic ties could not only be a kind of
po liti cal shock absorber but contribute to the building of this future (particularly business contacts
aim to support future structural reforms) although po liti cal factors are depressing the prospects
for cooperation To escape deadlock it will be impor tant to establish the right balance between
politics and economics and create a model of collaboration within the framework of contention
594-71613_ch01_4Pindd 49 102017 404 PM
About the Author
Vadim Grishin PhD MBA has been involved in the reform pro cess in Rus sia as adviser to the
deputy prime minister of Rus sia in 1992ndash1993 and 2006ndash2010 He has extensive experience
working with the Bretton Woods Institutions He was the board member of the World Bank Group
and served as se nior adviser at the International Monetary Fund Currently he is a con sul tant to the
chief economistrsquos office of the International Finance Corporation and teaches the economics of
transition at Georgetown University in Washington DC
50
594-71613_ch99_4Pindd 50 102017 403 PM
Blank
COVER PHOTO ADOBE STOCK
1616 Rhode Island Avenue NW
Washington DC 20036
202 887 0200 | wwwcsisorg
v++ISBN 978-1-4422-8035-9
Lanham bull Boulder bull New York bull London
4501 Forbes Boulevard
Lanham MD 20706
301 459 3366 | wwwrowmancom
A U T H O R
Vadim Grishin
Myths and Realities
A Report of the
CSIS RUSSIA AND EURASIA PROGRAM
US-RussiaEconomicRelations
O C T O B E R 2 0 1 7
Euml|xHSLEOCy280359z
The Man Pupu Nyor Rock Formations at the Northern Urals also known as Seven
Strong Man or Little Mountain of the God in the local tribe (Mansi) language
Vadim Grishin 7
$8244 billion in 20176 The real level from our perspective is usually between official and private
estimations around $40 billon But even this cumulative figure is less than the US FDI in Brazil
and China
The American Chamber of Commerce surveys have also revealed other impor tant data Eighty-
five percent of US companies doing business in Rus sia entered its market 10 or more years ago
while 60 percent of them ldquolandedrdquo there 20 years ago or earlier Only one percent have started
operations over the last five years confirming an obvious fact entry into the Rus sian market is
challenging because of growing monopolism risks associated with the business climate and a
stagnating economy7
6 American Chamber of Commerce in Rus sia ldquoInvestment and Import to Rus sia 2nd Surveyrdquo (Prepared by GfK for the
American Chamber of Commerce in Rus sia Moscow May 2017) 12
7 Ibid 4
Figure 22 US Trade in Goods and in Ser vices with China India Brazil Rus sia and South Africa Billion US$ 2016
Source USTR ldquoCountries amp Regionsrdquo See US- China Trade Facts US- India Trade Facts US- Brazil Trade
Facts US- South Africa Trade Facts and US- Russia Trade Facts
0
$100
$200
$300
$400
$500
$600
$700
China India Brazil Russia South Africa
Trade in Services
Total Goods Trade
594-71613_ch01_4Pindd 7 102017 404 PM
US-Russia Economic Relations8
Rus sian direct investment position toward the United States declined from $215 billion in 2013 to
$83 billion in 2015 (Figure 23) Taking into account dif er ent channels and instruments the actual
volume of Rus sian investments in the United States made through ofshore Eu ro pean Canadian
and US companies may be several times greater than the available official data
Foreign investment in financial assets or foreign portfolio investment (FPI) should be included
even though Central Bank of Rus sia statistics indicate they were also quite low US investments in
equity were $345 million and in debt instruments were about $65 million in the fourth quarter of
20168 However these numbers do not reflect the real level of FPI Rus siarsquos stocks are incredibly
inexpensive while there has been impressive growth of US investments in short- term securities
and in foreign exchange (FX) operations (cash- and- carry trade) Rus sia was among the top per-
forming emerging markets in 2016 gaining 4744 percent in US dollars9 Nevertheless the gen-
eral capitalization of the stock exchange is tiny (less than 20 percent of GDP) comparable to the
capitalization of just one large US com pany such as Coca- Cola Many private sources believe that
the US FPI in Rus sia could be as high as several billion US dollars but a new set of sanctions
approved by President Trump on August 2 2017 if implemented could reverse those flows It is
still not clear whether the secretary of trea sury will prohibit participation in the oferings of Rus siarsquos
sovereign debt and the full range of derivative products A report on this subject should be sub-
mitted no later than 180 days after enactment of the law which means no later than Febru-
ary 2018 New legislation tightens prohibition on Rus sian financial companies already under
sanctions by limiting any new equity or debt with a maturity greater than 14 days (a provision that
8 Central Bank of Rus sia ldquoForeign Direct Investments in the Rus sian Federationrdquo accessed September 27 2017 www
cbr ru localization switchlanguage urlshy=shy news ampfromshy=shyru - ruamptoshy=shyen - gb
9 VanEck ldquoRus sian Stock Market Soars in 2016rdquo Seeking Alpha February 14 2017 https seekingalphacom article
4045602 - russian - stock - market - soars - 2016
Table 22 Summary Output of Regression Statistics (US Real GDP Rus sia Real GDP US- Russia Exports Imports and Total Trade)
Regression Statistics
Multiple R 0056445768
R Square 0003186125
Adjusted R Square minus0042123597
Standard Error 2616043923
Observations 24
Sources IMF statistics authorrsquos computation
594-71613_ch01_4Pindd 8 102017 404 PM
Vadim Grishin 9
previously allowed for 30 days) Similarly US persons are prohibited from taking on any new debt
that has a maturity greater than 60 days (previously it was 90 days) with Rus sian energy compa-
nies currently under sanctions10
According to the Trea sury Department Rus sia held $1029 billion in US Trea sury securities in
June 201711 Could Rus sia withdraw all its reserves from the United States and use this action as a
retaliatory mea sure Such a scenario is unlikely since there is no comparable safe- haven alterna-
tive to US dollars When Rus siarsquos US Trea sury holdings dropped 50 percent from $176 billion
(October 2010) to $90 billion (November 2011) the market did not notice12 Nevertheless Rus sian
authorities have announced they will decrease dependence on assets and payments in US dollars13
10 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364
11 US Department of Trea sury Major Foreign Holders of Trea sury Securities September 18 2017 http ticdata
treasury gov Publish mfh txt
12 Ibid
13 ldquoНовый виток санкций Россия откажется от доллараrdquo [A new round of sanctions Rus sia will abandon the dollar]
Газетару August 7 2017 https wwwgazeta ru business 2017 08 07 10821937 shtml
Figure 23 Rus sia Outward FDI Position United States Equities and Debt Million US$ 2009ndash2016
Source Central Bank of the Rus sian Federation External Sector Statistics Rus sian Direct Investments
Abroad accessed September 27 2017 https wwwcbr ru localization switchlanguage urlshy=shy news
ampfromshy=shyru - ruamptoshy=shyen - gb
$6000
$8000
$10000
$12000
$14000
$16000
$18000
$20000
$22000
2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 9 102017 404 PM
US-Russia Economic Relations10
Officially the country does not invest in the US stock exchange although some Rus sian oligarchs
have bought US corporate bonds and equities in large amounts The new sanctions law requires
the secretary of trea sury in consultation with the director of national intelligence and the secretary
of state to issue reports on Rus sian se nior po liti cal figures and oligarchs based on their closeness
to the Rus sian regime and their net worth as well as the exposure of key economic sectors of the
United States to Rus sian po liti cally exposed persons and parastatal entities including at a mini-
mum the banking securities insurance and real estate sectors14
Only three Rus sian companies are listed in the US exchanges
Overall the scale and scope of US- Russia economic interaction and business activity is much greater
than officially appreciated but not significant enough to be taken into consideration by policymakers
14 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364
594-71613_ch01_4Pindd 10 102017 404 PM
11
03
Politics in the Driverrsquos Seat
Bilateral economic relations depend to a great extent on global and national economic cycles
After the recent global financial crisis the US economy has shown surprisingly sustainable GDP
growth while the Rus sian economy was the most afected among BRICS countries by the turbu-
lence of a worldwide economic downturn in 2008ndash2009 and after a short- term rebound slipped
into stagnation (2012ndash2013) and then into full- scale recession (2014ndash2016) The countryrsquos eco-
nomic cycle however appears to be changing once again with the economy returning to a
pattern of growth albeit uneven and gradual (Figures 31 and 32) Even with sanctions still in place
conditions have improved as a result of the stabilization of Urals oil to an average annual price of
$419 per barrel in 2016 The gains were sparked in part by major crude producers agreeing to cut
production after hefty price drops in 2014 and 2015 Supported by easier financial conditions
higher oil prices and growing macro- stability Rus sia is heading toward a moderate growth rate
that is expected to reach 14 percent this year according to forecasts of the World Bank Group
(WBG) and the IMF1
Because of the significant role that politics plays in any bilateral interaction it is impor tant to
combine economic and po liti cal cycles applying a ldquoresetrdquo to bilateral economic cooperation in
addition to the po liti cal relationship I have compared po liti cal cycles and trade dynamics using the
following graphs ( Table 31 and Figure 33) These charts do not pretend to reflect with mathemati-
cal precision all shifts in the bilateral po liti cal relationship but rather attempt to visually align
impor tant economic and po liti cal moments to detect the efects of po liti cal events on the size of
bilateral trade
Figure 33 shows all pos si ble combinations economic trends at the intersection of po liti cal devel-
opments oppose or support each other in synchronization It is evident that po liti cal interference
1 International Monetary Fund Rus sian Federation Staff Concluding Statement of the 2017 Article IV Mission (Wash-
ington DC IMF 2017) World Bank Group From Recession to Recovery Rus sia Economic Report no 37 (Washington
DC World Bank 2017) http pubdocsworldbank org en 383241495487103815 RER - 37 - May26 - FINAL - with - summary
594-71613_ch01_4Pindd 11 102017 404 PM
US-Russia Economic Relations12
in bilateral business afairs in the early 2000s was less significant than in later years As result
growing po liti cal tensions from 2003 to 2008 did not dramatically afect bilateral economic inter-
action It is also easier to explain why 2011ndash2012 resulted in rec ord trade and investmentmdash a con-
sequence of very high oil prices GDP growth in both countries improved legislation after Rus siarsquos
accession to the WTO and the Obamandash Medvedev po liti cal reset From 2014 to 2016 a perfect
storm of developments added efficiency to Western sanctions and augmented the damaging
consequences of counter- sanction mea sures
Figure 33 also confirms that in times of reduced economic cooperation po liti cal pressures can
easily change bilateral economic trends Moreover business interests along with economic inter-
actions have a limited capacity to reverse the po liti cal mainstream
Figure 31 Economic Cycle 2014ndash2016
Source Authorrsquos evaluation of international financial institutions (IFI) data and sources from respective
countries
Sustainable Growth
Brazil
Negative Growth
Unstable Growth
Mexico
Descending Growth
Argentina
EU
US
Russia
Vietnam
China
594-71613_ch01_4Pindd 12 102017 404 PM
Vadim Grishin 13
Table 31 Po liti cal Cycles in Bilateral US- Russia Relations 1999ndash2016
2001ndash2002 The George W Bushndash Vladimir Putin Reset Rus sia supported ldquoglobal war on terrorismrdquo launched by the United States after 911 the SORT nuclear arms reduction treaty was signed by the United States and Rus sia and a successful business dialogue was developed that created the current structure of economic relations
2003ndash2008 Deterioration in bilateral relations brought on by the Iraq War Georgiarsquos ldquoRose Revolutionrdquo Mikhail Khodorkovskyrsquos arrest Ukrainersquos ldquoOrange Revolutionrdquo Kosovorsquos in de pen dence and the Georgian War
2009ndash2010 The Barack Obamandash Dmitry Medvedev Reset Rus sia served as a logistical hub for transportation and supply of US forces in Af ghan i stan United States and Rus sia signed the new START nuclear arms reduction treaty Rus sia backed tighter economic sanctions on Iran Rus sia gained access to the WTO after 18 years of negotiations
2011ndash2016 Deterioration in bilateral relations caused by the Ukrainian crisis which were followed by sanctions and counter- sanctions along with the Syrian crises and cyber- enabled activities
Source Authorrsquos evaluation of po liti cal and economic data
Note SORTthinsp=thinspStrategic Ofensive Reductions Treaty STARTthinsp=thinspStrategic Arms Reduction Treaty
Figure 32 Economic Cycle 2017ndash2019
Source Authorrsquos evaluation of IFI data and sources from respective countries
Egypt
VenezuelaEU
South Africa
Brazil
Russia
India
US
Descending Growth
Korea
China
Negative Growth
Unstable Growth
Sustainable Growth
594-71613_ch01_4Pindd 13 102017 404 PM
US-Russia Economic Relations14
Figure 33 US- Russia Trade Million US$ vs Po liti cal Cycle 2000ndash2016
Sources US Census Bureau ldquoTrade in Goods with Rus siardquo Foreign Trade last modified June 29 2017
https wwwcensus gov foreign - trade balance c4621 html (see data for 2000ndash2016) authorrsquos evaluation
of po liti cal and economic data
Orange Revolution
Khodorkovskys arrest
GeorgianWar
Bush- Putin Reset
Iraq War Global Financial Crisis
Obama-Medvedev Reset
Russias WTO accession
New START Treaty
A Pefect Storm the Ukranian Crisis Oil Prices Crashing
Sanctions and Counter-Sanctions
$3000
$8000
$13000
$18000
$23000
$28000
$33000
$38000
$43000
2000 2002 2004 2006 2008 2010 2012 2014 2016
594-71613_ch01_4Pindd 14 102017 404 PM
15
The current structure of US- Russia economic relations emerged in the early 2000s when the
model of trade and investment interaction took on a character similar to that which existed be-
tween the United States and developing economies US imports from Rus sia centered on com-
modities while technology along with food products lead American exports The primary
exception was that Rus sia supplied nuclear fuel including highly enriched uranium extracted from
nuclear weapons for US power plants and provided ser vices to the aerospace industry primarily
in satellite launches However both these exceptions can be explained as a legacy of the Soviet
past and not a harbinger of the future economic relationship (Figure 41)
In the last 15 years this trade structure has not changed significantly The only noticeable shift in
trade was a dramatic drop (to practically nothing) in exports of US agricultural products a result
of Rus siarsquos policy of import substitution and so- called counter- sanction mea sures it took in re-
sponse to US sanctions over the Ukraine crisis (Figure 42)
Promising new directions of cooperation in the IT sector and in engineering ser vices for the
aerospace industry appeared in the early 2000s1 but did not spill into other sectors and conse-
quently did little to renew economic cooperation on the whole The integration of Rus sian high-
tech ser vices into large- scale global production and value chains was constrained by the usual
culprits a lack of financial resources managerial experience skilled labor modern infrastructure
RampD investments and an adequate business environment High commodity prices incentivized the
restoration of an economic system centered on resource rents The leading role of oil and gas
extraction and transportation discouraged the development of a nonenergy sector that might
have created advanced and complex production and ser vices An import substitution policy could
not work efficiently in an economic environment plagued by the Dutch disease where currency
1 The Boeing Design Center was created in Moscow It consists of nearly 250 Boeing employees managing
a team of 1200 contract engineers from Rus sian and Ukrainian aerospace companies ldquoBackgrounder Boeing in
Rus siardquo Boeing last modified January 2017 http wwwboeing com resources boeingdotcom company key _ orgs
boeing - international pdf russia - cisbackgrounder pdf
Are the United States and Rus sia ldquoNatu ralrdquo Trading Partners A Little Bit of History
04
594-71613_ch01_4Pindd 15 102017 404 PM
US-Russia Economic Relations16
inflows (oil money) lead to ruble appreciation and render a countryrsquos production less competitive
During that time Rus siarsquos industry did not receive preferential access to larger markets and could
not expand its share in the global economy particularly because of its self- isolation from the
regional trade agreements (except for its participation in the Eurasian Economic Union with some
neighboring countries of the former Soviet Union) As a result neither import substitution nor
export- led strategy promoted growth and specialization in nonoil production A long- awaited
modernization and reallocation of resources from an inefficient nontrade sector to a trade sector
did not materialize
These limits were later augmented with sanctions and an extension of domestic restrictions on
cooperation with Western partners Importantly the rapid growth of state- monopoly structures in
the Rus sian economy over the past 15 years has created additional obstacles to the development
and diversification of US- Russia economic ties
Figure 41 US Imports from Rus sia US$ 2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2016)
Fish and shellfish 3
Crude oil 5
Fuel oil 37
Petroleum products other
8
Nuclear fuel materials
7
Chemicals-fertilizers 4
Steelmaking materials 5
Iron and steel mill products 4
Bauxite and aluminum 9
Other precious metals 4
Nonferrous metals other 1
Finished metal shapes 1
Synthetic rubber--primary
1
Spacecraftexcluding military
594-71613_ch01_4Pindd 16 102017 404 PM
Fig
ure
42
U
S E
xpo
rts
to R
us s
ia U
S$ 2
016
Sou
rce
US
Ce
nsu
s B
ure
au ldquo
Trad
e in
Go
od
s w
ith
Ru
s sia
rdquo (s
ee
dat
a fo
r 2
016
)
Bak
ery
pro
du
cts
Win
e b
eer
an
d r
elat
ed
pro
du
cts
New
spri
nt
Pla
stic
mat
eria
ls
Ch
emic
als-
fert
ilize
rs
Ch
emic
als-
ino
rgan
icC
hem
ical
s-o
rgan
ic
Ch
emic
als-
oth
erC
ott
on
fib
er c
loth
In
du
stri
al r
ub
ber
pro
du
cts
Min
eral
su
pp
lies-
man
ufa
ctu
red
Gen
erat
ors
acc
esso
ries
Ele
ctri
c ap
par
atu
s
Dri
llin
g amp
oilfi
eld
eq
uip
men
t Sp
ecia
lized
min
ing
Exc
avat
ing
mac
hin
ery
No
nfa
rm t
ract
ors
an
d p
arts
In
du
stri
al e
ng
ines
Fo
od
to
bac
co m
ach
iner
y M
etal
wo
rkin
g m
ach
ine
too
ls
Tex
tile
sew
ing
m
ach
ines
W
oo
d g
lass
p
last
ic
Pu
lp a
nd
pap
er
mac
hin
ery
Mea
suri
ng
tes
tin
g
con
tro
l in
stru
men
ts
Mat
eria
ls h
and
ling
equ
ipm
ent
Ind
ust
rial
mac
hin
es
oth
er
Ph
oto
ser
vice
ind
ust
ry m
ach
iner
y A
gri
cult
ura
l mac
hin
ery
eq
uip
men
t C
om
pu
ters
Co
mp
ute
r ac
cess
ori
es
Sem
ico
nd
uct
ors
Tel
eco
mm
un
icat
ion
seq
uip
men
t
Bu
sin
ess
mac
hin
es a
nd
eq
uip
men
t
Lab
ora
tory
tes
tin
g in
stru
men
ts
Med
icin
al e
qu
ipm
ent
Civ
ilian
air
craf
t e
ng
ines
eq
uip
men
t a
nd
par
ts
Rai
lway
tra
nsp
ort
atio
n
equ
ipm
ent
Ves
sels
exc
lud
ing
scr
ap
Co
mm
erci
al v
esse
ls o
ther
M
arin
e en
gin
es p
arts
Spac
ecra
ft e
xclu
din
g
mili
tary
Pas
sen
ger
car
s
new
an
d u
sed
Tru
cks
bu
ses
and
sp
ecia
l p
urp
ose
ve
hic
les
En
gin
es a
nd
en
gin
e p
arts
(c
arb
ure
tors
pis
ton
s r
ing
s
and
val
ves)
B
od
ies
and
ch
assi
s fo
r p
asse
ng
er c
ars
Au
tom
oti
ve t
ires
an
d t
ub
es
Oth
er p
arts
an
d a
cces
sori
es o
f ve
hic
les
Ap
par
el h
ou
seh
old
go
od
s -
text
ile
Ph
arm
aceu
tica
lp
rep
arat
ion
s
Furn
itu
re h
ou
seh
old
go
od
s
etc
R
ug
s
Cel
l ph
on
es a
nd
oth
er
ho
use
ho
ld g
oo
ds
ne
c
594-71613_ch01_4Pindd 17 102017 404 PM
US-Russia Economic Relations18
Figure 43 US Trade in Goods with Rus sia Million US$ 1992ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
Russian Financial Crisis
Oil price Increased from$2446 USD per barrel (2001)
to $9694 USD per barrel(2008)
Global Financial Crisis
Oil price high record in2011-2012
(more that $111 USD perbarrel)
Oil price crashed
$-
$5000
$10000
$15000
$20000
$25000
$30000
$35000
$40000
$45000
$50000
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia US Exports to Russia US-Russia Trade in Goods
No doubt po liti cal ups and downs add volatility to US- Russia trade Nevertheless Rus siarsquos eco-
nomic structure exhausted itself before the Ukrainian crisis and the recent Rus sian recession Its
limitations are not only due to some mistakes in policy or negative coincidences of circumstances
but rather to deeply rooted properties in the current bilateral trade model related to structural
issues in the Rus sian economy Structural constraints such as the weak enforcement of property
rights poor business regulation and nondiversified exports weighed on Rus sian trade with the
United States From this perspective the term ldquonaturalunnatural trading partnersrdquo does not ad-
dress the unused capacity of bilateral interaction or the real challenges that kind of interaction
faces It just adds metaphysical flavor to the very specific economic and po liti cal factors that
determine the US- Russia trajectory
Overall the outlines of bilateral trade (Figure 43) resemble the famous ldquoRus sian Mountainsrdquo that
were a pre de ces sor of the modern roller coaster icy hills supported by wooden constructionsmdash a
rigid and immobile structure that sooner or later would melt This unfortunately is what is hap-
pening to US- Russia trade cooperation now
594-71613_ch01_4Pindd 18 102017 404 PM
19
ARE LITTLE FISH REALLY SWEET
Low US- Russia economic interaction has at least two consequences First it limits the capacity of
policymakers to exploit trade as an instrument for geopo liti cal combat Even the question of a US
trade deficit which used to be a headache for many US trading partners has become so insig-
nificant in absolute terms (about $87 billion in 2016) that it seems hardly worth caring about
When the volume of trade between two countries becomes very small in absolute terms whether
a country is running a surplus or deficit is no longer relevant But it also renders another type of
confrontations (sometimes more dangerous) more likely since the two traders have little to lose
Second in an environment marked by low levels of bilateral trade both sides could incentivize (if
and when a desire for po liti cal rapprochement exists) the signing of new trade deals which are
elevated symbolically as a turning point in bilateral po liti cal relations (ie the sale of Boeings to
Rus sia or the delivery via tankers of Rus sian oil to US refineries) Sometimes markets themselves
pres ent ldquogiftsrdquo that can be capitalized on po liti cally US- USSR grain trade in the 1970s was one
such ldquogiftrdquo large sales of American grain to the Soviet Union helped US policymakers win favor
with the po liti cally impor tant American farming sector and permitted Soviet leaders to maintain
access to a dietary staple for the Soviet population
The strong 32 percent growth in value of US imports from Rus sia from January to May 2017
versus January to May 2016 ( Table 51) is an example of a development that has tempted officials
to pres ent it as a sign of positive change due to ldquogrowing business activitiesrdquo (this kind of statement
was heard before the bilateral summit in Germany in July 2017) although the reason for that leap
was evidently an increase in commodity prices (mainly of oilmdash see Table 52) and not a rise in
entrepreneurial interactions The primary beneficiaries of that upside rally have been two other
petro- economies Saudi Arabia and Venezuela ( Tables 53 and 54)
Sector Analyses
05
594-71613_ch01_4Pindd 19 102017 404 PM
US-Russia Economic Relations20
Table 51 US Imports from Rus sia Million US$ Januaryndash May 2016 vs Januaryndash May 2017
Year January February March April May Total
2016 9603 6871 11097 12257 10977 50805
2017 12215 10220 16979 13471 14147 67032
Change 271 487 530 99 289 319
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
Table 52 Change in Urals Crude Oil Prices US$ per Barrel Januaryndash May 2016 vs Januaryndash May 2017
Januaryndash May 2016 Januaryndash May 2017 Change ($) Change ()
3601 5129 1528 424
Source Ministry of Finance of the Rus sian Federation https wwwminfin ru ru ixzz4mMIZ7XtC
Table 53 US Imports from Saudi Arabia Million US$ Januaryndash May 2016 vs Januaryndash May 2017
Year January February March April May Total
2016 15114 9036 13555 10844 14679 63228
2017 19802 20298 21650 16211 19542 97503
Change 3101 12463 5972 495 331 542
Source US Census Bureau ldquoTrade in Goods with Saudi Arabiardquo Foreign Trade last modified June 29 2017
https wwwcensus gov foreign - trade balance c5170 html (see data for 2016ndash2017)
594-71613_ch01_4Pindd 20 102017 404 PM
Vadim Grishin 21
Table 54 US Imports from Venezuela Million US$ Januaryndash May 2016 vs Januaryndash May 2017
Year January February March April May Total
2016 6657 5560 7140 8007 7922 35286
2017 13041 10864 123500 11148 12243 59646
Change 9590 9540 7297 3923 5454 6903
Source US Census Bureau ldquoTrade in Goods with Venezuelardquo Foreign Trade last modified June 29 2017
https wwwcensus gov foreign - trade balance c3070 html (see data for 2016ndash2017)
Table 55 US Exports to Rus sia Million US$ Januaryndash May 2016 vs Januaryndash May 2017
Year January February March April May Total
2016 3628 3577 7298 4657 4947 24107
2017 3144 4277 5386 6670 4806 24283
Change minus133 196 minus262 432 minus29 minus07
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2016ndash2017)
At the same time US exports to Rus sia continue to stagnate ( Table 55) due to low levels of
consumption during a two-and- a- half-year economic crisis a deep ruble devaluation sanctions
and counter- sanctions
Given the very dif er ent economic structures and resource endowments of Rus sia and the United
States it is not surprising that US- Russia trade is asymmetric and oil driven (Figure 51) A
3 percent increase in Urals oil prices translates into a one percent increase in US import growth
from Rus sia Thus in 2016 every $10 increase in Urals crude oil added $15 billion to the value of
US imports or 11 percent to the total value of imports from Rus sia
OIL ADDICTION
Oil is a core pillar of US- Russia bilateral trade A bumpy ride in oil markets afects commerce
Nevertheless Rus sian oil exports to the United States in physical terms have been rather
594-71613_ch01_4Pindd 21 102017 404 PM
US-Russia Economic Relations22
sustainable Starting from 2005 average annual deliveries have been above 150 million barrels
(Figure 52) Crude and heating oil have dominated while petroleum products and liquefied petro-
leum gases have not (Figure 53) In 2011 oil exports peaked at 228 million barrels but declined to
159 million barrels in 2016mdash a drop of 30 percent Rec ord high shipments of Rus sian oil to the United
States coincided with an elevation in oil prices which made the subsequent decline in oil shipment
value between 2011 and 2016 (by about 72 percent as shown in Figure 54) seem more stark The
increase in price also raised the share of oil in Rus sian exports by 74 percent in 2011 (Figure 55)
The Rus sian share in total US oil imports was around 55 percent in 2011 and 43 percent in 2016
( Table 56) In the last five years the United States has relied exclusively on consumption of Rus sian
oil for the rough equivalent of one week out of the year (Figure 56)
It is unlikely that Rus sia can significantly increase its share of the US oil market and there is a real
possibility for a downward trend There are several reasons the historically high Rus sian hydrocar-
bon export threshold of 2011 will not soon if ever be surpassed
First US energy consumption will likely be flat According to the US Energy Information Adminis-
tration (EIA) demand for petroleum and other liquids in the United States will be about 35ndash36
quadrillion British thermal units (BTUs) with minimal variation over the next 25 years1
1 US EIA ldquoAnnual Energy Outlook 2017 with Projections to 2050rdquo January 5 2017 7ndash8
Figure 51 US- Russia Trade Growth () vs US and Rus sia Real GDP Growth () 1993ndash2016
Source IMF ldquoIMF Datardquo accessed September 27 2017 http wwwimf org en Data US Census Bureau
ldquoTrade in Goods with Rus siardquo
Note rGDPthinsp=thinspreal gross domestic product
Trade
USA rGDP growth
Russia rGDP growth
-60
-40
-20
0
20
40
60
80
100
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Gro
wth
All spikes in US-Russia trade have been connected with two main
variables volume and price of crude oil
594-71613_ch01_4Pindd 22 102017 404 PM
Vadim Grishin 23
Second the United States will become a net energy exporter between 2020 and 2030 in most
cases under dif er ent combinations of oil and natu ral gas prices GDP growth technological
breakthroughs and the availability of energy resources The role of oil imports will dramatically
fall2
Third oil price scenarios as described by the International Energy Agency (IEA) international
financial organ izations (IFIs) and many national agencies are very cautious and assume that even
by 2035 to 2040 oil prices will not to recover to the levels of 2011ndash20123
Fourth Rus sian oil production and export growth will be modest and driven by Asian economic
expansion and will comprise a decreasing share of Western markets4 According to forecasts from
2 Ibid 15ndash18
3 Ibid table 3 ldquoEnergy Prices by Sector and Sourcesrdquo World Bank World Bank Commodity Markets Price Forecasts
(Washington DC World Bank 2017) httpswwwworldbank org en research commodity - markets Organ ization of the
Petroleum Exporting Countries (OPEC) World Oil Outlook 2016 (Vienna OPEC 2016)
4 E D Belotskaia et al Global and Rus sian Energy Outlook 2016 (Moscow Energy Research Institute of the Rus sian
Acad emy of Science Analytical Center for the Government of the Rus sian Federation 2016) http acgov ru files
publication a 12767 pdf
Figure 52 US Imports from Rus sia Crude Oil and Petroleum Products Thousands of Barrels 1995ndash2016
Source US EIA ldquoUS Imports by Country of Origin Rus siardquo Petroleum amp Other Liquids September 13
2017 http wwweia gov dnav pet PET _ MOVE _ IMPCUS _ D _ NUS _ NRS _ MBBL _ M htm
0
50000
100000
150000
200000
250000
Date 1995 1996 1997 1998 199920002001200220032004200520062007200820092010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 23 102017 404 PM
US-Russia Economic Relations24
the Organ ization of the Petroleum Exporting Countries (OPEC) crude oil exports from Rus sia and
the Caspian region to the United States will dis appear by 20255
So why does the Rus sian Urals blend continue to be attractive for oil traders and US refineries
which could pro cess greater volumes of domestically produced lighter crude There are two main
reasons One is related to the preference of US high conversion refineries (the most sophisticated
in the world) to work with heavy oil blends produced by Canada Mexico Iraq Venezuela and
Rus sia Pro cessing heavy crude now is as profitable as pro cessing lighter crude The so- called
crack spreadmdash the diference between the cost of relatively cheap heavy crude oil and the final
price of value- added consumer products (diesel gasoline jet fuel and heating oil)mdash has become
the same as the refinery margins of light sweet crude6 This has primarily afected light oil produc-
ing countries such as Angola Algeria and Nigeria
5 OPEC World Oil Outlook 2016 306ndash309
6 ldquoHow Much for That Heavy Oilrdquo Oil Sands Magazine December 26 2015 https wwwoilsandsmagazine com
news 2015 12 26 how - much - for - that - heavy - oil
Figure 53 US Imports from Rus sia Oil and Petroleum Products US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$-
$25000000000
$20000000000
$15000000000
$10000000000
$5000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Liquefied petroleum gases
Petroleum products other
Fuel oil
Crude oil
594-71613_ch01_4Pindd 24 102017 404 PM
Vadim Grishin 25
Another factor afecting purchase of Rus sian oil is a new trend among oil companies for further
consolidation of scale and for integrating operations of upstream and downstream business7
There have been several waves of separation and unification of production transportation and
pro cessing in the last 50 years The current business cycle can be seen as an adaptation to a
period of low prices and oversupply Companies that buy andor produce oil in Rus sia most likely
prefer to transport and pro cess this oil in their own modern refineries in the United States At the
same time some of the newest refinery designs specifically for pro cessing heavy oils have been
built in Asia thus extending the choices of heavy oil producing countries
We should also consider that leading US and international oil traders along with oil producing
companies working with or owning US refineries frequently buy Rus sian oil on the open market
and have long- term contracts on Rus sian crude oil delivery Many Rus sian oil companies prefer to
pay for purchases or ser vices with their future production instead of cash creating situations of
ldquostickyrdquo oil imports that are difficult to replace The best- known example is an interaction between
7 ldquoEnergy and Utilities Sectorrdquo Roundtable Financier Worldwide December 2015 https wwwfinancierworldwide
com roundtable - energy - utilities - sector - dec15
Figure 54 US Imports of Oil and Petroleum Products from Rus sia vs Oil Prices Eu rope Brent Spot Price Free on Board (FOB) 1996ndash2017
Source US EIA ldquoUS Imports by Country of Origin Rus siardquo
0
20
40
60
80
100
120
140
0
5000
10000
15000
20000
25000
30000
Jan
-19
96
Jun
-19
96
No
v-19
96
Ap
r-19
97
Sep
-19
97
Feb
-19
98
Jul-
199
8D
ec-1
99
8M
ay-1
99
9O
ct-1
99
9M
ar-2
00
0A
ug
-20
00
Jan
-20
01
Jun
-20
01
No
v-2
00
1A
pr-
20
02
Sep
-20
02
Feb
-20
03
Jul-
20
03
Dec
-20
03
May
-20
04
Oct
-20
04
Mar
-20
05
Au
g-2
00
5Ja
n-2
00
6Ju
n-2
00
6N
ov-
20
06
Ap
r-2
00
7Se
p-2
00
7Fe
b-2
00
8Ju
l-2
00
8D
ec-2
00
8M
ay-2
00
9O
ct-2
00
9M
ar-2
010
Au
g-2
010
Jan
-20
11Ju
n-2
011
No
v-2
011
Ap
r-2
012
Sep
-20
12Fe
b-2
013
Jul-
20
13D
ec-2
013
May
-20
14O
ct-2
014
Mar
-20
15A
ug
-20
15Ja
n-2
016
Jun
-20
16N
ov-
20
16
USD
per
Bar
rel
Th
ou
san
d B
arr
els
US Imports from Russia of Crude Oil and Petroleum Products (Thousand Barrels)
Europe Brent Spot Price FOB (Dollars per Barrel)
594-71613_ch01_4Pindd 25 102017 404 PM
US-Russia Economic Relations26
Table 56 US Oil Imports All Countries vs Rus sia Thousand Barrels per Day 2011ndash2016
Years 2011 2012 2013 2014 2015 2016
All Countries 11436 10598 9859 9241 9449 10058
Rus sia 624 477 460 330 371 433
Share 546 450 467 357 393 431
Sources US EIA ldquoUS Imports by Country of Origin Total Crude Oil and Productsrdquo Petroleum amp Other
Liquids September 13 2017 wwweia gov dnav pet pet_move_impcus_a2_nus_ep00_im0_mbbl_m htm
authorrsquos computation
Figure 55 US Imports from Rus sia Share of Crude Oil and Petroleum Products Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
57
64
73
72
74
73
72
59
52 50
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
$40000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil and Petroleum Products
594-71613_ch01_4Pindd 26 102017 404 PM
Vadim Grishin 27
the Rus sian state mono poly Rosneft and commodity trading and mining giant Glencore which
along with energy and commodities com pany Vitol participated in a $10 billion prepayment
deal with Rosneft for crude supplies in 2013
There have been a number of ongoing transactions between the Rus sian oil industry and interna-
tional oil companies including several that top the list of importers of Rus sian oil to the United
States ( Table 57) In December 2016 Glencore participated in a controversial privatization opera-
tion purchasing in tandem with the Qatar sovereign wealth fund a 195 percent stake in Rosneft
which was on the US and EU list of sanctioned firms8 Glencore has also taken a blocking stake in
midsize oil producer RussNeft BP owns a 1975 percent stake in Rosneft Chevron holds a
15 percent interest in the 935- mile- long CPC9 pipeline which transports an average of 959000
barrels of crude oil per day including 76000 barrels daily from Rus sia10 ExxonMobil has formed
8 E Mazneva and I Arkhipov ldquoRus sia Sells $11 Billion Stake in Rosneft to Glencore Qatarrdquo Bloomberg December 7
2016
9 CPCthinsp=thinspCaspian Pipeline Consortium
10 ldquoRus sia Highlights of Operations and Business Portfoliordquo Chevron accessed October 3 2017 https wwwchevron
com worldwide russia
Figure 56 Share of Rus sian Oil in Total US Oil Imports Thousands of Barrels per Day 1972ndash2016
Source US EIA ldquoUS Imports by Country of Origin Total Crude Oil and Productsrdquo
2000
4000
6000
8000
10000
12000
14000
16000
US Imports of Crude Oil and Petroleum Products (Thousand Barrels per Day)
US Imports from Russia of Crude Oil and Petroleum Products (Thousand Barrels per Day)19
7319
7419
7519
7619
7719
7819
7919
80
198
119
82
198
319
84
198
519
86
198
719
88
198
919
90
199
119
92
199
319
94
199
519
96
199
719
98
199
92
00
02
00
12
00
22
00
32
00
42
00
52
00
62
00
72
00
82
00
92
010
20
112
012
20
132
014
20
152
016
594-71613_ch01_4Pindd 27 102017 404 PM
Table 57 Top Importers of Rus sian Oil to the United States Thousands of Barrels 2016
VALERO MARKETING amp SUPPLY CO 54590 3616
EXXONMOBIL OIL CORP 17087 1130
CHEVRON USA INC 15217 1008
BP WEST COAST PRODUCTS LLC 10130 671
GEORGE E WARREN CORP 7272 48
PAULSBORO REFINING CO LLC 6838 453
TESORO CORP 5097 338
VITOL INC 5084 337
PHILLIPS 66 CO 4726 313
TRAFIGURA AG 4360 289
PAR HAWAII REFINING LLC 3893 258
MOTIVA ENTERPRISES LLC 3041 205
SHELL US TRADING CO 2863 19
MARATHON PETROLEUM CO LLC 2475 16
ATLANTIC TRADING amp MARKETING 2099 14
FREEPOINT COMMODITIES LLC 1439 1
GLENCORE LTD 1284 85
BEST PETROLEUM CORP 967 64
ROLYMPUS US COMMODITIES GROUP LLC 822 6
HUNT CRUDE OIL SUPPLY CO 666 4
GULF OIL LP 658 4
Source US EIA ldquoUS Imports by Country of Origin Crude Oilrdquo Petroleum amp Other Liquids September 13
2017 httpswwweiagovdnavpetpet_move_impcus_a2_nus_epc0_im0_mbblpd_ahtm authorrsquos
computation
594-71613_ch01_4Pindd 28 102017 404 PM
Vadim Grishin 29
several joint ventures with Rosneft to undertake ofshore exploration in the Black Sea and the Kara
Sea in Siberia11
According to the Sanctions Act US persons are prohibited from exporting or reexporting goods
ser vices (except financial ser vices) and technology in support of exploration or production of new
deep- water Arctic ofshore or shale oil proj ects that involve designated Rus sian entities or other
entities in which such sanctioned persons have a controlling interest or a substantial noncontrol-
ling owner ship interest defined as not less than 33 percent (previously it was 50 percent) The new
law also authorizesmdash but does not requiremdash the imposition of so- called secondary sanctions
against non- US entities that engage in activities involving the construction maintenance or
expansion of Rus sian energy export pipelines with a fair market value of $1 million or more or an
aggregate fair market value during a 12- month period of $5 million12 This provision has raised the
concerns of some Eu ro pean countries particularly Germany As result the final language of the
law included wording about coordination of this issue with allies of the United States
Shipments of Rus sian oil to the United States could be afected by activity in the US refinery
industry In early 2017 Saudi Aramco bought the United Statesrsquo largest oil refinery in Port Arthur
(Texas) and it announced plans to send more of its own crude to that refinery13 Serious concerns
exist however regarding the future of three refineries and nine pipelines owned by Citgo a US
branch of the Venezuelan state com pany PdVSA which is balancing precariously on the edge of
default Under certain conditions in the event of PdVSA bankruptcy Rosneft could claim a stake of
up to 499 percent in Citgo Such a possibility has raised concerns among politicians and US
government officials with Trea sury Secretary Steven Mnuchin calling it a ldquonational security issuerdquo14
Tables 58 59 and 510 show allocations of Rus sian oil imports to major US refineries some of
which work exclusively on Rus sian crude a total of two to three months per year In total 150940
thousand barrels of Rus sian oil were refined in 2016
Figure 57 confirms a leading position of Texas and Louisiana among the US states receiving
Rus sian crude followed by New Jersey California Mississippi Washington Hawaii and Delaware
In a paradoxical way Texas has dis appeared from the list of states as a main destination of US
imports from Rus sia (Figure 58) because Rus sian crude is mostly delivered to Louisiana ports and
registered there by US Customs as an import from Rus sia After that it transports to refineries in
Louisiana and Texas
Overall the short- term business rationale behind the sustainability of US oil imports from Rus sia
cannot overcome strong headwinds in the US energy sector facing all oil importers which will
inevitably lead to a contraction of Rus sian oil exports to the United States in the foreseeable future
11 Exxon eforts to receive a special US Trea sury waiver to drill in sanctioned Rus sia failed in 2017
12 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364
13 Sarp Ozkan ldquoSaudi Aramcorsquos Port Arthur Refinery and the US Refinery Fleetrdquo Drilling Info May 11 2017
https infodrillinginfo com saudi - aramcos - port - arthur - refinery - us - refinery - fleet
14 Graham Kates ldquoTrea sury Secretary Rus siarsquos Citgo Deal a National Security Issuerdquo CBS News May 1 2017
http wwwcbsnews com news rosneft - citgo - steven - mnuchin - national - security
594-71613_ch01_4Pindd 29 102017 404 PM
US-Russia Economic Relations30
Table 58 Valerorsquos Refineries Pro cessing Rus sian Oil Thousands of Barrels 2016
Saint Charles Louisiana 29206 535
Corpus Christi Texas 20626 378
Wilmington California 4250 78
Total USA 54590 100
Source US EIA ldquoRefinery Capacity Reportrdquo January 1 2017
table 5 wwweia gov petroleum refinerycapacity table5 pdf
authorrsquos computation
Table 59 ExxonMobil Refineries Pro cessing Rus sian Oil Thousands of Barrels 2016
Baytown Texas 15037 88
Baton Rouge Louisiana 2046 12
Total USA 17083 100
Source US EIA ldquoRefinery Capacity Reportrdquo authorrsquos computation
Table 510 Chevronrsquos Refineries Pro cessing Rus sian Oil Thousands of Barrels 2016
Pascagoula Mississippi 12767 840
El Segundo California 2372 155
Saint Rose Louisiana 78 05
Total USA 15217 100
Source US EIA ldquoRefinery Capacity Reportrdquo authorrsquos computation
594-71613_ch01_4Pindd 30 102017 404 PM
Vadim Grishin 31
HEAVY METAL
Taken together US imports of metals and US imports of oil compose about 80 percent of US
total imports from Rus sia (Figure 59) Trade of metals like other commodities is strongly afected
by market price fluctuations Nevertheless metal imports from Rus sia have been fairly resilient to
market volatility and their average annual value has hovered at about $4 billion in the last five years
(Figure 510) This market resilience was forged at the end of the 1990searly 2000s when Rus sian
metal producers gradually modernized their plants adjusting quality of production to Western
standards and enhancing integration into global value and supply chains Some of them conquered
their share of the highly competitive US market struggling with peers from Canada and certain
BRICS countries (China India and Brazil) To attract additional resources all Rus sian large metal-
producing companies became public and were listed on stock exchanges chiefly the London Stock
Exchange (Severstalrsquo PAO Evraz MMK OAO Novolipetsk Steel Norilsk Nikel and TMK PAO) one
on the New York Stock Exchange (Mechel) and one on the Hong Kong Stock Exchange (Rusal)
Business logic pushed some of them to invest in the US metal- making industry which was hit
hard by crisis Later on some of those assets were sold (eg two US steel mills acquired by
Severstal in 2004 were purchased 10 years later by Steel Dynamics Inc and AK Steel Corp)
Figure 57 Share of US States Rus sian Oil Imports 2016
Source US EIA ldquoUS Imports from Rus sia of Crude Oil and Petroleum Productsrdquo Petroleum amp Other
Liquids September 29 2017 https www eia gov dnav pet hist LeafHandler ashx nshy=shyPETampsshy=shyMTTIM _ NUS
- NRS _ 1ampfshy=shyM authorrsquos computation
0
10
20
30
40
50
60
70
80
90
100
Maine
Massachusetts
Maryland
Connecticut
Georgia
Rhode Island
Virginia
Florida
New York
Alabama
Puerto Rico
Pennsylvania
Delaware
Hawaii
Washington
Mississippi
California
New Jersey
Louisiana
Texas
594-71613_ch01_4Pindd 31 102017 404 PM
Figure 58 US Imports from Rus sia by State Million US$ 2013ndash2016
Source US Census Bureau ldquoState and Metropolitan Area Trade Datardquo Foreign Trade last modified
October 2 2017 https wwwcensus gov foreign - trade statistics state
Alaska
Connecticut
Delaware
Hawaii
Louisiana
Maryland
North Dakota 0
$1000
$2000
$3000
$4000
$5000
$6000
2013 2014 2015 2016
Alabama
Alaska
Connecticut
Delaware
Hawaii
Louisiana
Maryland
Maine
Mississippi
Montana
North Dakota
Mississippi
Figure 59 US Imports from Rus sia Share of Oil and Metals Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
83
82
85
86
87
88
85
82
7375
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
$40000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil and Metals
594-71613_ch01_4Pindd 32 102017 404 PM
Vadim Grishin 33
Obviously the market dynamic of dif er ent metals varies (eg iron steel aluminum platinum and
nickel) Caps to increase their trade and production in a ldquored oceanrdquo global environment with
anemic demand is rather limited despite Figure 510 showing a spike of iron and steel imports
from Rus sia in 2014 and aluminum in 2016 Some opportunities may exist for Russian- owned steel
plants in the United States (such as NLMK) to participate in energy proj ects resumed under Presi-
dent Trump who has required that new pipelines use only American- made steel15
Rus sia occupies a special niche in the US market for titanium products a high- end metal indus-
try Twenty years ago a long- term contract was signed between Rus sian titanium producer
VSMPO- AVISMA and Boeing The Rus sian com pany entered the selective club of Boeing suppliers
for the manufacture of components and semi- finished products Since the signing of this contract
VSMPO has delivered more than 35 percent of all titanium placed on Boeing civil aircraft16 They
are hidden in the trade data in an import category for Civilian Aircrafts and Parts (Figure 511) At
the end of 2016 Boeing announced an extension of its framework agreement with AVISMA
15 E Scheyder C Ngai and T Sylvester ldquoAmerican Steel Unlikely to Get Keystone Boost Despite Trump Orderrdquo
Reuters January 27 2017 http wwwreuters com article usa - trump - pipeline - transcanada - idUSL1N1FH1ZD
16 A Kramer ldquoTitanium Fills Vital Role for Boeing and Rus siardquo New York Times July 5 2013 http wwwnytimes com
2013 07 06 business global titanium - fills - vital - role - for - boeing - and - russia html mcubzshy=shy3
Figure 510 US Imports from Rus sia Iron Steel Bauxite Aluminum Nickel Nonferrous Metals and Other Precious Metals and Materials US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
0
$6000000000
$5000000000
$4000000000
$3000000000
$2000000000
$1000000000
2007 2008 2009 2010 2011 20122013
20142015
2016
Finished metal shapes
Iron and steel advanced
Iron and steel products nec
Nonferrous metals other
Other precious metals
Nickel
Bauxite and aluminum
Iron and steel mill products
Steelmaking materials
594-71613_ch01_4Pindd 33 102017 404 PM
US-Russia Economic Relations34
through 2022 and additional investments in the construction of a new robotic plant in Titanium
Valley a special economic zone located in the Sverdlovsk region that will open in 2018 The pro-
cessing of titanium forgings in all Boeing civil aircraft will be performed there including 787s 737
MAXs and 777Xs17 The contract extension with AVISMA may add several hundred million dollars
in value to annual US imports from Rus sia
How can such heavy reliance on imports of Rus sian titanium exist during a period of rising geopo-
liti cal tensions The answer is straightforward VSMPO- AVISMA is a highly specialized natu ral
mono poly producing 45 percent of the worldrsquos aerospace titanium Only four other countries
smelt high- grade titanium in industrial quantities the United States Germany Japan and China
Overall global production capacity is limited while demand is growing The United States cur-
rently imports around 79 percent of all the titanium it consumes each year18
17 ldquoBoeing and VSMPO Avisma to Launch Second Joint Production Siterdquo Rus sian Aviation Insider December 22 2016
http wwwrusaviainsider com boeing - and - vsmpo - avisma - to - launch - second - joint - production - site
18 Jon Ostrower and Andy Pasztor ldquoBoeing United Technologies Stockpile Titanium Partsrdquo Wall Street Journal
August 7 2014 https wwwwsj com articles boeing - united - technologies - stockpiling - titanium - parts - 1407441886
Figure 511 US Imports from Rus sia Civilian Aircrafts and Parts US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
$200000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Parts-civilian aircraft
Civilian aircraft
594-71613_ch01_4Pindd 34 102017 404 PM
Vadim Grishin 35
The Sanctions Act authorizes the secretary of the trea sury (in a nonmandatory way) to impose
restrictions (without specifying them) against Rus sian state- owned entities operating in the railway
metals and mining sectors of the Rus sian economy Despite the commanding heights of Rus siarsquos
state sector owner ship in its economy (70 percent of GDP) the metal- producing companies have
remained mostly in private hands
NUCLEAR AFFAIRS
Historically owners and operators of the 104 commercial nuclear power reactors in the United
States have purchased more than 80 percent of their uranium from foreign countries Uranium
shipping from Rus sia accounted for about 13 percent of the 58 million pounds of uranium pur-
chased overseas in 201219 At the same time the Rus sian state- owned mono poly Rosatom ac-
counts for 20 percent of Kazakhstanrsquos uranium production (which in turn comprises 11 percent of
all US uranium imports) and 20 percent of US domestic uranium production capacity (with
owner ship of exploration tracts in Wyoming)20
Nuclear fuel and nuclear power continue to be po liti cally sensitive topics both in the United
States and Rus sia Bilateral cooperation in this sector (being surprisingly stable with imports of
nuclear fuel from Rus sia at a level of $1 billion annually in the last five years [Figure 512 and 513])
is under constant po liti cal and lobbying pressure and has been a source of several po liti cal scan-
dals21 Consequently upside risks in this area of interaction are minimal and downside risks are
much higher especially when we are seeing more decommissioning of nuclear plants in the
United States than new constructions The US EIArsquos 2017 Annual Energy Outlook assumes
that about 25 percent of the nuclear capacity now operating will be removed from ser vice
by 205022
WHY IS THE GRASS GREENER ON THE OTHER SIDE
The United States continues to significantly reduce imports of chemical fertilizers as domestic pro-
duction increases In 2016 the United States imported 13 percent less ammonia and 11 percent
less urea and UAN which is a liquid urea and ammonium nitrate fertilizer Rus sia accounts for
around 40 percent of UAN imported by the United States The United States canceled antidumping
duties on imports of ammonium nitrate and urea from Rus sia in 2016 but it did not prevent import
19 US EIA ldquoThe US Relies on Foreign Uranium Enrichment Ser vices to Fuel Its Nuclear Power Plantsrdquo Today in
Energy August 28 2013 https wwweia gov todayinenergy detail php idshy=shy1273
20 Colin Chilcoat ldquoDoes Rus sia Really Own 20 Percent of the USrsquo Uranium Reservesrdquo OilPricecom May 6 2015
http oilpricecom Alternative - Energy Nuclear - Power Does - Russia - Really - Own - 20 - Of - The - US - Uranium - Reserves
html
21 Michelle Ye Hee Lee ldquoThe Facts behind Trumprsquos Repeated Claim about Hillary Clintonrsquos Role in the Rus sian Ura-
nium Dealrdquo Washington Post October 26 2016
22 US EIA ldquoAnnual Energy Outlook 2017 with Projections to 2050rdquo 81ndash82
594-71613_ch01_4Pindd 35 102017 404 PM
Figure 512 US Imports from Rus sia Share of Oil Metals and Nuclear Fuel Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
87
86
90
90
90
91
88
86
7882
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals and Nuclear Fuel
Figure 513 US Imports from Rus sia Nuclear Fuel Materials US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$-
$200000000
$400000000
$600000000
$800000000
$1200000000
$1000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 36 102017 404 PM
Vadim Grishin 37
drops twice last year (Figures 514 and 515) According to forecasts UAN imports are expected to
decline further to 15 million tons this year down over 46 percent from 28 million tons imported
last year23 The downside trend in imports of fertilizers will likely continue because of oversupply
BIG FISH
US imports of fish and shellfish from Rus sia are best understood in comparison with US fish
exports to the Rus sian market which slipped to zero in August 2014 after Rus sia issued an order
banning certain agricultural imports from the United States (Figure 516) While the volume of US
supply was not very large it was impor tant because it broke up the monopolistic dominance of a
few vertically integrated Rus sian companies that have kept prices high by restricting the entry of
new producers Seeking to implement import substitution policies Rus sia has tried to reduce
exports as well as imports of fish and seafood products in the last couple of years This symmetri-
cal approach was intended to ldquocompensaterdquo for a decrease of fish products in the domestic
23 Deepika Thapliyal ldquoPotashCorp Forecasts Sharp Drop in US Nitrogen Imports in 2017rdquo ICIS News February 7
2017 https wwwicis com resources news 2017 02 07 10076734 potashcorp - forecasts - sharp - drop - in - us - nitrogen
- imports - in - 2017
Figure 514 US Imports from Rus sia Share of Oil Metals Nuclear Fuel and Fertilizers Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
90
93
92
93
94
95
92
91
85
86
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals Nuclear Fuel and Fertilizers
594-71613_ch01_4Pindd 37 102017 404 PM
Figure 515 US Imports from Rus sia Chemical- Fertilizers US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
S-
$200000000
$400000000
$600000000
$800000000
$1000000000
$1200000000
$1400000000
$1600000000
$1800000000
$2000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Figure 516 US Exports to Rus sia Fish and Shellfish US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$10000000
$20000000
$30000000
$40000000
$50000000
$60000000
$70000000
$80000000
$90000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Fish and shellfish
594-71613_ch01_4Pindd 38 102017 404 PM
Vadim Grishin 39
consumer market caused by Rus siarsquos import ban but it has failed As result the group most af-
fected by the self- imposed counter- sanctions were Rus sian consumers
With a significant drop in fish imports a devaluation of the ruble and inflationary pressures on
seafood prices yearly consumption of fish in Rus sia has declined precipitously In 2015 alone
fish prices increased 20 percent and consumption dropped to 14 kilograms per person24 from
22 kilograms in 201425 In 2016 food rose to 355 percent of house hold expenditure as a result of
increases in food prices26 This has pushed vertically integrated fishing monopolies to sell even
more of their catch abroad rather than deliver to the Rus sian Federation (Figure 517) Thus we
cannot exclude the possibility of further growth in US fish and shellfish imports from Rus sia on a
marginal scale
24 Александр Савельев ldquoПотребление рыбы в России упало до 14 кг на человекаrdquo [Fish consumption in Rus sia fell to
14 kg per person] Экономика Интерфакс January 28 2015 http wwwinterfax ru business 492038
25 Илья Шестаков ldquoПотебление рыбы в России снизилось на 10 процентов из- за роста ценrdquo [Fish consumption in
Rus sia dropped by 10 percent due to price increases] RNS March 8 2017 https rnsonline consumer - market
Potreblenie - ribi - v - Rossii - snizilos - na - 10 - iz - za - rosta - tsen - 2017 - 03 - 08
26 Zoya Sheftalovich and Christian Oliver ldquoRus siarsquos Boom (Farming) Economyrdquo Politico November 8 2016 http
wwwpolitico eu article russias - boom - farming - economy
Figure 517 US Imports from Rus sia Fish and Shellfish US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$50000000
$100000000
$150000000
$200000000
$250000000
$300000000
$350000000
$400000000
$450000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 39 102017 404 PM
US-Russia Economic Relations40
SPACE ODYSSEY
Among high- end products beyond the top five groups of goods imported from Rus sia cheap and
efficient Rus sian engines have been used to launch US rockets into space for about 16 years
(Figure 518) There was a serious po liti cal strug gle around a 2014 ban on the purchase of Rus sian
RD-180 rocket engines revealing the conflicting business interests of power ful high- tech companies
This restrictive mea sure was temporary and was quickly lifted because of significant cost impacts
and risks of disruption to launch schedules27 For the same reason the Sanctions Act does not autho-
rize ldquothe imposition of any sanction or other condition limitation restriction or prohibition that
directly or indirectly impedes the supply by any entity of the Rus sian Federation of any product or
ser vice or the procurement of such product or ser vice by any contractor or subcontractor of the
United States or any other entity relating to or in connection with any space launch conducted for
the National Aeronautics and Space Administration or any other nonndash Department of Defense
customerrdquo28
Nevertheless many experts believe that US domestic alternatives to replace Rus sian engines will
be viable in five to eight years
27 Ken Dilanian ldquoWhy Does the US Use Rus sian Rockets to Launch Its Satellitesrdquo NBC News updated November 15
2016 http wwwnbcnews com why - does - u - s - use - russian - rockets - launch - its - satellites - n588526
28 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364
Figure 518 Spacecraft Excluding Military US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 40 102017 404 PM
41
Diversity and technological complexity are the most vis i ble advantages supporting US exports to
Rus sia Three major groups of export goods include civilian aircraft engines and parts (Figure 61)
drilling and oil field equipment (Figure 62) and industrial machines and engines (Figure 63)
Despite sanctions against the transfer of advanced oil producing and pro cessing technologies the
realization of US drilling and oil field equipment in Rus sia is sustainable although some bilateral
proj ects have been frozen
Another category of goods that has demonstrated resilience is the phar ma ceu ti cal industry (Fig-
ure 64) because most drugs in Rus sia are imported (about 70 percent of the Rus sian phar ma ceu-
ti cal market in value) Import substitution policies have had only modest results in this industry
As confirmed by American Chamber of Commerce surveys US exports to Rus sia are closely
connected to US FDI 30 percent of total imports of US companies working in the Rus sian
market come from the United States (more than $2 billion in 2016) In other words about
40 percent of all US exports to Rus sia are related to a US corporate- sector business pro cess in
the country The major sectors of activity of these companies are energy and natu ral resources
(52 percent) manufacturing (17 percent) information and communications technology or ICT
(13 percent) retail (7 percent) automotive industry (6 percent) phar ma ceu ti cal production
(1 percent) professional ser vices (05 percent) and other (2 percent)1
Some obvious constraints on US exports to Rus sia have resulted from a reduction in demand A
deterioration of bilateral relations and implementation of sanctions and counter- sanctions have
directly or indirectly afected all businesses Figures 65 and 66 provide data regarding a dramatic
drop in the sale of US agricultural production in Rus sia with all other categories of exports in
goods showing big cuts as well (see Figures 67ndash69)
Exports of civilian aircraft engines and parts put the state of Washington in first place among
other states as a leading exporter to the Rus sian market (Figure 610)
1 American Chamber of Commerce in Rus sia ldquoInvestment and Import to Rus sia 2nd Surveyrdquo 13
Diversity and Constraints
06
594-71613_ch01_4Pindd 41 102017 404 PM
Figure 61 US Exports of Civilian Aircraft Engines Equipment and Parts to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
$2500000000
$2000000000
$1500000000
$1000000000
$500000000
$-
Figure 62 US Exports of Drilling and Oil Field Equipment US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
$40000000
$45000000
$50000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 42 102017 404 PM
Figure 63 US Exports of Industrial Engines to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Figure 64 US Exports of Phar ma ceu ti cal Preparations to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 43 102017 404 PM
Figure 65 US Exports of Meat and Poultry to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Meat poultry etc
$1000000000
$800000000
$600000000
$400000000
$200000000
$-
$1200000000
$1400000000
$1600000000
Figure 66 US Exports of Soybeans to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
$200000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 44 102017 404 PM
Figure 67 US Exports of Vehicles Engines and Parts to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Other parts and accessories of vehicles
Automotive tires and tubes
Bodies and chassis for passenger cars
Engines and engine parts (carburetors pistonsrings and valves)
Trucks buses and special purpose vehicles
Passenger cars new and used
$2500000000
$2000000000
$1500000000
$500000000
$-
$1000000000
Figure 68 US Exports of Medicinal Equipment to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 45 102017 404 PM
Figure 610 US Exports to Rus sia by States (2016 US$ Value) Million US$ 2013ndash2016
Source US Census Bureau ldquoState and Metropolitan Area Trade Datardquo
Iowa Kentucky
North Dakota
Oklahoma
South Carolina
Washington
0
$500
$1000
$1500
$2000
2013 2014 2015 2016
District of Columbia
Iowa
Kentucky
North Dakota
Oklahoma
South Carolina
Washington
Figure 69 US Exports of Excavating Machinery to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
$40000000
$45000000
$50000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 46 102017 404 PM
47
Upon reviewing the current trend in US- Russia economic relations we must acknowledge that
the existing trade model is obsolete and exhausted Imports are resource- oriented and reflect
constraints of the Rus sian economic structure while five groups of goodsmdash oil metals nuclear
fuels fertilizers and fishmdash make up more than 90 percent of total imports from Rus sia (Figure 71)
Each of these industries has a limited capacity for growth in the foreseeable future
Rus siarsquos core export to the United Statesmdash oilmdash will inevitably decrease in the mid- term under any
scenario The value and volume of Rus sian exports to the United States are open to global market
volatility and po liti cal pressures with limited hedging mechanisms
Overall US exports to Rus sia are unsustainable due to bilateral po liti cal tensions the whims of
commodity markets and changing domestic policies Sanctions and counter- sanctions have
created additional barriers particularly in finance banking high- tech energy and agro- business
According to the American Chamber of Commerce 69 percent of US companies working in the
country consider the impact of US sanctions against Rus sia on their business as negative At the
same time 60 percent of companies do not expect big changes in business relations between
Rus sia and the United States under Trump1 as the new law codifies existing sanctions fortifies
them and extends them to new sectors
Current US investments are low due to the weak rule of law in Rus sia a lack of property right
protections and proper contract enforcement high levels of statization and monopolization in the
economy a poor business climate outdated capital stock dependence on natural- resource
sectors and of course sanction and counter- sanction mea sures Bloated administrative compo-
nents created as risk mitigation instruments have also served as impediments The countryrsquos
institutional weakness low level of productivity bud get constraints and a declining inflexible
workforce will restrain future economic growth even if commodity prices recover Rus sian eco-
nomic policy will likely continue to be statist and protectionist relying mostly on import
substitutions
1 Ibid 11
Existing Trends and Future Scenarios
07
594-71613_ch01_4Pindd 47 102017 404 PM
US-Russia Economic Relations48
What scenarios can be expected in such a challenging environment
One probability (no peace no war) is based on the assumption that matters will not deteriorate
further and implementation of the Sanctions Act will be cursory This will cause relatively slow
degradation in the economic field with occasional flashes of activity in selected areas (eg closer
cooperation against Islamist terrorist groups in Syria)
A second worse case or critical scenario is the intensive and full- scale execution of current sanc-
tion legislation and even the imposition of new economic punitive and restrictive mea sures which
could incite asymmetric retaliatory actions and lead to the introduction of additional protectionist
policies This in turn could trigger a further escalation of mutual confrontation and could eventu-
ally destroy the fundamentals of the current bilateral trade system Rus sian leadership has charac-
terized the Sanctions Act as a declaration of a trade war that ends all hope for improving bilateral
relations2
2 Дмитрий Медведев ldquoПодписание президентом США нового санкционного закона против России создает несколько
последствийrdquo [The US Presidentrsquos signing of the package of new sanctions against Rus sia will have a few conse-
quences] Facebook August 2 2017 https wwwfacebook com Dmitry Medvedev posts 10154587161801851
Figure 71 US Imports from Rus sia Share of Oil Metals Nuclear Fuel Fertilizers and Fish Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
93
94
93
94
95
96
93
92
87
89
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals Nuclear FuelFertilizers and Fish
594-71613_ch01_4Pindd 48 102017 404 PM
Vadim Grishin 49
The best case and most favorable scenario looks less probable now It assumes the realization of
structural reforms in Rus sia in such a way that would adapt Rus siarsquos foreign policy to national
economic needs reduce confrontations with the West and make a concerted efort to integrate
Rus sian businesses into global supply and value chains A revitalization of the structural reform
agendamdash including eforts to diversify economic activities through de- monopolization and support
for SMEs a restructuring of the banking sector the creation of a vibrant business climate to foster
entrepreneurships and innovation the implementation of administrative and judicial reforms to
tackle red tape and endemic corruption and the reduction of state control over key sectors of the
economy via wide- spread privatization could kick- start the development of a nonoil economy and
improve long- term growth prospects Despite ongoing discussion of reform strategies deep
economic and po liti cal changes are extremely complicated over the next po liti calelectoral cycle
(2018ndash2024) particularly because of re sis tance of vested interests and growing commodity prices
The urgency to tackle structural shortcomings in natu ral resource- dependent economies usually
correlates with the price of those resources and the degree to which resource rents drive eco-
nomic activity However there may be marginal improvements in the efficiency of the current
economic system
Future US- Russia relations can be thought of through three pillars one pillar focuses on areas
where both countries maintain a competitive rivalry another looks at potential areas of interaction
under pres ent conditions a third pillar and one that has evaporated from the current bilateral
agenda concentrates on future cooperation Stronger economic ties could not only be a kind of
po liti cal shock absorber but contribute to the building of this future (particularly business contacts
aim to support future structural reforms) although po liti cal factors are depressing the prospects
for cooperation To escape deadlock it will be impor tant to establish the right balance between
politics and economics and create a model of collaboration within the framework of contention
594-71613_ch01_4Pindd 49 102017 404 PM
About the Author
Vadim Grishin PhD MBA has been involved in the reform pro cess in Rus sia as adviser to the
deputy prime minister of Rus sia in 1992ndash1993 and 2006ndash2010 He has extensive experience
working with the Bretton Woods Institutions He was the board member of the World Bank Group
and served as se nior adviser at the International Monetary Fund Currently he is a con sul tant to the
chief economistrsquos office of the International Finance Corporation and teaches the economics of
transition at Georgetown University in Washington DC
50
594-71613_ch99_4Pindd 50 102017 403 PM
Blank
COVER PHOTO ADOBE STOCK
1616 Rhode Island Avenue NW
Washington DC 20036
202 887 0200 | wwwcsisorg
v++ISBN 978-1-4422-8035-9
Lanham bull Boulder bull New York bull London
4501 Forbes Boulevard
Lanham MD 20706
301 459 3366 | wwwrowmancom
A U T H O R
Vadim Grishin
Myths and Realities
A Report of the
CSIS RUSSIA AND EURASIA PROGRAM
US-RussiaEconomicRelations
O C T O B E R 2 0 1 7
Euml|xHSLEOCy280359z
The Man Pupu Nyor Rock Formations at the Northern Urals also known as Seven
Strong Man or Little Mountain of the God in the local tribe (Mansi) language
US-Russia Economic Relations8
Rus sian direct investment position toward the United States declined from $215 billion in 2013 to
$83 billion in 2015 (Figure 23) Taking into account dif er ent channels and instruments the actual
volume of Rus sian investments in the United States made through ofshore Eu ro pean Canadian
and US companies may be several times greater than the available official data
Foreign investment in financial assets or foreign portfolio investment (FPI) should be included
even though Central Bank of Rus sia statistics indicate they were also quite low US investments in
equity were $345 million and in debt instruments were about $65 million in the fourth quarter of
20168 However these numbers do not reflect the real level of FPI Rus siarsquos stocks are incredibly
inexpensive while there has been impressive growth of US investments in short- term securities
and in foreign exchange (FX) operations (cash- and- carry trade) Rus sia was among the top per-
forming emerging markets in 2016 gaining 4744 percent in US dollars9 Nevertheless the gen-
eral capitalization of the stock exchange is tiny (less than 20 percent of GDP) comparable to the
capitalization of just one large US com pany such as Coca- Cola Many private sources believe that
the US FPI in Rus sia could be as high as several billion US dollars but a new set of sanctions
approved by President Trump on August 2 2017 if implemented could reverse those flows It is
still not clear whether the secretary of trea sury will prohibit participation in the oferings of Rus siarsquos
sovereign debt and the full range of derivative products A report on this subject should be sub-
mitted no later than 180 days after enactment of the law which means no later than Febru-
ary 2018 New legislation tightens prohibition on Rus sian financial companies already under
sanctions by limiting any new equity or debt with a maturity greater than 14 days (a provision that
8 Central Bank of Rus sia ldquoForeign Direct Investments in the Rus sian Federationrdquo accessed September 27 2017 www
cbr ru localization switchlanguage urlshy=shy news ampfromshy=shyru - ruamptoshy=shyen - gb
9 VanEck ldquoRus sian Stock Market Soars in 2016rdquo Seeking Alpha February 14 2017 https seekingalphacom article
4045602 - russian - stock - market - soars - 2016
Table 22 Summary Output of Regression Statistics (US Real GDP Rus sia Real GDP US- Russia Exports Imports and Total Trade)
Regression Statistics
Multiple R 0056445768
R Square 0003186125
Adjusted R Square minus0042123597
Standard Error 2616043923
Observations 24
Sources IMF statistics authorrsquos computation
594-71613_ch01_4Pindd 8 102017 404 PM
Vadim Grishin 9
previously allowed for 30 days) Similarly US persons are prohibited from taking on any new debt
that has a maturity greater than 60 days (previously it was 90 days) with Rus sian energy compa-
nies currently under sanctions10
According to the Trea sury Department Rus sia held $1029 billion in US Trea sury securities in
June 201711 Could Rus sia withdraw all its reserves from the United States and use this action as a
retaliatory mea sure Such a scenario is unlikely since there is no comparable safe- haven alterna-
tive to US dollars When Rus siarsquos US Trea sury holdings dropped 50 percent from $176 billion
(October 2010) to $90 billion (November 2011) the market did not notice12 Nevertheless Rus sian
authorities have announced they will decrease dependence on assets and payments in US dollars13
10 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364
11 US Department of Trea sury Major Foreign Holders of Trea sury Securities September 18 2017 http ticdata
treasury gov Publish mfh txt
12 Ibid
13 ldquoНовый виток санкций Россия откажется от доллараrdquo [A new round of sanctions Rus sia will abandon the dollar]
Газетару August 7 2017 https wwwgazeta ru business 2017 08 07 10821937 shtml
Figure 23 Rus sia Outward FDI Position United States Equities and Debt Million US$ 2009ndash2016
Source Central Bank of the Rus sian Federation External Sector Statistics Rus sian Direct Investments
Abroad accessed September 27 2017 https wwwcbr ru localization switchlanguage urlshy=shy news
ampfromshy=shyru - ruamptoshy=shyen - gb
$6000
$8000
$10000
$12000
$14000
$16000
$18000
$20000
$22000
2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 9 102017 404 PM
US-Russia Economic Relations10
Officially the country does not invest in the US stock exchange although some Rus sian oligarchs
have bought US corporate bonds and equities in large amounts The new sanctions law requires
the secretary of trea sury in consultation with the director of national intelligence and the secretary
of state to issue reports on Rus sian se nior po liti cal figures and oligarchs based on their closeness
to the Rus sian regime and their net worth as well as the exposure of key economic sectors of the
United States to Rus sian po liti cally exposed persons and parastatal entities including at a mini-
mum the banking securities insurance and real estate sectors14
Only three Rus sian companies are listed in the US exchanges
Overall the scale and scope of US- Russia economic interaction and business activity is much greater
than officially appreciated but not significant enough to be taken into consideration by policymakers
14 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364
594-71613_ch01_4Pindd 10 102017 404 PM
11
03
Politics in the Driverrsquos Seat
Bilateral economic relations depend to a great extent on global and national economic cycles
After the recent global financial crisis the US economy has shown surprisingly sustainable GDP
growth while the Rus sian economy was the most afected among BRICS countries by the turbu-
lence of a worldwide economic downturn in 2008ndash2009 and after a short- term rebound slipped
into stagnation (2012ndash2013) and then into full- scale recession (2014ndash2016) The countryrsquos eco-
nomic cycle however appears to be changing once again with the economy returning to a
pattern of growth albeit uneven and gradual (Figures 31 and 32) Even with sanctions still in place
conditions have improved as a result of the stabilization of Urals oil to an average annual price of
$419 per barrel in 2016 The gains were sparked in part by major crude producers agreeing to cut
production after hefty price drops in 2014 and 2015 Supported by easier financial conditions
higher oil prices and growing macro- stability Rus sia is heading toward a moderate growth rate
that is expected to reach 14 percent this year according to forecasts of the World Bank Group
(WBG) and the IMF1
Because of the significant role that politics plays in any bilateral interaction it is impor tant to
combine economic and po liti cal cycles applying a ldquoresetrdquo to bilateral economic cooperation in
addition to the po liti cal relationship I have compared po liti cal cycles and trade dynamics using the
following graphs ( Table 31 and Figure 33) These charts do not pretend to reflect with mathemati-
cal precision all shifts in the bilateral po liti cal relationship but rather attempt to visually align
impor tant economic and po liti cal moments to detect the efects of po liti cal events on the size of
bilateral trade
Figure 33 shows all pos si ble combinations economic trends at the intersection of po liti cal devel-
opments oppose or support each other in synchronization It is evident that po liti cal interference
1 International Monetary Fund Rus sian Federation Staff Concluding Statement of the 2017 Article IV Mission (Wash-
ington DC IMF 2017) World Bank Group From Recession to Recovery Rus sia Economic Report no 37 (Washington
DC World Bank 2017) http pubdocsworldbank org en 383241495487103815 RER - 37 - May26 - FINAL - with - summary
594-71613_ch01_4Pindd 11 102017 404 PM
US-Russia Economic Relations12
in bilateral business afairs in the early 2000s was less significant than in later years As result
growing po liti cal tensions from 2003 to 2008 did not dramatically afect bilateral economic inter-
action It is also easier to explain why 2011ndash2012 resulted in rec ord trade and investmentmdash a con-
sequence of very high oil prices GDP growth in both countries improved legislation after Rus siarsquos
accession to the WTO and the Obamandash Medvedev po liti cal reset From 2014 to 2016 a perfect
storm of developments added efficiency to Western sanctions and augmented the damaging
consequences of counter- sanction mea sures
Figure 33 also confirms that in times of reduced economic cooperation po liti cal pressures can
easily change bilateral economic trends Moreover business interests along with economic inter-
actions have a limited capacity to reverse the po liti cal mainstream
Figure 31 Economic Cycle 2014ndash2016
Source Authorrsquos evaluation of international financial institutions (IFI) data and sources from respective
countries
Sustainable Growth
Brazil
Negative Growth
Unstable Growth
Mexico
Descending Growth
Argentina
EU
US
Russia
Vietnam
China
594-71613_ch01_4Pindd 12 102017 404 PM
Vadim Grishin 13
Table 31 Po liti cal Cycles in Bilateral US- Russia Relations 1999ndash2016
2001ndash2002 The George W Bushndash Vladimir Putin Reset Rus sia supported ldquoglobal war on terrorismrdquo launched by the United States after 911 the SORT nuclear arms reduction treaty was signed by the United States and Rus sia and a successful business dialogue was developed that created the current structure of economic relations
2003ndash2008 Deterioration in bilateral relations brought on by the Iraq War Georgiarsquos ldquoRose Revolutionrdquo Mikhail Khodorkovskyrsquos arrest Ukrainersquos ldquoOrange Revolutionrdquo Kosovorsquos in de pen dence and the Georgian War
2009ndash2010 The Barack Obamandash Dmitry Medvedev Reset Rus sia served as a logistical hub for transportation and supply of US forces in Af ghan i stan United States and Rus sia signed the new START nuclear arms reduction treaty Rus sia backed tighter economic sanctions on Iran Rus sia gained access to the WTO after 18 years of negotiations
2011ndash2016 Deterioration in bilateral relations caused by the Ukrainian crisis which were followed by sanctions and counter- sanctions along with the Syrian crises and cyber- enabled activities
Source Authorrsquos evaluation of po liti cal and economic data
Note SORTthinsp=thinspStrategic Ofensive Reductions Treaty STARTthinsp=thinspStrategic Arms Reduction Treaty
Figure 32 Economic Cycle 2017ndash2019
Source Authorrsquos evaluation of IFI data and sources from respective countries
Egypt
VenezuelaEU
South Africa
Brazil
Russia
India
US
Descending Growth
Korea
China
Negative Growth
Unstable Growth
Sustainable Growth
594-71613_ch01_4Pindd 13 102017 404 PM
US-Russia Economic Relations14
Figure 33 US- Russia Trade Million US$ vs Po liti cal Cycle 2000ndash2016
Sources US Census Bureau ldquoTrade in Goods with Rus siardquo Foreign Trade last modified June 29 2017
https wwwcensus gov foreign - trade balance c4621 html (see data for 2000ndash2016) authorrsquos evaluation
of po liti cal and economic data
Orange Revolution
Khodorkovskys arrest
GeorgianWar
Bush- Putin Reset
Iraq War Global Financial Crisis
Obama-Medvedev Reset
Russias WTO accession
New START Treaty
A Pefect Storm the Ukranian Crisis Oil Prices Crashing
Sanctions and Counter-Sanctions
$3000
$8000
$13000
$18000
$23000
$28000
$33000
$38000
$43000
2000 2002 2004 2006 2008 2010 2012 2014 2016
594-71613_ch01_4Pindd 14 102017 404 PM
15
The current structure of US- Russia economic relations emerged in the early 2000s when the
model of trade and investment interaction took on a character similar to that which existed be-
tween the United States and developing economies US imports from Rus sia centered on com-
modities while technology along with food products lead American exports The primary
exception was that Rus sia supplied nuclear fuel including highly enriched uranium extracted from
nuclear weapons for US power plants and provided ser vices to the aerospace industry primarily
in satellite launches However both these exceptions can be explained as a legacy of the Soviet
past and not a harbinger of the future economic relationship (Figure 41)
In the last 15 years this trade structure has not changed significantly The only noticeable shift in
trade was a dramatic drop (to practically nothing) in exports of US agricultural products a result
of Rus siarsquos policy of import substitution and so- called counter- sanction mea sures it took in re-
sponse to US sanctions over the Ukraine crisis (Figure 42)
Promising new directions of cooperation in the IT sector and in engineering ser vices for the
aerospace industry appeared in the early 2000s1 but did not spill into other sectors and conse-
quently did little to renew economic cooperation on the whole The integration of Rus sian high-
tech ser vices into large- scale global production and value chains was constrained by the usual
culprits a lack of financial resources managerial experience skilled labor modern infrastructure
RampD investments and an adequate business environment High commodity prices incentivized the
restoration of an economic system centered on resource rents The leading role of oil and gas
extraction and transportation discouraged the development of a nonenergy sector that might
have created advanced and complex production and ser vices An import substitution policy could
not work efficiently in an economic environment plagued by the Dutch disease where currency
1 The Boeing Design Center was created in Moscow It consists of nearly 250 Boeing employees managing
a team of 1200 contract engineers from Rus sian and Ukrainian aerospace companies ldquoBackgrounder Boeing in
Rus siardquo Boeing last modified January 2017 http wwwboeing com resources boeingdotcom company key _ orgs
boeing - international pdf russia - cisbackgrounder pdf
Are the United States and Rus sia ldquoNatu ralrdquo Trading Partners A Little Bit of History
04
594-71613_ch01_4Pindd 15 102017 404 PM
US-Russia Economic Relations16
inflows (oil money) lead to ruble appreciation and render a countryrsquos production less competitive
During that time Rus siarsquos industry did not receive preferential access to larger markets and could
not expand its share in the global economy particularly because of its self- isolation from the
regional trade agreements (except for its participation in the Eurasian Economic Union with some
neighboring countries of the former Soviet Union) As a result neither import substitution nor
export- led strategy promoted growth and specialization in nonoil production A long- awaited
modernization and reallocation of resources from an inefficient nontrade sector to a trade sector
did not materialize
These limits were later augmented with sanctions and an extension of domestic restrictions on
cooperation with Western partners Importantly the rapid growth of state- monopoly structures in
the Rus sian economy over the past 15 years has created additional obstacles to the development
and diversification of US- Russia economic ties
Figure 41 US Imports from Rus sia US$ 2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2016)
Fish and shellfish 3
Crude oil 5
Fuel oil 37
Petroleum products other
8
Nuclear fuel materials
7
Chemicals-fertilizers 4
Steelmaking materials 5
Iron and steel mill products 4
Bauxite and aluminum 9
Other precious metals 4
Nonferrous metals other 1
Finished metal shapes 1
Synthetic rubber--primary
1
Spacecraftexcluding military
594-71613_ch01_4Pindd 16 102017 404 PM
Fig
ure
42
U
S E
xpo
rts
to R
us s
ia U
S$ 2
016
Sou
rce
US
Ce
nsu
s B
ure
au ldquo
Trad
e in
Go
od
s w
ith
Ru
s sia
rdquo (s
ee
dat
a fo
r 2
016
)
Bak
ery
pro
du
cts
Win
e b
eer
an
d r
elat
ed
pro
du
cts
New
spri
nt
Pla
stic
mat
eria
ls
Ch
emic
als-
fert
ilize
rs
Ch
emic
als-
ino
rgan
icC
hem
ical
s-o
rgan
ic
Ch
emic
als-
oth
erC
ott
on
fib
er c
loth
In
du
stri
al r
ub
ber
pro
du
cts
Min
eral
su
pp
lies-
man
ufa
ctu
red
Gen
erat
ors
acc
esso
ries
Ele
ctri
c ap
par
atu
s
Dri
llin
g amp
oilfi
eld
eq
uip
men
t Sp
ecia
lized
min
ing
Exc
avat
ing
mac
hin
ery
No
nfa
rm t
ract
ors
an
d p
arts
In
du
stri
al e
ng
ines
Fo
od
to
bac
co m
ach
iner
y M
etal
wo
rkin
g m
ach
ine
too
ls
Tex
tile
sew
ing
m
ach
ines
W
oo
d g
lass
p
last
ic
Pu
lp a
nd
pap
er
mac
hin
ery
Mea
suri
ng
tes
tin
g
con
tro
l in
stru
men
ts
Mat
eria
ls h
and
ling
equ
ipm
ent
Ind
ust
rial
mac
hin
es
oth
er
Ph
oto
ser
vice
ind
ust
ry m
ach
iner
y A
gri
cult
ura
l mac
hin
ery
eq
uip
men
t C
om
pu
ters
Co
mp
ute
r ac
cess
ori
es
Sem
ico
nd
uct
ors
Tel
eco
mm
un
icat
ion
seq
uip
men
t
Bu
sin
ess
mac
hin
es a
nd
eq
uip
men
t
Lab
ora
tory
tes
tin
g in
stru
men
ts
Med
icin
al e
qu
ipm
ent
Civ
ilian
air
craf
t e
ng
ines
eq
uip
men
t a
nd
par
ts
Rai
lway
tra
nsp
ort
atio
n
equ
ipm
ent
Ves
sels
exc
lud
ing
scr
ap
Co
mm
erci
al v
esse
ls o
ther
M
arin
e en
gin
es p
arts
Spac
ecra
ft e
xclu
din
g
mili
tary
Pas
sen
ger
car
s
new
an
d u
sed
Tru
cks
bu
ses
and
sp
ecia
l p
urp
ose
ve
hic
les
En
gin
es a
nd
en
gin
e p
arts
(c
arb
ure
tors
pis
ton
s r
ing
s
and
val
ves)
B
od
ies
and
ch
assi
s fo
r p
asse
ng
er c
ars
Au
tom
oti
ve t
ires
an
d t
ub
es
Oth
er p
arts
an
d a
cces
sori
es o
f ve
hic
les
Ap
par
el h
ou
seh
old
go
od
s -
text
ile
Ph
arm
aceu
tica
lp
rep
arat
ion
s
Furn
itu
re h
ou
seh
old
go
od
s
etc
R
ug
s
Cel
l ph
on
es a
nd
oth
er
ho
use
ho
ld g
oo
ds
ne
c
594-71613_ch01_4Pindd 17 102017 404 PM
US-Russia Economic Relations18
Figure 43 US Trade in Goods with Rus sia Million US$ 1992ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
Russian Financial Crisis
Oil price Increased from$2446 USD per barrel (2001)
to $9694 USD per barrel(2008)
Global Financial Crisis
Oil price high record in2011-2012
(more that $111 USD perbarrel)
Oil price crashed
$-
$5000
$10000
$15000
$20000
$25000
$30000
$35000
$40000
$45000
$50000
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia US Exports to Russia US-Russia Trade in Goods
No doubt po liti cal ups and downs add volatility to US- Russia trade Nevertheless Rus siarsquos eco-
nomic structure exhausted itself before the Ukrainian crisis and the recent Rus sian recession Its
limitations are not only due to some mistakes in policy or negative coincidences of circumstances
but rather to deeply rooted properties in the current bilateral trade model related to structural
issues in the Rus sian economy Structural constraints such as the weak enforcement of property
rights poor business regulation and nondiversified exports weighed on Rus sian trade with the
United States From this perspective the term ldquonaturalunnatural trading partnersrdquo does not ad-
dress the unused capacity of bilateral interaction or the real challenges that kind of interaction
faces It just adds metaphysical flavor to the very specific economic and po liti cal factors that
determine the US- Russia trajectory
Overall the outlines of bilateral trade (Figure 43) resemble the famous ldquoRus sian Mountainsrdquo that
were a pre de ces sor of the modern roller coaster icy hills supported by wooden constructionsmdash a
rigid and immobile structure that sooner or later would melt This unfortunately is what is hap-
pening to US- Russia trade cooperation now
594-71613_ch01_4Pindd 18 102017 404 PM
19
ARE LITTLE FISH REALLY SWEET
Low US- Russia economic interaction has at least two consequences First it limits the capacity of
policymakers to exploit trade as an instrument for geopo liti cal combat Even the question of a US
trade deficit which used to be a headache for many US trading partners has become so insig-
nificant in absolute terms (about $87 billion in 2016) that it seems hardly worth caring about
When the volume of trade between two countries becomes very small in absolute terms whether
a country is running a surplus or deficit is no longer relevant But it also renders another type of
confrontations (sometimes more dangerous) more likely since the two traders have little to lose
Second in an environment marked by low levels of bilateral trade both sides could incentivize (if
and when a desire for po liti cal rapprochement exists) the signing of new trade deals which are
elevated symbolically as a turning point in bilateral po liti cal relations (ie the sale of Boeings to
Rus sia or the delivery via tankers of Rus sian oil to US refineries) Sometimes markets themselves
pres ent ldquogiftsrdquo that can be capitalized on po liti cally US- USSR grain trade in the 1970s was one
such ldquogiftrdquo large sales of American grain to the Soviet Union helped US policymakers win favor
with the po liti cally impor tant American farming sector and permitted Soviet leaders to maintain
access to a dietary staple for the Soviet population
The strong 32 percent growth in value of US imports from Rus sia from January to May 2017
versus January to May 2016 ( Table 51) is an example of a development that has tempted officials
to pres ent it as a sign of positive change due to ldquogrowing business activitiesrdquo (this kind of statement
was heard before the bilateral summit in Germany in July 2017) although the reason for that leap
was evidently an increase in commodity prices (mainly of oilmdash see Table 52) and not a rise in
entrepreneurial interactions The primary beneficiaries of that upside rally have been two other
petro- economies Saudi Arabia and Venezuela ( Tables 53 and 54)
Sector Analyses
05
594-71613_ch01_4Pindd 19 102017 404 PM
US-Russia Economic Relations20
Table 51 US Imports from Rus sia Million US$ Januaryndash May 2016 vs Januaryndash May 2017
Year January February March April May Total
2016 9603 6871 11097 12257 10977 50805
2017 12215 10220 16979 13471 14147 67032
Change 271 487 530 99 289 319
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
Table 52 Change in Urals Crude Oil Prices US$ per Barrel Januaryndash May 2016 vs Januaryndash May 2017
Januaryndash May 2016 Januaryndash May 2017 Change ($) Change ()
3601 5129 1528 424
Source Ministry of Finance of the Rus sian Federation https wwwminfin ru ru ixzz4mMIZ7XtC
Table 53 US Imports from Saudi Arabia Million US$ Januaryndash May 2016 vs Januaryndash May 2017
Year January February March April May Total
2016 15114 9036 13555 10844 14679 63228
2017 19802 20298 21650 16211 19542 97503
Change 3101 12463 5972 495 331 542
Source US Census Bureau ldquoTrade in Goods with Saudi Arabiardquo Foreign Trade last modified June 29 2017
https wwwcensus gov foreign - trade balance c5170 html (see data for 2016ndash2017)
594-71613_ch01_4Pindd 20 102017 404 PM
Vadim Grishin 21
Table 54 US Imports from Venezuela Million US$ Januaryndash May 2016 vs Januaryndash May 2017
Year January February March April May Total
2016 6657 5560 7140 8007 7922 35286
2017 13041 10864 123500 11148 12243 59646
Change 9590 9540 7297 3923 5454 6903
Source US Census Bureau ldquoTrade in Goods with Venezuelardquo Foreign Trade last modified June 29 2017
https wwwcensus gov foreign - trade balance c3070 html (see data for 2016ndash2017)
Table 55 US Exports to Rus sia Million US$ Januaryndash May 2016 vs Januaryndash May 2017
Year January February March April May Total
2016 3628 3577 7298 4657 4947 24107
2017 3144 4277 5386 6670 4806 24283
Change minus133 196 minus262 432 minus29 minus07
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2016ndash2017)
At the same time US exports to Rus sia continue to stagnate ( Table 55) due to low levels of
consumption during a two-and- a- half-year economic crisis a deep ruble devaluation sanctions
and counter- sanctions
Given the very dif er ent economic structures and resource endowments of Rus sia and the United
States it is not surprising that US- Russia trade is asymmetric and oil driven (Figure 51) A
3 percent increase in Urals oil prices translates into a one percent increase in US import growth
from Rus sia Thus in 2016 every $10 increase in Urals crude oil added $15 billion to the value of
US imports or 11 percent to the total value of imports from Rus sia
OIL ADDICTION
Oil is a core pillar of US- Russia bilateral trade A bumpy ride in oil markets afects commerce
Nevertheless Rus sian oil exports to the United States in physical terms have been rather
594-71613_ch01_4Pindd 21 102017 404 PM
US-Russia Economic Relations22
sustainable Starting from 2005 average annual deliveries have been above 150 million barrels
(Figure 52) Crude and heating oil have dominated while petroleum products and liquefied petro-
leum gases have not (Figure 53) In 2011 oil exports peaked at 228 million barrels but declined to
159 million barrels in 2016mdash a drop of 30 percent Rec ord high shipments of Rus sian oil to the United
States coincided with an elevation in oil prices which made the subsequent decline in oil shipment
value between 2011 and 2016 (by about 72 percent as shown in Figure 54) seem more stark The
increase in price also raised the share of oil in Rus sian exports by 74 percent in 2011 (Figure 55)
The Rus sian share in total US oil imports was around 55 percent in 2011 and 43 percent in 2016
( Table 56) In the last five years the United States has relied exclusively on consumption of Rus sian
oil for the rough equivalent of one week out of the year (Figure 56)
It is unlikely that Rus sia can significantly increase its share of the US oil market and there is a real
possibility for a downward trend There are several reasons the historically high Rus sian hydrocar-
bon export threshold of 2011 will not soon if ever be surpassed
First US energy consumption will likely be flat According to the US Energy Information Adminis-
tration (EIA) demand for petroleum and other liquids in the United States will be about 35ndash36
quadrillion British thermal units (BTUs) with minimal variation over the next 25 years1
1 US EIA ldquoAnnual Energy Outlook 2017 with Projections to 2050rdquo January 5 2017 7ndash8
Figure 51 US- Russia Trade Growth () vs US and Rus sia Real GDP Growth () 1993ndash2016
Source IMF ldquoIMF Datardquo accessed September 27 2017 http wwwimf org en Data US Census Bureau
ldquoTrade in Goods with Rus siardquo
Note rGDPthinsp=thinspreal gross domestic product
Trade
USA rGDP growth
Russia rGDP growth
-60
-40
-20
0
20
40
60
80
100
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Gro
wth
All spikes in US-Russia trade have been connected with two main
variables volume and price of crude oil
594-71613_ch01_4Pindd 22 102017 404 PM
Vadim Grishin 23
Second the United States will become a net energy exporter between 2020 and 2030 in most
cases under dif er ent combinations of oil and natu ral gas prices GDP growth technological
breakthroughs and the availability of energy resources The role of oil imports will dramatically
fall2
Third oil price scenarios as described by the International Energy Agency (IEA) international
financial organ izations (IFIs) and many national agencies are very cautious and assume that even
by 2035 to 2040 oil prices will not to recover to the levels of 2011ndash20123
Fourth Rus sian oil production and export growth will be modest and driven by Asian economic
expansion and will comprise a decreasing share of Western markets4 According to forecasts from
2 Ibid 15ndash18
3 Ibid table 3 ldquoEnergy Prices by Sector and Sourcesrdquo World Bank World Bank Commodity Markets Price Forecasts
(Washington DC World Bank 2017) httpswwwworldbank org en research commodity - markets Organ ization of the
Petroleum Exporting Countries (OPEC) World Oil Outlook 2016 (Vienna OPEC 2016)
4 E D Belotskaia et al Global and Rus sian Energy Outlook 2016 (Moscow Energy Research Institute of the Rus sian
Acad emy of Science Analytical Center for the Government of the Rus sian Federation 2016) http acgov ru files
publication a 12767 pdf
Figure 52 US Imports from Rus sia Crude Oil and Petroleum Products Thousands of Barrels 1995ndash2016
Source US EIA ldquoUS Imports by Country of Origin Rus siardquo Petroleum amp Other Liquids September 13
2017 http wwweia gov dnav pet PET _ MOVE _ IMPCUS _ D _ NUS _ NRS _ MBBL _ M htm
0
50000
100000
150000
200000
250000
Date 1995 1996 1997 1998 199920002001200220032004200520062007200820092010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 23 102017 404 PM
US-Russia Economic Relations24
the Organ ization of the Petroleum Exporting Countries (OPEC) crude oil exports from Rus sia and
the Caspian region to the United States will dis appear by 20255
So why does the Rus sian Urals blend continue to be attractive for oil traders and US refineries
which could pro cess greater volumes of domestically produced lighter crude There are two main
reasons One is related to the preference of US high conversion refineries (the most sophisticated
in the world) to work with heavy oil blends produced by Canada Mexico Iraq Venezuela and
Rus sia Pro cessing heavy crude now is as profitable as pro cessing lighter crude The so- called
crack spreadmdash the diference between the cost of relatively cheap heavy crude oil and the final
price of value- added consumer products (diesel gasoline jet fuel and heating oil)mdash has become
the same as the refinery margins of light sweet crude6 This has primarily afected light oil produc-
ing countries such as Angola Algeria and Nigeria
5 OPEC World Oil Outlook 2016 306ndash309
6 ldquoHow Much for That Heavy Oilrdquo Oil Sands Magazine December 26 2015 https wwwoilsandsmagazine com
news 2015 12 26 how - much - for - that - heavy - oil
Figure 53 US Imports from Rus sia Oil and Petroleum Products US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$-
$25000000000
$20000000000
$15000000000
$10000000000
$5000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Liquefied petroleum gases
Petroleum products other
Fuel oil
Crude oil
594-71613_ch01_4Pindd 24 102017 404 PM
Vadim Grishin 25
Another factor afecting purchase of Rus sian oil is a new trend among oil companies for further
consolidation of scale and for integrating operations of upstream and downstream business7
There have been several waves of separation and unification of production transportation and
pro cessing in the last 50 years The current business cycle can be seen as an adaptation to a
period of low prices and oversupply Companies that buy andor produce oil in Rus sia most likely
prefer to transport and pro cess this oil in their own modern refineries in the United States At the
same time some of the newest refinery designs specifically for pro cessing heavy oils have been
built in Asia thus extending the choices of heavy oil producing countries
We should also consider that leading US and international oil traders along with oil producing
companies working with or owning US refineries frequently buy Rus sian oil on the open market
and have long- term contracts on Rus sian crude oil delivery Many Rus sian oil companies prefer to
pay for purchases or ser vices with their future production instead of cash creating situations of
ldquostickyrdquo oil imports that are difficult to replace The best- known example is an interaction between
7 ldquoEnergy and Utilities Sectorrdquo Roundtable Financier Worldwide December 2015 https wwwfinancierworldwide
com roundtable - energy - utilities - sector - dec15
Figure 54 US Imports of Oil and Petroleum Products from Rus sia vs Oil Prices Eu rope Brent Spot Price Free on Board (FOB) 1996ndash2017
Source US EIA ldquoUS Imports by Country of Origin Rus siardquo
0
20
40
60
80
100
120
140
0
5000
10000
15000
20000
25000
30000
Jan
-19
96
Jun
-19
96
No
v-19
96
Ap
r-19
97
Sep
-19
97
Feb
-19
98
Jul-
199
8D
ec-1
99
8M
ay-1
99
9O
ct-1
99
9M
ar-2
00
0A
ug
-20
00
Jan
-20
01
Jun
-20
01
No
v-2
00
1A
pr-
20
02
Sep
-20
02
Feb
-20
03
Jul-
20
03
Dec
-20
03
May
-20
04
Oct
-20
04
Mar
-20
05
Au
g-2
00
5Ja
n-2
00
6Ju
n-2
00
6N
ov-
20
06
Ap
r-2
00
7Se
p-2
00
7Fe
b-2
00
8Ju
l-2
00
8D
ec-2
00
8M
ay-2
00
9O
ct-2
00
9M
ar-2
010
Au
g-2
010
Jan
-20
11Ju
n-2
011
No
v-2
011
Ap
r-2
012
Sep
-20
12Fe
b-2
013
Jul-
20
13D
ec-2
013
May
-20
14O
ct-2
014
Mar
-20
15A
ug
-20
15Ja
n-2
016
Jun
-20
16N
ov-
20
16
USD
per
Bar
rel
Th
ou
san
d B
arr
els
US Imports from Russia of Crude Oil and Petroleum Products (Thousand Barrels)
Europe Brent Spot Price FOB (Dollars per Barrel)
594-71613_ch01_4Pindd 25 102017 404 PM
US-Russia Economic Relations26
Table 56 US Oil Imports All Countries vs Rus sia Thousand Barrels per Day 2011ndash2016
Years 2011 2012 2013 2014 2015 2016
All Countries 11436 10598 9859 9241 9449 10058
Rus sia 624 477 460 330 371 433
Share 546 450 467 357 393 431
Sources US EIA ldquoUS Imports by Country of Origin Total Crude Oil and Productsrdquo Petroleum amp Other
Liquids September 13 2017 wwweia gov dnav pet pet_move_impcus_a2_nus_ep00_im0_mbbl_m htm
authorrsquos computation
Figure 55 US Imports from Rus sia Share of Crude Oil and Petroleum Products Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
57
64
73
72
74
73
72
59
52 50
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
$40000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil and Petroleum Products
594-71613_ch01_4Pindd 26 102017 404 PM
Vadim Grishin 27
the Rus sian state mono poly Rosneft and commodity trading and mining giant Glencore which
along with energy and commodities com pany Vitol participated in a $10 billion prepayment
deal with Rosneft for crude supplies in 2013
There have been a number of ongoing transactions between the Rus sian oil industry and interna-
tional oil companies including several that top the list of importers of Rus sian oil to the United
States ( Table 57) In December 2016 Glencore participated in a controversial privatization opera-
tion purchasing in tandem with the Qatar sovereign wealth fund a 195 percent stake in Rosneft
which was on the US and EU list of sanctioned firms8 Glencore has also taken a blocking stake in
midsize oil producer RussNeft BP owns a 1975 percent stake in Rosneft Chevron holds a
15 percent interest in the 935- mile- long CPC9 pipeline which transports an average of 959000
barrels of crude oil per day including 76000 barrels daily from Rus sia10 ExxonMobil has formed
8 E Mazneva and I Arkhipov ldquoRus sia Sells $11 Billion Stake in Rosneft to Glencore Qatarrdquo Bloomberg December 7
2016
9 CPCthinsp=thinspCaspian Pipeline Consortium
10 ldquoRus sia Highlights of Operations and Business Portfoliordquo Chevron accessed October 3 2017 https wwwchevron
com worldwide russia
Figure 56 Share of Rus sian Oil in Total US Oil Imports Thousands of Barrels per Day 1972ndash2016
Source US EIA ldquoUS Imports by Country of Origin Total Crude Oil and Productsrdquo
2000
4000
6000
8000
10000
12000
14000
16000
US Imports of Crude Oil and Petroleum Products (Thousand Barrels per Day)
US Imports from Russia of Crude Oil and Petroleum Products (Thousand Barrels per Day)19
7319
7419
7519
7619
7719
7819
7919
80
198
119
82
198
319
84
198
519
86
198
719
88
198
919
90
199
119
92
199
319
94
199
519
96
199
719
98
199
92
00
02
00
12
00
22
00
32
00
42
00
52
00
62
00
72
00
82
00
92
010
20
112
012
20
132
014
20
152
016
594-71613_ch01_4Pindd 27 102017 404 PM
Table 57 Top Importers of Rus sian Oil to the United States Thousands of Barrels 2016
VALERO MARKETING amp SUPPLY CO 54590 3616
EXXONMOBIL OIL CORP 17087 1130
CHEVRON USA INC 15217 1008
BP WEST COAST PRODUCTS LLC 10130 671
GEORGE E WARREN CORP 7272 48
PAULSBORO REFINING CO LLC 6838 453
TESORO CORP 5097 338
VITOL INC 5084 337
PHILLIPS 66 CO 4726 313
TRAFIGURA AG 4360 289
PAR HAWAII REFINING LLC 3893 258
MOTIVA ENTERPRISES LLC 3041 205
SHELL US TRADING CO 2863 19
MARATHON PETROLEUM CO LLC 2475 16
ATLANTIC TRADING amp MARKETING 2099 14
FREEPOINT COMMODITIES LLC 1439 1
GLENCORE LTD 1284 85
BEST PETROLEUM CORP 967 64
ROLYMPUS US COMMODITIES GROUP LLC 822 6
HUNT CRUDE OIL SUPPLY CO 666 4
GULF OIL LP 658 4
Source US EIA ldquoUS Imports by Country of Origin Crude Oilrdquo Petroleum amp Other Liquids September 13
2017 httpswwweiagovdnavpetpet_move_impcus_a2_nus_epc0_im0_mbblpd_ahtm authorrsquos
computation
594-71613_ch01_4Pindd 28 102017 404 PM
Vadim Grishin 29
several joint ventures with Rosneft to undertake ofshore exploration in the Black Sea and the Kara
Sea in Siberia11
According to the Sanctions Act US persons are prohibited from exporting or reexporting goods
ser vices (except financial ser vices) and technology in support of exploration or production of new
deep- water Arctic ofshore or shale oil proj ects that involve designated Rus sian entities or other
entities in which such sanctioned persons have a controlling interest or a substantial noncontrol-
ling owner ship interest defined as not less than 33 percent (previously it was 50 percent) The new
law also authorizesmdash but does not requiremdash the imposition of so- called secondary sanctions
against non- US entities that engage in activities involving the construction maintenance or
expansion of Rus sian energy export pipelines with a fair market value of $1 million or more or an
aggregate fair market value during a 12- month period of $5 million12 This provision has raised the
concerns of some Eu ro pean countries particularly Germany As result the final language of the
law included wording about coordination of this issue with allies of the United States
Shipments of Rus sian oil to the United States could be afected by activity in the US refinery
industry In early 2017 Saudi Aramco bought the United Statesrsquo largest oil refinery in Port Arthur
(Texas) and it announced plans to send more of its own crude to that refinery13 Serious concerns
exist however regarding the future of three refineries and nine pipelines owned by Citgo a US
branch of the Venezuelan state com pany PdVSA which is balancing precariously on the edge of
default Under certain conditions in the event of PdVSA bankruptcy Rosneft could claim a stake of
up to 499 percent in Citgo Such a possibility has raised concerns among politicians and US
government officials with Trea sury Secretary Steven Mnuchin calling it a ldquonational security issuerdquo14
Tables 58 59 and 510 show allocations of Rus sian oil imports to major US refineries some of
which work exclusively on Rus sian crude a total of two to three months per year In total 150940
thousand barrels of Rus sian oil were refined in 2016
Figure 57 confirms a leading position of Texas and Louisiana among the US states receiving
Rus sian crude followed by New Jersey California Mississippi Washington Hawaii and Delaware
In a paradoxical way Texas has dis appeared from the list of states as a main destination of US
imports from Rus sia (Figure 58) because Rus sian crude is mostly delivered to Louisiana ports and
registered there by US Customs as an import from Rus sia After that it transports to refineries in
Louisiana and Texas
Overall the short- term business rationale behind the sustainability of US oil imports from Rus sia
cannot overcome strong headwinds in the US energy sector facing all oil importers which will
inevitably lead to a contraction of Rus sian oil exports to the United States in the foreseeable future
11 Exxon eforts to receive a special US Trea sury waiver to drill in sanctioned Rus sia failed in 2017
12 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364
13 Sarp Ozkan ldquoSaudi Aramcorsquos Port Arthur Refinery and the US Refinery Fleetrdquo Drilling Info May 11 2017
https infodrillinginfo com saudi - aramcos - port - arthur - refinery - us - refinery - fleet
14 Graham Kates ldquoTrea sury Secretary Rus siarsquos Citgo Deal a National Security Issuerdquo CBS News May 1 2017
http wwwcbsnews com news rosneft - citgo - steven - mnuchin - national - security
594-71613_ch01_4Pindd 29 102017 404 PM
US-Russia Economic Relations30
Table 58 Valerorsquos Refineries Pro cessing Rus sian Oil Thousands of Barrels 2016
Saint Charles Louisiana 29206 535
Corpus Christi Texas 20626 378
Wilmington California 4250 78
Total USA 54590 100
Source US EIA ldquoRefinery Capacity Reportrdquo January 1 2017
table 5 wwweia gov petroleum refinerycapacity table5 pdf
authorrsquos computation
Table 59 ExxonMobil Refineries Pro cessing Rus sian Oil Thousands of Barrels 2016
Baytown Texas 15037 88
Baton Rouge Louisiana 2046 12
Total USA 17083 100
Source US EIA ldquoRefinery Capacity Reportrdquo authorrsquos computation
Table 510 Chevronrsquos Refineries Pro cessing Rus sian Oil Thousands of Barrels 2016
Pascagoula Mississippi 12767 840
El Segundo California 2372 155
Saint Rose Louisiana 78 05
Total USA 15217 100
Source US EIA ldquoRefinery Capacity Reportrdquo authorrsquos computation
594-71613_ch01_4Pindd 30 102017 404 PM
Vadim Grishin 31
HEAVY METAL
Taken together US imports of metals and US imports of oil compose about 80 percent of US
total imports from Rus sia (Figure 59) Trade of metals like other commodities is strongly afected
by market price fluctuations Nevertheless metal imports from Rus sia have been fairly resilient to
market volatility and their average annual value has hovered at about $4 billion in the last five years
(Figure 510) This market resilience was forged at the end of the 1990searly 2000s when Rus sian
metal producers gradually modernized their plants adjusting quality of production to Western
standards and enhancing integration into global value and supply chains Some of them conquered
their share of the highly competitive US market struggling with peers from Canada and certain
BRICS countries (China India and Brazil) To attract additional resources all Rus sian large metal-
producing companies became public and were listed on stock exchanges chiefly the London Stock
Exchange (Severstalrsquo PAO Evraz MMK OAO Novolipetsk Steel Norilsk Nikel and TMK PAO) one
on the New York Stock Exchange (Mechel) and one on the Hong Kong Stock Exchange (Rusal)
Business logic pushed some of them to invest in the US metal- making industry which was hit
hard by crisis Later on some of those assets were sold (eg two US steel mills acquired by
Severstal in 2004 were purchased 10 years later by Steel Dynamics Inc and AK Steel Corp)
Figure 57 Share of US States Rus sian Oil Imports 2016
Source US EIA ldquoUS Imports from Rus sia of Crude Oil and Petroleum Productsrdquo Petroleum amp Other
Liquids September 29 2017 https www eia gov dnav pet hist LeafHandler ashx nshy=shyPETampsshy=shyMTTIM _ NUS
- NRS _ 1ampfshy=shyM authorrsquos computation
0
10
20
30
40
50
60
70
80
90
100
Maine
Massachusetts
Maryland
Connecticut
Georgia
Rhode Island
Virginia
Florida
New York
Alabama
Puerto Rico
Pennsylvania
Delaware
Hawaii
Washington
Mississippi
California
New Jersey
Louisiana
Texas
594-71613_ch01_4Pindd 31 102017 404 PM
Figure 58 US Imports from Rus sia by State Million US$ 2013ndash2016
Source US Census Bureau ldquoState and Metropolitan Area Trade Datardquo Foreign Trade last modified
October 2 2017 https wwwcensus gov foreign - trade statistics state
Alaska
Connecticut
Delaware
Hawaii
Louisiana
Maryland
North Dakota 0
$1000
$2000
$3000
$4000
$5000
$6000
2013 2014 2015 2016
Alabama
Alaska
Connecticut
Delaware
Hawaii
Louisiana
Maryland
Maine
Mississippi
Montana
North Dakota
Mississippi
Figure 59 US Imports from Rus sia Share of Oil and Metals Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
83
82
85
86
87
88
85
82
7375
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
$40000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil and Metals
594-71613_ch01_4Pindd 32 102017 404 PM
Vadim Grishin 33
Obviously the market dynamic of dif er ent metals varies (eg iron steel aluminum platinum and
nickel) Caps to increase their trade and production in a ldquored oceanrdquo global environment with
anemic demand is rather limited despite Figure 510 showing a spike of iron and steel imports
from Rus sia in 2014 and aluminum in 2016 Some opportunities may exist for Russian- owned steel
plants in the United States (such as NLMK) to participate in energy proj ects resumed under Presi-
dent Trump who has required that new pipelines use only American- made steel15
Rus sia occupies a special niche in the US market for titanium products a high- end metal indus-
try Twenty years ago a long- term contract was signed between Rus sian titanium producer
VSMPO- AVISMA and Boeing The Rus sian com pany entered the selective club of Boeing suppliers
for the manufacture of components and semi- finished products Since the signing of this contract
VSMPO has delivered more than 35 percent of all titanium placed on Boeing civil aircraft16 They
are hidden in the trade data in an import category for Civilian Aircrafts and Parts (Figure 511) At
the end of 2016 Boeing announced an extension of its framework agreement with AVISMA
15 E Scheyder C Ngai and T Sylvester ldquoAmerican Steel Unlikely to Get Keystone Boost Despite Trump Orderrdquo
Reuters January 27 2017 http wwwreuters com article usa - trump - pipeline - transcanada - idUSL1N1FH1ZD
16 A Kramer ldquoTitanium Fills Vital Role for Boeing and Rus siardquo New York Times July 5 2013 http wwwnytimes com
2013 07 06 business global titanium - fills - vital - role - for - boeing - and - russia html mcubzshy=shy3
Figure 510 US Imports from Rus sia Iron Steel Bauxite Aluminum Nickel Nonferrous Metals and Other Precious Metals and Materials US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
0
$6000000000
$5000000000
$4000000000
$3000000000
$2000000000
$1000000000
2007 2008 2009 2010 2011 20122013
20142015
2016
Finished metal shapes
Iron and steel advanced
Iron and steel products nec
Nonferrous metals other
Other precious metals
Nickel
Bauxite and aluminum
Iron and steel mill products
Steelmaking materials
594-71613_ch01_4Pindd 33 102017 404 PM
US-Russia Economic Relations34
through 2022 and additional investments in the construction of a new robotic plant in Titanium
Valley a special economic zone located in the Sverdlovsk region that will open in 2018 The pro-
cessing of titanium forgings in all Boeing civil aircraft will be performed there including 787s 737
MAXs and 777Xs17 The contract extension with AVISMA may add several hundred million dollars
in value to annual US imports from Rus sia
How can such heavy reliance on imports of Rus sian titanium exist during a period of rising geopo-
liti cal tensions The answer is straightforward VSMPO- AVISMA is a highly specialized natu ral
mono poly producing 45 percent of the worldrsquos aerospace titanium Only four other countries
smelt high- grade titanium in industrial quantities the United States Germany Japan and China
Overall global production capacity is limited while demand is growing The United States cur-
rently imports around 79 percent of all the titanium it consumes each year18
17 ldquoBoeing and VSMPO Avisma to Launch Second Joint Production Siterdquo Rus sian Aviation Insider December 22 2016
http wwwrusaviainsider com boeing - and - vsmpo - avisma - to - launch - second - joint - production - site
18 Jon Ostrower and Andy Pasztor ldquoBoeing United Technologies Stockpile Titanium Partsrdquo Wall Street Journal
August 7 2014 https wwwwsj com articles boeing - united - technologies - stockpiling - titanium - parts - 1407441886
Figure 511 US Imports from Rus sia Civilian Aircrafts and Parts US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
$200000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Parts-civilian aircraft
Civilian aircraft
594-71613_ch01_4Pindd 34 102017 404 PM
Vadim Grishin 35
The Sanctions Act authorizes the secretary of the trea sury (in a nonmandatory way) to impose
restrictions (without specifying them) against Rus sian state- owned entities operating in the railway
metals and mining sectors of the Rus sian economy Despite the commanding heights of Rus siarsquos
state sector owner ship in its economy (70 percent of GDP) the metal- producing companies have
remained mostly in private hands
NUCLEAR AFFAIRS
Historically owners and operators of the 104 commercial nuclear power reactors in the United
States have purchased more than 80 percent of their uranium from foreign countries Uranium
shipping from Rus sia accounted for about 13 percent of the 58 million pounds of uranium pur-
chased overseas in 201219 At the same time the Rus sian state- owned mono poly Rosatom ac-
counts for 20 percent of Kazakhstanrsquos uranium production (which in turn comprises 11 percent of
all US uranium imports) and 20 percent of US domestic uranium production capacity (with
owner ship of exploration tracts in Wyoming)20
Nuclear fuel and nuclear power continue to be po liti cally sensitive topics both in the United
States and Rus sia Bilateral cooperation in this sector (being surprisingly stable with imports of
nuclear fuel from Rus sia at a level of $1 billion annually in the last five years [Figure 512 and 513])
is under constant po liti cal and lobbying pressure and has been a source of several po liti cal scan-
dals21 Consequently upside risks in this area of interaction are minimal and downside risks are
much higher especially when we are seeing more decommissioning of nuclear plants in the
United States than new constructions The US EIArsquos 2017 Annual Energy Outlook assumes
that about 25 percent of the nuclear capacity now operating will be removed from ser vice
by 205022
WHY IS THE GRASS GREENER ON THE OTHER SIDE
The United States continues to significantly reduce imports of chemical fertilizers as domestic pro-
duction increases In 2016 the United States imported 13 percent less ammonia and 11 percent
less urea and UAN which is a liquid urea and ammonium nitrate fertilizer Rus sia accounts for
around 40 percent of UAN imported by the United States The United States canceled antidumping
duties on imports of ammonium nitrate and urea from Rus sia in 2016 but it did not prevent import
19 US EIA ldquoThe US Relies on Foreign Uranium Enrichment Ser vices to Fuel Its Nuclear Power Plantsrdquo Today in
Energy August 28 2013 https wwweia gov todayinenergy detail php idshy=shy1273
20 Colin Chilcoat ldquoDoes Rus sia Really Own 20 Percent of the USrsquo Uranium Reservesrdquo OilPricecom May 6 2015
http oilpricecom Alternative - Energy Nuclear - Power Does - Russia - Really - Own - 20 - Of - The - US - Uranium - Reserves
html
21 Michelle Ye Hee Lee ldquoThe Facts behind Trumprsquos Repeated Claim about Hillary Clintonrsquos Role in the Rus sian Ura-
nium Dealrdquo Washington Post October 26 2016
22 US EIA ldquoAnnual Energy Outlook 2017 with Projections to 2050rdquo 81ndash82
594-71613_ch01_4Pindd 35 102017 404 PM
Figure 512 US Imports from Rus sia Share of Oil Metals and Nuclear Fuel Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
87
86
90
90
90
91
88
86
7882
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals and Nuclear Fuel
Figure 513 US Imports from Rus sia Nuclear Fuel Materials US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$-
$200000000
$400000000
$600000000
$800000000
$1200000000
$1000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 36 102017 404 PM
Vadim Grishin 37
drops twice last year (Figures 514 and 515) According to forecasts UAN imports are expected to
decline further to 15 million tons this year down over 46 percent from 28 million tons imported
last year23 The downside trend in imports of fertilizers will likely continue because of oversupply
BIG FISH
US imports of fish and shellfish from Rus sia are best understood in comparison with US fish
exports to the Rus sian market which slipped to zero in August 2014 after Rus sia issued an order
banning certain agricultural imports from the United States (Figure 516) While the volume of US
supply was not very large it was impor tant because it broke up the monopolistic dominance of a
few vertically integrated Rus sian companies that have kept prices high by restricting the entry of
new producers Seeking to implement import substitution policies Rus sia has tried to reduce
exports as well as imports of fish and seafood products in the last couple of years This symmetri-
cal approach was intended to ldquocompensaterdquo for a decrease of fish products in the domestic
23 Deepika Thapliyal ldquoPotashCorp Forecasts Sharp Drop in US Nitrogen Imports in 2017rdquo ICIS News February 7
2017 https wwwicis com resources news 2017 02 07 10076734 potashcorp - forecasts - sharp - drop - in - us - nitrogen
- imports - in - 2017
Figure 514 US Imports from Rus sia Share of Oil Metals Nuclear Fuel and Fertilizers Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
90
93
92
93
94
95
92
91
85
86
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals Nuclear Fuel and Fertilizers
594-71613_ch01_4Pindd 37 102017 404 PM
Figure 515 US Imports from Rus sia Chemical- Fertilizers US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
S-
$200000000
$400000000
$600000000
$800000000
$1000000000
$1200000000
$1400000000
$1600000000
$1800000000
$2000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Figure 516 US Exports to Rus sia Fish and Shellfish US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$10000000
$20000000
$30000000
$40000000
$50000000
$60000000
$70000000
$80000000
$90000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Fish and shellfish
594-71613_ch01_4Pindd 38 102017 404 PM
Vadim Grishin 39
consumer market caused by Rus siarsquos import ban but it has failed As result the group most af-
fected by the self- imposed counter- sanctions were Rus sian consumers
With a significant drop in fish imports a devaluation of the ruble and inflationary pressures on
seafood prices yearly consumption of fish in Rus sia has declined precipitously In 2015 alone
fish prices increased 20 percent and consumption dropped to 14 kilograms per person24 from
22 kilograms in 201425 In 2016 food rose to 355 percent of house hold expenditure as a result of
increases in food prices26 This has pushed vertically integrated fishing monopolies to sell even
more of their catch abroad rather than deliver to the Rus sian Federation (Figure 517) Thus we
cannot exclude the possibility of further growth in US fish and shellfish imports from Rus sia on a
marginal scale
24 Александр Савельев ldquoПотребление рыбы в России упало до 14 кг на человекаrdquo [Fish consumption in Rus sia fell to
14 kg per person] Экономика Интерфакс January 28 2015 http wwwinterfax ru business 492038
25 Илья Шестаков ldquoПотебление рыбы в России снизилось на 10 процентов из- за роста ценrdquo [Fish consumption in
Rus sia dropped by 10 percent due to price increases] RNS March 8 2017 https rnsonline consumer - market
Potreblenie - ribi - v - Rossii - snizilos - na - 10 - iz - za - rosta - tsen - 2017 - 03 - 08
26 Zoya Sheftalovich and Christian Oliver ldquoRus siarsquos Boom (Farming) Economyrdquo Politico November 8 2016 http
wwwpolitico eu article russias - boom - farming - economy
Figure 517 US Imports from Rus sia Fish and Shellfish US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$50000000
$100000000
$150000000
$200000000
$250000000
$300000000
$350000000
$400000000
$450000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 39 102017 404 PM
US-Russia Economic Relations40
SPACE ODYSSEY
Among high- end products beyond the top five groups of goods imported from Rus sia cheap and
efficient Rus sian engines have been used to launch US rockets into space for about 16 years
(Figure 518) There was a serious po liti cal strug gle around a 2014 ban on the purchase of Rus sian
RD-180 rocket engines revealing the conflicting business interests of power ful high- tech companies
This restrictive mea sure was temporary and was quickly lifted because of significant cost impacts
and risks of disruption to launch schedules27 For the same reason the Sanctions Act does not autho-
rize ldquothe imposition of any sanction or other condition limitation restriction or prohibition that
directly or indirectly impedes the supply by any entity of the Rus sian Federation of any product or
ser vice or the procurement of such product or ser vice by any contractor or subcontractor of the
United States or any other entity relating to or in connection with any space launch conducted for
the National Aeronautics and Space Administration or any other nonndash Department of Defense
customerrdquo28
Nevertheless many experts believe that US domestic alternatives to replace Rus sian engines will
be viable in five to eight years
27 Ken Dilanian ldquoWhy Does the US Use Rus sian Rockets to Launch Its Satellitesrdquo NBC News updated November 15
2016 http wwwnbcnews com why - does - u - s - use - russian - rockets - launch - its - satellites - n588526
28 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364
Figure 518 Spacecraft Excluding Military US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 40 102017 404 PM
41
Diversity and technological complexity are the most vis i ble advantages supporting US exports to
Rus sia Three major groups of export goods include civilian aircraft engines and parts (Figure 61)
drilling and oil field equipment (Figure 62) and industrial machines and engines (Figure 63)
Despite sanctions against the transfer of advanced oil producing and pro cessing technologies the
realization of US drilling and oil field equipment in Rus sia is sustainable although some bilateral
proj ects have been frozen
Another category of goods that has demonstrated resilience is the phar ma ceu ti cal industry (Fig-
ure 64) because most drugs in Rus sia are imported (about 70 percent of the Rus sian phar ma ceu-
ti cal market in value) Import substitution policies have had only modest results in this industry
As confirmed by American Chamber of Commerce surveys US exports to Rus sia are closely
connected to US FDI 30 percent of total imports of US companies working in the Rus sian
market come from the United States (more than $2 billion in 2016) In other words about
40 percent of all US exports to Rus sia are related to a US corporate- sector business pro cess in
the country The major sectors of activity of these companies are energy and natu ral resources
(52 percent) manufacturing (17 percent) information and communications technology or ICT
(13 percent) retail (7 percent) automotive industry (6 percent) phar ma ceu ti cal production
(1 percent) professional ser vices (05 percent) and other (2 percent)1
Some obvious constraints on US exports to Rus sia have resulted from a reduction in demand A
deterioration of bilateral relations and implementation of sanctions and counter- sanctions have
directly or indirectly afected all businesses Figures 65 and 66 provide data regarding a dramatic
drop in the sale of US agricultural production in Rus sia with all other categories of exports in
goods showing big cuts as well (see Figures 67ndash69)
Exports of civilian aircraft engines and parts put the state of Washington in first place among
other states as a leading exporter to the Rus sian market (Figure 610)
1 American Chamber of Commerce in Rus sia ldquoInvestment and Import to Rus sia 2nd Surveyrdquo 13
Diversity and Constraints
06
594-71613_ch01_4Pindd 41 102017 404 PM
Figure 61 US Exports of Civilian Aircraft Engines Equipment and Parts to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
$2500000000
$2000000000
$1500000000
$1000000000
$500000000
$-
Figure 62 US Exports of Drilling and Oil Field Equipment US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
$40000000
$45000000
$50000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 42 102017 404 PM
Figure 63 US Exports of Industrial Engines to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Figure 64 US Exports of Phar ma ceu ti cal Preparations to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 43 102017 404 PM
Figure 65 US Exports of Meat and Poultry to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Meat poultry etc
$1000000000
$800000000
$600000000
$400000000
$200000000
$-
$1200000000
$1400000000
$1600000000
Figure 66 US Exports of Soybeans to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
$200000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 44 102017 404 PM
Figure 67 US Exports of Vehicles Engines and Parts to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Other parts and accessories of vehicles
Automotive tires and tubes
Bodies and chassis for passenger cars
Engines and engine parts (carburetors pistonsrings and valves)
Trucks buses and special purpose vehicles
Passenger cars new and used
$2500000000
$2000000000
$1500000000
$500000000
$-
$1000000000
Figure 68 US Exports of Medicinal Equipment to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 45 102017 404 PM
Figure 610 US Exports to Rus sia by States (2016 US$ Value) Million US$ 2013ndash2016
Source US Census Bureau ldquoState and Metropolitan Area Trade Datardquo
Iowa Kentucky
North Dakota
Oklahoma
South Carolina
Washington
0
$500
$1000
$1500
$2000
2013 2014 2015 2016
District of Columbia
Iowa
Kentucky
North Dakota
Oklahoma
South Carolina
Washington
Figure 69 US Exports of Excavating Machinery to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
$40000000
$45000000
$50000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 46 102017 404 PM
47
Upon reviewing the current trend in US- Russia economic relations we must acknowledge that
the existing trade model is obsolete and exhausted Imports are resource- oriented and reflect
constraints of the Rus sian economic structure while five groups of goodsmdash oil metals nuclear
fuels fertilizers and fishmdash make up more than 90 percent of total imports from Rus sia (Figure 71)
Each of these industries has a limited capacity for growth in the foreseeable future
Rus siarsquos core export to the United Statesmdash oilmdash will inevitably decrease in the mid- term under any
scenario The value and volume of Rus sian exports to the United States are open to global market
volatility and po liti cal pressures with limited hedging mechanisms
Overall US exports to Rus sia are unsustainable due to bilateral po liti cal tensions the whims of
commodity markets and changing domestic policies Sanctions and counter- sanctions have
created additional barriers particularly in finance banking high- tech energy and agro- business
According to the American Chamber of Commerce 69 percent of US companies working in the
country consider the impact of US sanctions against Rus sia on their business as negative At the
same time 60 percent of companies do not expect big changes in business relations between
Rus sia and the United States under Trump1 as the new law codifies existing sanctions fortifies
them and extends them to new sectors
Current US investments are low due to the weak rule of law in Rus sia a lack of property right
protections and proper contract enforcement high levels of statization and monopolization in the
economy a poor business climate outdated capital stock dependence on natural- resource
sectors and of course sanction and counter- sanction mea sures Bloated administrative compo-
nents created as risk mitigation instruments have also served as impediments The countryrsquos
institutional weakness low level of productivity bud get constraints and a declining inflexible
workforce will restrain future economic growth even if commodity prices recover Rus sian eco-
nomic policy will likely continue to be statist and protectionist relying mostly on import
substitutions
1 Ibid 11
Existing Trends and Future Scenarios
07
594-71613_ch01_4Pindd 47 102017 404 PM
US-Russia Economic Relations48
What scenarios can be expected in such a challenging environment
One probability (no peace no war) is based on the assumption that matters will not deteriorate
further and implementation of the Sanctions Act will be cursory This will cause relatively slow
degradation in the economic field with occasional flashes of activity in selected areas (eg closer
cooperation against Islamist terrorist groups in Syria)
A second worse case or critical scenario is the intensive and full- scale execution of current sanc-
tion legislation and even the imposition of new economic punitive and restrictive mea sures which
could incite asymmetric retaliatory actions and lead to the introduction of additional protectionist
policies This in turn could trigger a further escalation of mutual confrontation and could eventu-
ally destroy the fundamentals of the current bilateral trade system Rus sian leadership has charac-
terized the Sanctions Act as a declaration of a trade war that ends all hope for improving bilateral
relations2
2 Дмитрий Медведев ldquoПодписание президентом США нового санкционного закона против России создает несколько
последствийrdquo [The US Presidentrsquos signing of the package of new sanctions against Rus sia will have a few conse-
quences] Facebook August 2 2017 https wwwfacebook com Dmitry Medvedev posts 10154587161801851
Figure 71 US Imports from Rus sia Share of Oil Metals Nuclear Fuel Fertilizers and Fish Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
93
94
93
94
95
96
93
92
87
89
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals Nuclear FuelFertilizers and Fish
594-71613_ch01_4Pindd 48 102017 404 PM
Vadim Grishin 49
The best case and most favorable scenario looks less probable now It assumes the realization of
structural reforms in Rus sia in such a way that would adapt Rus siarsquos foreign policy to national
economic needs reduce confrontations with the West and make a concerted efort to integrate
Rus sian businesses into global supply and value chains A revitalization of the structural reform
agendamdash including eforts to diversify economic activities through de- monopolization and support
for SMEs a restructuring of the banking sector the creation of a vibrant business climate to foster
entrepreneurships and innovation the implementation of administrative and judicial reforms to
tackle red tape and endemic corruption and the reduction of state control over key sectors of the
economy via wide- spread privatization could kick- start the development of a nonoil economy and
improve long- term growth prospects Despite ongoing discussion of reform strategies deep
economic and po liti cal changes are extremely complicated over the next po liti calelectoral cycle
(2018ndash2024) particularly because of re sis tance of vested interests and growing commodity prices
The urgency to tackle structural shortcomings in natu ral resource- dependent economies usually
correlates with the price of those resources and the degree to which resource rents drive eco-
nomic activity However there may be marginal improvements in the efficiency of the current
economic system
Future US- Russia relations can be thought of through three pillars one pillar focuses on areas
where both countries maintain a competitive rivalry another looks at potential areas of interaction
under pres ent conditions a third pillar and one that has evaporated from the current bilateral
agenda concentrates on future cooperation Stronger economic ties could not only be a kind of
po liti cal shock absorber but contribute to the building of this future (particularly business contacts
aim to support future structural reforms) although po liti cal factors are depressing the prospects
for cooperation To escape deadlock it will be impor tant to establish the right balance between
politics and economics and create a model of collaboration within the framework of contention
594-71613_ch01_4Pindd 49 102017 404 PM
About the Author
Vadim Grishin PhD MBA has been involved in the reform pro cess in Rus sia as adviser to the
deputy prime minister of Rus sia in 1992ndash1993 and 2006ndash2010 He has extensive experience
working with the Bretton Woods Institutions He was the board member of the World Bank Group
and served as se nior adviser at the International Monetary Fund Currently he is a con sul tant to the
chief economistrsquos office of the International Finance Corporation and teaches the economics of
transition at Georgetown University in Washington DC
50
594-71613_ch99_4Pindd 50 102017 403 PM
Blank
COVER PHOTO ADOBE STOCK
1616 Rhode Island Avenue NW
Washington DC 20036
202 887 0200 | wwwcsisorg
v++ISBN 978-1-4422-8035-9
Lanham bull Boulder bull New York bull London
4501 Forbes Boulevard
Lanham MD 20706
301 459 3366 | wwwrowmancom
A U T H O R
Vadim Grishin
Myths and Realities
A Report of the
CSIS RUSSIA AND EURASIA PROGRAM
US-RussiaEconomicRelations
O C T O B E R 2 0 1 7
Euml|xHSLEOCy280359z
The Man Pupu Nyor Rock Formations at the Northern Urals also known as Seven
Strong Man or Little Mountain of the God in the local tribe (Mansi) language
Vadim Grishin 9
previously allowed for 30 days) Similarly US persons are prohibited from taking on any new debt
that has a maturity greater than 60 days (previously it was 90 days) with Rus sian energy compa-
nies currently under sanctions10
According to the Trea sury Department Rus sia held $1029 billion in US Trea sury securities in
June 201711 Could Rus sia withdraw all its reserves from the United States and use this action as a
retaliatory mea sure Such a scenario is unlikely since there is no comparable safe- haven alterna-
tive to US dollars When Rus siarsquos US Trea sury holdings dropped 50 percent from $176 billion
(October 2010) to $90 billion (November 2011) the market did not notice12 Nevertheless Rus sian
authorities have announced they will decrease dependence on assets and payments in US dollars13
10 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364
11 US Department of Trea sury Major Foreign Holders of Trea sury Securities September 18 2017 http ticdata
treasury gov Publish mfh txt
12 Ibid
13 ldquoНовый виток санкций Россия откажется от доллараrdquo [A new round of sanctions Rus sia will abandon the dollar]
Газетару August 7 2017 https wwwgazeta ru business 2017 08 07 10821937 shtml
Figure 23 Rus sia Outward FDI Position United States Equities and Debt Million US$ 2009ndash2016
Source Central Bank of the Rus sian Federation External Sector Statistics Rus sian Direct Investments
Abroad accessed September 27 2017 https wwwcbr ru localization switchlanguage urlshy=shy news
ampfromshy=shyru - ruamptoshy=shyen - gb
$6000
$8000
$10000
$12000
$14000
$16000
$18000
$20000
$22000
2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 9 102017 404 PM
US-Russia Economic Relations10
Officially the country does not invest in the US stock exchange although some Rus sian oligarchs
have bought US corporate bonds and equities in large amounts The new sanctions law requires
the secretary of trea sury in consultation with the director of national intelligence and the secretary
of state to issue reports on Rus sian se nior po liti cal figures and oligarchs based on their closeness
to the Rus sian regime and their net worth as well as the exposure of key economic sectors of the
United States to Rus sian po liti cally exposed persons and parastatal entities including at a mini-
mum the banking securities insurance and real estate sectors14
Only three Rus sian companies are listed in the US exchanges
Overall the scale and scope of US- Russia economic interaction and business activity is much greater
than officially appreciated but not significant enough to be taken into consideration by policymakers
14 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364
594-71613_ch01_4Pindd 10 102017 404 PM
11
03
Politics in the Driverrsquos Seat
Bilateral economic relations depend to a great extent on global and national economic cycles
After the recent global financial crisis the US economy has shown surprisingly sustainable GDP
growth while the Rus sian economy was the most afected among BRICS countries by the turbu-
lence of a worldwide economic downturn in 2008ndash2009 and after a short- term rebound slipped
into stagnation (2012ndash2013) and then into full- scale recession (2014ndash2016) The countryrsquos eco-
nomic cycle however appears to be changing once again with the economy returning to a
pattern of growth albeit uneven and gradual (Figures 31 and 32) Even with sanctions still in place
conditions have improved as a result of the stabilization of Urals oil to an average annual price of
$419 per barrel in 2016 The gains were sparked in part by major crude producers agreeing to cut
production after hefty price drops in 2014 and 2015 Supported by easier financial conditions
higher oil prices and growing macro- stability Rus sia is heading toward a moderate growth rate
that is expected to reach 14 percent this year according to forecasts of the World Bank Group
(WBG) and the IMF1
Because of the significant role that politics plays in any bilateral interaction it is impor tant to
combine economic and po liti cal cycles applying a ldquoresetrdquo to bilateral economic cooperation in
addition to the po liti cal relationship I have compared po liti cal cycles and trade dynamics using the
following graphs ( Table 31 and Figure 33) These charts do not pretend to reflect with mathemati-
cal precision all shifts in the bilateral po liti cal relationship but rather attempt to visually align
impor tant economic and po liti cal moments to detect the efects of po liti cal events on the size of
bilateral trade
Figure 33 shows all pos si ble combinations economic trends at the intersection of po liti cal devel-
opments oppose or support each other in synchronization It is evident that po liti cal interference
1 International Monetary Fund Rus sian Federation Staff Concluding Statement of the 2017 Article IV Mission (Wash-
ington DC IMF 2017) World Bank Group From Recession to Recovery Rus sia Economic Report no 37 (Washington
DC World Bank 2017) http pubdocsworldbank org en 383241495487103815 RER - 37 - May26 - FINAL - with - summary
594-71613_ch01_4Pindd 11 102017 404 PM
US-Russia Economic Relations12
in bilateral business afairs in the early 2000s was less significant than in later years As result
growing po liti cal tensions from 2003 to 2008 did not dramatically afect bilateral economic inter-
action It is also easier to explain why 2011ndash2012 resulted in rec ord trade and investmentmdash a con-
sequence of very high oil prices GDP growth in both countries improved legislation after Rus siarsquos
accession to the WTO and the Obamandash Medvedev po liti cal reset From 2014 to 2016 a perfect
storm of developments added efficiency to Western sanctions and augmented the damaging
consequences of counter- sanction mea sures
Figure 33 also confirms that in times of reduced economic cooperation po liti cal pressures can
easily change bilateral economic trends Moreover business interests along with economic inter-
actions have a limited capacity to reverse the po liti cal mainstream
Figure 31 Economic Cycle 2014ndash2016
Source Authorrsquos evaluation of international financial institutions (IFI) data and sources from respective
countries
Sustainable Growth
Brazil
Negative Growth
Unstable Growth
Mexico
Descending Growth
Argentina
EU
US
Russia
Vietnam
China
594-71613_ch01_4Pindd 12 102017 404 PM
Vadim Grishin 13
Table 31 Po liti cal Cycles in Bilateral US- Russia Relations 1999ndash2016
2001ndash2002 The George W Bushndash Vladimir Putin Reset Rus sia supported ldquoglobal war on terrorismrdquo launched by the United States after 911 the SORT nuclear arms reduction treaty was signed by the United States and Rus sia and a successful business dialogue was developed that created the current structure of economic relations
2003ndash2008 Deterioration in bilateral relations brought on by the Iraq War Georgiarsquos ldquoRose Revolutionrdquo Mikhail Khodorkovskyrsquos arrest Ukrainersquos ldquoOrange Revolutionrdquo Kosovorsquos in de pen dence and the Georgian War
2009ndash2010 The Barack Obamandash Dmitry Medvedev Reset Rus sia served as a logistical hub for transportation and supply of US forces in Af ghan i stan United States and Rus sia signed the new START nuclear arms reduction treaty Rus sia backed tighter economic sanctions on Iran Rus sia gained access to the WTO after 18 years of negotiations
2011ndash2016 Deterioration in bilateral relations caused by the Ukrainian crisis which were followed by sanctions and counter- sanctions along with the Syrian crises and cyber- enabled activities
Source Authorrsquos evaluation of po liti cal and economic data
Note SORTthinsp=thinspStrategic Ofensive Reductions Treaty STARTthinsp=thinspStrategic Arms Reduction Treaty
Figure 32 Economic Cycle 2017ndash2019
Source Authorrsquos evaluation of IFI data and sources from respective countries
Egypt
VenezuelaEU
South Africa
Brazil
Russia
India
US
Descending Growth
Korea
China
Negative Growth
Unstable Growth
Sustainable Growth
594-71613_ch01_4Pindd 13 102017 404 PM
US-Russia Economic Relations14
Figure 33 US- Russia Trade Million US$ vs Po liti cal Cycle 2000ndash2016
Sources US Census Bureau ldquoTrade in Goods with Rus siardquo Foreign Trade last modified June 29 2017
https wwwcensus gov foreign - trade balance c4621 html (see data for 2000ndash2016) authorrsquos evaluation
of po liti cal and economic data
Orange Revolution
Khodorkovskys arrest
GeorgianWar
Bush- Putin Reset
Iraq War Global Financial Crisis
Obama-Medvedev Reset
Russias WTO accession
New START Treaty
A Pefect Storm the Ukranian Crisis Oil Prices Crashing
Sanctions and Counter-Sanctions
$3000
$8000
$13000
$18000
$23000
$28000
$33000
$38000
$43000
2000 2002 2004 2006 2008 2010 2012 2014 2016
594-71613_ch01_4Pindd 14 102017 404 PM
15
The current structure of US- Russia economic relations emerged in the early 2000s when the
model of trade and investment interaction took on a character similar to that which existed be-
tween the United States and developing economies US imports from Rus sia centered on com-
modities while technology along with food products lead American exports The primary
exception was that Rus sia supplied nuclear fuel including highly enriched uranium extracted from
nuclear weapons for US power plants and provided ser vices to the aerospace industry primarily
in satellite launches However both these exceptions can be explained as a legacy of the Soviet
past and not a harbinger of the future economic relationship (Figure 41)
In the last 15 years this trade structure has not changed significantly The only noticeable shift in
trade was a dramatic drop (to practically nothing) in exports of US agricultural products a result
of Rus siarsquos policy of import substitution and so- called counter- sanction mea sures it took in re-
sponse to US sanctions over the Ukraine crisis (Figure 42)
Promising new directions of cooperation in the IT sector and in engineering ser vices for the
aerospace industry appeared in the early 2000s1 but did not spill into other sectors and conse-
quently did little to renew economic cooperation on the whole The integration of Rus sian high-
tech ser vices into large- scale global production and value chains was constrained by the usual
culprits a lack of financial resources managerial experience skilled labor modern infrastructure
RampD investments and an adequate business environment High commodity prices incentivized the
restoration of an economic system centered on resource rents The leading role of oil and gas
extraction and transportation discouraged the development of a nonenergy sector that might
have created advanced and complex production and ser vices An import substitution policy could
not work efficiently in an economic environment plagued by the Dutch disease where currency
1 The Boeing Design Center was created in Moscow It consists of nearly 250 Boeing employees managing
a team of 1200 contract engineers from Rus sian and Ukrainian aerospace companies ldquoBackgrounder Boeing in
Rus siardquo Boeing last modified January 2017 http wwwboeing com resources boeingdotcom company key _ orgs
boeing - international pdf russia - cisbackgrounder pdf
Are the United States and Rus sia ldquoNatu ralrdquo Trading Partners A Little Bit of History
04
594-71613_ch01_4Pindd 15 102017 404 PM
US-Russia Economic Relations16
inflows (oil money) lead to ruble appreciation and render a countryrsquos production less competitive
During that time Rus siarsquos industry did not receive preferential access to larger markets and could
not expand its share in the global economy particularly because of its self- isolation from the
regional trade agreements (except for its participation in the Eurasian Economic Union with some
neighboring countries of the former Soviet Union) As a result neither import substitution nor
export- led strategy promoted growth and specialization in nonoil production A long- awaited
modernization and reallocation of resources from an inefficient nontrade sector to a trade sector
did not materialize
These limits were later augmented with sanctions and an extension of domestic restrictions on
cooperation with Western partners Importantly the rapid growth of state- monopoly structures in
the Rus sian economy over the past 15 years has created additional obstacles to the development
and diversification of US- Russia economic ties
Figure 41 US Imports from Rus sia US$ 2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2016)
Fish and shellfish 3
Crude oil 5
Fuel oil 37
Petroleum products other
8
Nuclear fuel materials
7
Chemicals-fertilizers 4
Steelmaking materials 5
Iron and steel mill products 4
Bauxite and aluminum 9
Other precious metals 4
Nonferrous metals other 1
Finished metal shapes 1
Synthetic rubber--primary
1
Spacecraftexcluding military
594-71613_ch01_4Pindd 16 102017 404 PM
Fig
ure
42
U
S E
xpo
rts
to R
us s
ia U
S$ 2
016
Sou
rce
US
Ce
nsu
s B
ure
au ldquo
Trad
e in
Go
od
s w
ith
Ru
s sia
rdquo (s
ee
dat
a fo
r 2
016
)
Bak
ery
pro
du
cts
Win
e b
eer
an
d r
elat
ed
pro
du
cts
New
spri
nt
Pla
stic
mat
eria
ls
Ch
emic
als-
fert
ilize
rs
Ch
emic
als-
ino
rgan
icC
hem
ical
s-o
rgan
ic
Ch
emic
als-
oth
erC
ott
on
fib
er c
loth
In
du
stri
al r
ub
ber
pro
du
cts
Min
eral
su
pp
lies-
man
ufa
ctu
red
Gen
erat
ors
acc
esso
ries
Ele
ctri
c ap
par
atu
s
Dri
llin
g amp
oilfi
eld
eq
uip
men
t Sp
ecia
lized
min
ing
Exc
avat
ing
mac
hin
ery
No
nfa
rm t
ract
ors
an
d p
arts
In
du
stri
al e
ng
ines
Fo
od
to
bac
co m
ach
iner
y M
etal
wo
rkin
g m
ach
ine
too
ls
Tex
tile
sew
ing
m
ach
ines
W
oo
d g
lass
p
last
ic
Pu
lp a
nd
pap
er
mac
hin
ery
Mea
suri
ng
tes
tin
g
con
tro
l in
stru
men
ts
Mat
eria
ls h
and
ling
equ
ipm
ent
Ind
ust
rial
mac
hin
es
oth
er
Ph
oto
ser
vice
ind
ust
ry m
ach
iner
y A
gri
cult
ura
l mac
hin
ery
eq
uip
men
t C
om
pu
ters
Co
mp
ute
r ac
cess
ori
es
Sem
ico
nd
uct
ors
Tel
eco
mm
un
icat
ion
seq
uip
men
t
Bu
sin
ess
mac
hin
es a
nd
eq
uip
men
t
Lab
ora
tory
tes
tin
g in
stru
men
ts
Med
icin
al e
qu
ipm
ent
Civ
ilian
air
craf
t e
ng
ines
eq
uip
men
t a
nd
par
ts
Rai
lway
tra
nsp
ort
atio
n
equ
ipm
ent
Ves
sels
exc
lud
ing
scr
ap
Co
mm
erci
al v
esse
ls o
ther
M
arin
e en
gin
es p
arts
Spac
ecra
ft e
xclu
din
g
mili
tary
Pas
sen
ger
car
s
new
an
d u
sed
Tru
cks
bu
ses
and
sp
ecia
l p
urp
ose
ve
hic
les
En
gin
es a
nd
en
gin
e p
arts
(c
arb
ure
tors
pis
ton
s r
ing
s
and
val
ves)
B
od
ies
and
ch
assi
s fo
r p
asse
ng
er c
ars
Au
tom
oti
ve t
ires
an
d t
ub
es
Oth
er p
arts
an
d a
cces
sori
es o
f ve
hic
les
Ap
par
el h
ou
seh
old
go
od
s -
text
ile
Ph
arm
aceu
tica
lp
rep
arat
ion
s
Furn
itu
re h
ou
seh
old
go
od
s
etc
R
ug
s
Cel
l ph
on
es a
nd
oth
er
ho
use
ho
ld g
oo
ds
ne
c
594-71613_ch01_4Pindd 17 102017 404 PM
US-Russia Economic Relations18
Figure 43 US Trade in Goods with Rus sia Million US$ 1992ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
Russian Financial Crisis
Oil price Increased from$2446 USD per barrel (2001)
to $9694 USD per barrel(2008)
Global Financial Crisis
Oil price high record in2011-2012
(more that $111 USD perbarrel)
Oil price crashed
$-
$5000
$10000
$15000
$20000
$25000
$30000
$35000
$40000
$45000
$50000
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia US Exports to Russia US-Russia Trade in Goods
No doubt po liti cal ups and downs add volatility to US- Russia trade Nevertheless Rus siarsquos eco-
nomic structure exhausted itself before the Ukrainian crisis and the recent Rus sian recession Its
limitations are not only due to some mistakes in policy or negative coincidences of circumstances
but rather to deeply rooted properties in the current bilateral trade model related to structural
issues in the Rus sian economy Structural constraints such as the weak enforcement of property
rights poor business regulation and nondiversified exports weighed on Rus sian trade with the
United States From this perspective the term ldquonaturalunnatural trading partnersrdquo does not ad-
dress the unused capacity of bilateral interaction or the real challenges that kind of interaction
faces It just adds metaphysical flavor to the very specific economic and po liti cal factors that
determine the US- Russia trajectory
Overall the outlines of bilateral trade (Figure 43) resemble the famous ldquoRus sian Mountainsrdquo that
were a pre de ces sor of the modern roller coaster icy hills supported by wooden constructionsmdash a
rigid and immobile structure that sooner or later would melt This unfortunately is what is hap-
pening to US- Russia trade cooperation now
594-71613_ch01_4Pindd 18 102017 404 PM
19
ARE LITTLE FISH REALLY SWEET
Low US- Russia economic interaction has at least two consequences First it limits the capacity of
policymakers to exploit trade as an instrument for geopo liti cal combat Even the question of a US
trade deficit which used to be a headache for many US trading partners has become so insig-
nificant in absolute terms (about $87 billion in 2016) that it seems hardly worth caring about
When the volume of trade between two countries becomes very small in absolute terms whether
a country is running a surplus or deficit is no longer relevant But it also renders another type of
confrontations (sometimes more dangerous) more likely since the two traders have little to lose
Second in an environment marked by low levels of bilateral trade both sides could incentivize (if
and when a desire for po liti cal rapprochement exists) the signing of new trade deals which are
elevated symbolically as a turning point in bilateral po liti cal relations (ie the sale of Boeings to
Rus sia or the delivery via tankers of Rus sian oil to US refineries) Sometimes markets themselves
pres ent ldquogiftsrdquo that can be capitalized on po liti cally US- USSR grain trade in the 1970s was one
such ldquogiftrdquo large sales of American grain to the Soviet Union helped US policymakers win favor
with the po liti cally impor tant American farming sector and permitted Soviet leaders to maintain
access to a dietary staple for the Soviet population
The strong 32 percent growth in value of US imports from Rus sia from January to May 2017
versus January to May 2016 ( Table 51) is an example of a development that has tempted officials
to pres ent it as a sign of positive change due to ldquogrowing business activitiesrdquo (this kind of statement
was heard before the bilateral summit in Germany in July 2017) although the reason for that leap
was evidently an increase in commodity prices (mainly of oilmdash see Table 52) and not a rise in
entrepreneurial interactions The primary beneficiaries of that upside rally have been two other
petro- economies Saudi Arabia and Venezuela ( Tables 53 and 54)
Sector Analyses
05
594-71613_ch01_4Pindd 19 102017 404 PM
US-Russia Economic Relations20
Table 51 US Imports from Rus sia Million US$ Januaryndash May 2016 vs Januaryndash May 2017
Year January February March April May Total
2016 9603 6871 11097 12257 10977 50805
2017 12215 10220 16979 13471 14147 67032
Change 271 487 530 99 289 319
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
Table 52 Change in Urals Crude Oil Prices US$ per Barrel Januaryndash May 2016 vs Januaryndash May 2017
Januaryndash May 2016 Januaryndash May 2017 Change ($) Change ()
3601 5129 1528 424
Source Ministry of Finance of the Rus sian Federation https wwwminfin ru ru ixzz4mMIZ7XtC
Table 53 US Imports from Saudi Arabia Million US$ Januaryndash May 2016 vs Januaryndash May 2017
Year January February March April May Total
2016 15114 9036 13555 10844 14679 63228
2017 19802 20298 21650 16211 19542 97503
Change 3101 12463 5972 495 331 542
Source US Census Bureau ldquoTrade in Goods with Saudi Arabiardquo Foreign Trade last modified June 29 2017
https wwwcensus gov foreign - trade balance c5170 html (see data for 2016ndash2017)
594-71613_ch01_4Pindd 20 102017 404 PM
Vadim Grishin 21
Table 54 US Imports from Venezuela Million US$ Januaryndash May 2016 vs Januaryndash May 2017
Year January February March April May Total
2016 6657 5560 7140 8007 7922 35286
2017 13041 10864 123500 11148 12243 59646
Change 9590 9540 7297 3923 5454 6903
Source US Census Bureau ldquoTrade in Goods with Venezuelardquo Foreign Trade last modified June 29 2017
https wwwcensus gov foreign - trade balance c3070 html (see data for 2016ndash2017)
Table 55 US Exports to Rus sia Million US$ Januaryndash May 2016 vs Januaryndash May 2017
Year January February March April May Total
2016 3628 3577 7298 4657 4947 24107
2017 3144 4277 5386 6670 4806 24283
Change minus133 196 minus262 432 minus29 minus07
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2016ndash2017)
At the same time US exports to Rus sia continue to stagnate ( Table 55) due to low levels of
consumption during a two-and- a- half-year economic crisis a deep ruble devaluation sanctions
and counter- sanctions
Given the very dif er ent economic structures and resource endowments of Rus sia and the United
States it is not surprising that US- Russia trade is asymmetric and oil driven (Figure 51) A
3 percent increase in Urals oil prices translates into a one percent increase in US import growth
from Rus sia Thus in 2016 every $10 increase in Urals crude oil added $15 billion to the value of
US imports or 11 percent to the total value of imports from Rus sia
OIL ADDICTION
Oil is a core pillar of US- Russia bilateral trade A bumpy ride in oil markets afects commerce
Nevertheless Rus sian oil exports to the United States in physical terms have been rather
594-71613_ch01_4Pindd 21 102017 404 PM
US-Russia Economic Relations22
sustainable Starting from 2005 average annual deliveries have been above 150 million barrels
(Figure 52) Crude and heating oil have dominated while petroleum products and liquefied petro-
leum gases have not (Figure 53) In 2011 oil exports peaked at 228 million barrels but declined to
159 million barrels in 2016mdash a drop of 30 percent Rec ord high shipments of Rus sian oil to the United
States coincided with an elevation in oil prices which made the subsequent decline in oil shipment
value between 2011 and 2016 (by about 72 percent as shown in Figure 54) seem more stark The
increase in price also raised the share of oil in Rus sian exports by 74 percent in 2011 (Figure 55)
The Rus sian share in total US oil imports was around 55 percent in 2011 and 43 percent in 2016
( Table 56) In the last five years the United States has relied exclusively on consumption of Rus sian
oil for the rough equivalent of one week out of the year (Figure 56)
It is unlikely that Rus sia can significantly increase its share of the US oil market and there is a real
possibility for a downward trend There are several reasons the historically high Rus sian hydrocar-
bon export threshold of 2011 will not soon if ever be surpassed
First US energy consumption will likely be flat According to the US Energy Information Adminis-
tration (EIA) demand for petroleum and other liquids in the United States will be about 35ndash36
quadrillion British thermal units (BTUs) with minimal variation over the next 25 years1
1 US EIA ldquoAnnual Energy Outlook 2017 with Projections to 2050rdquo January 5 2017 7ndash8
Figure 51 US- Russia Trade Growth () vs US and Rus sia Real GDP Growth () 1993ndash2016
Source IMF ldquoIMF Datardquo accessed September 27 2017 http wwwimf org en Data US Census Bureau
ldquoTrade in Goods with Rus siardquo
Note rGDPthinsp=thinspreal gross domestic product
Trade
USA rGDP growth
Russia rGDP growth
-60
-40
-20
0
20
40
60
80
100
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Gro
wth
All spikes in US-Russia trade have been connected with two main
variables volume and price of crude oil
594-71613_ch01_4Pindd 22 102017 404 PM
Vadim Grishin 23
Second the United States will become a net energy exporter between 2020 and 2030 in most
cases under dif er ent combinations of oil and natu ral gas prices GDP growth technological
breakthroughs and the availability of energy resources The role of oil imports will dramatically
fall2
Third oil price scenarios as described by the International Energy Agency (IEA) international
financial organ izations (IFIs) and many national agencies are very cautious and assume that even
by 2035 to 2040 oil prices will not to recover to the levels of 2011ndash20123
Fourth Rus sian oil production and export growth will be modest and driven by Asian economic
expansion and will comprise a decreasing share of Western markets4 According to forecasts from
2 Ibid 15ndash18
3 Ibid table 3 ldquoEnergy Prices by Sector and Sourcesrdquo World Bank World Bank Commodity Markets Price Forecasts
(Washington DC World Bank 2017) httpswwwworldbank org en research commodity - markets Organ ization of the
Petroleum Exporting Countries (OPEC) World Oil Outlook 2016 (Vienna OPEC 2016)
4 E D Belotskaia et al Global and Rus sian Energy Outlook 2016 (Moscow Energy Research Institute of the Rus sian
Acad emy of Science Analytical Center for the Government of the Rus sian Federation 2016) http acgov ru files
publication a 12767 pdf
Figure 52 US Imports from Rus sia Crude Oil and Petroleum Products Thousands of Barrels 1995ndash2016
Source US EIA ldquoUS Imports by Country of Origin Rus siardquo Petroleum amp Other Liquids September 13
2017 http wwweia gov dnav pet PET _ MOVE _ IMPCUS _ D _ NUS _ NRS _ MBBL _ M htm
0
50000
100000
150000
200000
250000
Date 1995 1996 1997 1998 199920002001200220032004200520062007200820092010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 23 102017 404 PM
US-Russia Economic Relations24
the Organ ization of the Petroleum Exporting Countries (OPEC) crude oil exports from Rus sia and
the Caspian region to the United States will dis appear by 20255
So why does the Rus sian Urals blend continue to be attractive for oil traders and US refineries
which could pro cess greater volumes of domestically produced lighter crude There are two main
reasons One is related to the preference of US high conversion refineries (the most sophisticated
in the world) to work with heavy oil blends produced by Canada Mexico Iraq Venezuela and
Rus sia Pro cessing heavy crude now is as profitable as pro cessing lighter crude The so- called
crack spreadmdash the diference between the cost of relatively cheap heavy crude oil and the final
price of value- added consumer products (diesel gasoline jet fuel and heating oil)mdash has become
the same as the refinery margins of light sweet crude6 This has primarily afected light oil produc-
ing countries such as Angola Algeria and Nigeria
5 OPEC World Oil Outlook 2016 306ndash309
6 ldquoHow Much for That Heavy Oilrdquo Oil Sands Magazine December 26 2015 https wwwoilsandsmagazine com
news 2015 12 26 how - much - for - that - heavy - oil
Figure 53 US Imports from Rus sia Oil and Petroleum Products US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$-
$25000000000
$20000000000
$15000000000
$10000000000
$5000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Liquefied petroleum gases
Petroleum products other
Fuel oil
Crude oil
594-71613_ch01_4Pindd 24 102017 404 PM
Vadim Grishin 25
Another factor afecting purchase of Rus sian oil is a new trend among oil companies for further
consolidation of scale and for integrating operations of upstream and downstream business7
There have been several waves of separation and unification of production transportation and
pro cessing in the last 50 years The current business cycle can be seen as an adaptation to a
period of low prices and oversupply Companies that buy andor produce oil in Rus sia most likely
prefer to transport and pro cess this oil in their own modern refineries in the United States At the
same time some of the newest refinery designs specifically for pro cessing heavy oils have been
built in Asia thus extending the choices of heavy oil producing countries
We should also consider that leading US and international oil traders along with oil producing
companies working with or owning US refineries frequently buy Rus sian oil on the open market
and have long- term contracts on Rus sian crude oil delivery Many Rus sian oil companies prefer to
pay for purchases or ser vices with their future production instead of cash creating situations of
ldquostickyrdquo oil imports that are difficult to replace The best- known example is an interaction between
7 ldquoEnergy and Utilities Sectorrdquo Roundtable Financier Worldwide December 2015 https wwwfinancierworldwide
com roundtable - energy - utilities - sector - dec15
Figure 54 US Imports of Oil and Petroleum Products from Rus sia vs Oil Prices Eu rope Brent Spot Price Free on Board (FOB) 1996ndash2017
Source US EIA ldquoUS Imports by Country of Origin Rus siardquo
0
20
40
60
80
100
120
140
0
5000
10000
15000
20000
25000
30000
Jan
-19
96
Jun
-19
96
No
v-19
96
Ap
r-19
97
Sep
-19
97
Feb
-19
98
Jul-
199
8D
ec-1
99
8M
ay-1
99
9O
ct-1
99
9M
ar-2
00
0A
ug
-20
00
Jan
-20
01
Jun
-20
01
No
v-2
00
1A
pr-
20
02
Sep
-20
02
Feb
-20
03
Jul-
20
03
Dec
-20
03
May
-20
04
Oct
-20
04
Mar
-20
05
Au
g-2
00
5Ja
n-2
00
6Ju
n-2
00
6N
ov-
20
06
Ap
r-2
00
7Se
p-2
00
7Fe
b-2
00
8Ju
l-2
00
8D
ec-2
00
8M
ay-2
00
9O
ct-2
00
9M
ar-2
010
Au
g-2
010
Jan
-20
11Ju
n-2
011
No
v-2
011
Ap
r-2
012
Sep
-20
12Fe
b-2
013
Jul-
20
13D
ec-2
013
May
-20
14O
ct-2
014
Mar
-20
15A
ug
-20
15Ja
n-2
016
Jun
-20
16N
ov-
20
16
USD
per
Bar
rel
Th
ou
san
d B
arr
els
US Imports from Russia of Crude Oil and Petroleum Products (Thousand Barrels)
Europe Brent Spot Price FOB (Dollars per Barrel)
594-71613_ch01_4Pindd 25 102017 404 PM
US-Russia Economic Relations26
Table 56 US Oil Imports All Countries vs Rus sia Thousand Barrels per Day 2011ndash2016
Years 2011 2012 2013 2014 2015 2016
All Countries 11436 10598 9859 9241 9449 10058
Rus sia 624 477 460 330 371 433
Share 546 450 467 357 393 431
Sources US EIA ldquoUS Imports by Country of Origin Total Crude Oil and Productsrdquo Petroleum amp Other
Liquids September 13 2017 wwweia gov dnav pet pet_move_impcus_a2_nus_ep00_im0_mbbl_m htm
authorrsquos computation
Figure 55 US Imports from Rus sia Share of Crude Oil and Petroleum Products Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
57
64
73
72
74
73
72
59
52 50
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
$40000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil and Petroleum Products
594-71613_ch01_4Pindd 26 102017 404 PM
Vadim Grishin 27
the Rus sian state mono poly Rosneft and commodity trading and mining giant Glencore which
along with energy and commodities com pany Vitol participated in a $10 billion prepayment
deal with Rosneft for crude supplies in 2013
There have been a number of ongoing transactions between the Rus sian oil industry and interna-
tional oil companies including several that top the list of importers of Rus sian oil to the United
States ( Table 57) In December 2016 Glencore participated in a controversial privatization opera-
tion purchasing in tandem with the Qatar sovereign wealth fund a 195 percent stake in Rosneft
which was on the US and EU list of sanctioned firms8 Glencore has also taken a blocking stake in
midsize oil producer RussNeft BP owns a 1975 percent stake in Rosneft Chevron holds a
15 percent interest in the 935- mile- long CPC9 pipeline which transports an average of 959000
barrels of crude oil per day including 76000 barrels daily from Rus sia10 ExxonMobil has formed
8 E Mazneva and I Arkhipov ldquoRus sia Sells $11 Billion Stake in Rosneft to Glencore Qatarrdquo Bloomberg December 7
2016
9 CPCthinsp=thinspCaspian Pipeline Consortium
10 ldquoRus sia Highlights of Operations and Business Portfoliordquo Chevron accessed October 3 2017 https wwwchevron
com worldwide russia
Figure 56 Share of Rus sian Oil in Total US Oil Imports Thousands of Barrels per Day 1972ndash2016
Source US EIA ldquoUS Imports by Country of Origin Total Crude Oil and Productsrdquo
2000
4000
6000
8000
10000
12000
14000
16000
US Imports of Crude Oil and Petroleum Products (Thousand Barrels per Day)
US Imports from Russia of Crude Oil and Petroleum Products (Thousand Barrels per Day)19
7319
7419
7519
7619
7719
7819
7919
80
198
119
82
198
319
84
198
519
86
198
719
88
198
919
90
199
119
92
199
319
94
199
519
96
199
719
98
199
92
00
02
00
12
00
22
00
32
00
42
00
52
00
62
00
72
00
82
00
92
010
20
112
012
20
132
014
20
152
016
594-71613_ch01_4Pindd 27 102017 404 PM
Table 57 Top Importers of Rus sian Oil to the United States Thousands of Barrels 2016
VALERO MARKETING amp SUPPLY CO 54590 3616
EXXONMOBIL OIL CORP 17087 1130
CHEVRON USA INC 15217 1008
BP WEST COAST PRODUCTS LLC 10130 671
GEORGE E WARREN CORP 7272 48
PAULSBORO REFINING CO LLC 6838 453
TESORO CORP 5097 338
VITOL INC 5084 337
PHILLIPS 66 CO 4726 313
TRAFIGURA AG 4360 289
PAR HAWAII REFINING LLC 3893 258
MOTIVA ENTERPRISES LLC 3041 205
SHELL US TRADING CO 2863 19
MARATHON PETROLEUM CO LLC 2475 16
ATLANTIC TRADING amp MARKETING 2099 14
FREEPOINT COMMODITIES LLC 1439 1
GLENCORE LTD 1284 85
BEST PETROLEUM CORP 967 64
ROLYMPUS US COMMODITIES GROUP LLC 822 6
HUNT CRUDE OIL SUPPLY CO 666 4
GULF OIL LP 658 4
Source US EIA ldquoUS Imports by Country of Origin Crude Oilrdquo Petroleum amp Other Liquids September 13
2017 httpswwweiagovdnavpetpet_move_impcus_a2_nus_epc0_im0_mbblpd_ahtm authorrsquos
computation
594-71613_ch01_4Pindd 28 102017 404 PM
Vadim Grishin 29
several joint ventures with Rosneft to undertake ofshore exploration in the Black Sea and the Kara
Sea in Siberia11
According to the Sanctions Act US persons are prohibited from exporting or reexporting goods
ser vices (except financial ser vices) and technology in support of exploration or production of new
deep- water Arctic ofshore or shale oil proj ects that involve designated Rus sian entities or other
entities in which such sanctioned persons have a controlling interest or a substantial noncontrol-
ling owner ship interest defined as not less than 33 percent (previously it was 50 percent) The new
law also authorizesmdash but does not requiremdash the imposition of so- called secondary sanctions
against non- US entities that engage in activities involving the construction maintenance or
expansion of Rus sian energy export pipelines with a fair market value of $1 million or more or an
aggregate fair market value during a 12- month period of $5 million12 This provision has raised the
concerns of some Eu ro pean countries particularly Germany As result the final language of the
law included wording about coordination of this issue with allies of the United States
Shipments of Rus sian oil to the United States could be afected by activity in the US refinery
industry In early 2017 Saudi Aramco bought the United Statesrsquo largest oil refinery in Port Arthur
(Texas) and it announced plans to send more of its own crude to that refinery13 Serious concerns
exist however regarding the future of three refineries and nine pipelines owned by Citgo a US
branch of the Venezuelan state com pany PdVSA which is balancing precariously on the edge of
default Under certain conditions in the event of PdVSA bankruptcy Rosneft could claim a stake of
up to 499 percent in Citgo Such a possibility has raised concerns among politicians and US
government officials with Trea sury Secretary Steven Mnuchin calling it a ldquonational security issuerdquo14
Tables 58 59 and 510 show allocations of Rus sian oil imports to major US refineries some of
which work exclusively on Rus sian crude a total of two to three months per year In total 150940
thousand barrels of Rus sian oil were refined in 2016
Figure 57 confirms a leading position of Texas and Louisiana among the US states receiving
Rus sian crude followed by New Jersey California Mississippi Washington Hawaii and Delaware
In a paradoxical way Texas has dis appeared from the list of states as a main destination of US
imports from Rus sia (Figure 58) because Rus sian crude is mostly delivered to Louisiana ports and
registered there by US Customs as an import from Rus sia After that it transports to refineries in
Louisiana and Texas
Overall the short- term business rationale behind the sustainability of US oil imports from Rus sia
cannot overcome strong headwinds in the US energy sector facing all oil importers which will
inevitably lead to a contraction of Rus sian oil exports to the United States in the foreseeable future
11 Exxon eforts to receive a special US Trea sury waiver to drill in sanctioned Rus sia failed in 2017
12 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364
13 Sarp Ozkan ldquoSaudi Aramcorsquos Port Arthur Refinery and the US Refinery Fleetrdquo Drilling Info May 11 2017
https infodrillinginfo com saudi - aramcos - port - arthur - refinery - us - refinery - fleet
14 Graham Kates ldquoTrea sury Secretary Rus siarsquos Citgo Deal a National Security Issuerdquo CBS News May 1 2017
http wwwcbsnews com news rosneft - citgo - steven - mnuchin - national - security
594-71613_ch01_4Pindd 29 102017 404 PM
US-Russia Economic Relations30
Table 58 Valerorsquos Refineries Pro cessing Rus sian Oil Thousands of Barrels 2016
Saint Charles Louisiana 29206 535
Corpus Christi Texas 20626 378
Wilmington California 4250 78
Total USA 54590 100
Source US EIA ldquoRefinery Capacity Reportrdquo January 1 2017
table 5 wwweia gov petroleum refinerycapacity table5 pdf
authorrsquos computation
Table 59 ExxonMobil Refineries Pro cessing Rus sian Oil Thousands of Barrels 2016
Baytown Texas 15037 88
Baton Rouge Louisiana 2046 12
Total USA 17083 100
Source US EIA ldquoRefinery Capacity Reportrdquo authorrsquos computation
Table 510 Chevronrsquos Refineries Pro cessing Rus sian Oil Thousands of Barrels 2016
Pascagoula Mississippi 12767 840
El Segundo California 2372 155
Saint Rose Louisiana 78 05
Total USA 15217 100
Source US EIA ldquoRefinery Capacity Reportrdquo authorrsquos computation
594-71613_ch01_4Pindd 30 102017 404 PM
Vadim Grishin 31
HEAVY METAL
Taken together US imports of metals and US imports of oil compose about 80 percent of US
total imports from Rus sia (Figure 59) Trade of metals like other commodities is strongly afected
by market price fluctuations Nevertheless metal imports from Rus sia have been fairly resilient to
market volatility and their average annual value has hovered at about $4 billion in the last five years
(Figure 510) This market resilience was forged at the end of the 1990searly 2000s when Rus sian
metal producers gradually modernized their plants adjusting quality of production to Western
standards and enhancing integration into global value and supply chains Some of them conquered
their share of the highly competitive US market struggling with peers from Canada and certain
BRICS countries (China India and Brazil) To attract additional resources all Rus sian large metal-
producing companies became public and were listed on stock exchanges chiefly the London Stock
Exchange (Severstalrsquo PAO Evraz MMK OAO Novolipetsk Steel Norilsk Nikel and TMK PAO) one
on the New York Stock Exchange (Mechel) and one on the Hong Kong Stock Exchange (Rusal)
Business logic pushed some of them to invest in the US metal- making industry which was hit
hard by crisis Later on some of those assets were sold (eg two US steel mills acquired by
Severstal in 2004 were purchased 10 years later by Steel Dynamics Inc and AK Steel Corp)
Figure 57 Share of US States Rus sian Oil Imports 2016
Source US EIA ldquoUS Imports from Rus sia of Crude Oil and Petroleum Productsrdquo Petroleum amp Other
Liquids September 29 2017 https www eia gov dnav pet hist LeafHandler ashx nshy=shyPETampsshy=shyMTTIM _ NUS
- NRS _ 1ampfshy=shyM authorrsquos computation
0
10
20
30
40
50
60
70
80
90
100
Maine
Massachusetts
Maryland
Connecticut
Georgia
Rhode Island
Virginia
Florida
New York
Alabama
Puerto Rico
Pennsylvania
Delaware
Hawaii
Washington
Mississippi
California
New Jersey
Louisiana
Texas
594-71613_ch01_4Pindd 31 102017 404 PM
Figure 58 US Imports from Rus sia by State Million US$ 2013ndash2016
Source US Census Bureau ldquoState and Metropolitan Area Trade Datardquo Foreign Trade last modified
October 2 2017 https wwwcensus gov foreign - trade statistics state
Alaska
Connecticut
Delaware
Hawaii
Louisiana
Maryland
North Dakota 0
$1000
$2000
$3000
$4000
$5000
$6000
2013 2014 2015 2016
Alabama
Alaska
Connecticut
Delaware
Hawaii
Louisiana
Maryland
Maine
Mississippi
Montana
North Dakota
Mississippi
Figure 59 US Imports from Rus sia Share of Oil and Metals Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
83
82
85
86
87
88
85
82
7375
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
$40000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil and Metals
594-71613_ch01_4Pindd 32 102017 404 PM
Vadim Grishin 33
Obviously the market dynamic of dif er ent metals varies (eg iron steel aluminum platinum and
nickel) Caps to increase their trade and production in a ldquored oceanrdquo global environment with
anemic demand is rather limited despite Figure 510 showing a spike of iron and steel imports
from Rus sia in 2014 and aluminum in 2016 Some opportunities may exist for Russian- owned steel
plants in the United States (such as NLMK) to participate in energy proj ects resumed under Presi-
dent Trump who has required that new pipelines use only American- made steel15
Rus sia occupies a special niche in the US market for titanium products a high- end metal indus-
try Twenty years ago a long- term contract was signed between Rus sian titanium producer
VSMPO- AVISMA and Boeing The Rus sian com pany entered the selective club of Boeing suppliers
for the manufacture of components and semi- finished products Since the signing of this contract
VSMPO has delivered more than 35 percent of all titanium placed on Boeing civil aircraft16 They
are hidden in the trade data in an import category for Civilian Aircrafts and Parts (Figure 511) At
the end of 2016 Boeing announced an extension of its framework agreement with AVISMA
15 E Scheyder C Ngai and T Sylvester ldquoAmerican Steel Unlikely to Get Keystone Boost Despite Trump Orderrdquo
Reuters January 27 2017 http wwwreuters com article usa - trump - pipeline - transcanada - idUSL1N1FH1ZD
16 A Kramer ldquoTitanium Fills Vital Role for Boeing and Rus siardquo New York Times July 5 2013 http wwwnytimes com
2013 07 06 business global titanium - fills - vital - role - for - boeing - and - russia html mcubzshy=shy3
Figure 510 US Imports from Rus sia Iron Steel Bauxite Aluminum Nickel Nonferrous Metals and Other Precious Metals and Materials US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
0
$6000000000
$5000000000
$4000000000
$3000000000
$2000000000
$1000000000
2007 2008 2009 2010 2011 20122013
20142015
2016
Finished metal shapes
Iron and steel advanced
Iron and steel products nec
Nonferrous metals other
Other precious metals
Nickel
Bauxite and aluminum
Iron and steel mill products
Steelmaking materials
594-71613_ch01_4Pindd 33 102017 404 PM
US-Russia Economic Relations34
through 2022 and additional investments in the construction of a new robotic plant in Titanium
Valley a special economic zone located in the Sverdlovsk region that will open in 2018 The pro-
cessing of titanium forgings in all Boeing civil aircraft will be performed there including 787s 737
MAXs and 777Xs17 The contract extension with AVISMA may add several hundred million dollars
in value to annual US imports from Rus sia
How can such heavy reliance on imports of Rus sian titanium exist during a period of rising geopo-
liti cal tensions The answer is straightforward VSMPO- AVISMA is a highly specialized natu ral
mono poly producing 45 percent of the worldrsquos aerospace titanium Only four other countries
smelt high- grade titanium in industrial quantities the United States Germany Japan and China
Overall global production capacity is limited while demand is growing The United States cur-
rently imports around 79 percent of all the titanium it consumes each year18
17 ldquoBoeing and VSMPO Avisma to Launch Second Joint Production Siterdquo Rus sian Aviation Insider December 22 2016
http wwwrusaviainsider com boeing - and - vsmpo - avisma - to - launch - second - joint - production - site
18 Jon Ostrower and Andy Pasztor ldquoBoeing United Technologies Stockpile Titanium Partsrdquo Wall Street Journal
August 7 2014 https wwwwsj com articles boeing - united - technologies - stockpiling - titanium - parts - 1407441886
Figure 511 US Imports from Rus sia Civilian Aircrafts and Parts US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
$200000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Parts-civilian aircraft
Civilian aircraft
594-71613_ch01_4Pindd 34 102017 404 PM
Vadim Grishin 35
The Sanctions Act authorizes the secretary of the trea sury (in a nonmandatory way) to impose
restrictions (without specifying them) against Rus sian state- owned entities operating in the railway
metals and mining sectors of the Rus sian economy Despite the commanding heights of Rus siarsquos
state sector owner ship in its economy (70 percent of GDP) the metal- producing companies have
remained mostly in private hands
NUCLEAR AFFAIRS
Historically owners and operators of the 104 commercial nuclear power reactors in the United
States have purchased more than 80 percent of their uranium from foreign countries Uranium
shipping from Rus sia accounted for about 13 percent of the 58 million pounds of uranium pur-
chased overseas in 201219 At the same time the Rus sian state- owned mono poly Rosatom ac-
counts for 20 percent of Kazakhstanrsquos uranium production (which in turn comprises 11 percent of
all US uranium imports) and 20 percent of US domestic uranium production capacity (with
owner ship of exploration tracts in Wyoming)20
Nuclear fuel and nuclear power continue to be po liti cally sensitive topics both in the United
States and Rus sia Bilateral cooperation in this sector (being surprisingly stable with imports of
nuclear fuel from Rus sia at a level of $1 billion annually in the last five years [Figure 512 and 513])
is under constant po liti cal and lobbying pressure and has been a source of several po liti cal scan-
dals21 Consequently upside risks in this area of interaction are minimal and downside risks are
much higher especially when we are seeing more decommissioning of nuclear plants in the
United States than new constructions The US EIArsquos 2017 Annual Energy Outlook assumes
that about 25 percent of the nuclear capacity now operating will be removed from ser vice
by 205022
WHY IS THE GRASS GREENER ON THE OTHER SIDE
The United States continues to significantly reduce imports of chemical fertilizers as domestic pro-
duction increases In 2016 the United States imported 13 percent less ammonia and 11 percent
less urea and UAN which is a liquid urea and ammonium nitrate fertilizer Rus sia accounts for
around 40 percent of UAN imported by the United States The United States canceled antidumping
duties on imports of ammonium nitrate and urea from Rus sia in 2016 but it did not prevent import
19 US EIA ldquoThe US Relies on Foreign Uranium Enrichment Ser vices to Fuel Its Nuclear Power Plantsrdquo Today in
Energy August 28 2013 https wwweia gov todayinenergy detail php idshy=shy1273
20 Colin Chilcoat ldquoDoes Rus sia Really Own 20 Percent of the USrsquo Uranium Reservesrdquo OilPricecom May 6 2015
http oilpricecom Alternative - Energy Nuclear - Power Does - Russia - Really - Own - 20 - Of - The - US - Uranium - Reserves
html
21 Michelle Ye Hee Lee ldquoThe Facts behind Trumprsquos Repeated Claim about Hillary Clintonrsquos Role in the Rus sian Ura-
nium Dealrdquo Washington Post October 26 2016
22 US EIA ldquoAnnual Energy Outlook 2017 with Projections to 2050rdquo 81ndash82
594-71613_ch01_4Pindd 35 102017 404 PM
Figure 512 US Imports from Rus sia Share of Oil Metals and Nuclear Fuel Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
87
86
90
90
90
91
88
86
7882
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals and Nuclear Fuel
Figure 513 US Imports from Rus sia Nuclear Fuel Materials US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$-
$200000000
$400000000
$600000000
$800000000
$1200000000
$1000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 36 102017 404 PM
Vadim Grishin 37
drops twice last year (Figures 514 and 515) According to forecasts UAN imports are expected to
decline further to 15 million tons this year down over 46 percent from 28 million tons imported
last year23 The downside trend in imports of fertilizers will likely continue because of oversupply
BIG FISH
US imports of fish and shellfish from Rus sia are best understood in comparison with US fish
exports to the Rus sian market which slipped to zero in August 2014 after Rus sia issued an order
banning certain agricultural imports from the United States (Figure 516) While the volume of US
supply was not very large it was impor tant because it broke up the monopolistic dominance of a
few vertically integrated Rus sian companies that have kept prices high by restricting the entry of
new producers Seeking to implement import substitution policies Rus sia has tried to reduce
exports as well as imports of fish and seafood products in the last couple of years This symmetri-
cal approach was intended to ldquocompensaterdquo for a decrease of fish products in the domestic
23 Deepika Thapliyal ldquoPotashCorp Forecasts Sharp Drop in US Nitrogen Imports in 2017rdquo ICIS News February 7
2017 https wwwicis com resources news 2017 02 07 10076734 potashcorp - forecasts - sharp - drop - in - us - nitrogen
- imports - in - 2017
Figure 514 US Imports from Rus sia Share of Oil Metals Nuclear Fuel and Fertilizers Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
90
93
92
93
94
95
92
91
85
86
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals Nuclear Fuel and Fertilizers
594-71613_ch01_4Pindd 37 102017 404 PM
Figure 515 US Imports from Rus sia Chemical- Fertilizers US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
S-
$200000000
$400000000
$600000000
$800000000
$1000000000
$1200000000
$1400000000
$1600000000
$1800000000
$2000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Figure 516 US Exports to Rus sia Fish and Shellfish US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$10000000
$20000000
$30000000
$40000000
$50000000
$60000000
$70000000
$80000000
$90000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Fish and shellfish
594-71613_ch01_4Pindd 38 102017 404 PM
Vadim Grishin 39
consumer market caused by Rus siarsquos import ban but it has failed As result the group most af-
fected by the self- imposed counter- sanctions were Rus sian consumers
With a significant drop in fish imports a devaluation of the ruble and inflationary pressures on
seafood prices yearly consumption of fish in Rus sia has declined precipitously In 2015 alone
fish prices increased 20 percent and consumption dropped to 14 kilograms per person24 from
22 kilograms in 201425 In 2016 food rose to 355 percent of house hold expenditure as a result of
increases in food prices26 This has pushed vertically integrated fishing monopolies to sell even
more of their catch abroad rather than deliver to the Rus sian Federation (Figure 517) Thus we
cannot exclude the possibility of further growth in US fish and shellfish imports from Rus sia on a
marginal scale
24 Александр Савельев ldquoПотребление рыбы в России упало до 14 кг на человекаrdquo [Fish consumption in Rus sia fell to
14 kg per person] Экономика Интерфакс January 28 2015 http wwwinterfax ru business 492038
25 Илья Шестаков ldquoПотебление рыбы в России снизилось на 10 процентов из- за роста ценrdquo [Fish consumption in
Rus sia dropped by 10 percent due to price increases] RNS March 8 2017 https rnsonline consumer - market
Potreblenie - ribi - v - Rossii - snizilos - na - 10 - iz - za - rosta - tsen - 2017 - 03 - 08
26 Zoya Sheftalovich and Christian Oliver ldquoRus siarsquos Boom (Farming) Economyrdquo Politico November 8 2016 http
wwwpolitico eu article russias - boom - farming - economy
Figure 517 US Imports from Rus sia Fish and Shellfish US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$50000000
$100000000
$150000000
$200000000
$250000000
$300000000
$350000000
$400000000
$450000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 39 102017 404 PM
US-Russia Economic Relations40
SPACE ODYSSEY
Among high- end products beyond the top five groups of goods imported from Rus sia cheap and
efficient Rus sian engines have been used to launch US rockets into space for about 16 years
(Figure 518) There was a serious po liti cal strug gle around a 2014 ban on the purchase of Rus sian
RD-180 rocket engines revealing the conflicting business interests of power ful high- tech companies
This restrictive mea sure was temporary and was quickly lifted because of significant cost impacts
and risks of disruption to launch schedules27 For the same reason the Sanctions Act does not autho-
rize ldquothe imposition of any sanction or other condition limitation restriction or prohibition that
directly or indirectly impedes the supply by any entity of the Rus sian Federation of any product or
ser vice or the procurement of such product or ser vice by any contractor or subcontractor of the
United States or any other entity relating to or in connection with any space launch conducted for
the National Aeronautics and Space Administration or any other nonndash Department of Defense
customerrdquo28
Nevertheless many experts believe that US domestic alternatives to replace Rus sian engines will
be viable in five to eight years
27 Ken Dilanian ldquoWhy Does the US Use Rus sian Rockets to Launch Its Satellitesrdquo NBC News updated November 15
2016 http wwwnbcnews com why - does - u - s - use - russian - rockets - launch - its - satellites - n588526
28 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364
Figure 518 Spacecraft Excluding Military US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 40 102017 404 PM
41
Diversity and technological complexity are the most vis i ble advantages supporting US exports to
Rus sia Three major groups of export goods include civilian aircraft engines and parts (Figure 61)
drilling and oil field equipment (Figure 62) and industrial machines and engines (Figure 63)
Despite sanctions against the transfer of advanced oil producing and pro cessing technologies the
realization of US drilling and oil field equipment in Rus sia is sustainable although some bilateral
proj ects have been frozen
Another category of goods that has demonstrated resilience is the phar ma ceu ti cal industry (Fig-
ure 64) because most drugs in Rus sia are imported (about 70 percent of the Rus sian phar ma ceu-
ti cal market in value) Import substitution policies have had only modest results in this industry
As confirmed by American Chamber of Commerce surveys US exports to Rus sia are closely
connected to US FDI 30 percent of total imports of US companies working in the Rus sian
market come from the United States (more than $2 billion in 2016) In other words about
40 percent of all US exports to Rus sia are related to a US corporate- sector business pro cess in
the country The major sectors of activity of these companies are energy and natu ral resources
(52 percent) manufacturing (17 percent) information and communications technology or ICT
(13 percent) retail (7 percent) automotive industry (6 percent) phar ma ceu ti cal production
(1 percent) professional ser vices (05 percent) and other (2 percent)1
Some obvious constraints on US exports to Rus sia have resulted from a reduction in demand A
deterioration of bilateral relations and implementation of sanctions and counter- sanctions have
directly or indirectly afected all businesses Figures 65 and 66 provide data regarding a dramatic
drop in the sale of US agricultural production in Rus sia with all other categories of exports in
goods showing big cuts as well (see Figures 67ndash69)
Exports of civilian aircraft engines and parts put the state of Washington in first place among
other states as a leading exporter to the Rus sian market (Figure 610)
1 American Chamber of Commerce in Rus sia ldquoInvestment and Import to Rus sia 2nd Surveyrdquo 13
Diversity and Constraints
06
594-71613_ch01_4Pindd 41 102017 404 PM
Figure 61 US Exports of Civilian Aircraft Engines Equipment and Parts to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
$2500000000
$2000000000
$1500000000
$1000000000
$500000000
$-
Figure 62 US Exports of Drilling and Oil Field Equipment US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
$40000000
$45000000
$50000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 42 102017 404 PM
Figure 63 US Exports of Industrial Engines to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Figure 64 US Exports of Phar ma ceu ti cal Preparations to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 43 102017 404 PM
Figure 65 US Exports of Meat and Poultry to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Meat poultry etc
$1000000000
$800000000
$600000000
$400000000
$200000000
$-
$1200000000
$1400000000
$1600000000
Figure 66 US Exports of Soybeans to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
$200000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 44 102017 404 PM
Figure 67 US Exports of Vehicles Engines and Parts to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Other parts and accessories of vehicles
Automotive tires and tubes
Bodies and chassis for passenger cars
Engines and engine parts (carburetors pistonsrings and valves)
Trucks buses and special purpose vehicles
Passenger cars new and used
$2500000000
$2000000000
$1500000000
$500000000
$-
$1000000000
Figure 68 US Exports of Medicinal Equipment to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 45 102017 404 PM
Figure 610 US Exports to Rus sia by States (2016 US$ Value) Million US$ 2013ndash2016
Source US Census Bureau ldquoState and Metropolitan Area Trade Datardquo
Iowa Kentucky
North Dakota
Oklahoma
South Carolina
Washington
0
$500
$1000
$1500
$2000
2013 2014 2015 2016
District of Columbia
Iowa
Kentucky
North Dakota
Oklahoma
South Carolina
Washington
Figure 69 US Exports of Excavating Machinery to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
$40000000
$45000000
$50000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 46 102017 404 PM
47
Upon reviewing the current trend in US- Russia economic relations we must acknowledge that
the existing trade model is obsolete and exhausted Imports are resource- oriented and reflect
constraints of the Rus sian economic structure while five groups of goodsmdash oil metals nuclear
fuels fertilizers and fishmdash make up more than 90 percent of total imports from Rus sia (Figure 71)
Each of these industries has a limited capacity for growth in the foreseeable future
Rus siarsquos core export to the United Statesmdash oilmdash will inevitably decrease in the mid- term under any
scenario The value and volume of Rus sian exports to the United States are open to global market
volatility and po liti cal pressures with limited hedging mechanisms
Overall US exports to Rus sia are unsustainable due to bilateral po liti cal tensions the whims of
commodity markets and changing domestic policies Sanctions and counter- sanctions have
created additional barriers particularly in finance banking high- tech energy and agro- business
According to the American Chamber of Commerce 69 percent of US companies working in the
country consider the impact of US sanctions against Rus sia on their business as negative At the
same time 60 percent of companies do not expect big changes in business relations between
Rus sia and the United States under Trump1 as the new law codifies existing sanctions fortifies
them and extends them to new sectors
Current US investments are low due to the weak rule of law in Rus sia a lack of property right
protections and proper contract enforcement high levels of statization and monopolization in the
economy a poor business climate outdated capital stock dependence on natural- resource
sectors and of course sanction and counter- sanction mea sures Bloated administrative compo-
nents created as risk mitigation instruments have also served as impediments The countryrsquos
institutional weakness low level of productivity bud get constraints and a declining inflexible
workforce will restrain future economic growth even if commodity prices recover Rus sian eco-
nomic policy will likely continue to be statist and protectionist relying mostly on import
substitutions
1 Ibid 11
Existing Trends and Future Scenarios
07
594-71613_ch01_4Pindd 47 102017 404 PM
US-Russia Economic Relations48
What scenarios can be expected in such a challenging environment
One probability (no peace no war) is based on the assumption that matters will not deteriorate
further and implementation of the Sanctions Act will be cursory This will cause relatively slow
degradation in the economic field with occasional flashes of activity in selected areas (eg closer
cooperation against Islamist terrorist groups in Syria)
A second worse case or critical scenario is the intensive and full- scale execution of current sanc-
tion legislation and even the imposition of new economic punitive and restrictive mea sures which
could incite asymmetric retaliatory actions and lead to the introduction of additional protectionist
policies This in turn could trigger a further escalation of mutual confrontation and could eventu-
ally destroy the fundamentals of the current bilateral trade system Rus sian leadership has charac-
terized the Sanctions Act as a declaration of a trade war that ends all hope for improving bilateral
relations2
2 Дмитрий Медведев ldquoПодписание президентом США нового санкционного закона против России создает несколько
последствийrdquo [The US Presidentrsquos signing of the package of new sanctions against Rus sia will have a few conse-
quences] Facebook August 2 2017 https wwwfacebook com Dmitry Medvedev posts 10154587161801851
Figure 71 US Imports from Rus sia Share of Oil Metals Nuclear Fuel Fertilizers and Fish Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
93
94
93
94
95
96
93
92
87
89
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals Nuclear FuelFertilizers and Fish
594-71613_ch01_4Pindd 48 102017 404 PM
Vadim Grishin 49
The best case and most favorable scenario looks less probable now It assumes the realization of
structural reforms in Rus sia in such a way that would adapt Rus siarsquos foreign policy to national
economic needs reduce confrontations with the West and make a concerted efort to integrate
Rus sian businesses into global supply and value chains A revitalization of the structural reform
agendamdash including eforts to diversify economic activities through de- monopolization and support
for SMEs a restructuring of the banking sector the creation of a vibrant business climate to foster
entrepreneurships and innovation the implementation of administrative and judicial reforms to
tackle red tape and endemic corruption and the reduction of state control over key sectors of the
economy via wide- spread privatization could kick- start the development of a nonoil economy and
improve long- term growth prospects Despite ongoing discussion of reform strategies deep
economic and po liti cal changes are extremely complicated over the next po liti calelectoral cycle
(2018ndash2024) particularly because of re sis tance of vested interests and growing commodity prices
The urgency to tackle structural shortcomings in natu ral resource- dependent economies usually
correlates with the price of those resources and the degree to which resource rents drive eco-
nomic activity However there may be marginal improvements in the efficiency of the current
economic system
Future US- Russia relations can be thought of through three pillars one pillar focuses on areas
where both countries maintain a competitive rivalry another looks at potential areas of interaction
under pres ent conditions a third pillar and one that has evaporated from the current bilateral
agenda concentrates on future cooperation Stronger economic ties could not only be a kind of
po liti cal shock absorber but contribute to the building of this future (particularly business contacts
aim to support future structural reforms) although po liti cal factors are depressing the prospects
for cooperation To escape deadlock it will be impor tant to establish the right balance between
politics and economics and create a model of collaboration within the framework of contention
594-71613_ch01_4Pindd 49 102017 404 PM
About the Author
Vadim Grishin PhD MBA has been involved in the reform pro cess in Rus sia as adviser to the
deputy prime minister of Rus sia in 1992ndash1993 and 2006ndash2010 He has extensive experience
working with the Bretton Woods Institutions He was the board member of the World Bank Group
and served as se nior adviser at the International Monetary Fund Currently he is a con sul tant to the
chief economistrsquos office of the International Finance Corporation and teaches the economics of
transition at Georgetown University in Washington DC
50
594-71613_ch99_4Pindd 50 102017 403 PM
Blank
COVER PHOTO ADOBE STOCK
1616 Rhode Island Avenue NW
Washington DC 20036
202 887 0200 | wwwcsisorg
v++ISBN 978-1-4422-8035-9
Lanham bull Boulder bull New York bull London
4501 Forbes Boulevard
Lanham MD 20706
301 459 3366 | wwwrowmancom
A U T H O R
Vadim Grishin
Myths and Realities
A Report of the
CSIS RUSSIA AND EURASIA PROGRAM
US-RussiaEconomicRelations
O C T O B E R 2 0 1 7
Euml|xHSLEOCy280359z
The Man Pupu Nyor Rock Formations at the Northern Urals also known as Seven
Strong Man or Little Mountain of the God in the local tribe (Mansi) language
US-Russia Economic Relations10
Officially the country does not invest in the US stock exchange although some Rus sian oligarchs
have bought US corporate bonds and equities in large amounts The new sanctions law requires
the secretary of trea sury in consultation with the director of national intelligence and the secretary
of state to issue reports on Rus sian se nior po liti cal figures and oligarchs based on their closeness
to the Rus sian regime and their net worth as well as the exposure of key economic sectors of the
United States to Rus sian po liti cally exposed persons and parastatal entities including at a mini-
mum the banking securities insurance and real estate sectors14
Only three Rus sian companies are listed in the US exchanges
Overall the scale and scope of US- Russia economic interaction and business activity is much greater
than officially appreciated but not significant enough to be taken into consideration by policymakers
14 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364
594-71613_ch01_4Pindd 10 102017 404 PM
11
03
Politics in the Driverrsquos Seat
Bilateral economic relations depend to a great extent on global and national economic cycles
After the recent global financial crisis the US economy has shown surprisingly sustainable GDP
growth while the Rus sian economy was the most afected among BRICS countries by the turbu-
lence of a worldwide economic downturn in 2008ndash2009 and after a short- term rebound slipped
into stagnation (2012ndash2013) and then into full- scale recession (2014ndash2016) The countryrsquos eco-
nomic cycle however appears to be changing once again with the economy returning to a
pattern of growth albeit uneven and gradual (Figures 31 and 32) Even with sanctions still in place
conditions have improved as a result of the stabilization of Urals oil to an average annual price of
$419 per barrel in 2016 The gains were sparked in part by major crude producers agreeing to cut
production after hefty price drops in 2014 and 2015 Supported by easier financial conditions
higher oil prices and growing macro- stability Rus sia is heading toward a moderate growth rate
that is expected to reach 14 percent this year according to forecasts of the World Bank Group
(WBG) and the IMF1
Because of the significant role that politics plays in any bilateral interaction it is impor tant to
combine economic and po liti cal cycles applying a ldquoresetrdquo to bilateral economic cooperation in
addition to the po liti cal relationship I have compared po liti cal cycles and trade dynamics using the
following graphs ( Table 31 and Figure 33) These charts do not pretend to reflect with mathemati-
cal precision all shifts in the bilateral po liti cal relationship but rather attempt to visually align
impor tant economic and po liti cal moments to detect the efects of po liti cal events on the size of
bilateral trade
Figure 33 shows all pos si ble combinations economic trends at the intersection of po liti cal devel-
opments oppose or support each other in synchronization It is evident that po liti cal interference
1 International Monetary Fund Rus sian Federation Staff Concluding Statement of the 2017 Article IV Mission (Wash-
ington DC IMF 2017) World Bank Group From Recession to Recovery Rus sia Economic Report no 37 (Washington
DC World Bank 2017) http pubdocsworldbank org en 383241495487103815 RER - 37 - May26 - FINAL - with - summary
594-71613_ch01_4Pindd 11 102017 404 PM
US-Russia Economic Relations12
in bilateral business afairs in the early 2000s was less significant than in later years As result
growing po liti cal tensions from 2003 to 2008 did not dramatically afect bilateral economic inter-
action It is also easier to explain why 2011ndash2012 resulted in rec ord trade and investmentmdash a con-
sequence of very high oil prices GDP growth in both countries improved legislation after Rus siarsquos
accession to the WTO and the Obamandash Medvedev po liti cal reset From 2014 to 2016 a perfect
storm of developments added efficiency to Western sanctions and augmented the damaging
consequences of counter- sanction mea sures
Figure 33 also confirms that in times of reduced economic cooperation po liti cal pressures can
easily change bilateral economic trends Moreover business interests along with economic inter-
actions have a limited capacity to reverse the po liti cal mainstream
Figure 31 Economic Cycle 2014ndash2016
Source Authorrsquos evaluation of international financial institutions (IFI) data and sources from respective
countries
Sustainable Growth
Brazil
Negative Growth
Unstable Growth
Mexico
Descending Growth
Argentina
EU
US
Russia
Vietnam
China
594-71613_ch01_4Pindd 12 102017 404 PM
Vadim Grishin 13
Table 31 Po liti cal Cycles in Bilateral US- Russia Relations 1999ndash2016
2001ndash2002 The George W Bushndash Vladimir Putin Reset Rus sia supported ldquoglobal war on terrorismrdquo launched by the United States after 911 the SORT nuclear arms reduction treaty was signed by the United States and Rus sia and a successful business dialogue was developed that created the current structure of economic relations
2003ndash2008 Deterioration in bilateral relations brought on by the Iraq War Georgiarsquos ldquoRose Revolutionrdquo Mikhail Khodorkovskyrsquos arrest Ukrainersquos ldquoOrange Revolutionrdquo Kosovorsquos in de pen dence and the Georgian War
2009ndash2010 The Barack Obamandash Dmitry Medvedev Reset Rus sia served as a logistical hub for transportation and supply of US forces in Af ghan i stan United States and Rus sia signed the new START nuclear arms reduction treaty Rus sia backed tighter economic sanctions on Iran Rus sia gained access to the WTO after 18 years of negotiations
2011ndash2016 Deterioration in bilateral relations caused by the Ukrainian crisis which were followed by sanctions and counter- sanctions along with the Syrian crises and cyber- enabled activities
Source Authorrsquos evaluation of po liti cal and economic data
Note SORTthinsp=thinspStrategic Ofensive Reductions Treaty STARTthinsp=thinspStrategic Arms Reduction Treaty
Figure 32 Economic Cycle 2017ndash2019
Source Authorrsquos evaluation of IFI data and sources from respective countries
Egypt
VenezuelaEU
South Africa
Brazil
Russia
India
US
Descending Growth
Korea
China
Negative Growth
Unstable Growth
Sustainable Growth
594-71613_ch01_4Pindd 13 102017 404 PM
US-Russia Economic Relations14
Figure 33 US- Russia Trade Million US$ vs Po liti cal Cycle 2000ndash2016
Sources US Census Bureau ldquoTrade in Goods with Rus siardquo Foreign Trade last modified June 29 2017
https wwwcensus gov foreign - trade balance c4621 html (see data for 2000ndash2016) authorrsquos evaluation
of po liti cal and economic data
Orange Revolution
Khodorkovskys arrest
GeorgianWar
Bush- Putin Reset
Iraq War Global Financial Crisis
Obama-Medvedev Reset
Russias WTO accession
New START Treaty
A Pefect Storm the Ukranian Crisis Oil Prices Crashing
Sanctions and Counter-Sanctions
$3000
$8000
$13000
$18000
$23000
$28000
$33000
$38000
$43000
2000 2002 2004 2006 2008 2010 2012 2014 2016
594-71613_ch01_4Pindd 14 102017 404 PM
15
The current structure of US- Russia economic relations emerged in the early 2000s when the
model of trade and investment interaction took on a character similar to that which existed be-
tween the United States and developing economies US imports from Rus sia centered on com-
modities while technology along with food products lead American exports The primary
exception was that Rus sia supplied nuclear fuel including highly enriched uranium extracted from
nuclear weapons for US power plants and provided ser vices to the aerospace industry primarily
in satellite launches However both these exceptions can be explained as a legacy of the Soviet
past and not a harbinger of the future economic relationship (Figure 41)
In the last 15 years this trade structure has not changed significantly The only noticeable shift in
trade was a dramatic drop (to practically nothing) in exports of US agricultural products a result
of Rus siarsquos policy of import substitution and so- called counter- sanction mea sures it took in re-
sponse to US sanctions over the Ukraine crisis (Figure 42)
Promising new directions of cooperation in the IT sector and in engineering ser vices for the
aerospace industry appeared in the early 2000s1 but did not spill into other sectors and conse-
quently did little to renew economic cooperation on the whole The integration of Rus sian high-
tech ser vices into large- scale global production and value chains was constrained by the usual
culprits a lack of financial resources managerial experience skilled labor modern infrastructure
RampD investments and an adequate business environment High commodity prices incentivized the
restoration of an economic system centered on resource rents The leading role of oil and gas
extraction and transportation discouraged the development of a nonenergy sector that might
have created advanced and complex production and ser vices An import substitution policy could
not work efficiently in an economic environment plagued by the Dutch disease where currency
1 The Boeing Design Center was created in Moscow It consists of nearly 250 Boeing employees managing
a team of 1200 contract engineers from Rus sian and Ukrainian aerospace companies ldquoBackgrounder Boeing in
Rus siardquo Boeing last modified January 2017 http wwwboeing com resources boeingdotcom company key _ orgs
boeing - international pdf russia - cisbackgrounder pdf
Are the United States and Rus sia ldquoNatu ralrdquo Trading Partners A Little Bit of History
04
594-71613_ch01_4Pindd 15 102017 404 PM
US-Russia Economic Relations16
inflows (oil money) lead to ruble appreciation and render a countryrsquos production less competitive
During that time Rus siarsquos industry did not receive preferential access to larger markets and could
not expand its share in the global economy particularly because of its self- isolation from the
regional trade agreements (except for its participation in the Eurasian Economic Union with some
neighboring countries of the former Soviet Union) As a result neither import substitution nor
export- led strategy promoted growth and specialization in nonoil production A long- awaited
modernization and reallocation of resources from an inefficient nontrade sector to a trade sector
did not materialize
These limits were later augmented with sanctions and an extension of domestic restrictions on
cooperation with Western partners Importantly the rapid growth of state- monopoly structures in
the Rus sian economy over the past 15 years has created additional obstacles to the development
and diversification of US- Russia economic ties
Figure 41 US Imports from Rus sia US$ 2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2016)
Fish and shellfish 3
Crude oil 5
Fuel oil 37
Petroleum products other
8
Nuclear fuel materials
7
Chemicals-fertilizers 4
Steelmaking materials 5
Iron and steel mill products 4
Bauxite and aluminum 9
Other precious metals 4
Nonferrous metals other 1
Finished metal shapes 1
Synthetic rubber--primary
1
Spacecraftexcluding military
594-71613_ch01_4Pindd 16 102017 404 PM
Fig
ure
42
U
S E
xpo
rts
to R
us s
ia U
S$ 2
016
Sou
rce
US
Ce
nsu
s B
ure
au ldquo
Trad
e in
Go
od
s w
ith
Ru
s sia
rdquo (s
ee
dat
a fo
r 2
016
)
Bak
ery
pro
du
cts
Win
e b
eer
an
d r
elat
ed
pro
du
cts
New
spri
nt
Pla
stic
mat
eria
ls
Ch
emic
als-
fert
ilize
rs
Ch
emic
als-
ino
rgan
icC
hem
ical
s-o
rgan
ic
Ch
emic
als-
oth
erC
ott
on
fib
er c
loth
In
du
stri
al r
ub
ber
pro
du
cts
Min
eral
su
pp
lies-
man
ufa
ctu
red
Gen
erat
ors
acc
esso
ries
Ele
ctri
c ap
par
atu
s
Dri
llin
g amp
oilfi
eld
eq
uip
men
t Sp
ecia
lized
min
ing
Exc
avat
ing
mac
hin
ery
No
nfa
rm t
ract
ors
an
d p
arts
In
du
stri
al e
ng
ines
Fo
od
to
bac
co m
ach
iner
y M
etal
wo
rkin
g m
ach
ine
too
ls
Tex
tile
sew
ing
m
ach
ines
W
oo
d g
lass
p
last
ic
Pu
lp a
nd
pap
er
mac
hin
ery
Mea
suri
ng
tes
tin
g
con
tro
l in
stru
men
ts
Mat
eria
ls h
and
ling
equ
ipm
ent
Ind
ust
rial
mac
hin
es
oth
er
Ph
oto
ser
vice
ind
ust
ry m
ach
iner
y A
gri
cult
ura
l mac
hin
ery
eq
uip
men
t C
om
pu
ters
Co
mp
ute
r ac
cess
ori
es
Sem
ico
nd
uct
ors
Tel
eco
mm
un
icat
ion
seq
uip
men
t
Bu
sin
ess
mac
hin
es a
nd
eq
uip
men
t
Lab
ora
tory
tes
tin
g in
stru
men
ts
Med
icin
al e
qu
ipm
ent
Civ
ilian
air
craf
t e
ng
ines
eq
uip
men
t a
nd
par
ts
Rai
lway
tra
nsp
ort
atio
n
equ
ipm
ent
Ves
sels
exc
lud
ing
scr
ap
Co
mm
erci
al v
esse
ls o
ther
M
arin
e en
gin
es p
arts
Spac
ecra
ft e
xclu
din
g
mili
tary
Pas
sen
ger
car
s
new
an
d u
sed
Tru
cks
bu
ses
and
sp
ecia
l p
urp
ose
ve
hic
les
En
gin
es a
nd
en
gin
e p
arts
(c
arb
ure
tors
pis
ton
s r
ing
s
and
val
ves)
B
od
ies
and
ch
assi
s fo
r p
asse
ng
er c
ars
Au
tom
oti
ve t
ires
an
d t
ub
es
Oth
er p
arts
an
d a
cces
sori
es o
f ve
hic
les
Ap
par
el h
ou
seh
old
go
od
s -
text
ile
Ph
arm
aceu
tica
lp
rep
arat
ion
s
Furn
itu
re h
ou
seh
old
go
od
s
etc
R
ug
s
Cel
l ph
on
es a
nd
oth
er
ho
use
ho
ld g
oo
ds
ne
c
594-71613_ch01_4Pindd 17 102017 404 PM
US-Russia Economic Relations18
Figure 43 US Trade in Goods with Rus sia Million US$ 1992ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
Russian Financial Crisis
Oil price Increased from$2446 USD per barrel (2001)
to $9694 USD per barrel(2008)
Global Financial Crisis
Oil price high record in2011-2012
(more that $111 USD perbarrel)
Oil price crashed
$-
$5000
$10000
$15000
$20000
$25000
$30000
$35000
$40000
$45000
$50000
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia US Exports to Russia US-Russia Trade in Goods
No doubt po liti cal ups and downs add volatility to US- Russia trade Nevertheless Rus siarsquos eco-
nomic structure exhausted itself before the Ukrainian crisis and the recent Rus sian recession Its
limitations are not only due to some mistakes in policy or negative coincidences of circumstances
but rather to deeply rooted properties in the current bilateral trade model related to structural
issues in the Rus sian economy Structural constraints such as the weak enforcement of property
rights poor business regulation and nondiversified exports weighed on Rus sian trade with the
United States From this perspective the term ldquonaturalunnatural trading partnersrdquo does not ad-
dress the unused capacity of bilateral interaction or the real challenges that kind of interaction
faces It just adds metaphysical flavor to the very specific economic and po liti cal factors that
determine the US- Russia trajectory
Overall the outlines of bilateral trade (Figure 43) resemble the famous ldquoRus sian Mountainsrdquo that
were a pre de ces sor of the modern roller coaster icy hills supported by wooden constructionsmdash a
rigid and immobile structure that sooner or later would melt This unfortunately is what is hap-
pening to US- Russia trade cooperation now
594-71613_ch01_4Pindd 18 102017 404 PM
19
ARE LITTLE FISH REALLY SWEET
Low US- Russia economic interaction has at least two consequences First it limits the capacity of
policymakers to exploit trade as an instrument for geopo liti cal combat Even the question of a US
trade deficit which used to be a headache for many US trading partners has become so insig-
nificant in absolute terms (about $87 billion in 2016) that it seems hardly worth caring about
When the volume of trade between two countries becomes very small in absolute terms whether
a country is running a surplus or deficit is no longer relevant But it also renders another type of
confrontations (sometimes more dangerous) more likely since the two traders have little to lose
Second in an environment marked by low levels of bilateral trade both sides could incentivize (if
and when a desire for po liti cal rapprochement exists) the signing of new trade deals which are
elevated symbolically as a turning point in bilateral po liti cal relations (ie the sale of Boeings to
Rus sia or the delivery via tankers of Rus sian oil to US refineries) Sometimes markets themselves
pres ent ldquogiftsrdquo that can be capitalized on po liti cally US- USSR grain trade in the 1970s was one
such ldquogiftrdquo large sales of American grain to the Soviet Union helped US policymakers win favor
with the po liti cally impor tant American farming sector and permitted Soviet leaders to maintain
access to a dietary staple for the Soviet population
The strong 32 percent growth in value of US imports from Rus sia from January to May 2017
versus January to May 2016 ( Table 51) is an example of a development that has tempted officials
to pres ent it as a sign of positive change due to ldquogrowing business activitiesrdquo (this kind of statement
was heard before the bilateral summit in Germany in July 2017) although the reason for that leap
was evidently an increase in commodity prices (mainly of oilmdash see Table 52) and not a rise in
entrepreneurial interactions The primary beneficiaries of that upside rally have been two other
petro- economies Saudi Arabia and Venezuela ( Tables 53 and 54)
Sector Analyses
05
594-71613_ch01_4Pindd 19 102017 404 PM
US-Russia Economic Relations20
Table 51 US Imports from Rus sia Million US$ Januaryndash May 2016 vs Januaryndash May 2017
Year January February March April May Total
2016 9603 6871 11097 12257 10977 50805
2017 12215 10220 16979 13471 14147 67032
Change 271 487 530 99 289 319
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
Table 52 Change in Urals Crude Oil Prices US$ per Barrel Januaryndash May 2016 vs Januaryndash May 2017
Januaryndash May 2016 Januaryndash May 2017 Change ($) Change ()
3601 5129 1528 424
Source Ministry of Finance of the Rus sian Federation https wwwminfin ru ru ixzz4mMIZ7XtC
Table 53 US Imports from Saudi Arabia Million US$ Januaryndash May 2016 vs Januaryndash May 2017
Year January February March April May Total
2016 15114 9036 13555 10844 14679 63228
2017 19802 20298 21650 16211 19542 97503
Change 3101 12463 5972 495 331 542
Source US Census Bureau ldquoTrade in Goods with Saudi Arabiardquo Foreign Trade last modified June 29 2017
https wwwcensus gov foreign - trade balance c5170 html (see data for 2016ndash2017)
594-71613_ch01_4Pindd 20 102017 404 PM
Vadim Grishin 21
Table 54 US Imports from Venezuela Million US$ Januaryndash May 2016 vs Januaryndash May 2017
Year January February March April May Total
2016 6657 5560 7140 8007 7922 35286
2017 13041 10864 123500 11148 12243 59646
Change 9590 9540 7297 3923 5454 6903
Source US Census Bureau ldquoTrade in Goods with Venezuelardquo Foreign Trade last modified June 29 2017
https wwwcensus gov foreign - trade balance c3070 html (see data for 2016ndash2017)
Table 55 US Exports to Rus sia Million US$ Januaryndash May 2016 vs Januaryndash May 2017
Year January February March April May Total
2016 3628 3577 7298 4657 4947 24107
2017 3144 4277 5386 6670 4806 24283
Change minus133 196 minus262 432 minus29 minus07
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2016ndash2017)
At the same time US exports to Rus sia continue to stagnate ( Table 55) due to low levels of
consumption during a two-and- a- half-year economic crisis a deep ruble devaluation sanctions
and counter- sanctions
Given the very dif er ent economic structures and resource endowments of Rus sia and the United
States it is not surprising that US- Russia trade is asymmetric and oil driven (Figure 51) A
3 percent increase in Urals oil prices translates into a one percent increase in US import growth
from Rus sia Thus in 2016 every $10 increase in Urals crude oil added $15 billion to the value of
US imports or 11 percent to the total value of imports from Rus sia
OIL ADDICTION
Oil is a core pillar of US- Russia bilateral trade A bumpy ride in oil markets afects commerce
Nevertheless Rus sian oil exports to the United States in physical terms have been rather
594-71613_ch01_4Pindd 21 102017 404 PM
US-Russia Economic Relations22
sustainable Starting from 2005 average annual deliveries have been above 150 million barrels
(Figure 52) Crude and heating oil have dominated while petroleum products and liquefied petro-
leum gases have not (Figure 53) In 2011 oil exports peaked at 228 million barrels but declined to
159 million barrels in 2016mdash a drop of 30 percent Rec ord high shipments of Rus sian oil to the United
States coincided with an elevation in oil prices which made the subsequent decline in oil shipment
value between 2011 and 2016 (by about 72 percent as shown in Figure 54) seem more stark The
increase in price also raised the share of oil in Rus sian exports by 74 percent in 2011 (Figure 55)
The Rus sian share in total US oil imports was around 55 percent in 2011 and 43 percent in 2016
( Table 56) In the last five years the United States has relied exclusively on consumption of Rus sian
oil for the rough equivalent of one week out of the year (Figure 56)
It is unlikely that Rus sia can significantly increase its share of the US oil market and there is a real
possibility for a downward trend There are several reasons the historically high Rus sian hydrocar-
bon export threshold of 2011 will not soon if ever be surpassed
First US energy consumption will likely be flat According to the US Energy Information Adminis-
tration (EIA) demand for petroleum and other liquids in the United States will be about 35ndash36
quadrillion British thermal units (BTUs) with minimal variation over the next 25 years1
1 US EIA ldquoAnnual Energy Outlook 2017 with Projections to 2050rdquo January 5 2017 7ndash8
Figure 51 US- Russia Trade Growth () vs US and Rus sia Real GDP Growth () 1993ndash2016
Source IMF ldquoIMF Datardquo accessed September 27 2017 http wwwimf org en Data US Census Bureau
ldquoTrade in Goods with Rus siardquo
Note rGDPthinsp=thinspreal gross domestic product
Trade
USA rGDP growth
Russia rGDP growth
-60
-40
-20
0
20
40
60
80
100
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Gro
wth
All spikes in US-Russia trade have been connected with two main
variables volume and price of crude oil
594-71613_ch01_4Pindd 22 102017 404 PM
Vadim Grishin 23
Second the United States will become a net energy exporter between 2020 and 2030 in most
cases under dif er ent combinations of oil and natu ral gas prices GDP growth technological
breakthroughs and the availability of energy resources The role of oil imports will dramatically
fall2
Third oil price scenarios as described by the International Energy Agency (IEA) international
financial organ izations (IFIs) and many national agencies are very cautious and assume that even
by 2035 to 2040 oil prices will not to recover to the levels of 2011ndash20123
Fourth Rus sian oil production and export growth will be modest and driven by Asian economic
expansion and will comprise a decreasing share of Western markets4 According to forecasts from
2 Ibid 15ndash18
3 Ibid table 3 ldquoEnergy Prices by Sector and Sourcesrdquo World Bank World Bank Commodity Markets Price Forecasts
(Washington DC World Bank 2017) httpswwwworldbank org en research commodity - markets Organ ization of the
Petroleum Exporting Countries (OPEC) World Oil Outlook 2016 (Vienna OPEC 2016)
4 E D Belotskaia et al Global and Rus sian Energy Outlook 2016 (Moscow Energy Research Institute of the Rus sian
Acad emy of Science Analytical Center for the Government of the Rus sian Federation 2016) http acgov ru files
publication a 12767 pdf
Figure 52 US Imports from Rus sia Crude Oil and Petroleum Products Thousands of Barrels 1995ndash2016
Source US EIA ldquoUS Imports by Country of Origin Rus siardquo Petroleum amp Other Liquids September 13
2017 http wwweia gov dnav pet PET _ MOVE _ IMPCUS _ D _ NUS _ NRS _ MBBL _ M htm
0
50000
100000
150000
200000
250000
Date 1995 1996 1997 1998 199920002001200220032004200520062007200820092010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 23 102017 404 PM
US-Russia Economic Relations24
the Organ ization of the Petroleum Exporting Countries (OPEC) crude oil exports from Rus sia and
the Caspian region to the United States will dis appear by 20255
So why does the Rus sian Urals blend continue to be attractive for oil traders and US refineries
which could pro cess greater volumes of domestically produced lighter crude There are two main
reasons One is related to the preference of US high conversion refineries (the most sophisticated
in the world) to work with heavy oil blends produced by Canada Mexico Iraq Venezuela and
Rus sia Pro cessing heavy crude now is as profitable as pro cessing lighter crude The so- called
crack spreadmdash the diference between the cost of relatively cheap heavy crude oil and the final
price of value- added consumer products (diesel gasoline jet fuel and heating oil)mdash has become
the same as the refinery margins of light sweet crude6 This has primarily afected light oil produc-
ing countries such as Angola Algeria and Nigeria
5 OPEC World Oil Outlook 2016 306ndash309
6 ldquoHow Much for That Heavy Oilrdquo Oil Sands Magazine December 26 2015 https wwwoilsandsmagazine com
news 2015 12 26 how - much - for - that - heavy - oil
Figure 53 US Imports from Rus sia Oil and Petroleum Products US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$-
$25000000000
$20000000000
$15000000000
$10000000000
$5000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Liquefied petroleum gases
Petroleum products other
Fuel oil
Crude oil
594-71613_ch01_4Pindd 24 102017 404 PM
Vadim Grishin 25
Another factor afecting purchase of Rus sian oil is a new trend among oil companies for further
consolidation of scale and for integrating operations of upstream and downstream business7
There have been several waves of separation and unification of production transportation and
pro cessing in the last 50 years The current business cycle can be seen as an adaptation to a
period of low prices and oversupply Companies that buy andor produce oil in Rus sia most likely
prefer to transport and pro cess this oil in their own modern refineries in the United States At the
same time some of the newest refinery designs specifically for pro cessing heavy oils have been
built in Asia thus extending the choices of heavy oil producing countries
We should also consider that leading US and international oil traders along with oil producing
companies working with or owning US refineries frequently buy Rus sian oil on the open market
and have long- term contracts on Rus sian crude oil delivery Many Rus sian oil companies prefer to
pay for purchases or ser vices with their future production instead of cash creating situations of
ldquostickyrdquo oil imports that are difficult to replace The best- known example is an interaction between
7 ldquoEnergy and Utilities Sectorrdquo Roundtable Financier Worldwide December 2015 https wwwfinancierworldwide
com roundtable - energy - utilities - sector - dec15
Figure 54 US Imports of Oil and Petroleum Products from Rus sia vs Oil Prices Eu rope Brent Spot Price Free on Board (FOB) 1996ndash2017
Source US EIA ldquoUS Imports by Country of Origin Rus siardquo
0
20
40
60
80
100
120
140
0
5000
10000
15000
20000
25000
30000
Jan
-19
96
Jun
-19
96
No
v-19
96
Ap
r-19
97
Sep
-19
97
Feb
-19
98
Jul-
199
8D
ec-1
99
8M
ay-1
99
9O
ct-1
99
9M
ar-2
00
0A
ug
-20
00
Jan
-20
01
Jun
-20
01
No
v-2
00
1A
pr-
20
02
Sep
-20
02
Feb
-20
03
Jul-
20
03
Dec
-20
03
May
-20
04
Oct
-20
04
Mar
-20
05
Au
g-2
00
5Ja
n-2
00
6Ju
n-2
00
6N
ov-
20
06
Ap
r-2
00
7Se
p-2
00
7Fe
b-2
00
8Ju
l-2
00
8D
ec-2
00
8M
ay-2
00
9O
ct-2
00
9M
ar-2
010
Au
g-2
010
Jan
-20
11Ju
n-2
011
No
v-2
011
Ap
r-2
012
Sep
-20
12Fe
b-2
013
Jul-
20
13D
ec-2
013
May
-20
14O
ct-2
014
Mar
-20
15A
ug
-20
15Ja
n-2
016
Jun
-20
16N
ov-
20
16
USD
per
Bar
rel
Th
ou
san
d B
arr
els
US Imports from Russia of Crude Oil and Petroleum Products (Thousand Barrels)
Europe Brent Spot Price FOB (Dollars per Barrel)
594-71613_ch01_4Pindd 25 102017 404 PM
US-Russia Economic Relations26
Table 56 US Oil Imports All Countries vs Rus sia Thousand Barrels per Day 2011ndash2016
Years 2011 2012 2013 2014 2015 2016
All Countries 11436 10598 9859 9241 9449 10058
Rus sia 624 477 460 330 371 433
Share 546 450 467 357 393 431
Sources US EIA ldquoUS Imports by Country of Origin Total Crude Oil and Productsrdquo Petroleum amp Other
Liquids September 13 2017 wwweia gov dnav pet pet_move_impcus_a2_nus_ep00_im0_mbbl_m htm
authorrsquos computation
Figure 55 US Imports from Rus sia Share of Crude Oil and Petroleum Products Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
57
64
73
72
74
73
72
59
52 50
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
$40000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil and Petroleum Products
594-71613_ch01_4Pindd 26 102017 404 PM
Vadim Grishin 27
the Rus sian state mono poly Rosneft and commodity trading and mining giant Glencore which
along with energy and commodities com pany Vitol participated in a $10 billion prepayment
deal with Rosneft for crude supplies in 2013
There have been a number of ongoing transactions between the Rus sian oil industry and interna-
tional oil companies including several that top the list of importers of Rus sian oil to the United
States ( Table 57) In December 2016 Glencore participated in a controversial privatization opera-
tion purchasing in tandem with the Qatar sovereign wealth fund a 195 percent stake in Rosneft
which was on the US and EU list of sanctioned firms8 Glencore has also taken a blocking stake in
midsize oil producer RussNeft BP owns a 1975 percent stake in Rosneft Chevron holds a
15 percent interest in the 935- mile- long CPC9 pipeline which transports an average of 959000
barrels of crude oil per day including 76000 barrels daily from Rus sia10 ExxonMobil has formed
8 E Mazneva and I Arkhipov ldquoRus sia Sells $11 Billion Stake in Rosneft to Glencore Qatarrdquo Bloomberg December 7
2016
9 CPCthinsp=thinspCaspian Pipeline Consortium
10 ldquoRus sia Highlights of Operations and Business Portfoliordquo Chevron accessed October 3 2017 https wwwchevron
com worldwide russia
Figure 56 Share of Rus sian Oil in Total US Oil Imports Thousands of Barrels per Day 1972ndash2016
Source US EIA ldquoUS Imports by Country of Origin Total Crude Oil and Productsrdquo
2000
4000
6000
8000
10000
12000
14000
16000
US Imports of Crude Oil and Petroleum Products (Thousand Barrels per Day)
US Imports from Russia of Crude Oil and Petroleum Products (Thousand Barrels per Day)19
7319
7419
7519
7619
7719
7819
7919
80
198
119
82
198
319
84
198
519
86
198
719
88
198
919
90
199
119
92
199
319
94
199
519
96
199
719
98
199
92
00
02
00
12
00
22
00
32
00
42
00
52
00
62
00
72
00
82
00
92
010
20
112
012
20
132
014
20
152
016
594-71613_ch01_4Pindd 27 102017 404 PM
Table 57 Top Importers of Rus sian Oil to the United States Thousands of Barrels 2016
VALERO MARKETING amp SUPPLY CO 54590 3616
EXXONMOBIL OIL CORP 17087 1130
CHEVRON USA INC 15217 1008
BP WEST COAST PRODUCTS LLC 10130 671
GEORGE E WARREN CORP 7272 48
PAULSBORO REFINING CO LLC 6838 453
TESORO CORP 5097 338
VITOL INC 5084 337
PHILLIPS 66 CO 4726 313
TRAFIGURA AG 4360 289
PAR HAWAII REFINING LLC 3893 258
MOTIVA ENTERPRISES LLC 3041 205
SHELL US TRADING CO 2863 19
MARATHON PETROLEUM CO LLC 2475 16
ATLANTIC TRADING amp MARKETING 2099 14
FREEPOINT COMMODITIES LLC 1439 1
GLENCORE LTD 1284 85
BEST PETROLEUM CORP 967 64
ROLYMPUS US COMMODITIES GROUP LLC 822 6
HUNT CRUDE OIL SUPPLY CO 666 4
GULF OIL LP 658 4
Source US EIA ldquoUS Imports by Country of Origin Crude Oilrdquo Petroleum amp Other Liquids September 13
2017 httpswwweiagovdnavpetpet_move_impcus_a2_nus_epc0_im0_mbblpd_ahtm authorrsquos
computation
594-71613_ch01_4Pindd 28 102017 404 PM
Vadim Grishin 29
several joint ventures with Rosneft to undertake ofshore exploration in the Black Sea and the Kara
Sea in Siberia11
According to the Sanctions Act US persons are prohibited from exporting or reexporting goods
ser vices (except financial ser vices) and technology in support of exploration or production of new
deep- water Arctic ofshore or shale oil proj ects that involve designated Rus sian entities or other
entities in which such sanctioned persons have a controlling interest or a substantial noncontrol-
ling owner ship interest defined as not less than 33 percent (previously it was 50 percent) The new
law also authorizesmdash but does not requiremdash the imposition of so- called secondary sanctions
against non- US entities that engage in activities involving the construction maintenance or
expansion of Rus sian energy export pipelines with a fair market value of $1 million or more or an
aggregate fair market value during a 12- month period of $5 million12 This provision has raised the
concerns of some Eu ro pean countries particularly Germany As result the final language of the
law included wording about coordination of this issue with allies of the United States
Shipments of Rus sian oil to the United States could be afected by activity in the US refinery
industry In early 2017 Saudi Aramco bought the United Statesrsquo largest oil refinery in Port Arthur
(Texas) and it announced plans to send more of its own crude to that refinery13 Serious concerns
exist however regarding the future of three refineries and nine pipelines owned by Citgo a US
branch of the Venezuelan state com pany PdVSA which is balancing precariously on the edge of
default Under certain conditions in the event of PdVSA bankruptcy Rosneft could claim a stake of
up to 499 percent in Citgo Such a possibility has raised concerns among politicians and US
government officials with Trea sury Secretary Steven Mnuchin calling it a ldquonational security issuerdquo14
Tables 58 59 and 510 show allocations of Rus sian oil imports to major US refineries some of
which work exclusively on Rus sian crude a total of two to three months per year In total 150940
thousand barrels of Rus sian oil were refined in 2016
Figure 57 confirms a leading position of Texas and Louisiana among the US states receiving
Rus sian crude followed by New Jersey California Mississippi Washington Hawaii and Delaware
In a paradoxical way Texas has dis appeared from the list of states as a main destination of US
imports from Rus sia (Figure 58) because Rus sian crude is mostly delivered to Louisiana ports and
registered there by US Customs as an import from Rus sia After that it transports to refineries in
Louisiana and Texas
Overall the short- term business rationale behind the sustainability of US oil imports from Rus sia
cannot overcome strong headwinds in the US energy sector facing all oil importers which will
inevitably lead to a contraction of Rus sian oil exports to the United States in the foreseeable future
11 Exxon eforts to receive a special US Trea sury waiver to drill in sanctioned Rus sia failed in 2017
12 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364
13 Sarp Ozkan ldquoSaudi Aramcorsquos Port Arthur Refinery and the US Refinery Fleetrdquo Drilling Info May 11 2017
https infodrillinginfo com saudi - aramcos - port - arthur - refinery - us - refinery - fleet
14 Graham Kates ldquoTrea sury Secretary Rus siarsquos Citgo Deal a National Security Issuerdquo CBS News May 1 2017
http wwwcbsnews com news rosneft - citgo - steven - mnuchin - national - security
594-71613_ch01_4Pindd 29 102017 404 PM
US-Russia Economic Relations30
Table 58 Valerorsquos Refineries Pro cessing Rus sian Oil Thousands of Barrels 2016
Saint Charles Louisiana 29206 535
Corpus Christi Texas 20626 378
Wilmington California 4250 78
Total USA 54590 100
Source US EIA ldquoRefinery Capacity Reportrdquo January 1 2017
table 5 wwweia gov petroleum refinerycapacity table5 pdf
authorrsquos computation
Table 59 ExxonMobil Refineries Pro cessing Rus sian Oil Thousands of Barrels 2016
Baytown Texas 15037 88
Baton Rouge Louisiana 2046 12
Total USA 17083 100
Source US EIA ldquoRefinery Capacity Reportrdquo authorrsquos computation
Table 510 Chevronrsquos Refineries Pro cessing Rus sian Oil Thousands of Barrels 2016
Pascagoula Mississippi 12767 840
El Segundo California 2372 155
Saint Rose Louisiana 78 05
Total USA 15217 100
Source US EIA ldquoRefinery Capacity Reportrdquo authorrsquos computation
594-71613_ch01_4Pindd 30 102017 404 PM
Vadim Grishin 31
HEAVY METAL
Taken together US imports of metals and US imports of oil compose about 80 percent of US
total imports from Rus sia (Figure 59) Trade of metals like other commodities is strongly afected
by market price fluctuations Nevertheless metal imports from Rus sia have been fairly resilient to
market volatility and their average annual value has hovered at about $4 billion in the last five years
(Figure 510) This market resilience was forged at the end of the 1990searly 2000s when Rus sian
metal producers gradually modernized their plants adjusting quality of production to Western
standards and enhancing integration into global value and supply chains Some of them conquered
their share of the highly competitive US market struggling with peers from Canada and certain
BRICS countries (China India and Brazil) To attract additional resources all Rus sian large metal-
producing companies became public and were listed on stock exchanges chiefly the London Stock
Exchange (Severstalrsquo PAO Evraz MMK OAO Novolipetsk Steel Norilsk Nikel and TMK PAO) one
on the New York Stock Exchange (Mechel) and one on the Hong Kong Stock Exchange (Rusal)
Business logic pushed some of them to invest in the US metal- making industry which was hit
hard by crisis Later on some of those assets were sold (eg two US steel mills acquired by
Severstal in 2004 were purchased 10 years later by Steel Dynamics Inc and AK Steel Corp)
Figure 57 Share of US States Rus sian Oil Imports 2016
Source US EIA ldquoUS Imports from Rus sia of Crude Oil and Petroleum Productsrdquo Petroleum amp Other
Liquids September 29 2017 https www eia gov dnav pet hist LeafHandler ashx nshy=shyPETampsshy=shyMTTIM _ NUS
- NRS _ 1ampfshy=shyM authorrsquos computation
0
10
20
30
40
50
60
70
80
90
100
Maine
Massachusetts
Maryland
Connecticut
Georgia
Rhode Island
Virginia
Florida
New York
Alabama
Puerto Rico
Pennsylvania
Delaware
Hawaii
Washington
Mississippi
California
New Jersey
Louisiana
Texas
594-71613_ch01_4Pindd 31 102017 404 PM
Figure 58 US Imports from Rus sia by State Million US$ 2013ndash2016
Source US Census Bureau ldquoState and Metropolitan Area Trade Datardquo Foreign Trade last modified
October 2 2017 https wwwcensus gov foreign - trade statistics state
Alaska
Connecticut
Delaware
Hawaii
Louisiana
Maryland
North Dakota 0
$1000
$2000
$3000
$4000
$5000
$6000
2013 2014 2015 2016
Alabama
Alaska
Connecticut
Delaware
Hawaii
Louisiana
Maryland
Maine
Mississippi
Montana
North Dakota
Mississippi
Figure 59 US Imports from Rus sia Share of Oil and Metals Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
83
82
85
86
87
88
85
82
7375
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
$40000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil and Metals
594-71613_ch01_4Pindd 32 102017 404 PM
Vadim Grishin 33
Obviously the market dynamic of dif er ent metals varies (eg iron steel aluminum platinum and
nickel) Caps to increase their trade and production in a ldquored oceanrdquo global environment with
anemic demand is rather limited despite Figure 510 showing a spike of iron and steel imports
from Rus sia in 2014 and aluminum in 2016 Some opportunities may exist for Russian- owned steel
plants in the United States (such as NLMK) to participate in energy proj ects resumed under Presi-
dent Trump who has required that new pipelines use only American- made steel15
Rus sia occupies a special niche in the US market for titanium products a high- end metal indus-
try Twenty years ago a long- term contract was signed between Rus sian titanium producer
VSMPO- AVISMA and Boeing The Rus sian com pany entered the selective club of Boeing suppliers
for the manufacture of components and semi- finished products Since the signing of this contract
VSMPO has delivered more than 35 percent of all titanium placed on Boeing civil aircraft16 They
are hidden in the trade data in an import category for Civilian Aircrafts and Parts (Figure 511) At
the end of 2016 Boeing announced an extension of its framework agreement with AVISMA
15 E Scheyder C Ngai and T Sylvester ldquoAmerican Steel Unlikely to Get Keystone Boost Despite Trump Orderrdquo
Reuters January 27 2017 http wwwreuters com article usa - trump - pipeline - transcanada - idUSL1N1FH1ZD
16 A Kramer ldquoTitanium Fills Vital Role for Boeing and Rus siardquo New York Times July 5 2013 http wwwnytimes com
2013 07 06 business global titanium - fills - vital - role - for - boeing - and - russia html mcubzshy=shy3
Figure 510 US Imports from Rus sia Iron Steel Bauxite Aluminum Nickel Nonferrous Metals and Other Precious Metals and Materials US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
0
$6000000000
$5000000000
$4000000000
$3000000000
$2000000000
$1000000000
2007 2008 2009 2010 2011 20122013
20142015
2016
Finished metal shapes
Iron and steel advanced
Iron and steel products nec
Nonferrous metals other
Other precious metals
Nickel
Bauxite and aluminum
Iron and steel mill products
Steelmaking materials
594-71613_ch01_4Pindd 33 102017 404 PM
US-Russia Economic Relations34
through 2022 and additional investments in the construction of a new robotic plant in Titanium
Valley a special economic zone located in the Sverdlovsk region that will open in 2018 The pro-
cessing of titanium forgings in all Boeing civil aircraft will be performed there including 787s 737
MAXs and 777Xs17 The contract extension with AVISMA may add several hundred million dollars
in value to annual US imports from Rus sia
How can such heavy reliance on imports of Rus sian titanium exist during a period of rising geopo-
liti cal tensions The answer is straightforward VSMPO- AVISMA is a highly specialized natu ral
mono poly producing 45 percent of the worldrsquos aerospace titanium Only four other countries
smelt high- grade titanium in industrial quantities the United States Germany Japan and China
Overall global production capacity is limited while demand is growing The United States cur-
rently imports around 79 percent of all the titanium it consumes each year18
17 ldquoBoeing and VSMPO Avisma to Launch Second Joint Production Siterdquo Rus sian Aviation Insider December 22 2016
http wwwrusaviainsider com boeing - and - vsmpo - avisma - to - launch - second - joint - production - site
18 Jon Ostrower and Andy Pasztor ldquoBoeing United Technologies Stockpile Titanium Partsrdquo Wall Street Journal
August 7 2014 https wwwwsj com articles boeing - united - technologies - stockpiling - titanium - parts - 1407441886
Figure 511 US Imports from Rus sia Civilian Aircrafts and Parts US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
$200000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Parts-civilian aircraft
Civilian aircraft
594-71613_ch01_4Pindd 34 102017 404 PM
Vadim Grishin 35
The Sanctions Act authorizes the secretary of the trea sury (in a nonmandatory way) to impose
restrictions (without specifying them) against Rus sian state- owned entities operating in the railway
metals and mining sectors of the Rus sian economy Despite the commanding heights of Rus siarsquos
state sector owner ship in its economy (70 percent of GDP) the metal- producing companies have
remained mostly in private hands
NUCLEAR AFFAIRS
Historically owners and operators of the 104 commercial nuclear power reactors in the United
States have purchased more than 80 percent of their uranium from foreign countries Uranium
shipping from Rus sia accounted for about 13 percent of the 58 million pounds of uranium pur-
chased overseas in 201219 At the same time the Rus sian state- owned mono poly Rosatom ac-
counts for 20 percent of Kazakhstanrsquos uranium production (which in turn comprises 11 percent of
all US uranium imports) and 20 percent of US domestic uranium production capacity (with
owner ship of exploration tracts in Wyoming)20
Nuclear fuel and nuclear power continue to be po liti cally sensitive topics both in the United
States and Rus sia Bilateral cooperation in this sector (being surprisingly stable with imports of
nuclear fuel from Rus sia at a level of $1 billion annually in the last five years [Figure 512 and 513])
is under constant po liti cal and lobbying pressure and has been a source of several po liti cal scan-
dals21 Consequently upside risks in this area of interaction are minimal and downside risks are
much higher especially when we are seeing more decommissioning of nuclear plants in the
United States than new constructions The US EIArsquos 2017 Annual Energy Outlook assumes
that about 25 percent of the nuclear capacity now operating will be removed from ser vice
by 205022
WHY IS THE GRASS GREENER ON THE OTHER SIDE
The United States continues to significantly reduce imports of chemical fertilizers as domestic pro-
duction increases In 2016 the United States imported 13 percent less ammonia and 11 percent
less urea and UAN which is a liquid urea and ammonium nitrate fertilizer Rus sia accounts for
around 40 percent of UAN imported by the United States The United States canceled antidumping
duties on imports of ammonium nitrate and urea from Rus sia in 2016 but it did not prevent import
19 US EIA ldquoThe US Relies on Foreign Uranium Enrichment Ser vices to Fuel Its Nuclear Power Plantsrdquo Today in
Energy August 28 2013 https wwweia gov todayinenergy detail php idshy=shy1273
20 Colin Chilcoat ldquoDoes Rus sia Really Own 20 Percent of the USrsquo Uranium Reservesrdquo OilPricecom May 6 2015
http oilpricecom Alternative - Energy Nuclear - Power Does - Russia - Really - Own - 20 - Of - The - US - Uranium - Reserves
html
21 Michelle Ye Hee Lee ldquoThe Facts behind Trumprsquos Repeated Claim about Hillary Clintonrsquos Role in the Rus sian Ura-
nium Dealrdquo Washington Post October 26 2016
22 US EIA ldquoAnnual Energy Outlook 2017 with Projections to 2050rdquo 81ndash82
594-71613_ch01_4Pindd 35 102017 404 PM
Figure 512 US Imports from Rus sia Share of Oil Metals and Nuclear Fuel Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
87
86
90
90
90
91
88
86
7882
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals and Nuclear Fuel
Figure 513 US Imports from Rus sia Nuclear Fuel Materials US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$-
$200000000
$400000000
$600000000
$800000000
$1200000000
$1000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 36 102017 404 PM
Vadim Grishin 37
drops twice last year (Figures 514 and 515) According to forecasts UAN imports are expected to
decline further to 15 million tons this year down over 46 percent from 28 million tons imported
last year23 The downside trend in imports of fertilizers will likely continue because of oversupply
BIG FISH
US imports of fish and shellfish from Rus sia are best understood in comparison with US fish
exports to the Rus sian market which slipped to zero in August 2014 after Rus sia issued an order
banning certain agricultural imports from the United States (Figure 516) While the volume of US
supply was not very large it was impor tant because it broke up the monopolistic dominance of a
few vertically integrated Rus sian companies that have kept prices high by restricting the entry of
new producers Seeking to implement import substitution policies Rus sia has tried to reduce
exports as well as imports of fish and seafood products in the last couple of years This symmetri-
cal approach was intended to ldquocompensaterdquo for a decrease of fish products in the domestic
23 Deepika Thapliyal ldquoPotashCorp Forecasts Sharp Drop in US Nitrogen Imports in 2017rdquo ICIS News February 7
2017 https wwwicis com resources news 2017 02 07 10076734 potashcorp - forecasts - sharp - drop - in - us - nitrogen
- imports - in - 2017
Figure 514 US Imports from Rus sia Share of Oil Metals Nuclear Fuel and Fertilizers Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
90
93
92
93
94
95
92
91
85
86
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals Nuclear Fuel and Fertilizers
594-71613_ch01_4Pindd 37 102017 404 PM
Figure 515 US Imports from Rus sia Chemical- Fertilizers US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
S-
$200000000
$400000000
$600000000
$800000000
$1000000000
$1200000000
$1400000000
$1600000000
$1800000000
$2000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Figure 516 US Exports to Rus sia Fish and Shellfish US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$10000000
$20000000
$30000000
$40000000
$50000000
$60000000
$70000000
$80000000
$90000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Fish and shellfish
594-71613_ch01_4Pindd 38 102017 404 PM
Vadim Grishin 39
consumer market caused by Rus siarsquos import ban but it has failed As result the group most af-
fected by the self- imposed counter- sanctions were Rus sian consumers
With a significant drop in fish imports a devaluation of the ruble and inflationary pressures on
seafood prices yearly consumption of fish in Rus sia has declined precipitously In 2015 alone
fish prices increased 20 percent and consumption dropped to 14 kilograms per person24 from
22 kilograms in 201425 In 2016 food rose to 355 percent of house hold expenditure as a result of
increases in food prices26 This has pushed vertically integrated fishing monopolies to sell even
more of their catch abroad rather than deliver to the Rus sian Federation (Figure 517) Thus we
cannot exclude the possibility of further growth in US fish and shellfish imports from Rus sia on a
marginal scale
24 Александр Савельев ldquoПотребление рыбы в России упало до 14 кг на человекаrdquo [Fish consumption in Rus sia fell to
14 kg per person] Экономика Интерфакс January 28 2015 http wwwinterfax ru business 492038
25 Илья Шестаков ldquoПотебление рыбы в России снизилось на 10 процентов из- за роста ценrdquo [Fish consumption in
Rus sia dropped by 10 percent due to price increases] RNS March 8 2017 https rnsonline consumer - market
Potreblenie - ribi - v - Rossii - snizilos - na - 10 - iz - za - rosta - tsen - 2017 - 03 - 08
26 Zoya Sheftalovich and Christian Oliver ldquoRus siarsquos Boom (Farming) Economyrdquo Politico November 8 2016 http
wwwpolitico eu article russias - boom - farming - economy
Figure 517 US Imports from Rus sia Fish and Shellfish US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$50000000
$100000000
$150000000
$200000000
$250000000
$300000000
$350000000
$400000000
$450000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 39 102017 404 PM
US-Russia Economic Relations40
SPACE ODYSSEY
Among high- end products beyond the top five groups of goods imported from Rus sia cheap and
efficient Rus sian engines have been used to launch US rockets into space for about 16 years
(Figure 518) There was a serious po liti cal strug gle around a 2014 ban on the purchase of Rus sian
RD-180 rocket engines revealing the conflicting business interests of power ful high- tech companies
This restrictive mea sure was temporary and was quickly lifted because of significant cost impacts
and risks of disruption to launch schedules27 For the same reason the Sanctions Act does not autho-
rize ldquothe imposition of any sanction or other condition limitation restriction or prohibition that
directly or indirectly impedes the supply by any entity of the Rus sian Federation of any product or
ser vice or the procurement of such product or ser vice by any contractor or subcontractor of the
United States or any other entity relating to or in connection with any space launch conducted for
the National Aeronautics and Space Administration or any other nonndash Department of Defense
customerrdquo28
Nevertheless many experts believe that US domestic alternatives to replace Rus sian engines will
be viable in five to eight years
27 Ken Dilanian ldquoWhy Does the US Use Rus sian Rockets to Launch Its Satellitesrdquo NBC News updated November 15
2016 http wwwnbcnews com why - does - u - s - use - russian - rockets - launch - its - satellites - n588526
28 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364
Figure 518 Spacecraft Excluding Military US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 40 102017 404 PM
41
Diversity and technological complexity are the most vis i ble advantages supporting US exports to
Rus sia Three major groups of export goods include civilian aircraft engines and parts (Figure 61)
drilling and oil field equipment (Figure 62) and industrial machines and engines (Figure 63)
Despite sanctions against the transfer of advanced oil producing and pro cessing technologies the
realization of US drilling and oil field equipment in Rus sia is sustainable although some bilateral
proj ects have been frozen
Another category of goods that has demonstrated resilience is the phar ma ceu ti cal industry (Fig-
ure 64) because most drugs in Rus sia are imported (about 70 percent of the Rus sian phar ma ceu-
ti cal market in value) Import substitution policies have had only modest results in this industry
As confirmed by American Chamber of Commerce surveys US exports to Rus sia are closely
connected to US FDI 30 percent of total imports of US companies working in the Rus sian
market come from the United States (more than $2 billion in 2016) In other words about
40 percent of all US exports to Rus sia are related to a US corporate- sector business pro cess in
the country The major sectors of activity of these companies are energy and natu ral resources
(52 percent) manufacturing (17 percent) information and communications technology or ICT
(13 percent) retail (7 percent) automotive industry (6 percent) phar ma ceu ti cal production
(1 percent) professional ser vices (05 percent) and other (2 percent)1
Some obvious constraints on US exports to Rus sia have resulted from a reduction in demand A
deterioration of bilateral relations and implementation of sanctions and counter- sanctions have
directly or indirectly afected all businesses Figures 65 and 66 provide data regarding a dramatic
drop in the sale of US agricultural production in Rus sia with all other categories of exports in
goods showing big cuts as well (see Figures 67ndash69)
Exports of civilian aircraft engines and parts put the state of Washington in first place among
other states as a leading exporter to the Rus sian market (Figure 610)
1 American Chamber of Commerce in Rus sia ldquoInvestment and Import to Rus sia 2nd Surveyrdquo 13
Diversity and Constraints
06
594-71613_ch01_4Pindd 41 102017 404 PM
Figure 61 US Exports of Civilian Aircraft Engines Equipment and Parts to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
$2500000000
$2000000000
$1500000000
$1000000000
$500000000
$-
Figure 62 US Exports of Drilling and Oil Field Equipment US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
$40000000
$45000000
$50000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 42 102017 404 PM
Figure 63 US Exports of Industrial Engines to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Figure 64 US Exports of Phar ma ceu ti cal Preparations to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 43 102017 404 PM
Figure 65 US Exports of Meat and Poultry to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Meat poultry etc
$1000000000
$800000000
$600000000
$400000000
$200000000
$-
$1200000000
$1400000000
$1600000000
Figure 66 US Exports of Soybeans to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
$200000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 44 102017 404 PM
Figure 67 US Exports of Vehicles Engines and Parts to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Other parts and accessories of vehicles
Automotive tires and tubes
Bodies and chassis for passenger cars
Engines and engine parts (carburetors pistonsrings and valves)
Trucks buses and special purpose vehicles
Passenger cars new and used
$2500000000
$2000000000
$1500000000
$500000000
$-
$1000000000
Figure 68 US Exports of Medicinal Equipment to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 45 102017 404 PM
Figure 610 US Exports to Rus sia by States (2016 US$ Value) Million US$ 2013ndash2016
Source US Census Bureau ldquoState and Metropolitan Area Trade Datardquo
Iowa Kentucky
North Dakota
Oklahoma
South Carolina
Washington
0
$500
$1000
$1500
$2000
2013 2014 2015 2016
District of Columbia
Iowa
Kentucky
North Dakota
Oklahoma
South Carolina
Washington
Figure 69 US Exports of Excavating Machinery to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
$40000000
$45000000
$50000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 46 102017 404 PM
47
Upon reviewing the current trend in US- Russia economic relations we must acknowledge that
the existing trade model is obsolete and exhausted Imports are resource- oriented and reflect
constraints of the Rus sian economic structure while five groups of goodsmdash oil metals nuclear
fuels fertilizers and fishmdash make up more than 90 percent of total imports from Rus sia (Figure 71)
Each of these industries has a limited capacity for growth in the foreseeable future
Rus siarsquos core export to the United Statesmdash oilmdash will inevitably decrease in the mid- term under any
scenario The value and volume of Rus sian exports to the United States are open to global market
volatility and po liti cal pressures with limited hedging mechanisms
Overall US exports to Rus sia are unsustainable due to bilateral po liti cal tensions the whims of
commodity markets and changing domestic policies Sanctions and counter- sanctions have
created additional barriers particularly in finance banking high- tech energy and agro- business
According to the American Chamber of Commerce 69 percent of US companies working in the
country consider the impact of US sanctions against Rus sia on their business as negative At the
same time 60 percent of companies do not expect big changes in business relations between
Rus sia and the United States under Trump1 as the new law codifies existing sanctions fortifies
them and extends them to new sectors
Current US investments are low due to the weak rule of law in Rus sia a lack of property right
protections and proper contract enforcement high levels of statization and monopolization in the
economy a poor business climate outdated capital stock dependence on natural- resource
sectors and of course sanction and counter- sanction mea sures Bloated administrative compo-
nents created as risk mitigation instruments have also served as impediments The countryrsquos
institutional weakness low level of productivity bud get constraints and a declining inflexible
workforce will restrain future economic growth even if commodity prices recover Rus sian eco-
nomic policy will likely continue to be statist and protectionist relying mostly on import
substitutions
1 Ibid 11
Existing Trends and Future Scenarios
07
594-71613_ch01_4Pindd 47 102017 404 PM
US-Russia Economic Relations48
What scenarios can be expected in such a challenging environment
One probability (no peace no war) is based on the assumption that matters will not deteriorate
further and implementation of the Sanctions Act will be cursory This will cause relatively slow
degradation in the economic field with occasional flashes of activity in selected areas (eg closer
cooperation against Islamist terrorist groups in Syria)
A second worse case or critical scenario is the intensive and full- scale execution of current sanc-
tion legislation and even the imposition of new economic punitive and restrictive mea sures which
could incite asymmetric retaliatory actions and lead to the introduction of additional protectionist
policies This in turn could trigger a further escalation of mutual confrontation and could eventu-
ally destroy the fundamentals of the current bilateral trade system Rus sian leadership has charac-
terized the Sanctions Act as a declaration of a trade war that ends all hope for improving bilateral
relations2
2 Дмитрий Медведев ldquoПодписание президентом США нового санкционного закона против России создает несколько
последствийrdquo [The US Presidentrsquos signing of the package of new sanctions against Rus sia will have a few conse-
quences] Facebook August 2 2017 https wwwfacebook com Dmitry Medvedev posts 10154587161801851
Figure 71 US Imports from Rus sia Share of Oil Metals Nuclear Fuel Fertilizers and Fish Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
93
94
93
94
95
96
93
92
87
89
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals Nuclear FuelFertilizers and Fish
594-71613_ch01_4Pindd 48 102017 404 PM
Vadim Grishin 49
The best case and most favorable scenario looks less probable now It assumes the realization of
structural reforms in Rus sia in such a way that would adapt Rus siarsquos foreign policy to national
economic needs reduce confrontations with the West and make a concerted efort to integrate
Rus sian businesses into global supply and value chains A revitalization of the structural reform
agendamdash including eforts to diversify economic activities through de- monopolization and support
for SMEs a restructuring of the banking sector the creation of a vibrant business climate to foster
entrepreneurships and innovation the implementation of administrative and judicial reforms to
tackle red tape and endemic corruption and the reduction of state control over key sectors of the
economy via wide- spread privatization could kick- start the development of a nonoil economy and
improve long- term growth prospects Despite ongoing discussion of reform strategies deep
economic and po liti cal changes are extremely complicated over the next po liti calelectoral cycle
(2018ndash2024) particularly because of re sis tance of vested interests and growing commodity prices
The urgency to tackle structural shortcomings in natu ral resource- dependent economies usually
correlates with the price of those resources and the degree to which resource rents drive eco-
nomic activity However there may be marginal improvements in the efficiency of the current
economic system
Future US- Russia relations can be thought of through three pillars one pillar focuses on areas
where both countries maintain a competitive rivalry another looks at potential areas of interaction
under pres ent conditions a third pillar and one that has evaporated from the current bilateral
agenda concentrates on future cooperation Stronger economic ties could not only be a kind of
po liti cal shock absorber but contribute to the building of this future (particularly business contacts
aim to support future structural reforms) although po liti cal factors are depressing the prospects
for cooperation To escape deadlock it will be impor tant to establish the right balance between
politics and economics and create a model of collaboration within the framework of contention
594-71613_ch01_4Pindd 49 102017 404 PM
About the Author
Vadim Grishin PhD MBA has been involved in the reform pro cess in Rus sia as adviser to the
deputy prime minister of Rus sia in 1992ndash1993 and 2006ndash2010 He has extensive experience
working with the Bretton Woods Institutions He was the board member of the World Bank Group
and served as se nior adviser at the International Monetary Fund Currently he is a con sul tant to the
chief economistrsquos office of the International Finance Corporation and teaches the economics of
transition at Georgetown University in Washington DC
50
594-71613_ch99_4Pindd 50 102017 403 PM
Blank
COVER PHOTO ADOBE STOCK
1616 Rhode Island Avenue NW
Washington DC 20036
202 887 0200 | wwwcsisorg
v++ISBN 978-1-4422-8035-9
Lanham bull Boulder bull New York bull London
4501 Forbes Boulevard
Lanham MD 20706
301 459 3366 | wwwrowmancom
A U T H O R
Vadim Grishin
Myths and Realities
A Report of the
CSIS RUSSIA AND EURASIA PROGRAM
US-RussiaEconomicRelations
O C T O B E R 2 0 1 7
Euml|xHSLEOCy280359z
The Man Pupu Nyor Rock Formations at the Northern Urals also known as Seven
Strong Man or Little Mountain of the God in the local tribe (Mansi) language
11
03
Politics in the Driverrsquos Seat
Bilateral economic relations depend to a great extent on global and national economic cycles
After the recent global financial crisis the US economy has shown surprisingly sustainable GDP
growth while the Rus sian economy was the most afected among BRICS countries by the turbu-
lence of a worldwide economic downturn in 2008ndash2009 and after a short- term rebound slipped
into stagnation (2012ndash2013) and then into full- scale recession (2014ndash2016) The countryrsquos eco-
nomic cycle however appears to be changing once again with the economy returning to a
pattern of growth albeit uneven and gradual (Figures 31 and 32) Even with sanctions still in place
conditions have improved as a result of the stabilization of Urals oil to an average annual price of
$419 per barrel in 2016 The gains were sparked in part by major crude producers agreeing to cut
production after hefty price drops in 2014 and 2015 Supported by easier financial conditions
higher oil prices and growing macro- stability Rus sia is heading toward a moderate growth rate
that is expected to reach 14 percent this year according to forecasts of the World Bank Group
(WBG) and the IMF1
Because of the significant role that politics plays in any bilateral interaction it is impor tant to
combine economic and po liti cal cycles applying a ldquoresetrdquo to bilateral economic cooperation in
addition to the po liti cal relationship I have compared po liti cal cycles and trade dynamics using the
following graphs ( Table 31 and Figure 33) These charts do not pretend to reflect with mathemati-
cal precision all shifts in the bilateral po liti cal relationship but rather attempt to visually align
impor tant economic and po liti cal moments to detect the efects of po liti cal events on the size of
bilateral trade
Figure 33 shows all pos si ble combinations economic trends at the intersection of po liti cal devel-
opments oppose or support each other in synchronization It is evident that po liti cal interference
1 International Monetary Fund Rus sian Federation Staff Concluding Statement of the 2017 Article IV Mission (Wash-
ington DC IMF 2017) World Bank Group From Recession to Recovery Rus sia Economic Report no 37 (Washington
DC World Bank 2017) http pubdocsworldbank org en 383241495487103815 RER - 37 - May26 - FINAL - with - summary
594-71613_ch01_4Pindd 11 102017 404 PM
US-Russia Economic Relations12
in bilateral business afairs in the early 2000s was less significant than in later years As result
growing po liti cal tensions from 2003 to 2008 did not dramatically afect bilateral economic inter-
action It is also easier to explain why 2011ndash2012 resulted in rec ord trade and investmentmdash a con-
sequence of very high oil prices GDP growth in both countries improved legislation after Rus siarsquos
accession to the WTO and the Obamandash Medvedev po liti cal reset From 2014 to 2016 a perfect
storm of developments added efficiency to Western sanctions and augmented the damaging
consequences of counter- sanction mea sures
Figure 33 also confirms that in times of reduced economic cooperation po liti cal pressures can
easily change bilateral economic trends Moreover business interests along with economic inter-
actions have a limited capacity to reverse the po liti cal mainstream
Figure 31 Economic Cycle 2014ndash2016
Source Authorrsquos evaluation of international financial institutions (IFI) data and sources from respective
countries
Sustainable Growth
Brazil
Negative Growth
Unstable Growth
Mexico
Descending Growth
Argentina
EU
US
Russia
Vietnam
China
594-71613_ch01_4Pindd 12 102017 404 PM
Vadim Grishin 13
Table 31 Po liti cal Cycles in Bilateral US- Russia Relations 1999ndash2016
2001ndash2002 The George W Bushndash Vladimir Putin Reset Rus sia supported ldquoglobal war on terrorismrdquo launched by the United States after 911 the SORT nuclear arms reduction treaty was signed by the United States and Rus sia and a successful business dialogue was developed that created the current structure of economic relations
2003ndash2008 Deterioration in bilateral relations brought on by the Iraq War Georgiarsquos ldquoRose Revolutionrdquo Mikhail Khodorkovskyrsquos arrest Ukrainersquos ldquoOrange Revolutionrdquo Kosovorsquos in de pen dence and the Georgian War
2009ndash2010 The Barack Obamandash Dmitry Medvedev Reset Rus sia served as a logistical hub for transportation and supply of US forces in Af ghan i stan United States and Rus sia signed the new START nuclear arms reduction treaty Rus sia backed tighter economic sanctions on Iran Rus sia gained access to the WTO after 18 years of negotiations
2011ndash2016 Deterioration in bilateral relations caused by the Ukrainian crisis which were followed by sanctions and counter- sanctions along with the Syrian crises and cyber- enabled activities
Source Authorrsquos evaluation of po liti cal and economic data
Note SORTthinsp=thinspStrategic Ofensive Reductions Treaty STARTthinsp=thinspStrategic Arms Reduction Treaty
Figure 32 Economic Cycle 2017ndash2019
Source Authorrsquos evaluation of IFI data and sources from respective countries
Egypt
VenezuelaEU
South Africa
Brazil
Russia
India
US
Descending Growth
Korea
China
Negative Growth
Unstable Growth
Sustainable Growth
594-71613_ch01_4Pindd 13 102017 404 PM
US-Russia Economic Relations14
Figure 33 US- Russia Trade Million US$ vs Po liti cal Cycle 2000ndash2016
Sources US Census Bureau ldquoTrade in Goods with Rus siardquo Foreign Trade last modified June 29 2017
https wwwcensus gov foreign - trade balance c4621 html (see data for 2000ndash2016) authorrsquos evaluation
of po liti cal and economic data
Orange Revolution
Khodorkovskys arrest
GeorgianWar
Bush- Putin Reset
Iraq War Global Financial Crisis
Obama-Medvedev Reset
Russias WTO accession
New START Treaty
A Pefect Storm the Ukranian Crisis Oil Prices Crashing
Sanctions and Counter-Sanctions
$3000
$8000
$13000
$18000
$23000
$28000
$33000
$38000
$43000
2000 2002 2004 2006 2008 2010 2012 2014 2016
594-71613_ch01_4Pindd 14 102017 404 PM
15
The current structure of US- Russia economic relations emerged in the early 2000s when the
model of trade and investment interaction took on a character similar to that which existed be-
tween the United States and developing economies US imports from Rus sia centered on com-
modities while technology along with food products lead American exports The primary
exception was that Rus sia supplied nuclear fuel including highly enriched uranium extracted from
nuclear weapons for US power plants and provided ser vices to the aerospace industry primarily
in satellite launches However both these exceptions can be explained as a legacy of the Soviet
past and not a harbinger of the future economic relationship (Figure 41)
In the last 15 years this trade structure has not changed significantly The only noticeable shift in
trade was a dramatic drop (to practically nothing) in exports of US agricultural products a result
of Rus siarsquos policy of import substitution and so- called counter- sanction mea sures it took in re-
sponse to US sanctions over the Ukraine crisis (Figure 42)
Promising new directions of cooperation in the IT sector and in engineering ser vices for the
aerospace industry appeared in the early 2000s1 but did not spill into other sectors and conse-
quently did little to renew economic cooperation on the whole The integration of Rus sian high-
tech ser vices into large- scale global production and value chains was constrained by the usual
culprits a lack of financial resources managerial experience skilled labor modern infrastructure
RampD investments and an adequate business environment High commodity prices incentivized the
restoration of an economic system centered on resource rents The leading role of oil and gas
extraction and transportation discouraged the development of a nonenergy sector that might
have created advanced and complex production and ser vices An import substitution policy could
not work efficiently in an economic environment plagued by the Dutch disease where currency
1 The Boeing Design Center was created in Moscow It consists of nearly 250 Boeing employees managing
a team of 1200 contract engineers from Rus sian and Ukrainian aerospace companies ldquoBackgrounder Boeing in
Rus siardquo Boeing last modified January 2017 http wwwboeing com resources boeingdotcom company key _ orgs
boeing - international pdf russia - cisbackgrounder pdf
Are the United States and Rus sia ldquoNatu ralrdquo Trading Partners A Little Bit of History
04
594-71613_ch01_4Pindd 15 102017 404 PM
US-Russia Economic Relations16
inflows (oil money) lead to ruble appreciation and render a countryrsquos production less competitive
During that time Rus siarsquos industry did not receive preferential access to larger markets and could
not expand its share in the global economy particularly because of its self- isolation from the
regional trade agreements (except for its participation in the Eurasian Economic Union with some
neighboring countries of the former Soviet Union) As a result neither import substitution nor
export- led strategy promoted growth and specialization in nonoil production A long- awaited
modernization and reallocation of resources from an inefficient nontrade sector to a trade sector
did not materialize
These limits were later augmented with sanctions and an extension of domestic restrictions on
cooperation with Western partners Importantly the rapid growth of state- monopoly structures in
the Rus sian economy over the past 15 years has created additional obstacles to the development
and diversification of US- Russia economic ties
Figure 41 US Imports from Rus sia US$ 2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2016)
Fish and shellfish 3
Crude oil 5
Fuel oil 37
Petroleum products other
8
Nuclear fuel materials
7
Chemicals-fertilizers 4
Steelmaking materials 5
Iron and steel mill products 4
Bauxite and aluminum 9
Other precious metals 4
Nonferrous metals other 1
Finished metal shapes 1
Synthetic rubber--primary
1
Spacecraftexcluding military
594-71613_ch01_4Pindd 16 102017 404 PM
Fig
ure
42
U
S E
xpo
rts
to R
us s
ia U
S$ 2
016
Sou
rce
US
Ce
nsu
s B
ure
au ldquo
Trad
e in
Go
od
s w
ith
Ru
s sia
rdquo (s
ee
dat
a fo
r 2
016
)
Bak
ery
pro
du
cts
Win
e b
eer
an
d r
elat
ed
pro
du
cts
New
spri
nt
Pla
stic
mat
eria
ls
Ch
emic
als-
fert
ilize
rs
Ch
emic
als-
ino
rgan
icC
hem
ical
s-o
rgan
ic
Ch
emic
als-
oth
erC
ott
on
fib
er c
loth
In
du
stri
al r
ub
ber
pro
du
cts
Min
eral
su
pp
lies-
man
ufa
ctu
red
Gen
erat
ors
acc
esso
ries
Ele
ctri
c ap
par
atu
s
Dri
llin
g amp
oilfi
eld
eq
uip
men
t Sp
ecia
lized
min
ing
Exc
avat
ing
mac
hin
ery
No
nfa
rm t
ract
ors
an
d p
arts
In
du
stri
al e
ng
ines
Fo
od
to
bac
co m
ach
iner
y M
etal
wo
rkin
g m
ach
ine
too
ls
Tex
tile
sew
ing
m
ach
ines
W
oo
d g
lass
p
last
ic
Pu
lp a
nd
pap
er
mac
hin
ery
Mea
suri
ng
tes
tin
g
con
tro
l in
stru
men
ts
Mat
eria
ls h
and
ling
equ
ipm
ent
Ind
ust
rial
mac
hin
es
oth
er
Ph
oto
ser
vice
ind
ust
ry m
ach
iner
y A
gri
cult
ura
l mac
hin
ery
eq
uip
men
t C
om
pu
ters
Co
mp
ute
r ac
cess
ori
es
Sem
ico
nd
uct
ors
Tel
eco
mm
un
icat
ion
seq
uip
men
t
Bu
sin
ess
mac
hin
es a
nd
eq
uip
men
t
Lab
ora
tory
tes
tin
g in
stru
men
ts
Med
icin
al e
qu
ipm
ent
Civ
ilian
air
craf
t e
ng
ines
eq
uip
men
t a
nd
par
ts
Rai
lway
tra
nsp
ort
atio
n
equ
ipm
ent
Ves
sels
exc
lud
ing
scr
ap
Co
mm
erci
al v
esse
ls o
ther
M
arin
e en
gin
es p
arts
Spac
ecra
ft e
xclu
din
g
mili
tary
Pas
sen
ger
car
s
new
an
d u
sed
Tru
cks
bu
ses
and
sp
ecia
l p
urp
ose
ve
hic
les
En
gin
es a
nd
en
gin
e p
arts
(c
arb
ure
tors
pis
ton
s r
ing
s
and
val
ves)
B
od
ies
and
ch
assi
s fo
r p
asse
ng
er c
ars
Au
tom
oti
ve t
ires
an
d t
ub
es
Oth
er p
arts
an
d a
cces
sori
es o
f ve
hic
les
Ap
par
el h
ou
seh
old
go
od
s -
text
ile
Ph
arm
aceu
tica
lp
rep
arat
ion
s
Furn
itu
re h
ou
seh
old
go
od
s
etc
R
ug
s
Cel
l ph
on
es a
nd
oth
er
ho
use
ho
ld g
oo
ds
ne
c
594-71613_ch01_4Pindd 17 102017 404 PM
US-Russia Economic Relations18
Figure 43 US Trade in Goods with Rus sia Million US$ 1992ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
Russian Financial Crisis
Oil price Increased from$2446 USD per barrel (2001)
to $9694 USD per barrel(2008)
Global Financial Crisis
Oil price high record in2011-2012
(more that $111 USD perbarrel)
Oil price crashed
$-
$5000
$10000
$15000
$20000
$25000
$30000
$35000
$40000
$45000
$50000
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia US Exports to Russia US-Russia Trade in Goods
No doubt po liti cal ups and downs add volatility to US- Russia trade Nevertheless Rus siarsquos eco-
nomic structure exhausted itself before the Ukrainian crisis and the recent Rus sian recession Its
limitations are not only due to some mistakes in policy or negative coincidences of circumstances
but rather to deeply rooted properties in the current bilateral trade model related to structural
issues in the Rus sian economy Structural constraints such as the weak enforcement of property
rights poor business regulation and nondiversified exports weighed on Rus sian trade with the
United States From this perspective the term ldquonaturalunnatural trading partnersrdquo does not ad-
dress the unused capacity of bilateral interaction or the real challenges that kind of interaction
faces It just adds metaphysical flavor to the very specific economic and po liti cal factors that
determine the US- Russia trajectory
Overall the outlines of bilateral trade (Figure 43) resemble the famous ldquoRus sian Mountainsrdquo that
were a pre de ces sor of the modern roller coaster icy hills supported by wooden constructionsmdash a
rigid and immobile structure that sooner or later would melt This unfortunately is what is hap-
pening to US- Russia trade cooperation now
594-71613_ch01_4Pindd 18 102017 404 PM
19
ARE LITTLE FISH REALLY SWEET
Low US- Russia economic interaction has at least two consequences First it limits the capacity of
policymakers to exploit trade as an instrument for geopo liti cal combat Even the question of a US
trade deficit which used to be a headache for many US trading partners has become so insig-
nificant in absolute terms (about $87 billion in 2016) that it seems hardly worth caring about
When the volume of trade between two countries becomes very small in absolute terms whether
a country is running a surplus or deficit is no longer relevant But it also renders another type of
confrontations (sometimes more dangerous) more likely since the two traders have little to lose
Second in an environment marked by low levels of bilateral trade both sides could incentivize (if
and when a desire for po liti cal rapprochement exists) the signing of new trade deals which are
elevated symbolically as a turning point in bilateral po liti cal relations (ie the sale of Boeings to
Rus sia or the delivery via tankers of Rus sian oil to US refineries) Sometimes markets themselves
pres ent ldquogiftsrdquo that can be capitalized on po liti cally US- USSR grain trade in the 1970s was one
such ldquogiftrdquo large sales of American grain to the Soviet Union helped US policymakers win favor
with the po liti cally impor tant American farming sector and permitted Soviet leaders to maintain
access to a dietary staple for the Soviet population
The strong 32 percent growth in value of US imports from Rus sia from January to May 2017
versus January to May 2016 ( Table 51) is an example of a development that has tempted officials
to pres ent it as a sign of positive change due to ldquogrowing business activitiesrdquo (this kind of statement
was heard before the bilateral summit in Germany in July 2017) although the reason for that leap
was evidently an increase in commodity prices (mainly of oilmdash see Table 52) and not a rise in
entrepreneurial interactions The primary beneficiaries of that upside rally have been two other
petro- economies Saudi Arabia and Venezuela ( Tables 53 and 54)
Sector Analyses
05
594-71613_ch01_4Pindd 19 102017 404 PM
US-Russia Economic Relations20
Table 51 US Imports from Rus sia Million US$ Januaryndash May 2016 vs Januaryndash May 2017
Year January February March April May Total
2016 9603 6871 11097 12257 10977 50805
2017 12215 10220 16979 13471 14147 67032
Change 271 487 530 99 289 319
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
Table 52 Change in Urals Crude Oil Prices US$ per Barrel Januaryndash May 2016 vs Januaryndash May 2017
Januaryndash May 2016 Januaryndash May 2017 Change ($) Change ()
3601 5129 1528 424
Source Ministry of Finance of the Rus sian Federation https wwwminfin ru ru ixzz4mMIZ7XtC
Table 53 US Imports from Saudi Arabia Million US$ Januaryndash May 2016 vs Januaryndash May 2017
Year January February March April May Total
2016 15114 9036 13555 10844 14679 63228
2017 19802 20298 21650 16211 19542 97503
Change 3101 12463 5972 495 331 542
Source US Census Bureau ldquoTrade in Goods with Saudi Arabiardquo Foreign Trade last modified June 29 2017
https wwwcensus gov foreign - trade balance c5170 html (see data for 2016ndash2017)
594-71613_ch01_4Pindd 20 102017 404 PM
Vadim Grishin 21
Table 54 US Imports from Venezuela Million US$ Januaryndash May 2016 vs Januaryndash May 2017
Year January February March April May Total
2016 6657 5560 7140 8007 7922 35286
2017 13041 10864 123500 11148 12243 59646
Change 9590 9540 7297 3923 5454 6903
Source US Census Bureau ldquoTrade in Goods with Venezuelardquo Foreign Trade last modified June 29 2017
https wwwcensus gov foreign - trade balance c3070 html (see data for 2016ndash2017)
Table 55 US Exports to Rus sia Million US$ Januaryndash May 2016 vs Januaryndash May 2017
Year January February March April May Total
2016 3628 3577 7298 4657 4947 24107
2017 3144 4277 5386 6670 4806 24283
Change minus133 196 minus262 432 minus29 minus07
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2016ndash2017)
At the same time US exports to Rus sia continue to stagnate ( Table 55) due to low levels of
consumption during a two-and- a- half-year economic crisis a deep ruble devaluation sanctions
and counter- sanctions
Given the very dif er ent economic structures and resource endowments of Rus sia and the United
States it is not surprising that US- Russia trade is asymmetric and oil driven (Figure 51) A
3 percent increase in Urals oil prices translates into a one percent increase in US import growth
from Rus sia Thus in 2016 every $10 increase in Urals crude oil added $15 billion to the value of
US imports or 11 percent to the total value of imports from Rus sia
OIL ADDICTION
Oil is a core pillar of US- Russia bilateral trade A bumpy ride in oil markets afects commerce
Nevertheless Rus sian oil exports to the United States in physical terms have been rather
594-71613_ch01_4Pindd 21 102017 404 PM
US-Russia Economic Relations22
sustainable Starting from 2005 average annual deliveries have been above 150 million barrels
(Figure 52) Crude and heating oil have dominated while petroleum products and liquefied petro-
leum gases have not (Figure 53) In 2011 oil exports peaked at 228 million barrels but declined to
159 million barrels in 2016mdash a drop of 30 percent Rec ord high shipments of Rus sian oil to the United
States coincided with an elevation in oil prices which made the subsequent decline in oil shipment
value between 2011 and 2016 (by about 72 percent as shown in Figure 54) seem more stark The
increase in price also raised the share of oil in Rus sian exports by 74 percent in 2011 (Figure 55)
The Rus sian share in total US oil imports was around 55 percent in 2011 and 43 percent in 2016
( Table 56) In the last five years the United States has relied exclusively on consumption of Rus sian
oil for the rough equivalent of one week out of the year (Figure 56)
It is unlikely that Rus sia can significantly increase its share of the US oil market and there is a real
possibility for a downward trend There are several reasons the historically high Rus sian hydrocar-
bon export threshold of 2011 will not soon if ever be surpassed
First US energy consumption will likely be flat According to the US Energy Information Adminis-
tration (EIA) demand for petroleum and other liquids in the United States will be about 35ndash36
quadrillion British thermal units (BTUs) with minimal variation over the next 25 years1
1 US EIA ldquoAnnual Energy Outlook 2017 with Projections to 2050rdquo January 5 2017 7ndash8
Figure 51 US- Russia Trade Growth () vs US and Rus sia Real GDP Growth () 1993ndash2016
Source IMF ldquoIMF Datardquo accessed September 27 2017 http wwwimf org en Data US Census Bureau
ldquoTrade in Goods with Rus siardquo
Note rGDPthinsp=thinspreal gross domestic product
Trade
USA rGDP growth
Russia rGDP growth
-60
-40
-20
0
20
40
60
80
100
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Gro
wth
All spikes in US-Russia trade have been connected with two main
variables volume and price of crude oil
594-71613_ch01_4Pindd 22 102017 404 PM
Vadim Grishin 23
Second the United States will become a net energy exporter between 2020 and 2030 in most
cases under dif er ent combinations of oil and natu ral gas prices GDP growth technological
breakthroughs and the availability of energy resources The role of oil imports will dramatically
fall2
Third oil price scenarios as described by the International Energy Agency (IEA) international
financial organ izations (IFIs) and many national agencies are very cautious and assume that even
by 2035 to 2040 oil prices will not to recover to the levels of 2011ndash20123
Fourth Rus sian oil production and export growth will be modest and driven by Asian economic
expansion and will comprise a decreasing share of Western markets4 According to forecasts from
2 Ibid 15ndash18
3 Ibid table 3 ldquoEnergy Prices by Sector and Sourcesrdquo World Bank World Bank Commodity Markets Price Forecasts
(Washington DC World Bank 2017) httpswwwworldbank org en research commodity - markets Organ ization of the
Petroleum Exporting Countries (OPEC) World Oil Outlook 2016 (Vienna OPEC 2016)
4 E D Belotskaia et al Global and Rus sian Energy Outlook 2016 (Moscow Energy Research Institute of the Rus sian
Acad emy of Science Analytical Center for the Government of the Rus sian Federation 2016) http acgov ru files
publication a 12767 pdf
Figure 52 US Imports from Rus sia Crude Oil and Petroleum Products Thousands of Barrels 1995ndash2016
Source US EIA ldquoUS Imports by Country of Origin Rus siardquo Petroleum amp Other Liquids September 13
2017 http wwweia gov dnav pet PET _ MOVE _ IMPCUS _ D _ NUS _ NRS _ MBBL _ M htm
0
50000
100000
150000
200000
250000
Date 1995 1996 1997 1998 199920002001200220032004200520062007200820092010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 23 102017 404 PM
US-Russia Economic Relations24
the Organ ization of the Petroleum Exporting Countries (OPEC) crude oil exports from Rus sia and
the Caspian region to the United States will dis appear by 20255
So why does the Rus sian Urals blend continue to be attractive for oil traders and US refineries
which could pro cess greater volumes of domestically produced lighter crude There are two main
reasons One is related to the preference of US high conversion refineries (the most sophisticated
in the world) to work with heavy oil blends produced by Canada Mexico Iraq Venezuela and
Rus sia Pro cessing heavy crude now is as profitable as pro cessing lighter crude The so- called
crack spreadmdash the diference between the cost of relatively cheap heavy crude oil and the final
price of value- added consumer products (diesel gasoline jet fuel and heating oil)mdash has become
the same as the refinery margins of light sweet crude6 This has primarily afected light oil produc-
ing countries such as Angola Algeria and Nigeria
5 OPEC World Oil Outlook 2016 306ndash309
6 ldquoHow Much for That Heavy Oilrdquo Oil Sands Magazine December 26 2015 https wwwoilsandsmagazine com
news 2015 12 26 how - much - for - that - heavy - oil
Figure 53 US Imports from Rus sia Oil and Petroleum Products US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$-
$25000000000
$20000000000
$15000000000
$10000000000
$5000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Liquefied petroleum gases
Petroleum products other
Fuel oil
Crude oil
594-71613_ch01_4Pindd 24 102017 404 PM
Vadim Grishin 25
Another factor afecting purchase of Rus sian oil is a new trend among oil companies for further
consolidation of scale and for integrating operations of upstream and downstream business7
There have been several waves of separation and unification of production transportation and
pro cessing in the last 50 years The current business cycle can be seen as an adaptation to a
period of low prices and oversupply Companies that buy andor produce oil in Rus sia most likely
prefer to transport and pro cess this oil in their own modern refineries in the United States At the
same time some of the newest refinery designs specifically for pro cessing heavy oils have been
built in Asia thus extending the choices of heavy oil producing countries
We should also consider that leading US and international oil traders along with oil producing
companies working with or owning US refineries frequently buy Rus sian oil on the open market
and have long- term contracts on Rus sian crude oil delivery Many Rus sian oil companies prefer to
pay for purchases or ser vices with their future production instead of cash creating situations of
ldquostickyrdquo oil imports that are difficult to replace The best- known example is an interaction between
7 ldquoEnergy and Utilities Sectorrdquo Roundtable Financier Worldwide December 2015 https wwwfinancierworldwide
com roundtable - energy - utilities - sector - dec15
Figure 54 US Imports of Oil and Petroleum Products from Rus sia vs Oil Prices Eu rope Brent Spot Price Free on Board (FOB) 1996ndash2017
Source US EIA ldquoUS Imports by Country of Origin Rus siardquo
0
20
40
60
80
100
120
140
0
5000
10000
15000
20000
25000
30000
Jan
-19
96
Jun
-19
96
No
v-19
96
Ap
r-19
97
Sep
-19
97
Feb
-19
98
Jul-
199
8D
ec-1
99
8M
ay-1
99
9O
ct-1
99
9M
ar-2
00
0A
ug
-20
00
Jan
-20
01
Jun
-20
01
No
v-2
00
1A
pr-
20
02
Sep
-20
02
Feb
-20
03
Jul-
20
03
Dec
-20
03
May
-20
04
Oct
-20
04
Mar
-20
05
Au
g-2
00
5Ja
n-2
00
6Ju
n-2
00
6N
ov-
20
06
Ap
r-2
00
7Se
p-2
00
7Fe
b-2
00
8Ju
l-2
00
8D
ec-2
00
8M
ay-2
00
9O
ct-2
00
9M
ar-2
010
Au
g-2
010
Jan
-20
11Ju
n-2
011
No
v-2
011
Ap
r-2
012
Sep
-20
12Fe
b-2
013
Jul-
20
13D
ec-2
013
May
-20
14O
ct-2
014
Mar
-20
15A
ug
-20
15Ja
n-2
016
Jun
-20
16N
ov-
20
16
USD
per
Bar
rel
Th
ou
san
d B
arr
els
US Imports from Russia of Crude Oil and Petroleum Products (Thousand Barrels)
Europe Brent Spot Price FOB (Dollars per Barrel)
594-71613_ch01_4Pindd 25 102017 404 PM
US-Russia Economic Relations26
Table 56 US Oil Imports All Countries vs Rus sia Thousand Barrels per Day 2011ndash2016
Years 2011 2012 2013 2014 2015 2016
All Countries 11436 10598 9859 9241 9449 10058
Rus sia 624 477 460 330 371 433
Share 546 450 467 357 393 431
Sources US EIA ldquoUS Imports by Country of Origin Total Crude Oil and Productsrdquo Petroleum amp Other
Liquids September 13 2017 wwweia gov dnav pet pet_move_impcus_a2_nus_ep00_im0_mbbl_m htm
authorrsquos computation
Figure 55 US Imports from Rus sia Share of Crude Oil and Petroleum Products Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
57
64
73
72
74
73
72
59
52 50
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
$40000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil and Petroleum Products
594-71613_ch01_4Pindd 26 102017 404 PM
Vadim Grishin 27
the Rus sian state mono poly Rosneft and commodity trading and mining giant Glencore which
along with energy and commodities com pany Vitol participated in a $10 billion prepayment
deal with Rosneft for crude supplies in 2013
There have been a number of ongoing transactions between the Rus sian oil industry and interna-
tional oil companies including several that top the list of importers of Rus sian oil to the United
States ( Table 57) In December 2016 Glencore participated in a controversial privatization opera-
tion purchasing in tandem with the Qatar sovereign wealth fund a 195 percent stake in Rosneft
which was on the US and EU list of sanctioned firms8 Glencore has also taken a blocking stake in
midsize oil producer RussNeft BP owns a 1975 percent stake in Rosneft Chevron holds a
15 percent interest in the 935- mile- long CPC9 pipeline which transports an average of 959000
barrels of crude oil per day including 76000 barrels daily from Rus sia10 ExxonMobil has formed
8 E Mazneva and I Arkhipov ldquoRus sia Sells $11 Billion Stake in Rosneft to Glencore Qatarrdquo Bloomberg December 7
2016
9 CPCthinsp=thinspCaspian Pipeline Consortium
10 ldquoRus sia Highlights of Operations and Business Portfoliordquo Chevron accessed October 3 2017 https wwwchevron
com worldwide russia
Figure 56 Share of Rus sian Oil in Total US Oil Imports Thousands of Barrels per Day 1972ndash2016
Source US EIA ldquoUS Imports by Country of Origin Total Crude Oil and Productsrdquo
2000
4000
6000
8000
10000
12000
14000
16000
US Imports of Crude Oil and Petroleum Products (Thousand Barrels per Day)
US Imports from Russia of Crude Oil and Petroleum Products (Thousand Barrels per Day)19
7319
7419
7519
7619
7719
7819
7919
80
198
119
82
198
319
84
198
519
86
198
719
88
198
919
90
199
119
92
199
319
94
199
519
96
199
719
98
199
92
00
02
00
12
00
22
00
32
00
42
00
52
00
62
00
72
00
82
00
92
010
20
112
012
20
132
014
20
152
016
594-71613_ch01_4Pindd 27 102017 404 PM
Table 57 Top Importers of Rus sian Oil to the United States Thousands of Barrels 2016
VALERO MARKETING amp SUPPLY CO 54590 3616
EXXONMOBIL OIL CORP 17087 1130
CHEVRON USA INC 15217 1008
BP WEST COAST PRODUCTS LLC 10130 671
GEORGE E WARREN CORP 7272 48
PAULSBORO REFINING CO LLC 6838 453
TESORO CORP 5097 338
VITOL INC 5084 337
PHILLIPS 66 CO 4726 313
TRAFIGURA AG 4360 289
PAR HAWAII REFINING LLC 3893 258
MOTIVA ENTERPRISES LLC 3041 205
SHELL US TRADING CO 2863 19
MARATHON PETROLEUM CO LLC 2475 16
ATLANTIC TRADING amp MARKETING 2099 14
FREEPOINT COMMODITIES LLC 1439 1
GLENCORE LTD 1284 85
BEST PETROLEUM CORP 967 64
ROLYMPUS US COMMODITIES GROUP LLC 822 6
HUNT CRUDE OIL SUPPLY CO 666 4
GULF OIL LP 658 4
Source US EIA ldquoUS Imports by Country of Origin Crude Oilrdquo Petroleum amp Other Liquids September 13
2017 httpswwweiagovdnavpetpet_move_impcus_a2_nus_epc0_im0_mbblpd_ahtm authorrsquos
computation
594-71613_ch01_4Pindd 28 102017 404 PM
Vadim Grishin 29
several joint ventures with Rosneft to undertake ofshore exploration in the Black Sea and the Kara
Sea in Siberia11
According to the Sanctions Act US persons are prohibited from exporting or reexporting goods
ser vices (except financial ser vices) and technology in support of exploration or production of new
deep- water Arctic ofshore or shale oil proj ects that involve designated Rus sian entities or other
entities in which such sanctioned persons have a controlling interest or a substantial noncontrol-
ling owner ship interest defined as not less than 33 percent (previously it was 50 percent) The new
law also authorizesmdash but does not requiremdash the imposition of so- called secondary sanctions
against non- US entities that engage in activities involving the construction maintenance or
expansion of Rus sian energy export pipelines with a fair market value of $1 million or more or an
aggregate fair market value during a 12- month period of $5 million12 This provision has raised the
concerns of some Eu ro pean countries particularly Germany As result the final language of the
law included wording about coordination of this issue with allies of the United States
Shipments of Rus sian oil to the United States could be afected by activity in the US refinery
industry In early 2017 Saudi Aramco bought the United Statesrsquo largest oil refinery in Port Arthur
(Texas) and it announced plans to send more of its own crude to that refinery13 Serious concerns
exist however regarding the future of three refineries and nine pipelines owned by Citgo a US
branch of the Venezuelan state com pany PdVSA which is balancing precariously on the edge of
default Under certain conditions in the event of PdVSA bankruptcy Rosneft could claim a stake of
up to 499 percent in Citgo Such a possibility has raised concerns among politicians and US
government officials with Trea sury Secretary Steven Mnuchin calling it a ldquonational security issuerdquo14
Tables 58 59 and 510 show allocations of Rus sian oil imports to major US refineries some of
which work exclusively on Rus sian crude a total of two to three months per year In total 150940
thousand barrels of Rus sian oil were refined in 2016
Figure 57 confirms a leading position of Texas and Louisiana among the US states receiving
Rus sian crude followed by New Jersey California Mississippi Washington Hawaii and Delaware
In a paradoxical way Texas has dis appeared from the list of states as a main destination of US
imports from Rus sia (Figure 58) because Rus sian crude is mostly delivered to Louisiana ports and
registered there by US Customs as an import from Rus sia After that it transports to refineries in
Louisiana and Texas
Overall the short- term business rationale behind the sustainability of US oil imports from Rus sia
cannot overcome strong headwinds in the US energy sector facing all oil importers which will
inevitably lead to a contraction of Rus sian oil exports to the United States in the foreseeable future
11 Exxon eforts to receive a special US Trea sury waiver to drill in sanctioned Rus sia failed in 2017
12 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364
13 Sarp Ozkan ldquoSaudi Aramcorsquos Port Arthur Refinery and the US Refinery Fleetrdquo Drilling Info May 11 2017
https infodrillinginfo com saudi - aramcos - port - arthur - refinery - us - refinery - fleet
14 Graham Kates ldquoTrea sury Secretary Rus siarsquos Citgo Deal a National Security Issuerdquo CBS News May 1 2017
http wwwcbsnews com news rosneft - citgo - steven - mnuchin - national - security
594-71613_ch01_4Pindd 29 102017 404 PM
US-Russia Economic Relations30
Table 58 Valerorsquos Refineries Pro cessing Rus sian Oil Thousands of Barrels 2016
Saint Charles Louisiana 29206 535
Corpus Christi Texas 20626 378
Wilmington California 4250 78
Total USA 54590 100
Source US EIA ldquoRefinery Capacity Reportrdquo January 1 2017
table 5 wwweia gov petroleum refinerycapacity table5 pdf
authorrsquos computation
Table 59 ExxonMobil Refineries Pro cessing Rus sian Oil Thousands of Barrels 2016
Baytown Texas 15037 88
Baton Rouge Louisiana 2046 12
Total USA 17083 100
Source US EIA ldquoRefinery Capacity Reportrdquo authorrsquos computation
Table 510 Chevronrsquos Refineries Pro cessing Rus sian Oil Thousands of Barrels 2016
Pascagoula Mississippi 12767 840
El Segundo California 2372 155
Saint Rose Louisiana 78 05
Total USA 15217 100
Source US EIA ldquoRefinery Capacity Reportrdquo authorrsquos computation
594-71613_ch01_4Pindd 30 102017 404 PM
Vadim Grishin 31
HEAVY METAL
Taken together US imports of metals and US imports of oil compose about 80 percent of US
total imports from Rus sia (Figure 59) Trade of metals like other commodities is strongly afected
by market price fluctuations Nevertheless metal imports from Rus sia have been fairly resilient to
market volatility and their average annual value has hovered at about $4 billion in the last five years
(Figure 510) This market resilience was forged at the end of the 1990searly 2000s when Rus sian
metal producers gradually modernized their plants adjusting quality of production to Western
standards and enhancing integration into global value and supply chains Some of them conquered
their share of the highly competitive US market struggling with peers from Canada and certain
BRICS countries (China India and Brazil) To attract additional resources all Rus sian large metal-
producing companies became public and were listed on stock exchanges chiefly the London Stock
Exchange (Severstalrsquo PAO Evraz MMK OAO Novolipetsk Steel Norilsk Nikel and TMK PAO) one
on the New York Stock Exchange (Mechel) and one on the Hong Kong Stock Exchange (Rusal)
Business logic pushed some of them to invest in the US metal- making industry which was hit
hard by crisis Later on some of those assets were sold (eg two US steel mills acquired by
Severstal in 2004 were purchased 10 years later by Steel Dynamics Inc and AK Steel Corp)
Figure 57 Share of US States Rus sian Oil Imports 2016
Source US EIA ldquoUS Imports from Rus sia of Crude Oil and Petroleum Productsrdquo Petroleum amp Other
Liquids September 29 2017 https www eia gov dnav pet hist LeafHandler ashx nshy=shyPETampsshy=shyMTTIM _ NUS
- NRS _ 1ampfshy=shyM authorrsquos computation
0
10
20
30
40
50
60
70
80
90
100
Maine
Massachusetts
Maryland
Connecticut
Georgia
Rhode Island
Virginia
Florida
New York
Alabama
Puerto Rico
Pennsylvania
Delaware
Hawaii
Washington
Mississippi
California
New Jersey
Louisiana
Texas
594-71613_ch01_4Pindd 31 102017 404 PM
Figure 58 US Imports from Rus sia by State Million US$ 2013ndash2016
Source US Census Bureau ldquoState and Metropolitan Area Trade Datardquo Foreign Trade last modified
October 2 2017 https wwwcensus gov foreign - trade statistics state
Alaska
Connecticut
Delaware
Hawaii
Louisiana
Maryland
North Dakota 0
$1000
$2000
$3000
$4000
$5000
$6000
2013 2014 2015 2016
Alabama
Alaska
Connecticut
Delaware
Hawaii
Louisiana
Maryland
Maine
Mississippi
Montana
North Dakota
Mississippi
Figure 59 US Imports from Rus sia Share of Oil and Metals Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
83
82
85
86
87
88
85
82
7375
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
$40000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil and Metals
594-71613_ch01_4Pindd 32 102017 404 PM
Vadim Grishin 33
Obviously the market dynamic of dif er ent metals varies (eg iron steel aluminum platinum and
nickel) Caps to increase their trade and production in a ldquored oceanrdquo global environment with
anemic demand is rather limited despite Figure 510 showing a spike of iron and steel imports
from Rus sia in 2014 and aluminum in 2016 Some opportunities may exist for Russian- owned steel
plants in the United States (such as NLMK) to participate in energy proj ects resumed under Presi-
dent Trump who has required that new pipelines use only American- made steel15
Rus sia occupies a special niche in the US market for titanium products a high- end metal indus-
try Twenty years ago a long- term contract was signed between Rus sian titanium producer
VSMPO- AVISMA and Boeing The Rus sian com pany entered the selective club of Boeing suppliers
for the manufacture of components and semi- finished products Since the signing of this contract
VSMPO has delivered more than 35 percent of all titanium placed on Boeing civil aircraft16 They
are hidden in the trade data in an import category for Civilian Aircrafts and Parts (Figure 511) At
the end of 2016 Boeing announced an extension of its framework agreement with AVISMA
15 E Scheyder C Ngai and T Sylvester ldquoAmerican Steel Unlikely to Get Keystone Boost Despite Trump Orderrdquo
Reuters January 27 2017 http wwwreuters com article usa - trump - pipeline - transcanada - idUSL1N1FH1ZD
16 A Kramer ldquoTitanium Fills Vital Role for Boeing and Rus siardquo New York Times July 5 2013 http wwwnytimes com
2013 07 06 business global titanium - fills - vital - role - for - boeing - and - russia html mcubzshy=shy3
Figure 510 US Imports from Rus sia Iron Steel Bauxite Aluminum Nickel Nonferrous Metals and Other Precious Metals and Materials US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
0
$6000000000
$5000000000
$4000000000
$3000000000
$2000000000
$1000000000
2007 2008 2009 2010 2011 20122013
20142015
2016
Finished metal shapes
Iron and steel advanced
Iron and steel products nec
Nonferrous metals other
Other precious metals
Nickel
Bauxite and aluminum
Iron and steel mill products
Steelmaking materials
594-71613_ch01_4Pindd 33 102017 404 PM
US-Russia Economic Relations34
through 2022 and additional investments in the construction of a new robotic plant in Titanium
Valley a special economic zone located in the Sverdlovsk region that will open in 2018 The pro-
cessing of titanium forgings in all Boeing civil aircraft will be performed there including 787s 737
MAXs and 777Xs17 The contract extension with AVISMA may add several hundred million dollars
in value to annual US imports from Rus sia
How can such heavy reliance on imports of Rus sian titanium exist during a period of rising geopo-
liti cal tensions The answer is straightforward VSMPO- AVISMA is a highly specialized natu ral
mono poly producing 45 percent of the worldrsquos aerospace titanium Only four other countries
smelt high- grade titanium in industrial quantities the United States Germany Japan and China
Overall global production capacity is limited while demand is growing The United States cur-
rently imports around 79 percent of all the titanium it consumes each year18
17 ldquoBoeing and VSMPO Avisma to Launch Second Joint Production Siterdquo Rus sian Aviation Insider December 22 2016
http wwwrusaviainsider com boeing - and - vsmpo - avisma - to - launch - second - joint - production - site
18 Jon Ostrower and Andy Pasztor ldquoBoeing United Technologies Stockpile Titanium Partsrdquo Wall Street Journal
August 7 2014 https wwwwsj com articles boeing - united - technologies - stockpiling - titanium - parts - 1407441886
Figure 511 US Imports from Rus sia Civilian Aircrafts and Parts US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
$200000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Parts-civilian aircraft
Civilian aircraft
594-71613_ch01_4Pindd 34 102017 404 PM
Vadim Grishin 35
The Sanctions Act authorizes the secretary of the trea sury (in a nonmandatory way) to impose
restrictions (without specifying them) against Rus sian state- owned entities operating in the railway
metals and mining sectors of the Rus sian economy Despite the commanding heights of Rus siarsquos
state sector owner ship in its economy (70 percent of GDP) the metal- producing companies have
remained mostly in private hands
NUCLEAR AFFAIRS
Historically owners and operators of the 104 commercial nuclear power reactors in the United
States have purchased more than 80 percent of their uranium from foreign countries Uranium
shipping from Rus sia accounted for about 13 percent of the 58 million pounds of uranium pur-
chased overseas in 201219 At the same time the Rus sian state- owned mono poly Rosatom ac-
counts for 20 percent of Kazakhstanrsquos uranium production (which in turn comprises 11 percent of
all US uranium imports) and 20 percent of US domestic uranium production capacity (with
owner ship of exploration tracts in Wyoming)20
Nuclear fuel and nuclear power continue to be po liti cally sensitive topics both in the United
States and Rus sia Bilateral cooperation in this sector (being surprisingly stable with imports of
nuclear fuel from Rus sia at a level of $1 billion annually in the last five years [Figure 512 and 513])
is under constant po liti cal and lobbying pressure and has been a source of several po liti cal scan-
dals21 Consequently upside risks in this area of interaction are minimal and downside risks are
much higher especially when we are seeing more decommissioning of nuclear plants in the
United States than new constructions The US EIArsquos 2017 Annual Energy Outlook assumes
that about 25 percent of the nuclear capacity now operating will be removed from ser vice
by 205022
WHY IS THE GRASS GREENER ON THE OTHER SIDE
The United States continues to significantly reduce imports of chemical fertilizers as domestic pro-
duction increases In 2016 the United States imported 13 percent less ammonia and 11 percent
less urea and UAN which is a liquid urea and ammonium nitrate fertilizer Rus sia accounts for
around 40 percent of UAN imported by the United States The United States canceled antidumping
duties on imports of ammonium nitrate and urea from Rus sia in 2016 but it did not prevent import
19 US EIA ldquoThe US Relies on Foreign Uranium Enrichment Ser vices to Fuel Its Nuclear Power Plantsrdquo Today in
Energy August 28 2013 https wwweia gov todayinenergy detail php idshy=shy1273
20 Colin Chilcoat ldquoDoes Rus sia Really Own 20 Percent of the USrsquo Uranium Reservesrdquo OilPricecom May 6 2015
http oilpricecom Alternative - Energy Nuclear - Power Does - Russia - Really - Own - 20 - Of - The - US - Uranium - Reserves
html
21 Michelle Ye Hee Lee ldquoThe Facts behind Trumprsquos Repeated Claim about Hillary Clintonrsquos Role in the Rus sian Ura-
nium Dealrdquo Washington Post October 26 2016
22 US EIA ldquoAnnual Energy Outlook 2017 with Projections to 2050rdquo 81ndash82
594-71613_ch01_4Pindd 35 102017 404 PM
Figure 512 US Imports from Rus sia Share of Oil Metals and Nuclear Fuel Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
87
86
90
90
90
91
88
86
7882
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals and Nuclear Fuel
Figure 513 US Imports from Rus sia Nuclear Fuel Materials US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$-
$200000000
$400000000
$600000000
$800000000
$1200000000
$1000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 36 102017 404 PM
Vadim Grishin 37
drops twice last year (Figures 514 and 515) According to forecasts UAN imports are expected to
decline further to 15 million tons this year down over 46 percent from 28 million tons imported
last year23 The downside trend in imports of fertilizers will likely continue because of oversupply
BIG FISH
US imports of fish and shellfish from Rus sia are best understood in comparison with US fish
exports to the Rus sian market which slipped to zero in August 2014 after Rus sia issued an order
banning certain agricultural imports from the United States (Figure 516) While the volume of US
supply was not very large it was impor tant because it broke up the monopolistic dominance of a
few vertically integrated Rus sian companies that have kept prices high by restricting the entry of
new producers Seeking to implement import substitution policies Rus sia has tried to reduce
exports as well as imports of fish and seafood products in the last couple of years This symmetri-
cal approach was intended to ldquocompensaterdquo for a decrease of fish products in the domestic
23 Deepika Thapliyal ldquoPotashCorp Forecasts Sharp Drop in US Nitrogen Imports in 2017rdquo ICIS News February 7
2017 https wwwicis com resources news 2017 02 07 10076734 potashcorp - forecasts - sharp - drop - in - us - nitrogen
- imports - in - 2017
Figure 514 US Imports from Rus sia Share of Oil Metals Nuclear Fuel and Fertilizers Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
90
93
92
93
94
95
92
91
85
86
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals Nuclear Fuel and Fertilizers
594-71613_ch01_4Pindd 37 102017 404 PM
Figure 515 US Imports from Rus sia Chemical- Fertilizers US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
S-
$200000000
$400000000
$600000000
$800000000
$1000000000
$1200000000
$1400000000
$1600000000
$1800000000
$2000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Figure 516 US Exports to Rus sia Fish and Shellfish US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$10000000
$20000000
$30000000
$40000000
$50000000
$60000000
$70000000
$80000000
$90000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Fish and shellfish
594-71613_ch01_4Pindd 38 102017 404 PM
Vadim Grishin 39
consumer market caused by Rus siarsquos import ban but it has failed As result the group most af-
fected by the self- imposed counter- sanctions were Rus sian consumers
With a significant drop in fish imports a devaluation of the ruble and inflationary pressures on
seafood prices yearly consumption of fish in Rus sia has declined precipitously In 2015 alone
fish prices increased 20 percent and consumption dropped to 14 kilograms per person24 from
22 kilograms in 201425 In 2016 food rose to 355 percent of house hold expenditure as a result of
increases in food prices26 This has pushed vertically integrated fishing monopolies to sell even
more of their catch abroad rather than deliver to the Rus sian Federation (Figure 517) Thus we
cannot exclude the possibility of further growth in US fish and shellfish imports from Rus sia on a
marginal scale
24 Александр Савельев ldquoПотребление рыбы в России упало до 14 кг на человекаrdquo [Fish consumption in Rus sia fell to
14 kg per person] Экономика Интерфакс January 28 2015 http wwwinterfax ru business 492038
25 Илья Шестаков ldquoПотебление рыбы в России снизилось на 10 процентов из- за роста ценrdquo [Fish consumption in
Rus sia dropped by 10 percent due to price increases] RNS March 8 2017 https rnsonline consumer - market
Potreblenie - ribi - v - Rossii - snizilos - na - 10 - iz - za - rosta - tsen - 2017 - 03 - 08
26 Zoya Sheftalovich and Christian Oliver ldquoRus siarsquos Boom (Farming) Economyrdquo Politico November 8 2016 http
wwwpolitico eu article russias - boom - farming - economy
Figure 517 US Imports from Rus sia Fish and Shellfish US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$50000000
$100000000
$150000000
$200000000
$250000000
$300000000
$350000000
$400000000
$450000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 39 102017 404 PM
US-Russia Economic Relations40
SPACE ODYSSEY
Among high- end products beyond the top five groups of goods imported from Rus sia cheap and
efficient Rus sian engines have been used to launch US rockets into space for about 16 years
(Figure 518) There was a serious po liti cal strug gle around a 2014 ban on the purchase of Rus sian
RD-180 rocket engines revealing the conflicting business interests of power ful high- tech companies
This restrictive mea sure was temporary and was quickly lifted because of significant cost impacts
and risks of disruption to launch schedules27 For the same reason the Sanctions Act does not autho-
rize ldquothe imposition of any sanction or other condition limitation restriction or prohibition that
directly or indirectly impedes the supply by any entity of the Rus sian Federation of any product or
ser vice or the procurement of such product or ser vice by any contractor or subcontractor of the
United States or any other entity relating to or in connection with any space launch conducted for
the National Aeronautics and Space Administration or any other nonndash Department of Defense
customerrdquo28
Nevertheless many experts believe that US domestic alternatives to replace Rus sian engines will
be viable in five to eight years
27 Ken Dilanian ldquoWhy Does the US Use Rus sian Rockets to Launch Its Satellitesrdquo NBC News updated November 15
2016 http wwwnbcnews com why - does - u - s - use - russian - rockets - launch - its - satellites - n588526
28 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364
Figure 518 Spacecraft Excluding Military US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 40 102017 404 PM
41
Diversity and technological complexity are the most vis i ble advantages supporting US exports to
Rus sia Three major groups of export goods include civilian aircraft engines and parts (Figure 61)
drilling and oil field equipment (Figure 62) and industrial machines and engines (Figure 63)
Despite sanctions against the transfer of advanced oil producing and pro cessing technologies the
realization of US drilling and oil field equipment in Rus sia is sustainable although some bilateral
proj ects have been frozen
Another category of goods that has demonstrated resilience is the phar ma ceu ti cal industry (Fig-
ure 64) because most drugs in Rus sia are imported (about 70 percent of the Rus sian phar ma ceu-
ti cal market in value) Import substitution policies have had only modest results in this industry
As confirmed by American Chamber of Commerce surveys US exports to Rus sia are closely
connected to US FDI 30 percent of total imports of US companies working in the Rus sian
market come from the United States (more than $2 billion in 2016) In other words about
40 percent of all US exports to Rus sia are related to a US corporate- sector business pro cess in
the country The major sectors of activity of these companies are energy and natu ral resources
(52 percent) manufacturing (17 percent) information and communications technology or ICT
(13 percent) retail (7 percent) automotive industry (6 percent) phar ma ceu ti cal production
(1 percent) professional ser vices (05 percent) and other (2 percent)1
Some obvious constraints on US exports to Rus sia have resulted from a reduction in demand A
deterioration of bilateral relations and implementation of sanctions and counter- sanctions have
directly or indirectly afected all businesses Figures 65 and 66 provide data regarding a dramatic
drop in the sale of US agricultural production in Rus sia with all other categories of exports in
goods showing big cuts as well (see Figures 67ndash69)
Exports of civilian aircraft engines and parts put the state of Washington in first place among
other states as a leading exporter to the Rus sian market (Figure 610)
1 American Chamber of Commerce in Rus sia ldquoInvestment and Import to Rus sia 2nd Surveyrdquo 13
Diversity and Constraints
06
594-71613_ch01_4Pindd 41 102017 404 PM
Figure 61 US Exports of Civilian Aircraft Engines Equipment and Parts to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
$2500000000
$2000000000
$1500000000
$1000000000
$500000000
$-
Figure 62 US Exports of Drilling and Oil Field Equipment US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
$40000000
$45000000
$50000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 42 102017 404 PM
Figure 63 US Exports of Industrial Engines to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Figure 64 US Exports of Phar ma ceu ti cal Preparations to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 43 102017 404 PM
Figure 65 US Exports of Meat and Poultry to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Meat poultry etc
$1000000000
$800000000
$600000000
$400000000
$200000000
$-
$1200000000
$1400000000
$1600000000
Figure 66 US Exports of Soybeans to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
$200000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 44 102017 404 PM
Figure 67 US Exports of Vehicles Engines and Parts to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Other parts and accessories of vehicles
Automotive tires and tubes
Bodies and chassis for passenger cars
Engines and engine parts (carburetors pistonsrings and valves)
Trucks buses and special purpose vehicles
Passenger cars new and used
$2500000000
$2000000000
$1500000000
$500000000
$-
$1000000000
Figure 68 US Exports of Medicinal Equipment to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 45 102017 404 PM
Figure 610 US Exports to Rus sia by States (2016 US$ Value) Million US$ 2013ndash2016
Source US Census Bureau ldquoState and Metropolitan Area Trade Datardquo
Iowa Kentucky
North Dakota
Oklahoma
South Carolina
Washington
0
$500
$1000
$1500
$2000
2013 2014 2015 2016
District of Columbia
Iowa
Kentucky
North Dakota
Oklahoma
South Carolina
Washington
Figure 69 US Exports of Excavating Machinery to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
$40000000
$45000000
$50000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 46 102017 404 PM
47
Upon reviewing the current trend in US- Russia economic relations we must acknowledge that
the existing trade model is obsolete and exhausted Imports are resource- oriented and reflect
constraints of the Rus sian economic structure while five groups of goodsmdash oil metals nuclear
fuels fertilizers and fishmdash make up more than 90 percent of total imports from Rus sia (Figure 71)
Each of these industries has a limited capacity for growth in the foreseeable future
Rus siarsquos core export to the United Statesmdash oilmdash will inevitably decrease in the mid- term under any
scenario The value and volume of Rus sian exports to the United States are open to global market
volatility and po liti cal pressures with limited hedging mechanisms
Overall US exports to Rus sia are unsustainable due to bilateral po liti cal tensions the whims of
commodity markets and changing domestic policies Sanctions and counter- sanctions have
created additional barriers particularly in finance banking high- tech energy and agro- business
According to the American Chamber of Commerce 69 percent of US companies working in the
country consider the impact of US sanctions against Rus sia on their business as negative At the
same time 60 percent of companies do not expect big changes in business relations between
Rus sia and the United States under Trump1 as the new law codifies existing sanctions fortifies
them and extends them to new sectors
Current US investments are low due to the weak rule of law in Rus sia a lack of property right
protections and proper contract enforcement high levels of statization and monopolization in the
economy a poor business climate outdated capital stock dependence on natural- resource
sectors and of course sanction and counter- sanction mea sures Bloated administrative compo-
nents created as risk mitigation instruments have also served as impediments The countryrsquos
institutional weakness low level of productivity bud get constraints and a declining inflexible
workforce will restrain future economic growth even if commodity prices recover Rus sian eco-
nomic policy will likely continue to be statist and protectionist relying mostly on import
substitutions
1 Ibid 11
Existing Trends and Future Scenarios
07
594-71613_ch01_4Pindd 47 102017 404 PM
US-Russia Economic Relations48
What scenarios can be expected in such a challenging environment
One probability (no peace no war) is based on the assumption that matters will not deteriorate
further and implementation of the Sanctions Act will be cursory This will cause relatively slow
degradation in the economic field with occasional flashes of activity in selected areas (eg closer
cooperation against Islamist terrorist groups in Syria)
A second worse case or critical scenario is the intensive and full- scale execution of current sanc-
tion legislation and even the imposition of new economic punitive and restrictive mea sures which
could incite asymmetric retaliatory actions and lead to the introduction of additional protectionist
policies This in turn could trigger a further escalation of mutual confrontation and could eventu-
ally destroy the fundamentals of the current bilateral trade system Rus sian leadership has charac-
terized the Sanctions Act as a declaration of a trade war that ends all hope for improving bilateral
relations2
2 Дмитрий Медведев ldquoПодписание президентом США нового санкционного закона против России создает несколько
последствийrdquo [The US Presidentrsquos signing of the package of new sanctions against Rus sia will have a few conse-
quences] Facebook August 2 2017 https wwwfacebook com Dmitry Medvedev posts 10154587161801851
Figure 71 US Imports from Rus sia Share of Oil Metals Nuclear Fuel Fertilizers and Fish Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
93
94
93
94
95
96
93
92
87
89
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals Nuclear FuelFertilizers and Fish
594-71613_ch01_4Pindd 48 102017 404 PM
Vadim Grishin 49
The best case and most favorable scenario looks less probable now It assumes the realization of
structural reforms in Rus sia in such a way that would adapt Rus siarsquos foreign policy to national
economic needs reduce confrontations with the West and make a concerted efort to integrate
Rus sian businesses into global supply and value chains A revitalization of the structural reform
agendamdash including eforts to diversify economic activities through de- monopolization and support
for SMEs a restructuring of the banking sector the creation of a vibrant business climate to foster
entrepreneurships and innovation the implementation of administrative and judicial reforms to
tackle red tape and endemic corruption and the reduction of state control over key sectors of the
economy via wide- spread privatization could kick- start the development of a nonoil economy and
improve long- term growth prospects Despite ongoing discussion of reform strategies deep
economic and po liti cal changes are extremely complicated over the next po liti calelectoral cycle
(2018ndash2024) particularly because of re sis tance of vested interests and growing commodity prices
The urgency to tackle structural shortcomings in natu ral resource- dependent economies usually
correlates with the price of those resources and the degree to which resource rents drive eco-
nomic activity However there may be marginal improvements in the efficiency of the current
economic system
Future US- Russia relations can be thought of through three pillars one pillar focuses on areas
where both countries maintain a competitive rivalry another looks at potential areas of interaction
under pres ent conditions a third pillar and one that has evaporated from the current bilateral
agenda concentrates on future cooperation Stronger economic ties could not only be a kind of
po liti cal shock absorber but contribute to the building of this future (particularly business contacts
aim to support future structural reforms) although po liti cal factors are depressing the prospects
for cooperation To escape deadlock it will be impor tant to establish the right balance between
politics and economics and create a model of collaboration within the framework of contention
594-71613_ch01_4Pindd 49 102017 404 PM
About the Author
Vadim Grishin PhD MBA has been involved in the reform pro cess in Rus sia as adviser to the
deputy prime minister of Rus sia in 1992ndash1993 and 2006ndash2010 He has extensive experience
working with the Bretton Woods Institutions He was the board member of the World Bank Group
and served as se nior adviser at the International Monetary Fund Currently he is a con sul tant to the
chief economistrsquos office of the International Finance Corporation and teaches the economics of
transition at Georgetown University in Washington DC
50
594-71613_ch99_4Pindd 50 102017 403 PM
Blank
COVER PHOTO ADOBE STOCK
1616 Rhode Island Avenue NW
Washington DC 20036
202 887 0200 | wwwcsisorg
v++ISBN 978-1-4422-8035-9
Lanham bull Boulder bull New York bull London
4501 Forbes Boulevard
Lanham MD 20706
301 459 3366 | wwwrowmancom
A U T H O R
Vadim Grishin
Myths and Realities
A Report of the
CSIS RUSSIA AND EURASIA PROGRAM
US-RussiaEconomicRelations
O C T O B E R 2 0 1 7
Euml|xHSLEOCy280359z
The Man Pupu Nyor Rock Formations at the Northern Urals also known as Seven
Strong Man or Little Mountain of the God in the local tribe (Mansi) language
US-Russia Economic Relations12
in bilateral business afairs in the early 2000s was less significant than in later years As result
growing po liti cal tensions from 2003 to 2008 did not dramatically afect bilateral economic inter-
action It is also easier to explain why 2011ndash2012 resulted in rec ord trade and investmentmdash a con-
sequence of very high oil prices GDP growth in both countries improved legislation after Rus siarsquos
accession to the WTO and the Obamandash Medvedev po liti cal reset From 2014 to 2016 a perfect
storm of developments added efficiency to Western sanctions and augmented the damaging
consequences of counter- sanction mea sures
Figure 33 also confirms that in times of reduced economic cooperation po liti cal pressures can
easily change bilateral economic trends Moreover business interests along with economic inter-
actions have a limited capacity to reverse the po liti cal mainstream
Figure 31 Economic Cycle 2014ndash2016
Source Authorrsquos evaluation of international financial institutions (IFI) data and sources from respective
countries
Sustainable Growth
Brazil
Negative Growth
Unstable Growth
Mexico
Descending Growth
Argentina
EU
US
Russia
Vietnam
China
594-71613_ch01_4Pindd 12 102017 404 PM
Vadim Grishin 13
Table 31 Po liti cal Cycles in Bilateral US- Russia Relations 1999ndash2016
2001ndash2002 The George W Bushndash Vladimir Putin Reset Rus sia supported ldquoglobal war on terrorismrdquo launched by the United States after 911 the SORT nuclear arms reduction treaty was signed by the United States and Rus sia and a successful business dialogue was developed that created the current structure of economic relations
2003ndash2008 Deterioration in bilateral relations brought on by the Iraq War Georgiarsquos ldquoRose Revolutionrdquo Mikhail Khodorkovskyrsquos arrest Ukrainersquos ldquoOrange Revolutionrdquo Kosovorsquos in de pen dence and the Georgian War
2009ndash2010 The Barack Obamandash Dmitry Medvedev Reset Rus sia served as a logistical hub for transportation and supply of US forces in Af ghan i stan United States and Rus sia signed the new START nuclear arms reduction treaty Rus sia backed tighter economic sanctions on Iran Rus sia gained access to the WTO after 18 years of negotiations
2011ndash2016 Deterioration in bilateral relations caused by the Ukrainian crisis which were followed by sanctions and counter- sanctions along with the Syrian crises and cyber- enabled activities
Source Authorrsquos evaluation of po liti cal and economic data
Note SORTthinsp=thinspStrategic Ofensive Reductions Treaty STARTthinsp=thinspStrategic Arms Reduction Treaty
Figure 32 Economic Cycle 2017ndash2019
Source Authorrsquos evaluation of IFI data and sources from respective countries
Egypt
VenezuelaEU
South Africa
Brazil
Russia
India
US
Descending Growth
Korea
China
Negative Growth
Unstable Growth
Sustainable Growth
594-71613_ch01_4Pindd 13 102017 404 PM
US-Russia Economic Relations14
Figure 33 US- Russia Trade Million US$ vs Po liti cal Cycle 2000ndash2016
Sources US Census Bureau ldquoTrade in Goods with Rus siardquo Foreign Trade last modified June 29 2017
https wwwcensus gov foreign - trade balance c4621 html (see data for 2000ndash2016) authorrsquos evaluation
of po liti cal and economic data
Orange Revolution
Khodorkovskys arrest
GeorgianWar
Bush- Putin Reset
Iraq War Global Financial Crisis
Obama-Medvedev Reset
Russias WTO accession
New START Treaty
A Pefect Storm the Ukranian Crisis Oil Prices Crashing
Sanctions and Counter-Sanctions
$3000
$8000
$13000
$18000
$23000
$28000
$33000
$38000
$43000
2000 2002 2004 2006 2008 2010 2012 2014 2016
594-71613_ch01_4Pindd 14 102017 404 PM
15
The current structure of US- Russia economic relations emerged in the early 2000s when the
model of trade and investment interaction took on a character similar to that which existed be-
tween the United States and developing economies US imports from Rus sia centered on com-
modities while technology along with food products lead American exports The primary
exception was that Rus sia supplied nuclear fuel including highly enriched uranium extracted from
nuclear weapons for US power plants and provided ser vices to the aerospace industry primarily
in satellite launches However both these exceptions can be explained as a legacy of the Soviet
past and not a harbinger of the future economic relationship (Figure 41)
In the last 15 years this trade structure has not changed significantly The only noticeable shift in
trade was a dramatic drop (to practically nothing) in exports of US agricultural products a result
of Rus siarsquos policy of import substitution and so- called counter- sanction mea sures it took in re-
sponse to US sanctions over the Ukraine crisis (Figure 42)
Promising new directions of cooperation in the IT sector and in engineering ser vices for the
aerospace industry appeared in the early 2000s1 but did not spill into other sectors and conse-
quently did little to renew economic cooperation on the whole The integration of Rus sian high-
tech ser vices into large- scale global production and value chains was constrained by the usual
culprits a lack of financial resources managerial experience skilled labor modern infrastructure
RampD investments and an adequate business environment High commodity prices incentivized the
restoration of an economic system centered on resource rents The leading role of oil and gas
extraction and transportation discouraged the development of a nonenergy sector that might
have created advanced and complex production and ser vices An import substitution policy could
not work efficiently in an economic environment plagued by the Dutch disease where currency
1 The Boeing Design Center was created in Moscow It consists of nearly 250 Boeing employees managing
a team of 1200 contract engineers from Rus sian and Ukrainian aerospace companies ldquoBackgrounder Boeing in
Rus siardquo Boeing last modified January 2017 http wwwboeing com resources boeingdotcom company key _ orgs
boeing - international pdf russia - cisbackgrounder pdf
Are the United States and Rus sia ldquoNatu ralrdquo Trading Partners A Little Bit of History
04
594-71613_ch01_4Pindd 15 102017 404 PM
US-Russia Economic Relations16
inflows (oil money) lead to ruble appreciation and render a countryrsquos production less competitive
During that time Rus siarsquos industry did not receive preferential access to larger markets and could
not expand its share in the global economy particularly because of its self- isolation from the
regional trade agreements (except for its participation in the Eurasian Economic Union with some
neighboring countries of the former Soviet Union) As a result neither import substitution nor
export- led strategy promoted growth and specialization in nonoil production A long- awaited
modernization and reallocation of resources from an inefficient nontrade sector to a trade sector
did not materialize
These limits were later augmented with sanctions and an extension of domestic restrictions on
cooperation with Western partners Importantly the rapid growth of state- monopoly structures in
the Rus sian economy over the past 15 years has created additional obstacles to the development
and diversification of US- Russia economic ties
Figure 41 US Imports from Rus sia US$ 2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2016)
Fish and shellfish 3
Crude oil 5
Fuel oil 37
Petroleum products other
8
Nuclear fuel materials
7
Chemicals-fertilizers 4
Steelmaking materials 5
Iron and steel mill products 4
Bauxite and aluminum 9
Other precious metals 4
Nonferrous metals other 1
Finished metal shapes 1
Synthetic rubber--primary
1
Spacecraftexcluding military
594-71613_ch01_4Pindd 16 102017 404 PM
Fig
ure
42
U
S E
xpo
rts
to R
us s
ia U
S$ 2
016
Sou
rce
US
Ce
nsu
s B
ure
au ldquo
Trad
e in
Go
od
s w
ith
Ru
s sia
rdquo (s
ee
dat
a fo
r 2
016
)
Bak
ery
pro
du
cts
Win
e b
eer
an
d r
elat
ed
pro
du
cts
New
spri
nt
Pla
stic
mat
eria
ls
Ch
emic
als-
fert
ilize
rs
Ch
emic
als-
ino
rgan
icC
hem
ical
s-o
rgan
ic
Ch
emic
als-
oth
erC
ott
on
fib
er c
loth
In
du
stri
al r
ub
ber
pro
du
cts
Min
eral
su
pp
lies-
man
ufa
ctu
red
Gen
erat
ors
acc
esso
ries
Ele
ctri
c ap
par
atu
s
Dri
llin
g amp
oilfi
eld
eq
uip
men
t Sp
ecia
lized
min
ing
Exc
avat
ing
mac
hin
ery
No
nfa
rm t
ract
ors
an
d p
arts
In
du
stri
al e
ng
ines
Fo
od
to
bac
co m
ach
iner
y M
etal
wo
rkin
g m
ach
ine
too
ls
Tex
tile
sew
ing
m
ach
ines
W
oo
d g
lass
p
last
ic
Pu
lp a
nd
pap
er
mac
hin
ery
Mea
suri
ng
tes
tin
g
con
tro
l in
stru
men
ts
Mat
eria
ls h
and
ling
equ
ipm
ent
Ind
ust
rial
mac
hin
es
oth
er
Ph
oto
ser
vice
ind
ust
ry m
ach
iner
y A
gri
cult
ura
l mac
hin
ery
eq
uip
men
t C
om
pu
ters
Co
mp
ute
r ac
cess
ori
es
Sem
ico
nd
uct
ors
Tel
eco
mm
un
icat
ion
seq
uip
men
t
Bu
sin
ess
mac
hin
es a
nd
eq
uip
men
t
Lab
ora
tory
tes
tin
g in
stru
men
ts
Med
icin
al e
qu
ipm
ent
Civ
ilian
air
craf
t e
ng
ines
eq
uip
men
t a
nd
par
ts
Rai
lway
tra
nsp
ort
atio
n
equ
ipm
ent
Ves
sels
exc
lud
ing
scr
ap
Co
mm
erci
al v
esse
ls o
ther
M
arin
e en
gin
es p
arts
Spac
ecra
ft e
xclu
din
g
mili
tary
Pas
sen
ger
car
s
new
an
d u
sed
Tru
cks
bu
ses
and
sp
ecia
l p
urp
ose
ve
hic
les
En
gin
es a
nd
en
gin
e p
arts
(c
arb
ure
tors
pis
ton
s r
ing
s
and
val
ves)
B
od
ies
and
ch
assi
s fo
r p
asse
ng
er c
ars
Au
tom
oti
ve t
ires
an
d t
ub
es
Oth
er p
arts
an
d a
cces
sori
es o
f ve
hic
les
Ap
par
el h
ou
seh
old
go
od
s -
text
ile
Ph
arm
aceu
tica
lp
rep
arat
ion
s
Furn
itu
re h
ou
seh
old
go
od
s
etc
R
ug
s
Cel
l ph
on
es a
nd
oth
er
ho
use
ho
ld g
oo
ds
ne
c
594-71613_ch01_4Pindd 17 102017 404 PM
US-Russia Economic Relations18
Figure 43 US Trade in Goods with Rus sia Million US$ 1992ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
Russian Financial Crisis
Oil price Increased from$2446 USD per barrel (2001)
to $9694 USD per barrel(2008)
Global Financial Crisis
Oil price high record in2011-2012
(more that $111 USD perbarrel)
Oil price crashed
$-
$5000
$10000
$15000
$20000
$25000
$30000
$35000
$40000
$45000
$50000
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia US Exports to Russia US-Russia Trade in Goods
No doubt po liti cal ups and downs add volatility to US- Russia trade Nevertheless Rus siarsquos eco-
nomic structure exhausted itself before the Ukrainian crisis and the recent Rus sian recession Its
limitations are not only due to some mistakes in policy or negative coincidences of circumstances
but rather to deeply rooted properties in the current bilateral trade model related to structural
issues in the Rus sian economy Structural constraints such as the weak enforcement of property
rights poor business regulation and nondiversified exports weighed on Rus sian trade with the
United States From this perspective the term ldquonaturalunnatural trading partnersrdquo does not ad-
dress the unused capacity of bilateral interaction or the real challenges that kind of interaction
faces It just adds metaphysical flavor to the very specific economic and po liti cal factors that
determine the US- Russia trajectory
Overall the outlines of bilateral trade (Figure 43) resemble the famous ldquoRus sian Mountainsrdquo that
were a pre de ces sor of the modern roller coaster icy hills supported by wooden constructionsmdash a
rigid and immobile structure that sooner or later would melt This unfortunately is what is hap-
pening to US- Russia trade cooperation now
594-71613_ch01_4Pindd 18 102017 404 PM
19
ARE LITTLE FISH REALLY SWEET
Low US- Russia economic interaction has at least two consequences First it limits the capacity of
policymakers to exploit trade as an instrument for geopo liti cal combat Even the question of a US
trade deficit which used to be a headache for many US trading partners has become so insig-
nificant in absolute terms (about $87 billion in 2016) that it seems hardly worth caring about
When the volume of trade between two countries becomes very small in absolute terms whether
a country is running a surplus or deficit is no longer relevant But it also renders another type of
confrontations (sometimes more dangerous) more likely since the two traders have little to lose
Second in an environment marked by low levels of bilateral trade both sides could incentivize (if
and when a desire for po liti cal rapprochement exists) the signing of new trade deals which are
elevated symbolically as a turning point in bilateral po liti cal relations (ie the sale of Boeings to
Rus sia or the delivery via tankers of Rus sian oil to US refineries) Sometimes markets themselves
pres ent ldquogiftsrdquo that can be capitalized on po liti cally US- USSR grain trade in the 1970s was one
such ldquogiftrdquo large sales of American grain to the Soviet Union helped US policymakers win favor
with the po liti cally impor tant American farming sector and permitted Soviet leaders to maintain
access to a dietary staple for the Soviet population
The strong 32 percent growth in value of US imports from Rus sia from January to May 2017
versus January to May 2016 ( Table 51) is an example of a development that has tempted officials
to pres ent it as a sign of positive change due to ldquogrowing business activitiesrdquo (this kind of statement
was heard before the bilateral summit in Germany in July 2017) although the reason for that leap
was evidently an increase in commodity prices (mainly of oilmdash see Table 52) and not a rise in
entrepreneurial interactions The primary beneficiaries of that upside rally have been two other
petro- economies Saudi Arabia and Venezuela ( Tables 53 and 54)
Sector Analyses
05
594-71613_ch01_4Pindd 19 102017 404 PM
US-Russia Economic Relations20
Table 51 US Imports from Rus sia Million US$ Januaryndash May 2016 vs Januaryndash May 2017
Year January February March April May Total
2016 9603 6871 11097 12257 10977 50805
2017 12215 10220 16979 13471 14147 67032
Change 271 487 530 99 289 319
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
Table 52 Change in Urals Crude Oil Prices US$ per Barrel Januaryndash May 2016 vs Januaryndash May 2017
Januaryndash May 2016 Januaryndash May 2017 Change ($) Change ()
3601 5129 1528 424
Source Ministry of Finance of the Rus sian Federation https wwwminfin ru ru ixzz4mMIZ7XtC
Table 53 US Imports from Saudi Arabia Million US$ Januaryndash May 2016 vs Januaryndash May 2017
Year January February March April May Total
2016 15114 9036 13555 10844 14679 63228
2017 19802 20298 21650 16211 19542 97503
Change 3101 12463 5972 495 331 542
Source US Census Bureau ldquoTrade in Goods with Saudi Arabiardquo Foreign Trade last modified June 29 2017
https wwwcensus gov foreign - trade balance c5170 html (see data for 2016ndash2017)
594-71613_ch01_4Pindd 20 102017 404 PM
Vadim Grishin 21
Table 54 US Imports from Venezuela Million US$ Januaryndash May 2016 vs Januaryndash May 2017
Year January February March April May Total
2016 6657 5560 7140 8007 7922 35286
2017 13041 10864 123500 11148 12243 59646
Change 9590 9540 7297 3923 5454 6903
Source US Census Bureau ldquoTrade in Goods with Venezuelardquo Foreign Trade last modified June 29 2017
https wwwcensus gov foreign - trade balance c3070 html (see data for 2016ndash2017)
Table 55 US Exports to Rus sia Million US$ Januaryndash May 2016 vs Januaryndash May 2017
Year January February March April May Total
2016 3628 3577 7298 4657 4947 24107
2017 3144 4277 5386 6670 4806 24283
Change minus133 196 minus262 432 minus29 minus07
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2016ndash2017)
At the same time US exports to Rus sia continue to stagnate ( Table 55) due to low levels of
consumption during a two-and- a- half-year economic crisis a deep ruble devaluation sanctions
and counter- sanctions
Given the very dif er ent economic structures and resource endowments of Rus sia and the United
States it is not surprising that US- Russia trade is asymmetric and oil driven (Figure 51) A
3 percent increase in Urals oil prices translates into a one percent increase in US import growth
from Rus sia Thus in 2016 every $10 increase in Urals crude oil added $15 billion to the value of
US imports or 11 percent to the total value of imports from Rus sia
OIL ADDICTION
Oil is a core pillar of US- Russia bilateral trade A bumpy ride in oil markets afects commerce
Nevertheless Rus sian oil exports to the United States in physical terms have been rather
594-71613_ch01_4Pindd 21 102017 404 PM
US-Russia Economic Relations22
sustainable Starting from 2005 average annual deliveries have been above 150 million barrels
(Figure 52) Crude and heating oil have dominated while petroleum products and liquefied petro-
leum gases have not (Figure 53) In 2011 oil exports peaked at 228 million barrels but declined to
159 million barrels in 2016mdash a drop of 30 percent Rec ord high shipments of Rus sian oil to the United
States coincided with an elevation in oil prices which made the subsequent decline in oil shipment
value between 2011 and 2016 (by about 72 percent as shown in Figure 54) seem more stark The
increase in price also raised the share of oil in Rus sian exports by 74 percent in 2011 (Figure 55)
The Rus sian share in total US oil imports was around 55 percent in 2011 and 43 percent in 2016
( Table 56) In the last five years the United States has relied exclusively on consumption of Rus sian
oil for the rough equivalent of one week out of the year (Figure 56)
It is unlikely that Rus sia can significantly increase its share of the US oil market and there is a real
possibility for a downward trend There are several reasons the historically high Rus sian hydrocar-
bon export threshold of 2011 will not soon if ever be surpassed
First US energy consumption will likely be flat According to the US Energy Information Adminis-
tration (EIA) demand for petroleum and other liquids in the United States will be about 35ndash36
quadrillion British thermal units (BTUs) with minimal variation over the next 25 years1
1 US EIA ldquoAnnual Energy Outlook 2017 with Projections to 2050rdquo January 5 2017 7ndash8
Figure 51 US- Russia Trade Growth () vs US and Rus sia Real GDP Growth () 1993ndash2016
Source IMF ldquoIMF Datardquo accessed September 27 2017 http wwwimf org en Data US Census Bureau
ldquoTrade in Goods with Rus siardquo
Note rGDPthinsp=thinspreal gross domestic product
Trade
USA rGDP growth
Russia rGDP growth
-60
-40
-20
0
20
40
60
80
100
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Gro
wth
All spikes in US-Russia trade have been connected with two main
variables volume and price of crude oil
594-71613_ch01_4Pindd 22 102017 404 PM
Vadim Grishin 23
Second the United States will become a net energy exporter between 2020 and 2030 in most
cases under dif er ent combinations of oil and natu ral gas prices GDP growth technological
breakthroughs and the availability of energy resources The role of oil imports will dramatically
fall2
Third oil price scenarios as described by the International Energy Agency (IEA) international
financial organ izations (IFIs) and many national agencies are very cautious and assume that even
by 2035 to 2040 oil prices will not to recover to the levels of 2011ndash20123
Fourth Rus sian oil production and export growth will be modest and driven by Asian economic
expansion and will comprise a decreasing share of Western markets4 According to forecasts from
2 Ibid 15ndash18
3 Ibid table 3 ldquoEnergy Prices by Sector and Sourcesrdquo World Bank World Bank Commodity Markets Price Forecasts
(Washington DC World Bank 2017) httpswwwworldbank org en research commodity - markets Organ ization of the
Petroleum Exporting Countries (OPEC) World Oil Outlook 2016 (Vienna OPEC 2016)
4 E D Belotskaia et al Global and Rus sian Energy Outlook 2016 (Moscow Energy Research Institute of the Rus sian
Acad emy of Science Analytical Center for the Government of the Rus sian Federation 2016) http acgov ru files
publication a 12767 pdf
Figure 52 US Imports from Rus sia Crude Oil and Petroleum Products Thousands of Barrels 1995ndash2016
Source US EIA ldquoUS Imports by Country of Origin Rus siardquo Petroleum amp Other Liquids September 13
2017 http wwweia gov dnav pet PET _ MOVE _ IMPCUS _ D _ NUS _ NRS _ MBBL _ M htm
0
50000
100000
150000
200000
250000
Date 1995 1996 1997 1998 199920002001200220032004200520062007200820092010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 23 102017 404 PM
US-Russia Economic Relations24
the Organ ization of the Petroleum Exporting Countries (OPEC) crude oil exports from Rus sia and
the Caspian region to the United States will dis appear by 20255
So why does the Rus sian Urals blend continue to be attractive for oil traders and US refineries
which could pro cess greater volumes of domestically produced lighter crude There are two main
reasons One is related to the preference of US high conversion refineries (the most sophisticated
in the world) to work with heavy oil blends produced by Canada Mexico Iraq Venezuela and
Rus sia Pro cessing heavy crude now is as profitable as pro cessing lighter crude The so- called
crack spreadmdash the diference between the cost of relatively cheap heavy crude oil and the final
price of value- added consumer products (diesel gasoline jet fuel and heating oil)mdash has become
the same as the refinery margins of light sweet crude6 This has primarily afected light oil produc-
ing countries such as Angola Algeria and Nigeria
5 OPEC World Oil Outlook 2016 306ndash309
6 ldquoHow Much for That Heavy Oilrdquo Oil Sands Magazine December 26 2015 https wwwoilsandsmagazine com
news 2015 12 26 how - much - for - that - heavy - oil
Figure 53 US Imports from Rus sia Oil and Petroleum Products US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$-
$25000000000
$20000000000
$15000000000
$10000000000
$5000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Liquefied petroleum gases
Petroleum products other
Fuel oil
Crude oil
594-71613_ch01_4Pindd 24 102017 404 PM
Vadim Grishin 25
Another factor afecting purchase of Rus sian oil is a new trend among oil companies for further
consolidation of scale and for integrating operations of upstream and downstream business7
There have been several waves of separation and unification of production transportation and
pro cessing in the last 50 years The current business cycle can be seen as an adaptation to a
period of low prices and oversupply Companies that buy andor produce oil in Rus sia most likely
prefer to transport and pro cess this oil in their own modern refineries in the United States At the
same time some of the newest refinery designs specifically for pro cessing heavy oils have been
built in Asia thus extending the choices of heavy oil producing countries
We should also consider that leading US and international oil traders along with oil producing
companies working with or owning US refineries frequently buy Rus sian oil on the open market
and have long- term contracts on Rus sian crude oil delivery Many Rus sian oil companies prefer to
pay for purchases or ser vices with their future production instead of cash creating situations of
ldquostickyrdquo oil imports that are difficult to replace The best- known example is an interaction between
7 ldquoEnergy and Utilities Sectorrdquo Roundtable Financier Worldwide December 2015 https wwwfinancierworldwide
com roundtable - energy - utilities - sector - dec15
Figure 54 US Imports of Oil and Petroleum Products from Rus sia vs Oil Prices Eu rope Brent Spot Price Free on Board (FOB) 1996ndash2017
Source US EIA ldquoUS Imports by Country of Origin Rus siardquo
0
20
40
60
80
100
120
140
0
5000
10000
15000
20000
25000
30000
Jan
-19
96
Jun
-19
96
No
v-19
96
Ap
r-19
97
Sep
-19
97
Feb
-19
98
Jul-
199
8D
ec-1
99
8M
ay-1
99
9O
ct-1
99
9M
ar-2
00
0A
ug
-20
00
Jan
-20
01
Jun
-20
01
No
v-2
00
1A
pr-
20
02
Sep
-20
02
Feb
-20
03
Jul-
20
03
Dec
-20
03
May
-20
04
Oct
-20
04
Mar
-20
05
Au
g-2
00
5Ja
n-2
00
6Ju
n-2
00
6N
ov-
20
06
Ap
r-2
00
7Se
p-2
00
7Fe
b-2
00
8Ju
l-2
00
8D
ec-2
00
8M
ay-2
00
9O
ct-2
00
9M
ar-2
010
Au
g-2
010
Jan
-20
11Ju
n-2
011
No
v-2
011
Ap
r-2
012
Sep
-20
12Fe
b-2
013
Jul-
20
13D
ec-2
013
May
-20
14O
ct-2
014
Mar
-20
15A
ug
-20
15Ja
n-2
016
Jun
-20
16N
ov-
20
16
USD
per
Bar
rel
Th
ou
san
d B
arr
els
US Imports from Russia of Crude Oil and Petroleum Products (Thousand Barrels)
Europe Brent Spot Price FOB (Dollars per Barrel)
594-71613_ch01_4Pindd 25 102017 404 PM
US-Russia Economic Relations26
Table 56 US Oil Imports All Countries vs Rus sia Thousand Barrels per Day 2011ndash2016
Years 2011 2012 2013 2014 2015 2016
All Countries 11436 10598 9859 9241 9449 10058
Rus sia 624 477 460 330 371 433
Share 546 450 467 357 393 431
Sources US EIA ldquoUS Imports by Country of Origin Total Crude Oil and Productsrdquo Petroleum amp Other
Liquids September 13 2017 wwweia gov dnav pet pet_move_impcus_a2_nus_ep00_im0_mbbl_m htm
authorrsquos computation
Figure 55 US Imports from Rus sia Share of Crude Oil and Petroleum Products Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
57
64
73
72
74
73
72
59
52 50
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
$40000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil and Petroleum Products
594-71613_ch01_4Pindd 26 102017 404 PM
Vadim Grishin 27
the Rus sian state mono poly Rosneft and commodity trading and mining giant Glencore which
along with energy and commodities com pany Vitol participated in a $10 billion prepayment
deal with Rosneft for crude supplies in 2013
There have been a number of ongoing transactions between the Rus sian oil industry and interna-
tional oil companies including several that top the list of importers of Rus sian oil to the United
States ( Table 57) In December 2016 Glencore participated in a controversial privatization opera-
tion purchasing in tandem with the Qatar sovereign wealth fund a 195 percent stake in Rosneft
which was on the US and EU list of sanctioned firms8 Glencore has also taken a blocking stake in
midsize oil producer RussNeft BP owns a 1975 percent stake in Rosneft Chevron holds a
15 percent interest in the 935- mile- long CPC9 pipeline which transports an average of 959000
barrels of crude oil per day including 76000 barrels daily from Rus sia10 ExxonMobil has formed
8 E Mazneva and I Arkhipov ldquoRus sia Sells $11 Billion Stake in Rosneft to Glencore Qatarrdquo Bloomberg December 7
2016
9 CPCthinsp=thinspCaspian Pipeline Consortium
10 ldquoRus sia Highlights of Operations and Business Portfoliordquo Chevron accessed October 3 2017 https wwwchevron
com worldwide russia
Figure 56 Share of Rus sian Oil in Total US Oil Imports Thousands of Barrels per Day 1972ndash2016
Source US EIA ldquoUS Imports by Country of Origin Total Crude Oil and Productsrdquo
2000
4000
6000
8000
10000
12000
14000
16000
US Imports of Crude Oil and Petroleum Products (Thousand Barrels per Day)
US Imports from Russia of Crude Oil and Petroleum Products (Thousand Barrels per Day)19
7319
7419
7519
7619
7719
7819
7919
80
198
119
82
198
319
84
198
519
86
198
719
88
198
919
90
199
119
92
199
319
94
199
519
96
199
719
98
199
92
00
02
00
12
00
22
00
32
00
42
00
52
00
62
00
72
00
82
00
92
010
20
112
012
20
132
014
20
152
016
594-71613_ch01_4Pindd 27 102017 404 PM
Table 57 Top Importers of Rus sian Oil to the United States Thousands of Barrels 2016
VALERO MARKETING amp SUPPLY CO 54590 3616
EXXONMOBIL OIL CORP 17087 1130
CHEVRON USA INC 15217 1008
BP WEST COAST PRODUCTS LLC 10130 671
GEORGE E WARREN CORP 7272 48
PAULSBORO REFINING CO LLC 6838 453
TESORO CORP 5097 338
VITOL INC 5084 337
PHILLIPS 66 CO 4726 313
TRAFIGURA AG 4360 289
PAR HAWAII REFINING LLC 3893 258
MOTIVA ENTERPRISES LLC 3041 205
SHELL US TRADING CO 2863 19
MARATHON PETROLEUM CO LLC 2475 16
ATLANTIC TRADING amp MARKETING 2099 14
FREEPOINT COMMODITIES LLC 1439 1
GLENCORE LTD 1284 85
BEST PETROLEUM CORP 967 64
ROLYMPUS US COMMODITIES GROUP LLC 822 6
HUNT CRUDE OIL SUPPLY CO 666 4
GULF OIL LP 658 4
Source US EIA ldquoUS Imports by Country of Origin Crude Oilrdquo Petroleum amp Other Liquids September 13
2017 httpswwweiagovdnavpetpet_move_impcus_a2_nus_epc0_im0_mbblpd_ahtm authorrsquos
computation
594-71613_ch01_4Pindd 28 102017 404 PM
Vadim Grishin 29
several joint ventures with Rosneft to undertake ofshore exploration in the Black Sea and the Kara
Sea in Siberia11
According to the Sanctions Act US persons are prohibited from exporting or reexporting goods
ser vices (except financial ser vices) and technology in support of exploration or production of new
deep- water Arctic ofshore or shale oil proj ects that involve designated Rus sian entities or other
entities in which such sanctioned persons have a controlling interest or a substantial noncontrol-
ling owner ship interest defined as not less than 33 percent (previously it was 50 percent) The new
law also authorizesmdash but does not requiremdash the imposition of so- called secondary sanctions
against non- US entities that engage in activities involving the construction maintenance or
expansion of Rus sian energy export pipelines with a fair market value of $1 million or more or an
aggregate fair market value during a 12- month period of $5 million12 This provision has raised the
concerns of some Eu ro pean countries particularly Germany As result the final language of the
law included wording about coordination of this issue with allies of the United States
Shipments of Rus sian oil to the United States could be afected by activity in the US refinery
industry In early 2017 Saudi Aramco bought the United Statesrsquo largest oil refinery in Port Arthur
(Texas) and it announced plans to send more of its own crude to that refinery13 Serious concerns
exist however regarding the future of three refineries and nine pipelines owned by Citgo a US
branch of the Venezuelan state com pany PdVSA which is balancing precariously on the edge of
default Under certain conditions in the event of PdVSA bankruptcy Rosneft could claim a stake of
up to 499 percent in Citgo Such a possibility has raised concerns among politicians and US
government officials with Trea sury Secretary Steven Mnuchin calling it a ldquonational security issuerdquo14
Tables 58 59 and 510 show allocations of Rus sian oil imports to major US refineries some of
which work exclusively on Rus sian crude a total of two to three months per year In total 150940
thousand barrels of Rus sian oil were refined in 2016
Figure 57 confirms a leading position of Texas and Louisiana among the US states receiving
Rus sian crude followed by New Jersey California Mississippi Washington Hawaii and Delaware
In a paradoxical way Texas has dis appeared from the list of states as a main destination of US
imports from Rus sia (Figure 58) because Rus sian crude is mostly delivered to Louisiana ports and
registered there by US Customs as an import from Rus sia After that it transports to refineries in
Louisiana and Texas
Overall the short- term business rationale behind the sustainability of US oil imports from Rus sia
cannot overcome strong headwinds in the US energy sector facing all oil importers which will
inevitably lead to a contraction of Rus sian oil exports to the United States in the foreseeable future
11 Exxon eforts to receive a special US Trea sury waiver to drill in sanctioned Rus sia failed in 2017
12 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364
13 Sarp Ozkan ldquoSaudi Aramcorsquos Port Arthur Refinery and the US Refinery Fleetrdquo Drilling Info May 11 2017
https infodrillinginfo com saudi - aramcos - port - arthur - refinery - us - refinery - fleet
14 Graham Kates ldquoTrea sury Secretary Rus siarsquos Citgo Deal a National Security Issuerdquo CBS News May 1 2017
http wwwcbsnews com news rosneft - citgo - steven - mnuchin - national - security
594-71613_ch01_4Pindd 29 102017 404 PM
US-Russia Economic Relations30
Table 58 Valerorsquos Refineries Pro cessing Rus sian Oil Thousands of Barrels 2016
Saint Charles Louisiana 29206 535
Corpus Christi Texas 20626 378
Wilmington California 4250 78
Total USA 54590 100
Source US EIA ldquoRefinery Capacity Reportrdquo January 1 2017
table 5 wwweia gov petroleum refinerycapacity table5 pdf
authorrsquos computation
Table 59 ExxonMobil Refineries Pro cessing Rus sian Oil Thousands of Barrels 2016
Baytown Texas 15037 88
Baton Rouge Louisiana 2046 12
Total USA 17083 100
Source US EIA ldquoRefinery Capacity Reportrdquo authorrsquos computation
Table 510 Chevronrsquos Refineries Pro cessing Rus sian Oil Thousands of Barrels 2016
Pascagoula Mississippi 12767 840
El Segundo California 2372 155
Saint Rose Louisiana 78 05
Total USA 15217 100
Source US EIA ldquoRefinery Capacity Reportrdquo authorrsquos computation
594-71613_ch01_4Pindd 30 102017 404 PM
Vadim Grishin 31
HEAVY METAL
Taken together US imports of metals and US imports of oil compose about 80 percent of US
total imports from Rus sia (Figure 59) Trade of metals like other commodities is strongly afected
by market price fluctuations Nevertheless metal imports from Rus sia have been fairly resilient to
market volatility and their average annual value has hovered at about $4 billion in the last five years
(Figure 510) This market resilience was forged at the end of the 1990searly 2000s when Rus sian
metal producers gradually modernized their plants adjusting quality of production to Western
standards and enhancing integration into global value and supply chains Some of them conquered
their share of the highly competitive US market struggling with peers from Canada and certain
BRICS countries (China India and Brazil) To attract additional resources all Rus sian large metal-
producing companies became public and were listed on stock exchanges chiefly the London Stock
Exchange (Severstalrsquo PAO Evraz MMK OAO Novolipetsk Steel Norilsk Nikel and TMK PAO) one
on the New York Stock Exchange (Mechel) and one on the Hong Kong Stock Exchange (Rusal)
Business logic pushed some of them to invest in the US metal- making industry which was hit
hard by crisis Later on some of those assets were sold (eg two US steel mills acquired by
Severstal in 2004 were purchased 10 years later by Steel Dynamics Inc and AK Steel Corp)
Figure 57 Share of US States Rus sian Oil Imports 2016
Source US EIA ldquoUS Imports from Rus sia of Crude Oil and Petroleum Productsrdquo Petroleum amp Other
Liquids September 29 2017 https www eia gov dnav pet hist LeafHandler ashx nshy=shyPETampsshy=shyMTTIM _ NUS
- NRS _ 1ampfshy=shyM authorrsquos computation
0
10
20
30
40
50
60
70
80
90
100
Maine
Massachusetts
Maryland
Connecticut
Georgia
Rhode Island
Virginia
Florida
New York
Alabama
Puerto Rico
Pennsylvania
Delaware
Hawaii
Washington
Mississippi
California
New Jersey
Louisiana
Texas
594-71613_ch01_4Pindd 31 102017 404 PM
Figure 58 US Imports from Rus sia by State Million US$ 2013ndash2016
Source US Census Bureau ldquoState and Metropolitan Area Trade Datardquo Foreign Trade last modified
October 2 2017 https wwwcensus gov foreign - trade statistics state
Alaska
Connecticut
Delaware
Hawaii
Louisiana
Maryland
North Dakota 0
$1000
$2000
$3000
$4000
$5000
$6000
2013 2014 2015 2016
Alabama
Alaska
Connecticut
Delaware
Hawaii
Louisiana
Maryland
Maine
Mississippi
Montana
North Dakota
Mississippi
Figure 59 US Imports from Rus sia Share of Oil and Metals Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
83
82
85
86
87
88
85
82
7375
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
$40000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil and Metals
594-71613_ch01_4Pindd 32 102017 404 PM
Vadim Grishin 33
Obviously the market dynamic of dif er ent metals varies (eg iron steel aluminum platinum and
nickel) Caps to increase their trade and production in a ldquored oceanrdquo global environment with
anemic demand is rather limited despite Figure 510 showing a spike of iron and steel imports
from Rus sia in 2014 and aluminum in 2016 Some opportunities may exist for Russian- owned steel
plants in the United States (such as NLMK) to participate in energy proj ects resumed under Presi-
dent Trump who has required that new pipelines use only American- made steel15
Rus sia occupies a special niche in the US market for titanium products a high- end metal indus-
try Twenty years ago a long- term contract was signed between Rus sian titanium producer
VSMPO- AVISMA and Boeing The Rus sian com pany entered the selective club of Boeing suppliers
for the manufacture of components and semi- finished products Since the signing of this contract
VSMPO has delivered more than 35 percent of all titanium placed on Boeing civil aircraft16 They
are hidden in the trade data in an import category for Civilian Aircrafts and Parts (Figure 511) At
the end of 2016 Boeing announced an extension of its framework agreement with AVISMA
15 E Scheyder C Ngai and T Sylvester ldquoAmerican Steel Unlikely to Get Keystone Boost Despite Trump Orderrdquo
Reuters January 27 2017 http wwwreuters com article usa - trump - pipeline - transcanada - idUSL1N1FH1ZD
16 A Kramer ldquoTitanium Fills Vital Role for Boeing and Rus siardquo New York Times July 5 2013 http wwwnytimes com
2013 07 06 business global titanium - fills - vital - role - for - boeing - and - russia html mcubzshy=shy3
Figure 510 US Imports from Rus sia Iron Steel Bauxite Aluminum Nickel Nonferrous Metals and Other Precious Metals and Materials US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
0
$6000000000
$5000000000
$4000000000
$3000000000
$2000000000
$1000000000
2007 2008 2009 2010 2011 20122013
20142015
2016
Finished metal shapes
Iron and steel advanced
Iron and steel products nec
Nonferrous metals other
Other precious metals
Nickel
Bauxite and aluminum
Iron and steel mill products
Steelmaking materials
594-71613_ch01_4Pindd 33 102017 404 PM
US-Russia Economic Relations34
through 2022 and additional investments in the construction of a new robotic plant in Titanium
Valley a special economic zone located in the Sverdlovsk region that will open in 2018 The pro-
cessing of titanium forgings in all Boeing civil aircraft will be performed there including 787s 737
MAXs and 777Xs17 The contract extension with AVISMA may add several hundred million dollars
in value to annual US imports from Rus sia
How can such heavy reliance on imports of Rus sian titanium exist during a period of rising geopo-
liti cal tensions The answer is straightforward VSMPO- AVISMA is a highly specialized natu ral
mono poly producing 45 percent of the worldrsquos aerospace titanium Only four other countries
smelt high- grade titanium in industrial quantities the United States Germany Japan and China
Overall global production capacity is limited while demand is growing The United States cur-
rently imports around 79 percent of all the titanium it consumes each year18
17 ldquoBoeing and VSMPO Avisma to Launch Second Joint Production Siterdquo Rus sian Aviation Insider December 22 2016
http wwwrusaviainsider com boeing - and - vsmpo - avisma - to - launch - second - joint - production - site
18 Jon Ostrower and Andy Pasztor ldquoBoeing United Technologies Stockpile Titanium Partsrdquo Wall Street Journal
August 7 2014 https wwwwsj com articles boeing - united - technologies - stockpiling - titanium - parts - 1407441886
Figure 511 US Imports from Rus sia Civilian Aircrafts and Parts US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
$200000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Parts-civilian aircraft
Civilian aircraft
594-71613_ch01_4Pindd 34 102017 404 PM
Vadim Grishin 35
The Sanctions Act authorizes the secretary of the trea sury (in a nonmandatory way) to impose
restrictions (without specifying them) against Rus sian state- owned entities operating in the railway
metals and mining sectors of the Rus sian economy Despite the commanding heights of Rus siarsquos
state sector owner ship in its economy (70 percent of GDP) the metal- producing companies have
remained mostly in private hands
NUCLEAR AFFAIRS
Historically owners and operators of the 104 commercial nuclear power reactors in the United
States have purchased more than 80 percent of their uranium from foreign countries Uranium
shipping from Rus sia accounted for about 13 percent of the 58 million pounds of uranium pur-
chased overseas in 201219 At the same time the Rus sian state- owned mono poly Rosatom ac-
counts for 20 percent of Kazakhstanrsquos uranium production (which in turn comprises 11 percent of
all US uranium imports) and 20 percent of US domestic uranium production capacity (with
owner ship of exploration tracts in Wyoming)20
Nuclear fuel and nuclear power continue to be po liti cally sensitive topics both in the United
States and Rus sia Bilateral cooperation in this sector (being surprisingly stable with imports of
nuclear fuel from Rus sia at a level of $1 billion annually in the last five years [Figure 512 and 513])
is under constant po liti cal and lobbying pressure and has been a source of several po liti cal scan-
dals21 Consequently upside risks in this area of interaction are minimal and downside risks are
much higher especially when we are seeing more decommissioning of nuclear plants in the
United States than new constructions The US EIArsquos 2017 Annual Energy Outlook assumes
that about 25 percent of the nuclear capacity now operating will be removed from ser vice
by 205022
WHY IS THE GRASS GREENER ON THE OTHER SIDE
The United States continues to significantly reduce imports of chemical fertilizers as domestic pro-
duction increases In 2016 the United States imported 13 percent less ammonia and 11 percent
less urea and UAN which is a liquid urea and ammonium nitrate fertilizer Rus sia accounts for
around 40 percent of UAN imported by the United States The United States canceled antidumping
duties on imports of ammonium nitrate and urea from Rus sia in 2016 but it did not prevent import
19 US EIA ldquoThe US Relies on Foreign Uranium Enrichment Ser vices to Fuel Its Nuclear Power Plantsrdquo Today in
Energy August 28 2013 https wwweia gov todayinenergy detail php idshy=shy1273
20 Colin Chilcoat ldquoDoes Rus sia Really Own 20 Percent of the USrsquo Uranium Reservesrdquo OilPricecom May 6 2015
http oilpricecom Alternative - Energy Nuclear - Power Does - Russia - Really - Own - 20 - Of - The - US - Uranium - Reserves
html
21 Michelle Ye Hee Lee ldquoThe Facts behind Trumprsquos Repeated Claim about Hillary Clintonrsquos Role in the Rus sian Ura-
nium Dealrdquo Washington Post October 26 2016
22 US EIA ldquoAnnual Energy Outlook 2017 with Projections to 2050rdquo 81ndash82
594-71613_ch01_4Pindd 35 102017 404 PM
Figure 512 US Imports from Rus sia Share of Oil Metals and Nuclear Fuel Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
87
86
90
90
90
91
88
86
7882
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals and Nuclear Fuel
Figure 513 US Imports from Rus sia Nuclear Fuel Materials US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$-
$200000000
$400000000
$600000000
$800000000
$1200000000
$1000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 36 102017 404 PM
Vadim Grishin 37
drops twice last year (Figures 514 and 515) According to forecasts UAN imports are expected to
decline further to 15 million tons this year down over 46 percent from 28 million tons imported
last year23 The downside trend in imports of fertilizers will likely continue because of oversupply
BIG FISH
US imports of fish and shellfish from Rus sia are best understood in comparison with US fish
exports to the Rus sian market which slipped to zero in August 2014 after Rus sia issued an order
banning certain agricultural imports from the United States (Figure 516) While the volume of US
supply was not very large it was impor tant because it broke up the monopolistic dominance of a
few vertically integrated Rus sian companies that have kept prices high by restricting the entry of
new producers Seeking to implement import substitution policies Rus sia has tried to reduce
exports as well as imports of fish and seafood products in the last couple of years This symmetri-
cal approach was intended to ldquocompensaterdquo for a decrease of fish products in the domestic
23 Deepika Thapliyal ldquoPotashCorp Forecasts Sharp Drop in US Nitrogen Imports in 2017rdquo ICIS News February 7
2017 https wwwicis com resources news 2017 02 07 10076734 potashcorp - forecasts - sharp - drop - in - us - nitrogen
- imports - in - 2017
Figure 514 US Imports from Rus sia Share of Oil Metals Nuclear Fuel and Fertilizers Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
90
93
92
93
94
95
92
91
85
86
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals Nuclear Fuel and Fertilizers
594-71613_ch01_4Pindd 37 102017 404 PM
Figure 515 US Imports from Rus sia Chemical- Fertilizers US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
S-
$200000000
$400000000
$600000000
$800000000
$1000000000
$1200000000
$1400000000
$1600000000
$1800000000
$2000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Figure 516 US Exports to Rus sia Fish and Shellfish US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$10000000
$20000000
$30000000
$40000000
$50000000
$60000000
$70000000
$80000000
$90000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Fish and shellfish
594-71613_ch01_4Pindd 38 102017 404 PM
Vadim Grishin 39
consumer market caused by Rus siarsquos import ban but it has failed As result the group most af-
fected by the self- imposed counter- sanctions were Rus sian consumers
With a significant drop in fish imports a devaluation of the ruble and inflationary pressures on
seafood prices yearly consumption of fish in Rus sia has declined precipitously In 2015 alone
fish prices increased 20 percent and consumption dropped to 14 kilograms per person24 from
22 kilograms in 201425 In 2016 food rose to 355 percent of house hold expenditure as a result of
increases in food prices26 This has pushed vertically integrated fishing monopolies to sell even
more of their catch abroad rather than deliver to the Rus sian Federation (Figure 517) Thus we
cannot exclude the possibility of further growth in US fish and shellfish imports from Rus sia on a
marginal scale
24 Александр Савельев ldquoПотребление рыбы в России упало до 14 кг на человекаrdquo [Fish consumption in Rus sia fell to
14 kg per person] Экономика Интерфакс January 28 2015 http wwwinterfax ru business 492038
25 Илья Шестаков ldquoПотебление рыбы в России снизилось на 10 процентов из- за роста ценrdquo [Fish consumption in
Rus sia dropped by 10 percent due to price increases] RNS March 8 2017 https rnsonline consumer - market
Potreblenie - ribi - v - Rossii - snizilos - na - 10 - iz - za - rosta - tsen - 2017 - 03 - 08
26 Zoya Sheftalovich and Christian Oliver ldquoRus siarsquos Boom (Farming) Economyrdquo Politico November 8 2016 http
wwwpolitico eu article russias - boom - farming - economy
Figure 517 US Imports from Rus sia Fish and Shellfish US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$50000000
$100000000
$150000000
$200000000
$250000000
$300000000
$350000000
$400000000
$450000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 39 102017 404 PM
US-Russia Economic Relations40
SPACE ODYSSEY
Among high- end products beyond the top five groups of goods imported from Rus sia cheap and
efficient Rus sian engines have been used to launch US rockets into space for about 16 years
(Figure 518) There was a serious po liti cal strug gle around a 2014 ban on the purchase of Rus sian
RD-180 rocket engines revealing the conflicting business interests of power ful high- tech companies
This restrictive mea sure was temporary and was quickly lifted because of significant cost impacts
and risks of disruption to launch schedules27 For the same reason the Sanctions Act does not autho-
rize ldquothe imposition of any sanction or other condition limitation restriction or prohibition that
directly or indirectly impedes the supply by any entity of the Rus sian Federation of any product or
ser vice or the procurement of such product or ser vice by any contractor or subcontractor of the
United States or any other entity relating to or in connection with any space launch conducted for
the National Aeronautics and Space Administration or any other nonndash Department of Defense
customerrdquo28
Nevertheless many experts believe that US domestic alternatives to replace Rus sian engines will
be viable in five to eight years
27 Ken Dilanian ldquoWhy Does the US Use Rus sian Rockets to Launch Its Satellitesrdquo NBC News updated November 15
2016 http wwwnbcnews com why - does - u - s - use - russian - rockets - launch - its - satellites - n588526
28 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364
Figure 518 Spacecraft Excluding Military US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 40 102017 404 PM
41
Diversity and technological complexity are the most vis i ble advantages supporting US exports to
Rus sia Three major groups of export goods include civilian aircraft engines and parts (Figure 61)
drilling and oil field equipment (Figure 62) and industrial machines and engines (Figure 63)
Despite sanctions against the transfer of advanced oil producing and pro cessing technologies the
realization of US drilling and oil field equipment in Rus sia is sustainable although some bilateral
proj ects have been frozen
Another category of goods that has demonstrated resilience is the phar ma ceu ti cal industry (Fig-
ure 64) because most drugs in Rus sia are imported (about 70 percent of the Rus sian phar ma ceu-
ti cal market in value) Import substitution policies have had only modest results in this industry
As confirmed by American Chamber of Commerce surveys US exports to Rus sia are closely
connected to US FDI 30 percent of total imports of US companies working in the Rus sian
market come from the United States (more than $2 billion in 2016) In other words about
40 percent of all US exports to Rus sia are related to a US corporate- sector business pro cess in
the country The major sectors of activity of these companies are energy and natu ral resources
(52 percent) manufacturing (17 percent) information and communications technology or ICT
(13 percent) retail (7 percent) automotive industry (6 percent) phar ma ceu ti cal production
(1 percent) professional ser vices (05 percent) and other (2 percent)1
Some obvious constraints on US exports to Rus sia have resulted from a reduction in demand A
deterioration of bilateral relations and implementation of sanctions and counter- sanctions have
directly or indirectly afected all businesses Figures 65 and 66 provide data regarding a dramatic
drop in the sale of US agricultural production in Rus sia with all other categories of exports in
goods showing big cuts as well (see Figures 67ndash69)
Exports of civilian aircraft engines and parts put the state of Washington in first place among
other states as a leading exporter to the Rus sian market (Figure 610)
1 American Chamber of Commerce in Rus sia ldquoInvestment and Import to Rus sia 2nd Surveyrdquo 13
Diversity and Constraints
06
594-71613_ch01_4Pindd 41 102017 404 PM
Figure 61 US Exports of Civilian Aircraft Engines Equipment and Parts to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
$2500000000
$2000000000
$1500000000
$1000000000
$500000000
$-
Figure 62 US Exports of Drilling and Oil Field Equipment US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
$40000000
$45000000
$50000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 42 102017 404 PM
Figure 63 US Exports of Industrial Engines to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Figure 64 US Exports of Phar ma ceu ti cal Preparations to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 43 102017 404 PM
Figure 65 US Exports of Meat and Poultry to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Meat poultry etc
$1000000000
$800000000
$600000000
$400000000
$200000000
$-
$1200000000
$1400000000
$1600000000
Figure 66 US Exports of Soybeans to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
$200000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 44 102017 404 PM
Figure 67 US Exports of Vehicles Engines and Parts to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Other parts and accessories of vehicles
Automotive tires and tubes
Bodies and chassis for passenger cars
Engines and engine parts (carburetors pistonsrings and valves)
Trucks buses and special purpose vehicles
Passenger cars new and used
$2500000000
$2000000000
$1500000000
$500000000
$-
$1000000000
Figure 68 US Exports of Medicinal Equipment to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 45 102017 404 PM
Figure 610 US Exports to Rus sia by States (2016 US$ Value) Million US$ 2013ndash2016
Source US Census Bureau ldquoState and Metropolitan Area Trade Datardquo
Iowa Kentucky
North Dakota
Oklahoma
South Carolina
Washington
0
$500
$1000
$1500
$2000
2013 2014 2015 2016
District of Columbia
Iowa
Kentucky
North Dakota
Oklahoma
South Carolina
Washington
Figure 69 US Exports of Excavating Machinery to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
$40000000
$45000000
$50000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 46 102017 404 PM
47
Upon reviewing the current trend in US- Russia economic relations we must acknowledge that
the existing trade model is obsolete and exhausted Imports are resource- oriented and reflect
constraints of the Rus sian economic structure while five groups of goodsmdash oil metals nuclear
fuels fertilizers and fishmdash make up more than 90 percent of total imports from Rus sia (Figure 71)
Each of these industries has a limited capacity for growth in the foreseeable future
Rus siarsquos core export to the United Statesmdash oilmdash will inevitably decrease in the mid- term under any
scenario The value and volume of Rus sian exports to the United States are open to global market
volatility and po liti cal pressures with limited hedging mechanisms
Overall US exports to Rus sia are unsustainable due to bilateral po liti cal tensions the whims of
commodity markets and changing domestic policies Sanctions and counter- sanctions have
created additional barriers particularly in finance banking high- tech energy and agro- business
According to the American Chamber of Commerce 69 percent of US companies working in the
country consider the impact of US sanctions against Rus sia on their business as negative At the
same time 60 percent of companies do not expect big changes in business relations between
Rus sia and the United States under Trump1 as the new law codifies existing sanctions fortifies
them and extends them to new sectors
Current US investments are low due to the weak rule of law in Rus sia a lack of property right
protections and proper contract enforcement high levels of statization and monopolization in the
economy a poor business climate outdated capital stock dependence on natural- resource
sectors and of course sanction and counter- sanction mea sures Bloated administrative compo-
nents created as risk mitigation instruments have also served as impediments The countryrsquos
institutional weakness low level of productivity bud get constraints and a declining inflexible
workforce will restrain future economic growth even if commodity prices recover Rus sian eco-
nomic policy will likely continue to be statist and protectionist relying mostly on import
substitutions
1 Ibid 11
Existing Trends and Future Scenarios
07
594-71613_ch01_4Pindd 47 102017 404 PM
US-Russia Economic Relations48
What scenarios can be expected in such a challenging environment
One probability (no peace no war) is based on the assumption that matters will not deteriorate
further and implementation of the Sanctions Act will be cursory This will cause relatively slow
degradation in the economic field with occasional flashes of activity in selected areas (eg closer
cooperation against Islamist terrorist groups in Syria)
A second worse case or critical scenario is the intensive and full- scale execution of current sanc-
tion legislation and even the imposition of new economic punitive and restrictive mea sures which
could incite asymmetric retaliatory actions and lead to the introduction of additional protectionist
policies This in turn could trigger a further escalation of mutual confrontation and could eventu-
ally destroy the fundamentals of the current bilateral trade system Rus sian leadership has charac-
terized the Sanctions Act as a declaration of a trade war that ends all hope for improving bilateral
relations2
2 Дмитрий Медведев ldquoПодписание президентом США нового санкционного закона против России создает несколько
последствийrdquo [The US Presidentrsquos signing of the package of new sanctions against Rus sia will have a few conse-
quences] Facebook August 2 2017 https wwwfacebook com Dmitry Medvedev posts 10154587161801851
Figure 71 US Imports from Rus sia Share of Oil Metals Nuclear Fuel Fertilizers and Fish Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
93
94
93
94
95
96
93
92
87
89
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals Nuclear FuelFertilizers and Fish
594-71613_ch01_4Pindd 48 102017 404 PM
Vadim Grishin 49
The best case and most favorable scenario looks less probable now It assumes the realization of
structural reforms in Rus sia in such a way that would adapt Rus siarsquos foreign policy to national
economic needs reduce confrontations with the West and make a concerted efort to integrate
Rus sian businesses into global supply and value chains A revitalization of the structural reform
agendamdash including eforts to diversify economic activities through de- monopolization and support
for SMEs a restructuring of the banking sector the creation of a vibrant business climate to foster
entrepreneurships and innovation the implementation of administrative and judicial reforms to
tackle red tape and endemic corruption and the reduction of state control over key sectors of the
economy via wide- spread privatization could kick- start the development of a nonoil economy and
improve long- term growth prospects Despite ongoing discussion of reform strategies deep
economic and po liti cal changes are extremely complicated over the next po liti calelectoral cycle
(2018ndash2024) particularly because of re sis tance of vested interests and growing commodity prices
The urgency to tackle structural shortcomings in natu ral resource- dependent economies usually
correlates with the price of those resources and the degree to which resource rents drive eco-
nomic activity However there may be marginal improvements in the efficiency of the current
economic system
Future US- Russia relations can be thought of through three pillars one pillar focuses on areas
where both countries maintain a competitive rivalry another looks at potential areas of interaction
under pres ent conditions a third pillar and one that has evaporated from the current bilateral
agenda concentrates on future cooperation Stronger economic ties could not only be a kind of
po liti cal shock absorber but contribute to the building of this future (particularly business contacts
aim to support future structural reforms) although po liti cal factors are depressing the prospects
for cooperation To escape deadlock it will be impor tant to establish the right balance between
politics and economics and create a model of collaboration within the framework of contention
594-71613_ch01_4Pindd 49 102017 404 PM
About the Author
Vadim Grishin PhD MBA has been involved in the reform pro cess in Rus sia as adviser to the
deputy prime minister of Rus sia in 1992ndash1993 and 2006ndash2010 He has extensive experience
working with the Bretton Woods Institutions He was the board member of the World Bank Group
and served as se nior adviser at the International Monetary Fund Currently he is a con sul tant to the
chief economistrsquos office of the International Finance Corporation and teaches the economics of
transition at Georgetown University in Washington DC
50
594-71613_ch99_4Pindd 50 102017 403 PM
Blank
COVER PHOTO ADOBE STOCK
1616 Rhode Island Avenue NW
Washington DC 20036
202 887 0200 | wwwcsisorg
v++ISBN 978-1-4422-8035-9
Lanham bull Boulder bull New York bull London
4501 Forbes Boulevard
Lanham MD 20706
301 459 3366 | wwwrowmancom
A U T H O R
Vadim Grishin
Myths and Realities
A Report of the
CSIS RUSSIA AND EURASIA PROGRAM
US-RussiaEconomicRelations
O C T O B E R 2 0 1 7
Euml|xHSLEOCy280359z
The Man Pupu Nyor Rock Formations at the Northern Urals also known as Seven
Strong Man or Little Mountain of the God in the local tribe (Mansi) language
Vadim Grishin 13
Table 31 Po liti cal Cycles in Bilateral US- Russia Relations 1999ndash2016
2001ndash2002 The George W Bushndash Vladimir Putin Reset Rus sia supported ldquoglobal war on terrorismrdquo launched by the United States after 911 the SORT nuclear arms reduction treaty was signed by the United States and Rus sia and a successful business dialogue was developed that created the current structure of economic relations
2003ndash2008 Deterioration in bilateral relations brought on by the Iraq War Georgiarsquos ldquoRose Revolutionrdquo Mikhail Khodorkovskyrsquos arrest Ukrainersquos ldquoOrange Revolutionrdquo Kosovorsquos in de pen dence and the Georgian War
2009ndash2010 The Barack Obamandash Dmitry Medvedev Reset Rus sia served as a logistical hub for transportation and supply of US forces in Af ghan i stan United States and Rus sia signed the new START nuclear arms reduction treaty Rus sia backed tighter economic sanctions on Iran Rus sia gained access to the WTO after 18 years of negotiations
2011ndash2016 Deterioration in bilateral relations caused by the Ukrainian crisis which were followed by sanctions and counter- sanctions along with the Syrian crises and cyber- enabled activities
Source Authorrsquos evaluation of po liti cal and economic data
Note SORTthinsp=thinspStrategic Ofensive Reductions Treaty STARTthinsp=thinspStrategic Arms Reduction Treaty
Figure 32 Economic Cycle 2017ndash2019
Source Authorrsquos evaluation of IFI data and sources from respective countries
Egypt
VenezuelaEU
South Africa
Brazil
Russia
India
US
Descending Growth
Korea
China
Negative Growth
Unstable Growth
Sustainable Growth
594-71613_ch01_4Pindd 13 102017 404 PM
US-Russia Economic Relations14
Figure 33 US- Russia Trade Million US$ vs Po liti cal Cycle 2000ndash2016
Sources US Census Bureau ldquoTrade in Goods with Rus siardquo Foreign Trade last modified June 29 2017
https wwwcensus gov foreign - trade balance c4621 html (see data for 2000ndash2016) authorrsquos evaluation
of po liti cal and economic data
Orange Revolution
Khodorkovskys arrest
GeorgianWar
Bush- Putin Reset
Iraq War Global Financial Crisis
Obama-Medvedev Reset
Russias WTO accession
New START Treaty
A Pefect Storm the Ukranian Crisis Oil Prices Crashing
Sanctions and Counter-Sanctions
$3000
$8000
$13000
$18000
$23000
$28000
$33000
$38000
$43000
2000 2002 2004 2006 2008 2010 2012 2014 2016
594-71613_ch01_4Pindd 14 102017 404 PM
15
The current structure of US- Russia economic relations emerged in the early 2000s when the
model of trade and investment interaction took on a character similar to that which existed be-
tween the United States and developing economies US imports from Rus sia centered on com-
modities while technology along with food products lead American exports The primary
exception was that Rus sia supplied nuclear fuel including highly enriched uranium extracted from
nuclear weapons for US power plants and provided ser vices to the aerospace industry primarily
in satellite launches However both these exceptions can be explained as a legacy of the Soviet
past and not a harbinger of the future economic relationship (Figure 41)
In the last 15 years this trade structure has not changed significantly The only noticeable shift in
trade was a dramatic drop (to practically nothing) in exports of US agricultural products a result
of Rus siarsquos policy of import substitution and so- called counter- sanction mea sures it took in re-
sponse to US sanctions over the Ukraine crisis (Figure 42)
Promising new directions of cooperation in the IT sector and in engineering ser vices for the
aerospace industry appeared in the early 2000s1 but did not spill into other sectors and conse-
quently did little to renew economic cooperation on the whole The integration of Rus sian high-
tech ser vices into large- scale global production and value chains was constrained by the usual
culprits a lack of financial resources managerial experience skilled labor modern infrastructure
RampD investments and an adequate business environment High commodity prices incentivized the
restoration of an economic system centered on resource rents The leading role of oil and gas
extraction and transportation discouraged the development of a nonenergy sector that might
have created advanced and complex production and ser vices An import substitution policy could
not work efficiently in an economic environment plagued by the Dutch disease where currency
1 The Boeing Design Center was created in Moscow It consists of nearly 250 Boeing employees managing
a team of 1200 contract engineers from Rus sian and Ukrainian aerospace companies ldquoBackgrounder Boeing in
Rus siardquo Boeing last modified January 2017 http wwwboeing com resources boeingdotcom company key _ orgs
boeing - international pdf russia - cisbackgrounder pdf
Are the United States and Rus sia ldquoNatu ralrdquo Trading Partners A Little Bit of History
04
594-71613_ch01_4Pindd 15 102017 404 PM
US-Russia Economic Relations16
inflows (oil money) lead to ruble appreciation and render a countryrsquos production less competitive
During that time Rus siarsquos industry did not receive preferential access to larger markets and could
not expand its share in the global economy particularly because of its self- isolation from the
regional trade agreements (except for its participation in the Eurasian Economic Union with some
neighboring countries of the former Soviet Union) As a result neither import substitution nor
export- led strategy promoted growth and specialization in nonoil production A long- awaited
modernization and reallocation of resources from an inefficient nontrade sector to a trade sector
did not materialize
These limits were later augmented with sanctions and an extension of domestic restrictions on
cooperation with Western partners Importantly the rapid growth of state- monopoly structures in
the Rus sian economy over the past 15 years has created additional obstacles to the development
and diversification of US- Russia economic ties
Figure 41 US Imports from Rus sia US$ 2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2016)
Fish and shellfish 3
Crude oil 5
Fuel oil 37
Petroleum products other
8
Nuclear fuel materials
7
Chemicals-fertilizers 4
Steelmaking materials 5
Iron and steel mill products 4
Bauxite and aluminum 9
Other precious metals 4
Nonferrous metals other 1
Finished metal shapes 1
Synthetic rubber--primary
1
Spacecraftexcluding military
594-71613_ch01_4Pindd 16 102017 404 PM
Fig
ure
42
U
S E
xpo
rts
to R
us s
ia U
S$ 2
016
Sou
rce
US
Ce
nsu
s B
ure
au ldquo
Trad
e in
Go
od
s w
ith
Ru
s sia
rdquo (s
ee
dat
a fo
r 2
016
)
Bak
ery
pro
du
cts
Win
e b
eer
an
d r
elat
ed
pro
du
cts
New
spri
nt
Pla
stic
mat
eria
ls
Ch
emic
als-
fert
ilize
rs
Ch
emic
als-
ino
rgan
icC
hem
ical
s-o
rgan
ic
Ch
emic
als-
oth
erC
ott
on
fib
er c
loth
In
du
stri
al r
ub
ber
pro
du
cts
Min
eral
su
pp
lies-
man
ufa
ctu
red
Gen
erat
ors
acc
esso
ries
Ele
ctri
c ap
par
atu
s
Dri
llin
g amp
oilfi
eld
eq
uip
men
t Sp
ecia
lized
min
ing
Exc
avat
ing
mac
hin
ery
No
nfa
rm t
ract
ors
an
d p
arts
In
du
stri
al e
ng
ines
Fo
od
to
bac
co m
ach
iner
y M
etal
wo
rkin
g m
ach
ine
too
ls
Tex
tile
sew
ing
m
ach
ines
W
oo
d g
lass
p
last
ic
Pu
lp a
nd
pap
er
mac
hin
ery
Mea
suri
ng
tes
tin
g
con
tro
l in
stru
men
ts
Mat
eria
ls h
and
ling
equ
ipm
ent
Ind
ust
rial
mac
hin
es
oth
er
Ph
oto
ser
vice
ind
ust
ry m
ach
iner
y A
gri
cult
ura
l mac
hin
ery
eq
uip
men
t C
om
pu
ters
Co
mp
ute
r ac
cess
ori
es
Sem
ico
nd
uct
ors
Tel
eco
mm
un
icat
ion
seq
uip
men
t
Bu
sin
ess
mac
hin
es a
nd
eq
uip
men
t
Lab
ora
tory
tes
tin
g in
stru
men
ts
Med
icin
al e
qu
ipm
ent
Civ
ilian
air
craf
t e
ng
ines
eq
uip
men
t a
nd
par
ts
Rai
lway
tra
nsp
ort
atio
n
equ
ipm
ent
Ves
sels
exc
lud
ing
scr
ap
Co
mm
erci
al v
esse
ls o
ther
M
arin
e en
gin
es p
arts
Spac
ecra
ft e
xclu
din
g
mili
tary
Pas
sen
ger
car
s
new
an
d u
sed
Tru
cks
bu
ses
and
sp
ecia
l p
urp
ose
ve
hic
les
En
gin
es a
nd
en
gin
e p
arts
(c
arb
ure
tors
pis
ton
s r
ing
s
and
val
ves)
B
od
ies
and
ch
assi
s fo
r p
asse
ng
er c
ars
Au
tom
oti
ve t
ires
an
d t
ub
es
Oth
er p
arts
an
d a
cces
sori
es o
f ve
hic
les
Ap
par
el h
ou
seh
old
go
od
s -
text
ile
Ph
arm
aceu
tica
lp
rep
arat
ion
s
Furn
itu
re h
ou
seh
old
go
od
s
etc
R
ug
s
Cel
l ph
on
es a
nd
oth
er
ho
use
ho
ld g
oo
ds
ne
c
594-71613_ch01_4Pindd 17 102017 404 PM
US-Russia Economic Relations18
Figure 43 US Trade in Goods with Rus sia Million US$ 1992ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
Russian Financial Crisis
Oil price Increased from$2446 USD per barrel (2001)
to $9694 USD per barrel(2008)
Global Financial Crisis
Oil price high record in2011-2012
(more that $111 USD perbarrel)
Oil price crashed
$-
$5000
$10000
$15000
$20000
$25000
$30000
$35000
$40000
$45000
$50000
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia US Exports to Russia US-Russia Trade in Goods
No doubt po liti cal ups and downs add volatility to US- Russia trade Nevertheless Rus siarsquos eco-
nomic structure exhausted itself before the Ukrainian crisis and the recent Rus sian recession Its
limitations are not only due to some mistakes in policy or negative coincidences of circumstances
but rather to deeply rooted properties in the current bilateral trade model related to structural
issues in the Rus sian economy Structural constraints such as the weak enforcement of property
rights poor business regulation and nondiversified exports weighed on Rus sian trade with the
United States From this perspective the term ldquonaturalunnatural trading partnersrdquo does not ad-
dress the unused capacity of bilateral interaction or the real challenges that kind of interaction
faces It just adds metaphysical flavor to the very specific economic and po liti cal factors that
determine the US- Russia trajectory
Overall the outlines of bilateral trade (Figure 43) resemble the famous ldquoRus sian Mountainsrdquo that
were a pre de ces sor of the modern roller coaster icy hills supported by wooden constructionsmdash a
rigid and immobile structure that sooner or later would melt This unfortunately is what is hap-
pening to US- Russia trade cooperation now
594-71613_ch01_4Pindd 18 102017 404 PM
19
ARE LITTLE FISH REALLY SWEET
Low US- Russia economic interaction has at least two consequences First it limits the capacity of
policymakers to exploit trade as an instrument for geopo liti cal combat Even the question of a US
trade deficit which used to be a headache for many US trading partners has become so insig-
nificant in absolute terms (about $87 billion in 2016) that it seems hardly worth caring about
When the volume of trade between two countries becomes very small in absolute terms whether
a country is running a surplus or deficit is no longer relevant But it also renders another type of
confrontations (sometimes more dangerous) more likely since the two traders have little to lose
Second in an environment marked by low levels of bilateral trade both sides could incentivize (if
and when a desire for po liti cal rapprochement exists) the signing of new trade deals which are
elevated symbolically as a turning point in bilateral po liti cal relations (ie the sale of Boeings to
Rus sia or the delivery via tankers of Rus sian oil to US refineries) Sometimes markets themselves
pres ent ldquogiftsrdquo that can be capitalized on po liti cally US- USSR grain trade in the 1970s was one
such ldquogiftrdquo large sales of American grain to the Soviet Union helped US policymakers win favor
with the po liti cally impor tant American farming sector and permitted Soviet leaders to maintain
access to a dietary staple for the Soviet population
The strong 32 percent growth in value of US imports from Rus sia from January to May 2017
versus January to May 2016 ( Table 51) is an example of a development that has tempted officials
to pres ent it as a sign of positive change due to ldquogrowing business activitiesrdquo (this kind of statement
was heard before the bilateral summit in Germany in July 2017) although the reason for that leap
was evidently an increase in commodity prices (mainly of oilmdash see Table 52) and not a rise in
entrepreneurial interactions The primary beneficiaries of that upside rally have been two other
petro- economies Saudi Arabia and Venezuela ( Tables 53 and 54)
Sector Analyses
05
594-71613_ch01_4Pindd 19 102017 404 PM
US-Russia Economic Relations20
Table 51 US Imports from Rus sia Million US$ Januaryndash May 2016 vs Januaryndash May 2017
Year January February March April May Total
2016 9603 6871 11097 12257 10977 50805
2017 12215 10220 16979 13471 14147 67032
Change 271 487 530 99 289 319
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
Table 52 Change in Urals Crude Oil Prices US$ per Barrel Januaryndash May 2016 vs Januaryndash May 2017
Januaryndash May 2016 Januaryndash May 2017 Change ($) Change ()
3601 5129 1528 424
Source Ministry of Finance of the Rus sian Federation https wwwminfin ru ru ixzz4mMIZ7XtC
Table 53 US Imports from Saudi Arabia Million US$ Januaryndash May 2016 vs Januaryndash May 2017
Year January February March April May Total
2016 15114 9036 13555 10844 14679 63228
2017 19802 20298 21650 16211 19542 97503
Change 3101 12463 5972 495 331 542
Source US Census Bureau ldquoTrade in Goods with Saudi Arabiardquo Foreign Trade last modified June 29 2017
https wwwcensus gov foreign - trade balance c5170 html (see data for 2016ndash2017)
594-71613_ch01_4Pindd 20 102017 404 PM
Vadim Grishin 21
Table 54 US Imports from Venezuela Million US$ Januaryndash May 2016 vs Januaryndash May 2017
Year January February March April May Total
2016 6657 5560 7140 8007 7922 35286
2017 13041 10864 123500 11148 12243 59646
Change 9590 9540 7297 3923 5454 6903
Source US Census Bureau ldquoTrade in Goods with Venezuelardquo Foreign Trade last modified June 29 2017
https wwwcensus gov foreign - trade balance c3070 html (see data for 2016ndash2017)
Table 55 US Exports to Rus sia Million US$ Januaryndash May 2016 vs Januaryndash May 2017
Year January February March April May Total
2016 3628 3577 7298 4657 4947 24107
2017 3144 4277 5386 6670 4806 24283
Change minus133 196 minus262 432 minus29 minus07
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2016ndash2017)
At the same time US exports to Rus sia continue to stagnate ( Table 55) due to low levels of
consumption during a two-and- a- half-year economic crisis a deep ruble devaluation sanctions
and counter- sanctions
Given the very dif er ent economic structures and resource endowments of Rus sia and the United
States it is not surprising that US- Russia trade is asymmetric and oil driven (Figure 51) A
3 percent increase in Urals oil prices translates into a one percent increase in US import growth
from Rus sia Thus in 2016 every $10 increase in Urals crude oil added $15 billion to the value of
US imports or 11 percent to the total value of imports from Rus sia
OIL ADDICTION
Oil is a core pillar of US- Russia bilateral trade A bumpy ride in oil markets afects commerce
Nevertheless Rus sian oil exports to the United States in physical terms have been rather
594-71613_ch01_4Pindd 21 102017 404 PM
US-Russia Economic Relations22
sustainable Starting from 2005 average annual deliveries have been above 150 million barrels
(Figure 52) Crude and heating oil have dominated while petroleum products and liquefied petro-
leum gases have not (Figure 53) In 2011 oil exports peaked at 228 million barrels but declined to
159 million barrels in 2016mdash a drop of 30 percent Rec ord high shipments of Rus sian oil to the United
States coincided with an elevation in oil prices which made the subsequent decline in oil shipment
value between 2011 and 2016 (by about 72 percent as shown in Figure 54) seem more stark The
increase in price also raised the share of oil in Rus sian exports by 74 percent in 2011 (Figure 55)
The Rus sian share in total US oil imports was around 55 percent in 2011 and 43 percent in 2016
( Table 56) In the last five years the United States has relied exclusively on consumption of Rus sian
oil for the rough equivalent of one week out of the year (Figure 56)
It is unlikely that Rus sia can significantly increase its share of the US oil market and there is a real
possibility for a downward trend There are several reasons the historically high Rus sian hydrocar-
bon export threshold of 2011 will not soon if ever be surpassed
First US energy consumption will likely be flat According to the US Energy Information Adminis-
tration (EIA) demand for petroleum and other liquids in the United States will be about 35ndash36
quadrillion British thermal units (BTUs) with minimal variation over the next 25 years1
1 US EIA ldquoAnnual Energy Outlook 2017 with Projections to 2050rdquo January 5 2017 7ndash8
Figure 51 US- Russia Trade Growth () vs US and Rus sia Real GDP Growth () 1993ndash2016
Source IMF ldquoIMF Datardquo accessed September 27 2017 http wwwimf org en Data US Census Bureau
ldquoTrade in Goods with Rus siardquo
Note rGDPthinsp=thinspreal gross domestic product
Trade
USA rGDP growth
Russia rGDP growth
-60
-40
-20
0
20
40
60
80
100
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Gro
wth
All spikes in US-Russia trade have been connected with two main
variables volume and price of crude oil
594-71613_ch01_4Pindd 22 102017 404 PM
Vadim Grishin 23
Second the United States will become a net energy exporter between 2020 and 2030 in most
cases under dif er ent combinations of oil and natu ral gas prices GDP growth technological
breakthroughs and the availability of energy resources The role of oil imports will dramatically
fall2
Third oil price scenarios as described by the International Energy Agency (IEA) international
financial organ izations (IFIs) and many national agencies are very cautious and assume that even
by 2035 to 2040 oil prices will not to recover to the levels of 2011ndash20123
Fourth Rus sian oil production and export growth will be modest and driven by Asian economic
expansion and will comprise a decreasing share of Western markets4 According to forecasts from
2 Ibid 15ndash18
3 Ibid table 3 ldquoEnergy Prices by Sector and Sourcesrdquo World Bank World Bank Commodity Markets Price Forecasts
(Washington DC World Bank 2017) httpswwwworldbank org en research commodity - markets Organ ization of the
Petroleum Exporting Countries (OPEC) World Oil Outlook 2016 (Vienna OPEC 2016)
4 E D Belotskaia et al Global and Rus sian Energy Outlook 2016 (Moscow Energy Research Institute of the Rus sian
Acad emy of Science Analytical Center for the Government of the Rus sian Federation 2016) http acgov ru files
publication a 12767 pdf
Figure 52 US Imports from Rus sia Crude Oil and Petroleum Products Thousands of Barrels 1995ndash2016
Source US EIA ldquoUS Imports by Country of Origin Rus siardquo Petroleum amp Other Liquids September 13
2017 http wwweia gov dnav pet PET _ MOVE _ IMPCUS _ D _ NUS _ NRS _ MBBL _ M htm
0
50000
100000
150000
200000
250000
Date 1995 1996 1997 1998 199920002001200220032004200520062007200820092010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 23 102017 404 PM
US-Russia Economic Relations24
the Organ ization of the Petroleum Exporting Countries (OPEC) crude oil exports from Rus sia and
the Caspian region to the United States will dis appear by 20255
So why does the Rus sian Urals blend continue to be attractive for oil traders and US refineries
which could pro cess greater volumes of domestically produced lighter crude There are two main
reasons One is related to the preference of US high conversion refineries (the most sophisticated
in the world) to work with heavy oil blends produced by Canada Mexico Iraq Venezuela and
Rus sia Pro cessing heavy crude now is as profitable as pro cessing lighter crude The so- called
crack spreadmdash the diference between the cost of relatively cheap heavy crude oil and the final
price of value- added consumer products (diesel gasoline jet fuel and heating oil)mdash has become
the same as the refinery margins of light sweet crude6 This has primarily afected light oil produc-
ing countries such as Angola Algeria and Nigeria
5 OPEC World Oil Outlook 2016 306ndash309
6 ldquoHow Much for That Heavy Oilrdquo Oil Sands Magazine December 26 2015 https wwwoilsandsmagazine com
news 2015 12 26 how - much - for - that - heavy - oil
Figure 53 US Imports from Rus sia Oil and Petroleum Products US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$-
$25000000000
$20000000000
$15000000000
$10000000000
$5000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Liquefied petroleum gases
Petroleum products other
Fuel oil
Crude oil
594-71613_ch01_4Pindd 24 102017 404 PM
Vadim Grishin 25
Another factor afecting purchase of Rus sian oil is a new trend among oil companies for further
consolidation of scale and for integrating operations of upstream and downstream business7
There have been several waves of separation and unification of production transportation and
pro cessing in the last 50 years The current business cycle can be seen as an adaptation to a
period of low prices and oversupply Companies that buy andor produce oil in Rus sia most likely
prefer to transport and pro cess this oil in their own modern refineries in the United States At the
same time some of the newest refinery designs specifically for pro cessing heavy oils have been
built in Asia thus extending the choices of heavy oil producing countries
We should also consider that leading US and international oil traders along with oil producing
companies working with or owning US refineries frequently buy Rus sian oil on the open market
and have long- term contracts on Rus sian crude oil delivery Many Rus sian oil companies prefer to
pay for purchases or ser vices with their future production instead of cash creating situations of
ldquostickyrdquo oil imports that are difficult to replace The best- known example is an interaction between
7 ldquoEnergy and Utilities Sectorrdquo Roundtable Financier Worldwide December 2015 https wwwfinancierworldwide
com roundtable - energy - utilities - sector - dec15
Figure 54 US Imports of Oil and Petroleum Products from Rus sia vs Oil Prices Eu rope Brent Spot Price Free on Board (FOB) 1996ndash2017
Source US EIA ldquoUS Imports by Country of Origin Rus siardquo
0
20
40
60
80
100
120
140
0
5000
10000
15000
20000
25000
30000
Jan
-19
96
Jun
-19
96
No
v-19
96
Ap
r-19
97
Sep
-19
97
Feb
-19
98
Jul-
199
8D
ec-1
99
8M
ay-1
99
9O
ct-1
99
9M
ar-2
00
0A
ug
-20
00
Jan
-20
01
Jun
-20
01
No
v-2
00
1A
pr-
20
02
Sep
-20
02
Feb
-20
03
Jul-
20
03
Dec
-20
03
May
-20
04
Oct
-20
04
Mar
-20
05
Au
g-2
00
5Ja
n-2
00
6Ju
n-2
00
6N
ov-
20
06
Ap
r-2
00
7Se
p-2
00
7Fe
b-2
00
8Ju
l-2
00
8D
ec-2
00
8M
ay-2
00
9O
ct-2
00
9M
ar-2
010
Au
g-2
010
Jan
-20
11Ju
n-2
011
No
v-2
011
Ap
r-2
012
Sep
-20
12Fe
b-2
013
Jul-
20
13D
ec-2
013
May
-20
14O
ct-2
014
Mar
-20
15A
ug
-20
15Ja
n-2
016
Jun
-20
16N
ov-
20
16
USD
per
Bar
rel
Th
ou
san
d B
arr
els
US Imports from Russia of Crude Oil and Petroleum Products (Thousand Barrels)
Europe Brent Spot Price FOB (Dollars per Barrel)
594-71613_ch01_4Pindd 25 102017 404 PM
US-Russia Economic Relations26
Table 56 US Oil Imports All Countries vs Rus sia Thousand Barrels per Day 2011ndash2016
Years 2011 2012 2013 2014 2015 2016
All Countries 11436 10598 9859 9241 9449 10058
Rus sia 624 477 460 330 371 433
Share 546 450 467 357 393 431
Sources US EIA ldquoUS Imports by Country of Origin Total Crude Oil and Productsrdquo Petroleum amp Other
Liquids September 13 2017 wwweia gov dnav pet pet_move_impcus_a2_nus_ep00_im0_mbbl_m htm
authorrsquos computation
Figure 55 US Imports from Rus sia Share of Crude Oil and Petroleum Products Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
57
64
73
72
74
73
72
59
52 50
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
$40000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil and Petroleum Products
594-71613_ch01_4Pindd 26 102017 404 PM
Vadim Grishin 27
the Rus sian state mono poly Rosneft and commodity trading and mining giant Glencore which
along with energy and commodities com pany Vitol participated in a $10 billion prepayment
deal with Rosneft for crude supplies in 2013
There have been a number of ongoing transactions between the Rus sian oil industry and interna-
tional oil companies including several that top the list of importers of Rus sian oil to the United
States ( Table 57) In December 2016 Glencore participated in a controversial privatization opera-
tion purchasing in tandem with the Qatar sovereign wealth fund a 195 percent stake in Rosneft
which was on the US and EU list of sanctioned firms8 Glencore has also taken a blocking stake in
midsize oil producer RussNeft BP owns a 1975 percent stake in Rosneft Chevron holds a
15 percent interest in the 935- mile- long CPC9 pipeline which transports an average of 959000
barrels of crude oil per day including 76000 barrels daily from Rus sia10 ExxonMobil has formed
8 E Mazneva and I Arkhipov ldquoRus sia Sells $11 Billion Stake in Rosneft to Glencore Qatarrdquo Bloomberg December 7
2016
9 CPCthinsp=thinspCaspian Pipeline Consortium
10 ldquoRus sia Highlights of Operations and Business Portfoliordquo Chevron accessed October 3 2017 https wwwchevron
com worldwide russia
Figure 56 Share of Rus sian Oil in Total US Oil Imports Thousands of Barrels per Day 1972ndash2016
Source US EIA ldquoUS Imports by Country of Origin Total Crude Oil and Productsrdquo
2000
4000
6000
8000
10000
12000
14000
16000
US Imports of Crude Oil and Petroleum Products (Thousand Barrels per Day)
US Imports from Russia of Crude Oil and Petroleum Products (Thousand Barrels per Day)19
7319
7419
7519
7619
7719
7819
7919
80
198
119
82
198
319
84
198
519
86
198
719
88
198
919
90
199
119
92
199
319
94
199
519
96
199
719
98
199
92
00
02
00
12
00
22
00
32
00
42
00
52
00
62
00
72
00
82
00
92
010
20
112
012
20
132
014
20
152
016
594-71613_ch01_4Pindd 27 102017 404 PM
Table 57 Top Importers of Rus sian Oil to the United States Thousands of Barrels 2016
VALERO MARKETING amp SUPPLY CO 54590 3616
EXXONMOBIL OIL CORP 17087 1130
CHEVRON USA INC 15217 1008
BP WEST COAST PRODUCTS LLC 10130 671
GEORGE E WARREN CORP 7272 48
PAULSBORO REFINING CO LLC 6838 453
TESORO CORP 5097 338
VITOL INC 5084 337
PHILLIPS 66 CO 4726 313
TRAFIGURA AG 4360 289
PAR HAWAII REFINING LLC 3893 258
MOTIVA ENTERPRISES LLC 3041 205
SHELL US TRADING CO 2863 19
MARATHON PETROLEUM CO LLC 2475 16
ATLANTIC TRADING amp MARKETING 2099 14
FREEPOINT COMMODITIES LLC 1439 1
GLENCORE LTD 1284 85
BEST PETROLEUM CORP 967 64
ROLYMPUS US COMMODITIES GROUP LLC 822 6
HUNT CRUDE OIL SUPPLY CO 666 4
GULF OIL LP 658 4
Source US EIA ldquoUS Imports by Country of Origin Crude Oilrdquo Petroleum amp Other Liquids September 13
2017 httpswwweiagovdnavpetpet_move_impcus_a2_nus_epc0_im0_mbblpd_ahtm authorrsquos
computation
594-71613_ch01_4Pindd 28 102017 404 PM
Vadim Grishin 29
several joint ventures with Rosneft to undertake ofshore exploration in the Black Sea and the Kara
Sea in Siberia11
According to the Sanctions Act US persons are prohibited from exporting or reexporting goods
ser vices (except financial ser vices) and technology in support of exploration or production of new
deep- water Arctic ofshore or shale oil proj ects that involve designated Rus sian entities or other
entities in which such sanctioned persons have a controlling interest or a substantial noncontrol-
ling owner ship interest defined as not less than 33 percent (previously it was 50 percent) The new
law also authorizesmdash but does not requiremdash the imposition of so- called secondary sanctions
against non- US entities that engage in activities involving the construction maintenance or
expansion of Rus sian energy export pipelines with a fair market value of $1 million or more or an
aggregate fair market value during a 12- month period of $5 million12 This provision has raised the
concerns of some Eu ro pean countries particularly Germany As result the final language of the
law included wording about coordination of this issue with allies of the United States
Shipments of Rus sian oil to the United States could be afected by activity in the US refinery
industry In early 2017 Saudi Aramco bought the United Statesrsquo largest oil refinery in Port Arthur
(Texas) and it announced plans to send more of its own crude to that refinery13 Serious concerns
exist however regarding the future of three refineries and nine pipelines owned by Citgo a US
branch of the Venezuelan state com pany PdVSA which is balancing precariously on the edge of
default Under certain conditions in the event of PdVSA bankruptcy Rosneft could claim a stake of
up to 499 percent in Citgo Such a possibility has raised concerns among politicians and US
government officials with Trea sury Secretary Steven Mnuchin calling it a ldquonational security issuerdquo14
Tables 58 59 and 510 show allocations of Rus sian oil imports to major US refineries some of
which work exclusively on Rus sian crude a total of two to three months per year In total 150940
thousand barrels of Rus sian oil were refined in 2016
Figure 57 confirms a leading position of Texas and Louisiana among the US states receiving
Rus sian crude followed by New Jersey California Mississippi Washington Hawaii and Delaware
In a paradoxical way Texas has dis appeared from the list of states as a main destination of US
imports from Rus sia (Figure 58) because Rus sian crude is mostly delivered to Louisiana ports and
registered there by US Customs as an import from Rus sia After that it transports to refineries in
Louisiana and Texas
Overall the short- term business rationale behind the sustainability of US oil imports from Rus sia
cannot overcome strong headwinds in the US energy sector facing all oil importers which will
inevitably lead to a contraction of Rus sian oil exports to the United States in the foreseeable future
11 Exxon eforts to receive a special US Trea sury waiver to drill in sanctioned Rus sia failed in 2017
12 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364
13 Sarp Ozkan ldquoSaudi Aramcorsquos Port Arthur Refinery and the US Refinery Fleetrdquo Drilling Info May 11 2017
https infodrillinginfo com saudi - aramcos - port - arthur - refinery - us - refinery - fleet
14 Graham Kates ldquoTrea sury Secretary Rus siarsquos Citgo Deal a National Security Issuerdquo CBS News May 1 2017
http wwwcbsnews com news rosneft - citgo - steven - mnuchin - national - security
594-71613_ch01_4Pindd 29 102017 404 PM
US-Russia Economic Relations30
Table 58 Valerorsquos Refineries Pro cessing Rus sian Oil Thousands of Barrels 2016
Saint Charles Louisiana 29206 535
Corpus Christi Texas 20626 378
Wilmington California 4250 78
Total USA 54590 100
Source US EIA ldquoRefinery Capacity Reportrdquo January 1 2017
table 5 wwweia gov petroleum refinerycapacity table5 pdf
authorrsquos computation
Table 59 ExxonMobil Refineries Pro cessing Rus sian Oil Thousands of Barrels 2016
Baytown Texas 15037 88
Baton Rouge Louisiana 2046 12
Total USA 17083 100
Source US EIA ldquoRefinery Capacity Reportrdquo authorrsquos computation
Table 510 Chevronrsquos Refineries Pro cessing Rus sian Oil Thousands of Barrels 2016
Pascagoula Mississippi 12767 840
El Segundo California 2372 155
Saint Rose Louisiana 78 05
Total USA 15217 100
Source US EIA ldquoRefinery Capacity Reportrdquo authorrsquos computation
594-71613_ch01_4Pindd 30 102017 404 PM
Vadim Grishin 31
HEAVY METAL
Taken together US imports of metals and US imports of oil compose about 80 percent of US
total imports from Rus sia (Figure 59) Trade of metals like other commodities is strongly afected
by market price fluctuations Nevertheless metal imports from Rus sia have been fairly resilient to
market volatility and their average annual value has hovered at about $4 billion in the last five years
(Figure 510) This market resilience was forged at the end of the 1990searly 2000s when Rus sian
metal producers gradually modernized their plants adjusting quality of production to Western
standards and enhancing integration into global value and supply chains Some of them conquered
their share of the highly competitive US market struggling with peers from Canada and certain
BRICS countries (China India and Brazil) To attract additional resources all Rus sian large metal-
producing companies became public and were listed on stock exchanges chiefly the London Stock
Exchange (Severstalrsquo PAO Evraz MMK OAO Novolipetsk Steel Norilsk Nikel and TMK PAO) one
on the New York Stock Exchange (Mechel) and one on the Hong Kong Stock Exchange (Rusal)
Business logic pushed some of them to invest in the US metal- making industry which was hit
hard by crisis Later on some of those assets were sold (eg two US steel mills acquired by
Severstal in 2004 were purchased 10 years later by Steel Dynamics Inc and AK Steel Corp)
Figure 57 Share of US States Rus sian Oil Imports 2016
Source US EIA ldquoUS Imports from Rus sia of Crude Oil and Petroleum Productsrdquo Petroleum amp Other
Liquids September 29 2017 https www eia gov dnav pet hist LeafHandler ashx nshy=shyPETampsshy=shyMTTIM _ NUS
- NRS _ 1ampfshy=shyM authorrsquos computation
0
10
20
30
40
50
60
70
80
90
100
Maine
Massachusetts
Maryland
Connecticut
Georgia
Rhode Island
Virginia
Florida
New York
Alabama
Puerto Rico
Pennsylvania
Delaware
Hawaii
Washington
Mississippi
California
New Jersey
Louisiana
Texas
594-71613_ch01_4Pindd 31 102017 404 PM
Figure 58 US Imports from Rus sia by State Million US$ 2013ndash2016
Source US Census Bureau ldquoState and Metropolitan Area Trade Datardquo Foreign Trade last modified
October 2 2017 https wwwcensus gov foreign - trade statistics state
Alaska
Connecticut
Delaware
Hawaii
Louisiana
Maryland
North Dakota 0
$1000
$2000
$3000
$4000
$5000
$6000
2013 2014 2015 2016
Alabama
Alaska
Connecticut
Delaware
Hawaii
Louisiana
Maryland
Maine
Mississippi
Montana
North Dakota
Mississippi
Figure 59 US Imports from Rus sia Share of Oil and Metals Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
83
82
85
86
87
88
85
82
7375
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
$40000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil and Metals
594-71613_ch01_4Pindd 32 102017 404 PM
Vadim Grishin 33
Obviously the market dynamic of dif er ent metals varies (eg iron steel aluminum platinum and
nickel) Caps to increase their trade and production in a ldquored oceanrdquo global environment with
anemic demand is rather limited despite Figure 510 showing a spike of iron and steel imports
from Rus sia in 2014 and aluminum in 2016 Some opportunities may exist for Russian- owned steel
plants in the United States (such as NLMK) to participate in energy proj ects resumed under Presi-
dent Trump who has required that new pipelines use only American- made steel15
Rus sia occupies a special niche in the US market for titanium products a high- end metal indus-
try Twenty years ago a long- term contract was signed between Rus sian titanium producer
VSMPO- AVISMA and Boeing The Rus sian com pany entered the selective club of Boeing suppliers
for the manufacture of components and semi- finished products Since the signing of this contract
VSMPO has delivered more than 35 percent of all titanium placed on Boeing civil aircraft16 They
are hidden in the trade data in an import category for Civilian Aircrafts and Parts (Figure 511) At
the end of 2016 Boeing announced an extension of its framework agreement with AVISMA
15 E Scheyder C Ngai and T Sylvester ldquoAmerican Steel Unlikely to Get Keystone Boost Despite Trump Orderrdquo
Reuters January 27 2017 http wwwreuters com article usa - trump - pipeline - transcanada - idUSL1N1FH1ZD
16 A Kramer ldquoTitanium Fills Vital Role for Boeing and Rus siardquo New York Times July 5 2013 http wwwnytimes com
2013 07 06 business global titanium - fills - vital - role - for - boeing - and - russia html mcubzshy=shy3
Figure 510 US Imports from Rus sia Iron Steel Bauxite Aluminum Nickel Nonferrous Metals and Other Precious Metals and Materials US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
0
$6000000000
$5000000000
$4000000000
$3000000000
$2000000000
$1000000000
2007 2008 2009 2010 2011 20122013
20142015
2016
Finished metal shapes
Iron and steel advanced
Iron and steel products nec
Nonferrous metals other
Other precious metals
Nickel
Bauxite and aluminum
Iron and steel mill products
Steelmaking materials
594-71613_ch01_4Pindd 33 102017 404 PM
US-Russia Economic Relations34
through 2022 and additional investments in the construction of a new robotic plant in Titanium
Valley a special economic zone located in the Sverdlovsk region that will open in 2018 The pro-
cessing of titanium forgings in all Boeing civil aircraft will be performed there including 787s 737
MAXs and 777Xs17 The contract extension with AVISMA may add several hundred million dollars
in value to annual US imports from Rus sia
How can such heavy reliance on imports of Rus sian titanium exist during a period of rising geopo-
liti cal tensions The answer is straightforward VSMPO- AVISMA is a highly specialized natu ral
mono poly producing 45 percent of the worldrsquos aerospace titanium Only four other countries
smelt high- grade titanium in industrial quantities the United States Germany Japan and China
Overall global production capacity is limited while demand is growing The United States cur-
rently imports around 79 percent of all the titanium it consumes each year18
17 ldquoBoeing and VSMPO Avisma to Launch Second Joint Production Siterdquo Rus sian Aviation Insider December 22 2016
http wwwrusaviainsider com boeing - and - vsmpo - avisma - to - launch - second - joint - production - site
18 Jon Ostrower and Andy Pasztor ldquoBoeing United Technologies Stockpile Titanium Partsrdquo Wall Street Journal
August 7 2014 https wwwwsj com articles boeing - united - technologies - stockpiling - titanium - parts - 1407441886
Figure 511 US Imports from Rus sia Civilian Aircrafts and Parts US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
$200000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Parts-civilian aircraft
Civilian aircraft
594-71613_ch01_4Pindd 34 102017 404 PM
Vadim Grishin 35
The Sanctions Act authorizes the secretary of the trea sury (in a nonmandatory way) to impose
restrictions (without specifying them) against Rus sian state- owned entities operating in the railway
metals and mining sectors of the Rus sian economy Despite the commanding heights of Rus siarsquos
state sector owner ship in its economy (70 percent of GDP) the metal- producing companies have
remained mostly in private hands
NUCLEAR AFFAIRS
Historically owners and operators of the 104 commercial nuclear power reactors in the United
States have purchased more than 80 percent of their uranium from foreign countries Uranium
shipping from Rus sia accounted for about 13 percent of the 58 million pounds of uranium pur-
chased overseas in 201219 At the same time the Rus sian state- owned mono poly Rosatom ac-
counts for 20 percent of Kazakhstanrsquos uranium production (which in turn comprises 11 percent of
all US uranium imports) and 20 percent of US domestic uranium production capacity (with
owner ship of exploration tracts in Wyoming)20
Nuclear fuel and nuclear power continue to be po liti cally sensitive topics both in the United
States and Rus sia Bilateral cooperation in this sector (being surprisingly stable with imports of
nuclear fuel from Rus sia at a level of $1 billion annually in the last five years [Figure 512 and 513])
is under constant po liti cal and lobbying pressure and has been a source of several po liti cal scan-
dals21 Consequently upside risks in this area of interaction are minimal and downside risks are
much higher especially when we are seeing more decommissioning of nuclear plants in the
United States than new constructions The US EIArsquos 2017 Annual Energy Outlook assumes
that about 25 percent of the nuclear capacity now operating will be removed from ser vice
by 205022
WHY IS THE GRASS GREENER ON THE OTHER SIDE
The United States continues to significantly reduce imports of chemical fertilizers as domestic pro-
duction increases In 2016 the United States imported 13 percent less ammonia and 11 percent
less urea and UAN which is a liquid urea and ammonium nitrate fertilizer Rus sia accounts for
around 40 percent of UAN imported by the United States The United States canceled antidumping
duties on imports of ammonium nitrate and urea from Rus sia in 2016 but it did not prevent import
19 US EIA ldquoThe US Relies on Foreign Uranium Enrichment Ser vices to Fuel Its Nuclear Power Plantsrdquo Today in
Energy August 28 2013 https wwweia gov todayinenergy detail php idshy=shy1273
20 Colin Chilcoat ldquoDoes Rus sia Really Own 20 Percent of the USrsquo Uranium Reservesrdquo OilPricecom May 6 2015
http oilpricecom Alternative - Energy Nuclear - Power Does - Russia - Really - Own - 20 - Of - The - US - Uranium - Reserves
html
21 Michelle Ye Hee Lee ldquoThe Facts behind Trumprsquos Repeated Claim about Hillary Clintonrsquos Role in the Rus sian Ura-
nium Dealrdquo Washington Post October 26 2016
22 US EIA ldquoAnnual Energy Outlook 2017 with Projections to 2050rdquo 81ndash82
594-71613_ch01_4Pindd 35 102017 404 PM
Figure 512 US Imports from Rus sia Share of Oil Metals and Nuclear Fuel Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
87
86
90
90
90
91
88
86
7882
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals and Nuclear Fuel
Figure 513 US Imports from Rus sia Nuclear Fuel Materials US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$-
$200000000
$400000000
$600000000
$800000000
$1200000000
$1000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 36 102017 404 PM
Vadim Grishin 37
drops twice last year (Figures 514 and 515) According to forecasts UAN imports are expected to
decline further to 15 million tons this year down over 46 percent from 28 million tons imported
last year23 The downside trend in imports of fertilizers will likely continue because of oversupply
BIG FISH
US imports of fish and shellfish from Rus sia are best understood in comparison with US fish
exports to the Rus sian market which slipped to zero in August 2014 after Rus sia issued an order
banning certain agricultural imports from the United States (Figure 516) While the volume of US
supply was not very large it was impor tant because it broke up the monopolistic dominance of a
few vertically integrated Rus sian companies that have kept prices high by restricting the entry of
new producers Seeking to implement import substitution policies Rus sia has tried to reduce
exports as well as imports of fish and seafood products in the last couple of years This symmetri-
cal approach was intended to ldquocompensaterdquo for a decrease of fish products in the domestic
23 Deepika Thapliyal ldquoPotashCorp Forecasts Sharp Drop in US Nitrogen Imports in 2017rdquo ICIS News February 7
2017 https wwwicis com resources news 2017 02 07 10076734 potashcorp - forecasts - sharp - drop - in - us - nitrogen
- imports - in - 2017
Figure 514 US Imports from Rus sia Share of Oil Metals Nuclear Fuel and Fertilizers Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
90
93
92
93
94
95
92
91
85
86
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals Nuclear Fuel and Fertilizers
594-71613_ch01_4Pindd 37 102017 404 PM
Figure 515 US Imports from Rus sia Chemical- Fertilizers US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
S-
$200000000
$400000000
$600000000
$800000000
$1000000000
$1200000000
$1400000000
$1600000000
$1800000000
$2000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Figure 516 US Exports to Rus sia Fish and Shellfish US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$10000000
$20000000
$30000000
$40000000
$50000000
$60000000
$70000000
$80000000
$90000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Fish and shellfish
594-71613_ch01_4Pindd 38 102017 404 PM
Vadim Grishin 39
consumer market caused by Rus siarsquos import ban but it has failed As result the group most af-
fected by the self- imposed counter- sanctions were Rus sian consumers
With a significant drop in fish imports a devaluation of the ruble and inflationary pressures on
seafood prices yearly consumption of fish in Rus sia has declined precipitously In 2015 alone
fish prices increased 20 percent and consumption dropped to 14 kilograms per person24 from
22 kilograms in 201425 In 2016 food rose to 355 percent of house hold expenditure as a result of
increases in food prices26 This has pushed vertically integrated fishing monopolies to sell even
more of their catch abroad rather than deliver to the Rus sian Federation (Figure 517) Thus we
cannot exclude the possibility of further growth in US fish and shellfish imports from Rus sia on a
marginal scale
24 Александр Савельев ldquoПотребление рыбы в России упало до 14 кг на человекаrdquo [Fish consumption in Rus sia fell to
14 kg per person] Экономика Интерфакс January 28 2015 http wwwinterfax ru business 492038
25 Илья Шестаков ldquoПотебление рыбы в России снизилось на 10 процентов из- за роста ценrdquo [Fish consumption in
Rus sia dropped by 10 percent due to price increases] RNS March 8 2017 https rnsonline consumer - market
Potreblenie - ribi - v - Rossii - snizilos - na - 10 - iz - za - rosta - tsen - 2017 - 03 - 08
26 Zoya Sheftalovich and Christian Oliver ldquoRus siarsquos Boom (Farming) Economyrdquo Politico November 8 2016 http
wwwpolitico eu article russias - boom - farming - economy
Figure 517 US Imports from Rus sia Fish and Shellfish US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$50000000
$100000000
$150000000
$200000000
$250000000
$300000000
$350000000
$400000000
$450000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 39 102017 404 PM
US-Russia Economic Relations40
SPACE ODYSSEY
Among high- end products beyond the top five groups of goods imported from Rus sia cheap and
efficient Rus sian engines have been used to launch US rockets into space for about 16 years
(Figure 518) There was a serious po liti cal strug gle around a 2014 ban on the purchase of Rus sian
RD-180 rocket engines revealing the conflicting business interests of power ful high- tech companies
This restrictive mea sure was temporary and was quickly lifted because of significant cost impacts
and risks of disruption to launch schedules27 For the same reason the Sanctions Act does not autho-
rize ldquothe imposition of any sanction or other condition limitation restriction or prohibition that
directly or indirectly impedes the supply by any entity of the Rus sian Federation of any product or
ser vice or the procurement of such product or ser vice by any contractor or subcontractor of the
United States or any other entity relating to or in connection with any space launch conducted for
the National Aeronautics and Space Administration or any other nonndash Department of Defense
customerrdquo28
Nevertheless many experts believe that US domestic alternatives to replace Rus sian engines will
be viable in five to eight years
27 Ken Dilanian ldquoWhy Does the US Use Rus sian Rockets to Launch Its Satellitesrdquo NBC News updated November 15
2016 http wwwnbcnews com why - does - u - s - use - russian - rockets - launch - its - satellites - n588526
28 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364
Figure 518 Spacecraft Excluding Military US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 40 102017 404 PM
41
Diversity and technological complexity are the most vis i ble advantages supporting US exports to
Rus sia Three major groups of export goods include civilian aircraft engines and parts (Figure 61)
drilling and oil field equipment (Figure 62) and industrial machines and engines (Figure 63)
Despite sanctions against the transfer of advanced oil producing and pro cessing technologies the
realization of US drilling and oil field equipment in Rus sia is sustainable although some bilateral
proj ects have been frozen
Another category of goods that has demonstrated resilience is the phar ma ceu ti cal industry (Fig-
ure 64) because most drugs in Rus sia are imported (about 70 percent of the Rus sian phar ma ceu-
ti cal market in value) Import substitution policies have had only modest results in this industry
As confirmed by American Chamber of Commerce surveys US exports to Rus sia are closely
connected to US FDI 30 percent of total imports of US companies working in the Rus sian
market come from the United States (more than $2 billion in 2016) In other words about
40 percent of all US exports to Rus sia are related to a US corporate- sector business pro cess in
the country The major sectors of activity of these companies are energy and natu ral resources
(52 percent) manufacturing (17 percent) information and communications technology or ICT
(13 percent) retail (7 percent) automotive industry (6 percent) phar ma ceu ti cal production
(1 percent) professional ser vices (05 percent) and other (2 percent)1
Some obvious constraints on US exports to Rus sia have resulted from a reduction in demand A
deterioration of bilateral relations and implementation of sanctions and counter- sanctions have
directly or indirectly afected all businesses Figures 65 and 66 provide data regarding a dramatic
drop in the sale of US agricultural production in Rus sia with all other categories of exports in
goods showing big cuts as well (see Figures 67ndash69)
Exports of civilian aircraft engines and parts put the state of Washington in first place among
other states as a leading exporter to the Rus sian market (Figure 610)
1 American Chamber of Commerce in Rus sia ldquoInvestment and Import to Rus sia 2nd Surveyrdquo 13
Diversity and Constraints
06
594-71613_ch01_4Pindd 41 102017 404 PM
Figure 61 US Exports of Civilian Aircraft Engines Equipment and Parts to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
$2500000000
$2000000000
$1500000000
$1000000000
$500000000
$-
Figure 62 US Exports of Drilling and Oil Field Equipment US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
$40000000
$45000000
$50000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 42 102017 404 PM
Figure 63 US Exports of Industrial Engines to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Figure 64 US Exports of Phar ma ceu ti cal Preparations to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 43 102017 404 PM
Figure 65 US Exports of Meat and Poultry to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Meat poultry etc
$1000000000
$800000000
$600000000
$400000000
$200000000
$-
$1200000000
$1400000000
$1600000000
Figure 66 US Exports of Soybeans to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
$200000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 44 102017 404 PM
Figure 67 US Exports of Vehicles Engines and Parts to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Other parts and accessories of vehicles
Automotive tires and tubes
Bodies and chassis for passenger cars
Engines and engine parts (carburetors pistonsrings and valves)
Trucks buses and special purpose vehicles
Passenger cars new and used
$2500000000
$2000000000
$1500000000
$500000000
$-
$1000000000
Figure 68 US Exports of Medicinal Equipment to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 45 102017 404 PM
Figure 610 US Exports to Rus sia by States (2016 US$ Value) Million US$ 2013ndash2016
Source US Census Bureau ldquoState and Metropolitan Area Trade Datardquo
Iowa Kentucky
North Dakota
Oklahoma
South Carolina
Washington
0
$500
$1000
$1500
$2000
2013 2014 2015 2016
District of Columbia
Iowa
Kentucky
North Dakota
Oklahoma
South Carolina
Washington
Figure 69 US Exports of Excavating Machinery to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
$40000000
$45000000
$50000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 46 102017 404 PM
47
Upon reviewing the current trend in US- Russia economic relations we must acknowledge that
the existing trade model is obsolete and exhausted Imports are resource- oriented and reflect
constraints of the Rus sian economic structure while five groups of goodsmdash oil metals nuclear
fuels fertilizers and fishmdash make up more than 90 percent of total imports from Rus sia (Figure 71)
Each of these industries has a limited capacity for growth in the foreseeable future
Rus siarsquos core export to the United Statesmdash oilmdash will inevitably decrease in the mid- term under any
scenario The value and volume of Rus sian exports to the United States are open to global market
volatility and po liti cal pressures with limited hedging mechanisms
Overall US exports to Rus sia are unsustainable due to bilateral po liti cal tensions the whims of
commodity markets and changing domestic policies Sanctions and counter- sanctions have
created additional barriers particularly in finance banking high- tech energy and agro- business
According to the American Chamber of Commerce 69 percent of US companies working in the
country consider the impact of US sanctions against Rus sia on their business as negative At the
same time 60 percent of companies do not expect big changes in business relations between
Rus sia and the United States under Trump1 as the new law codifies existing sanctions fortifies
them and extends them to new sectors
Current US investments are low due to the weak rule of law in Rus sia a lack of property right
protections and proper contract enforcement high levels of statization and monopolization in the
economy a poor business climate outdated capital stock dependence on natural- resource
sectors and of course sanction and counter- sanction mea sures Bloated administrative compo-
nents created as risk mitigation instruments have also served as impediments The countryrsquos
institutional weakness low level of productivity bud get constraints and a declining inflexible
workforce will restrain future economic growth even if commodity prices recover Rus sian eco-
nomic policy will likely continue to be statist and protectionist relying mostly on import
substitutions
1 Ibid 11
Existing Trends and Future Scenarios
07
594-71613_ch01_4Pindd 47 102017 404 PM
US-Russia Economic Relations48
What scenarios can be expected in such a challenging environment
One probability (no peace no war) is based on the assumption that matters will not deteriorate
further and implementation of the Sanctions Act will be cursory This will cause relatively slow
degradation in the economic field with occasional flashes of activity in selected areas (eg closer
cooperation against Islamist terrorist groups in Syria)
A second worse case or critical scenario is the intensive and full- scale execution of current sanc-
tion legislation and even the imposition of new economic punitive and restrictive mea sures which
could incite asymmetric retaliatory actions and lead to the introduction of additional protectionist
policies This in turn could trigger a further escalation of mutual confrontation and could eventu-
ally destroy the fundamentals of the current bilateral trade system Rus sian leadership has charac-
terized the Sanctions Act as a declaration of a trade war that ends all hope for improving bilateral
relations2
2 Дмитрий Медведев ldquoПодписание президентом США нового санкционного закона против России создает несколько
последствийrdquo [The US Presidentrsquos signing of the package of new sanctions against Rus sia will have a few conse-
quences] Facebook August 2 2017 https wwwfacebook com Dmitry Medvedev posts 10154587161801851
Figure 71 US Imports from Rus sia Share of Oil Metals Nuclear Fuel Fertilizers and Fish Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
93
94
93
94
95
96
93
92
87
89
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals Nuclear FuelFertilizers and Fish
594-71613_ch01_4Pindd 48 102017 404 PM
Vadim Grishin 49
The best case and most favorable scenario looks less probable now It assumes the realization of
structural reforms in Rus sia in such a way that would adapt Rus siarsquos foreign policy to national
economic needs reduce confrontations with the West and make a concerted efort to integrate
Rus sian businesses into global supply and value chains A revitalization of the structural reform
agendamdash including eforts to diversify economic activities through de- monopolization and support
for SMEs a restructuring of the banking sector the creation of a vibrant business climate to foster
entrepreneurships and innovation the implementation of administrative and judicial reforms to
tackle red tape and endemic corruption and the reduction of state control over key sectors of the
economy via wide- spread privatization could kick- start the development of a nonoil economy and
improve long- term growth prospects Despite ongoing discussion of reform strategies deep
economic and po liti cal changes are extremely complicated over the next po liti calelectoral cycle
(2018ndash2024) particularly because of re sis tance of vested interests and growing commodity prices
The urgency to tackle structural shortcomings in natu ral resource- dependent economies usually
correlates with the price of those resources and the degree to which resource rents drive eco-
nomic activity However there may be marginal improvements in the efficiency of the current
economic system
Future US- Russia relations can be thought of through three pillars one pillar focuses on areas
where both countries maintain a competitive rivalry another looks at potential areas of interaction
under pres ent conditions a third pillar and one that has evaporated from the current bilateral
agenda concentrates on future cooperation Stronger economic ties could not only be a kind of
po liti cal shock absorber but contribute to the building of this future (particularly business contacts
aim to support future structural reforms) although po liti cal factors are depressing the prospects
for cooperation To escape deadlock it will be impor tant to establish the right balance between
politics and economics and create a model of collaboration within the framework of contention
594-71613_ch01_4Pindd 49 102017 404 PM
About the Author
Vadim Grishin PhD MBA has been involved in the reform pro cess in Rus sia as adviser to the
deputy prime minister of Rus sia in 1992ndash1993 and 2006ndash2010 He has extensive experience
working with the Bretton Woods Institutions He was the board member of the World Bank Group
and served as se nior adviser at the International Monetary Fund Currently he is a con sul tant to the
chief economistrsquos office of the International Finance Corporation and teaches the economics of
transition at Georgetown University in Washington DC
50
594-71613_ch99_4Pindd 50 102017 403 PM
Blank
COVER PHOTO ADOBE STOCK
1616 Rhode Island Avenue NW
Washington DC 20036
202 887 0200 | wwwcsisorg
v++ISBN 978-1-4422-8035-9
Lanham bull Boulder bull New York bull London
4501 Forbes Boulevard
Lanham MD 20706
301 459 3366 | wwwrowmancom
A U T H O R
Vadim Grishin
Myths and Realities
A Report of the
CSIS RUSSIA AND EURASIA PROGRAM
US-RussiaEconomicRelations
O C T O B E R 2 0 1 7
Euml|xHSLEOCy280359z
The Man Pupu Nyor Rock Formations at the Northern Urals also known as Seven
Strong Man or Little Mountain of the God in the local tribe (Mansi) language
US-Russia Economic Relations14
Figure 33 US- Russia Trade Million US$ vs Po liti cal Cycle 2000ndash2016
Sources US Census Bureau ldquoTrade in Goods with Rus siardquo Foreign Trade last modified June 29 2017
https wwwcensus gov foreign - trade balance c4621 html (see data for 2000ndash2016) authorrsquos evaluation
of po liti cal and economic data
Orange Revolution
Khodorkovskys arrest
GeorgianWar
Bush- Putin Reset
Iraq War Global Financial Crisis
Obama-Medvedev Reset
Russias WTO accession
New START Treaty
A Pefect Storm the Ukranian Crisis Oil Prices Crashing
Sanctions and Counter-Sanctions
$3000
$8000
$13000
$18000
$23000
$28000
$33000
$38000
$43000
2000 2002 2004 2006 2008 2010 2012 2014 2016
594-71613_ch01_4Pindd 14 102017 404 PM
15
The current structure of US- Russia economic relations emerged in the early 2000s when the
model of trade and investment interaction took on a character similar to that which existed be-
tween the United States and developing economies US imports from Rus sia centered on com-
modities while technology along with food products lead American exports The primary
exception was that Rus sia supplied nuclear fuel including highly enriched uranium extracted from
nuclear weapons for US power plants and provided ser vices to the aerospace industry primarily
in satellite launches However both these exceptions can be explained as a legacy of the Soviet
past and not a harbinger of the future economic relationship (Figure 41)
In the last 15 years this trade structure has not changed significantly The only noticeable shift in
trade was a dramatic drop (to practically nothing) in exports of US agricultural products a result
of Rus siarsquos policy of import substitution and so- called counter- sanction mea sures it took in re-
sponse to US sanctions over the Ukraine crisis (Figure 42)
Promising new directions of cooperation in the IT sector and in engineering ser vices for the
aerospace industry appeared in the early 2000s1 but did not spill into other sectors and conse-
quently did little to renew economic cooperation on the whole The integration of Rus sian high-
tech ser vices into large- scale global production and value chains was constrained by the usual
culprits a lack of financial resources managerial experience skilled labor modern infrastructure
RampD investments and an adequate business environment High commodity prices incentivized the
restoration of an economic system centered on resource rents The leading role of oil and gas
extraction and transportation discouraged the development of a nonenergy sector that might
have created advanced and complex production and ser vices An import substitution policy could
not work efficiently in an economic environment plagued by the Dutch disease where currency
1 The Boeing Design Center was created in Moscow It consists of nearly 250 Boeing employees managing
a team of 1200 contract engineers from Rus sian and Ukrainian aerospace companies ldquoBackgrounder Boeing in
Rus siardquo Boeing last modified January 2017 http wwwboeing com resources boeingdotcom company key _ orgs
boeing - international pdf russia - cisbackgrounder pdf
Are the United States and Rus sia ldquoNatu ralrdquo Trading Partners A Little Bit of History
04
594-71613_ch01_4Pindd 15 102017 404 PM
US-Russia Economic Relations16
inflows (oil money) lead to ruble appreciation and render a countryrsquos production less competitive
During that time Rus siarsquos industry did not receive preferential access to larger markets and could
not expand its share in the global economy particularly because of its self- isolation from the
regional trade agreements (except for its participation in the Eurasian Economic Union with some
neighboring countries of the former Soviet Union) As a result neither import substitution nor
export- led strategy promoted growth and specialization in nonoil production A long- awaited
modernization and reallocation of resources from an inefficient nontrade sector to a trade sector
did not materialize
These limits were later augmented with sanctions and an extension of domestic restrictions on
cooperation with Western partners Importantly the rapid growth of state- monopoly structures in
the Rus sian economy over the past 15 years has created additional obstacles to the development
and diversification of US- Russia economic ties
Figure 41 US Imports from Rus sia US$ 2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2016)
Fish and shellfish 3
Crude oil 5
Fuel oil 37
Petroleum products other
8
Nuclear fuel materials
7
Chemicals-fertilizers 4
Steelmaking materials 5
Iron and steel mill products 4
Bauxite and aluminum 9
Other precious metals 4
Nonferrous metals other 1
Finished metal shapes 1
Synthetic rubber--primary
1
Spacecraftexcluding military
594-71613_ch01_4Pindd 16 102017 404 PM
Fig
ure
42
U
S E
xpo
rts
to R
us s
ia U
S$ 2
016
Sou
rce
US
Ce
nsu
s B
ure
au ldquo
Trad
e in
Go
od
s w
ith
Ru
s sia
rdquo (s
ee
dat
a fo
r 2
016
)
Bak
ery
pro
du
cts
Win
e b
eer
an
d r
elat
ed
pro
du
cts
New
spri
nt
Pla
stic
mat
eria
ls
Ch
emic
als-
fert
ilize
rs
Ch
emic
als-
ino
rgan
icC
hem
ical
s-o
rgan
ic
Ch
emic
als-
oth
erC
ott
on
fib
er c
loth
In
du
stri
al r
ub
ber
pro
du
cts
Min
eral
su
pp
lies-
man
ufa
ctu
red
Gen
erat
ors
acc
esso
ries
Ele
ctri
c ap
par
atu
s
Dri
llin
g amp
oilfi
eld
eq
uip
men
t Sp
ecia
lized
min
ing
Exc
avat
ing
mac
hin
ery
No
nfa
rm t
ract
ors
an
d p
arts
In
du
stri
al e
ng
ines
Fo
od
to
bac
co m
ach
iner
y M
etal
wo
rkin
g m
ach
ine
too
ls
Tex
tile
sew
ing
m
ach
ines
W
oo
d g
lass
p
last
ic
Pu
lp a
nd
pap
er
mac
hin
ery
Mea
suri
ng
tes
tin
g
con
tro
l in
stru
men
ts
Mat
eria
ls h
and
ling
equ
ipm
ent
Ind
ust
rial
mac
hin
es
oth
er
Ph
oto
ser
vice
ind
ust
ry m
ach
iner
y A
gri
cult
ura
l mac
hin
ery
eq
uip
men
t C
om
pu
ters
Co
mp
ute
r ac
cess
ori
es
Sem
ico
nd
uct
ors
Tel
eco
mm
un
icat
ion
seq
uip
men
t
Bu
sin
ess
mac
hin
es a
nd
eq
uip
men
t
Lab
ora
tory
tes
tin
g in
stru
men
ts
Med
icin
al e
qu
ipm
ent
Civ
ilian
air
craf
t e
ng
ines
eq
uip
men
t a
nd
par
ts
Rai
lway
tra
nsp
ort
atio
n
equ
ipm
ent
Ves
sels
exc
lud
ing
scr
ap
Co
mm
erci
al v
esse
ls o
ther
M
arin
e en
gin
es p
arts
Spac
ecra
ft e
xclu
din
g
mili
tary
Pas
sen
ger
car
s
new
an
d u
sed
Tru
cks
bu
ses
and
sp
ecia
l p
urp
ose
ve
hic
les
En
gin
es a
nd
en
gin
e p
arts
(c
arb
ure
tors
pis
ton
s r
ing
s
and
val
ves)
B
od
ies
and
ch
assi
s fo
r p
asse
ng
er c
ars
Au
tom
oti
ve t
ires
an
d t
ub
es
Oth
er p
arts
an
d a
cces
sori
es o
f ve
hic
les
Ap
par
el h
ou
seh
old
go
od
s -
text
ile
Ph
arm
aceu
tica
lp
rep
arat
ion
s
Furn
itu
re h
ou
seh
old
go
od
s
etc
R
ug
s
Cel
l ph
on
es a
nd
oth
er
ho
use
ho
ld g
oo
ds
ne
c
594-71613_ch01_4Pindd 17 102017 404 PM
US-Russia Economic Relations18
Figure 43 US Trade in Goods with Rus sia Million US$ 1992ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
Russian Financial Crisis
Oil price Increased from$2446 USD per barrel (2001)
to $9694 USD per barrel(2008)
Global Financial Crisis
Oil price high record in2011-2012
(more that $111 USD perbarrel)
Oil price crashed
$-
$5000
$10000
$15000
$20000
$25000
$30000
$35000
$40000
$45000
$50000
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia US Exports to Russia US-Russia Trade in Goods
No doubt po liti cal ups and downs add volatility to US- Russia trade Nevertheless Rus siarsquos eco-
nomic structure exhausted itself before the Ukrainian crisis and the recent Rus sian recession Its
limitations are not only due to some mistakes in policy or negative coincidences of circumstances
but rather to deeply rooted properties in the current bilateral trade model related to structural
issues in the Rus sian economy Structural constraints such as the weak enforcement of property
rights poor business regulation and nondiversified exports weighed on Rus sian trade with the
United States From this perspective the term ldquonaturalunnatural trading partnersrdquo does not ad-
dress the unused capacity of bilateral interaction or the real challenges that kind of interaction
faces It just adds metaphysical flavor to the very specific economic and po liti cal factors that
determine the US- Russia trajectory
Overall the outlines of bilateral trade (Figure 43) resemble the famous ldquoRus sian Mountainsrdquo that
were a pre de ces sor of the modern roller coaster icy hills supported by wooden constructionsmdash a
rigid and immobile structure that sooner or later would melt This unfortunately is what is hap-
pening to US- Russia trade cooperation now
594-71613_ch01_4Pindd 18 102017 404 PM
19
ARE LITTLE FISH REALLY SWEET
Low US- Russia economic interaction has at least two consequences First it limits the capacity of
policymakers to exploit trade as an instrument for geopo liti cal combat Even the question of a US
trade deficit which used to be a headache for many US trading partners has become so insig-
nificant in absolute terms (about $87 billion in 2016) that it seems hardly worth caring about
When the volume of trade between two countries becomes very small in absolute terms whether
a country is running a surplus or deficit is no longer relevant But it also renders another type of
confrontations (sometimes more dangerous) more likely since the two traders have little to lose
Second in an environment marked by low levels of bilateral trade both sides could incentivize (if
and when a desire for po liti cal rapprochement exists) the signing of new trade deals which are
elevated symbolically as a turning point in bilateral po liti cal relations (ie the sale of Boeings to
Rus sia or the delivery via tankers of Rus sian oil to US refineries) Sometimes markets themselves
pres ent ldquogiftsrdquo that can be capitalized on po liti cally US- USSR grain trade in the 1970s was one
such ldquogiftrdquo large sales of American grain to the Soviet Union helped US policymakers win favor
with the po liti cally impor tant American farming sector and permitted Soviet leaders to maintain
access to a dietary staple for the Soviet population
The strong 32 percent growth in value of US imports from Rus sia from January to May 2017
versus January to May 2016 ( Table 51) is an example of a development that has tempted officials
to pres ent it as a sign of positive change due to ldquogrowing business activitiesrdquo (this kind of statement
was heard before the bilateral summit in Germany in July 2017) although the reason for that leap
was evidently an increase in commodity prices (mainly of oilmdash see Table 52) and not a rise in
entrepreneurial interactions The primary beneficiaries of that upside rally have been two other
petro- economies Saudi Arabia and Venezuela ( Tables 53 and 54)
Sector Analyses
05
594-71613_ch01_4Pindd 19 102017 404 PM
US-Russia Economic Relations20
Table 51 US Imports from Rus sia Million US$ Januaryndash May 2016 vs Januaryndash May 2017
Year January February March April May Total
2016 9603 6871 11097 12257 10977 50805
2017 12215 10220 16979 13471 14147 67032
Change 271 487 530 99 289 319
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
Table 52 Change in Urals Crude Oil Prices US$ per Barrel Januaryndash May 2016 vs Januaryndash May 2017
Januaryndash May 2016 Januaryndash May 2017 Change ($) Change ()
3601 5129 1528 424
Source Ministry of Finance of the Rus sian Federation https wwwminfin ru ru ixzz4mMIZ7XtC
Table 53 US Imports from Saudi Arabia Million US$ Januaryndash May 2016 vs Januaryndash May 2017
Year January February March April May Total
2016 15114 9036 13555 10844 14679 63228
2017 19802 20298 21650 16211 19542 97503
Change 3101 12463 5972 495 331 542
Source US Census Bureau ldquoTrade in Goods with Saudi Arabiardquo Foreign Trade last modified June 29 2017
https wwwcensus gov foreign - trade balance c5170 html (see data for 2016ndash2017)
594-71613_ch01_4Pindd 20 102017 404 PM
Vadim Grishin 21
Table 54 US Imports from Venezuela Million US$ Januaryndash May 2016 vs Januaryndash May 2017
Year January February March April May Total
2016 6657 5560 7140 8007 7922 35286
2017 13041 10864 123500 11148 12243 59646
Change 9590 9540 7297 3923 5454 6903
Source US Census Bureau ldquoTrade in Goods with Venezuelardquo Foreign Trade last modified June 29 2017
https wwwcensus gov foreign - trade balance c3070 html (see data for 2016ndash2017)
Table 55 US Exports to Rus sia Million US$ Januaryndash May 2016 vs Januaryndash May 2017
Year January February March April May Total
2016 3628 3577 7298 4657 4947 24107
2017 3144 4277 5386 6670 4806 24283
Change minus133 196 minus262 432 minus29 minus07
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2016ndash2017)
At the same time US exports to Rus sia continue to stagnate ( Table 55) due to low levels of
consumption during a two-and- a- half-year economic crisis a deep ruble devaluation sanctions
and counter- sanctions
Given the very dif er ent economic structures and resource endowments of Rus sia and the United
States it is not surprising that US- Russia trade is asymmetric and oil driven (Figure 51) A
3 percent increase in Urals oil prices translates into a one percent increase in US import growth
from Rus sia Thus in 2016 every $10 increase in Urals crude oil added $15 billion to the value of
US imports or 11 percent to the total value of imports from Rus sia
OIL ADDICTION
Oil is a core pillar of US- Russia bilateral trade A bumpy ride in oil markets afects commerce
Nevertheless Rus sian oil exports to the United States in physical terms have been rather
594-71613_ch01_4Pindd 21 102017 404 PM
US-Russia Economic Relations22
sustainable Starting from 2005 average annual deliveries have been above 150 million barrels
(Figure 52) Crude and heating oil have dominated while petroleum products and liquefied petro-
leum gases have not (Figure 53) In 2011 oil exports peaked at 228 million barrels but declined to
159 million barrels in 2016mdash a drop of 30 percent Rec ord high shipments of Rus sian oil to the United
States coincided with an elevation in oil prices which made the subsequent decline in oil shipment
value between 2011 and 2016 (by about 72 percent as shown in Figure 54) seem more stark The
increase in price also raised the share of oil in Rus sian exports by 74 percent in 2011 (Figure 55)
The Rus sian share in total US oil imports was around 55 percent in 2011 and 43 percent in 2016
( Table 56) In the last five years the United States has relied exclusively on consumption of Rus sian
oil for the rough equivalent of one week out of the year (Figure 56)
It is unlikely that Rus sia can significantly increase its share of the US oil market and there is a real
possibility for a downward trend There are several reasons the historically high Rus sian hydrocar-
bon export threshold of 2011 will not soon if ever be surpassed
First US energy consumption will likely be flat According to the US Energy Information Adminis-
tration (EIA) demand for petroleum and other liquids in the United States will be about 35ndash36
quadrillion British thermal units (BTUs) with minimal variation over the next 25 years1
1 US EIA ldquoAnnual Energy Outlook 2017 with Projections to 2050rdquo January 5 2017 7ndash8
Figure 51 US- Russia Trade Growth () vs US and Rus sia Real GDP Growth () 1993ndash2016
Source IMF ldquoIMF Datardquo accessed September 27 2017 http wwwimf org en Data US Census Bureau
ldquoTrade in Goods with Rus siardquo
Note rGDPthinsp=thinspreal gross domestic product
Trade
USA rGDP growth
Russia rGDP growth
-60
-40
-20
0
20
40
60
80
100
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Gro
wth
All spikes in US-Russia trade have been connected with two main
variables volume and price of crude oil
594-71613_ch01_4Pindd 22 102017 404 PM
Vadim Grishin 23
Second the United States will become a net energy exporter between 2020 and 2030 in most
cases under dif er ent combinations of oil and natu ral gas prices GDP growth technological
breakthroughs and the availability of energy resources The role of oil imports will dramatically
fall2
Third oil price scenarios as described by the International Energy Agency (IEA) international
financial organ izations (IFIs) and many national agencies are very cautious and assume that even
by 2035 to 2040 oil prices will not to recover to the levels of 2011ndash20123
Fourth Rus sian oil production and export growth will be modest and driven by Asian economic
expansion and will comprise a decreasing share of Western markets4 According to forecasts from
2 Ibid 15ndash18
3 Ibid table 3 ldquoEnergy Prices by Sector and Sourcesrdquo World Bank World Bank Commodity Markets Price Forecasts
(Washington DC World Bank 2017) httpswwwworldbank org en research commodity - markets Organ ization of the
Petroleum Exporting Countries (OPEC) World Oil Outlook 2016 (Vienna OPEC 2016)
4 E D Belotskaia et al Global and Rus sian Energy Outlook 2016 (Moscow Energy Research Institute of the Rus sian
Acad emy of Science Analytical Center for the Government of the Rus sian Federation 2016) http acgov ru files
publication a 12767 pdf
Figure 52 US Imports from Rus sia Crude Oil and Petroleum Products Thousands of Barrels 1995ndash2016
Source US EIA ldquoUS Imports by Country of Origin Rus siardquo Petroleum amp Other Liquids September 13
2017 http wwweia gov dnav pet PET _ MOVE _ IMPCUS _ D _ NUS _ NRS _ MBBL _ M htm
0
50000
100000
150000
200000
250000
Date 1995 1996 1997 1998 199920002001200220032004200520062007200820092010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 23 102017 404 PM
US-Russia Economic Relations24
the Organ ization of the Petroleum Exporting Countries (OPEC) crude oil exports from Rus sia and
the Caspian region to the United States will dis appear by 20255
So why does the Rus sian Urals blend continue to be attractive for oil traders and US refineries
which could pro cess greater volumes of domestically produced lighter crude There are two main
reasons One is related to the preference of US high conversion refineries (the most sophisticated
in the world) to work with heavy oil blends produced by Canada Mexico Iraq Venezuela and
Rus sia Pro cessing heavy crude now is as profitable as pro cessing lighter crude The so- called
crack spreadmdash the diference between the cost of relatively cheap heavy crude oil and the final
price of value- added consumer products (diesel gasoline jet fuel and heating oil)mdash has become
the same as the refinery margins of light sweet crude6 This has primarily afected light oil produc-
ing countries such as Angola Algeria and Nigeria
5 OPEC World Oil Outlook 2016 306ndash309
6 ldquoHow Much for That Heavy Oilrdquo Oil Sands Magazine December 26 2015 https wwwoilsandsmagazine com
news 2015 12 26 how - much - for - that - heavy - oil
Figure 53 US Imports from Rus sia Oil and Petroleum Products US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$-
$25000000000
$20000000000
$15000000000
$10000000000
$5000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Liquefied petroleum gases
Petroleum products other
Fuel oil
Crude oil
594-71613_ch01_4Pindd 24 102017 404 PM
Vadim Grishin 25
Another factor afecting purchase of Rus sian oil is a new trend among oil companies for further
consolidation of scale and for integrating operations of upstream and downstream business7
There have been several waves of separation and unification of production transportation and
pro cessing in the last 50 years The current business cycle can be seen as an adaptation to a
period of low prices and oversupply Companies that buy andor produce oil in Rus sia most likely
prefer to transport and pro cess this oil in their own modern refineries in the United States At the
same time some of the newest refinery designs specifically for pro cessing heavy oils have been
built in Asia thus extending the choices of heavy oil producing countries
We should also consider that leading US and international oil traders along with oil producing
companies working with or owning US refineries frequently buy Rus sian oil on the open market
and have long- term contracts on Rus sian crude oil delivery Many Rus sian oil companies prefer to
pay for purchases or ser vices with their future production instead of cash creating situations of
ldquostickyrdquo oil imports that are difficult to replace The best- known example is an interaction between
7 ldquoEnergy and Utilities Sectorrdquo Roundtable Financier Worldwide December 2015 https wwwfinancierworldwide
com roundtable - energy - utilities - sector - dec15
Figure 54 US Imports of Oil and Petroleum Products from Rus sia vs Oil Prices Eu rope Brent Spot Price Free on Board (FOB) 1996ndash2017
Source US EIA ldquoUS Imports by Country of Origin Rus siardquo
0
20
40
60
80
100
120
140
0
5000
10000
15000
20000
25000
30000
Jan
-19
96
Jun
-19
96
No
v-19
96
Ap
r-19
97
Sep
-19
97
Feb
-19
98
Jul-
199
8D
ec-1
99
8M
ay-1
99
9O
ct-1
99
9M
ar-2
00
0A
ug
-20
00
Jan
-20
01
Jun
-20
01
No
v-2
00
1A
pr-
20
02
Sep
-20
02
Feb
-20
03
Jul-
20
03
Dec
-20
03
May
-20
04
Oct
-20
04
Mar
-20
05
Au
g-2
00
5Ja
n-2
00
6Ju
n-2
00
6N
ov-
20
06
Ap
r-2
00
7Se
p-2
00
7Fe
b-2
00
8Ju
l-2
00
8D
ec-2
00
8M
ay-2
00
9O
ct-2
00
9M
ar-2
010
Au
g-2
010
Jan
-20
11Ju
n-2
011
No
v-2
011
Ap
r-2
012
Sep
-20
12Fe
b-2
013
Jul-
20
13D
ec-2
013
May
-20
14O
ct-2
014
Mar
-20
15A
ug
-20
15Ja
n-2
016
Jun
-20
16N
ov-
20
16
USD
per
Bar
rel
Th
ou
san
d B
arr
els
US Imports from Russia of Crude Oil and Petroleum Products (Thousand Barrels)
Europe Brent Spot Price FOB (Dollars per Barrel)
594-71613_ch01_4Pindd 25 102017 404 PM
US-Russia Economic Relations26
Table 56 US Oil Imports All Countries vs Rus sia Thousand Barrels per Day 2011ndash2016
Years 2011 2012 2013 2014 2015 2016
All Countries 11436 10598 9859 9241 9449 10058
Rus sia 624 477 460 330 371 433
Share 546 450 467 357 393 431
Sources US EIA ldquoUS Imports by Country of Origin Total Crude Oil and Productsrdquo Petroleum amp Other
Liquids September 13 2017 wwweia gov dnav pet pet_move_impcus_a2_nus_ep00_im0_mbbl_m htm
authorrsquos computation
Figure 55 US Imports from Rus sia Share of Crude Oil and Petroleum Products Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
57
64
73
72
74
73
72
59
52 50
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
$40000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil and Petroleum Products
594-71613_ch01_4Pindd 26 102017 404 PM
Vadim Grishin 27
the Rus sian state mono poly Rosneft and commodity trading and mining giant Glencore which
along with energy and commodities com pany Vitol participated in a $10 billion prepayment
deal with Rosneft for crude supplies in 2013
There have been a number of ongoing transactions between the Rus sian oil industry and interna-
tional oil companies including several that top the list of importers of Rus sian oil to the United
States ( Table 57) In December 2016 Glencore participated in a controversial privatization opera-
tion purchasing in tandem with the Qatar sovereign wealth fund a 195 percent stake in Rosneft
which was on the US and EU list of sanctioned firms8 Glencore has also taken a blocking stake in
midsize oil producer RussNeft BP owns a 1975 percent stake in Rosneft Chevron holds a
15 percent interest in the 935- mile- long CPC9 pipeline which transports an average of 959000
barrels of crude oil per day including 76000 barrels daily from Rus sia10 ExxonMobil has formed
8 E Mazneva and I Arkhipov ldquoRus sia Sells $11 Billion Stake in Rosneft to Glencore Qatarrdquo Bloomberg December 7
2016
9 CPCthinsp=thinspCaspian Pipeline Consortium
10 ldquoRus sia Highlights of Operations and Business Portfoliordquo Chevron accessed October 3 2017 https wwwchevron
com worldwide russia
Figure 56 Share of Rus sian Oil in Total US Oil Imports Thousands of Barrels per Day 1972ndash2016
Source US EIA ldquoUS Imports by Country of Origin Total Crude Oil and Productsrdquo
2000
4000
6000
8000
10000
12000
14000
16000
US Imports of Crude Oil and Petroleum Products (Thousand Barrels per Day)
US Imports from Russia of Crude Oil and Petroleum Products (Thousand Barrels per Day)19
7319
7419
7519
7619
7719
7819
7919
80
198
119
82
198
319
84
198
519
86
198
719
88
198
919
90
199
119
92
199
319
94
199
519
96
199
719
98
199
92
00
02
00
12
00
22
00
32
00
42
00
52
00
62
00
72
00
82
00
92
010
20
112
012
20
132
014
20
152
016
594-71613_ch01_4Pindd 27 102017 404 PM
Table 57 Top Importers of Rus sian Oil to the United States Thousands of Barrels 2016
VALERO MARKETING amp SUPPLY CO 54590 3616
EXXONMOBIL OIL CORP 17087 1130
CHEVRON USA INC 15217 1008
BP WEST COAST PRODUCTS LLC 10130 671
GEORGE E WARREN CORP 7272 48
PAULSBORO REFINING CO LLC 6838 453
TESORO CORP 5097 338
VITOL INC 5084 337
PHILLIPS 66 CO 4726 313
TRAFIGURA AG 4360 289
PAR HAWAII REFINING LLC 3893 258
MOTIVA ENTERPRISES LLC 3041 205
SHELL US TRADING CO 2863 19
MARATHON PETROLEUM CO LLC 2475 16
ATLANTIC TRADING amp MARKETING 2099 14
FREEPOINT COMMODITIES LLC 1439 1
GLENCORE LTD 1284 85
BEST PETROLEUM CORP 967 64
ROLYMPUS US COMMODITIES GROUP LLC 822 6
HUNT CRUDE OIL SUPPLY CO 666 4
GULF OIL LP 658 4
Source US EIA ldquoUS Imports by Country of Origin Crude Oilrdquo Petroleum amp Other Liquids September 13
2017 httpswwweiagovdnavpetpet_move_impcus_a2_nus_epc0_im0_mbblpd_ahtm authorrsquos
computation
594-71613_ch01_4Pindd 28 102017 404 PM
Vadim Grishin 29
several joint ventures with Rosneft to undertake ofshore exploration in the Black Sea and the Kara
Sea in Siberia11
According to the Sanctions Act US persons are prohibited from exporting or reexporting goods
ser vices (except financial ser vices) and technology in support of exploration or production of new
deep- water Arctic ofshore or shale oil proj ects that involve designated Rus sian entities or other
entities in which such sanctioned persons have a controlling interest or a substantial noncontrol-
ling owner ship interest defined as not less than 33 percent (previously it was 50 percent) The new
law also authorizesmdash but does not requiremdash the imposition of so- called secondary sanctions
against non- US entities that engage in activities involving the construction maintenance or
expansion of Rus sian energy export pipelines with a fair market value of $1 million or more or an
aggregate fair market value during a 12- month period of $5 million12 This provision has raised the
concerns of some Eu ro pean countries particularly Germany As result the final language of the
law included wording about coordination of this issue with allies of the United States
Shipments of Rus sian oil to the United States could be afected by activity in the US refinery
industry In early 2017 Saudi Aramco bought the United Statesrsquo largest oil refinery in Port Arthur
(Texas) and it announced plans to send more of its own crude to that refinery13 Serious concerns
exist however regarding the future of three refineries and nine pipelines owned by Citgo a US
branch of the Venezuelan state com pany PdVSA which is balancing precariously on the edge of
default Under certain conditions in the event of PdVSA bankruptcy Rosneft could claim a stake of
up to 499 percent in Citgo Such a possibility has raised concerns among politicians and US
government officials with Trea sury Secretary Steven Mnuchin calling it a ldquonational security issuerdquo14
Tables 58 59 and 510 show allocations of Rus sian oil imports to major US refineries some of
which work exclusively on Rus sian crude a total of two to three months per year In total 150940
thousand barrels of Rus sian oil were refined in 2016
Figure 57 confirms a leading position of Texas and Louisiana among the US states receiving
Rus sian crude followed by New Jersey California Mississippi Washington Hawaii and Delaware
In a paradoxical way Texas has dis appeared from the list of states as a main destination of US
imports from Rus sia (Figure 58) because Rus sian crude is mostly delivered to Louisiana ports and
registered there by US Customs as an import from Rus sia After that it transports to refineries in
Louisiana and Texas
Overall the short- term business rationale behind the sustainability of US oil imports from Rus sia
cannot overcome strong headwinds in the US energy sector facing all oil importers which will
inevitably lead to a contraction of Rus sian oil exports to the United States in the foreseeable future
11 Exxon eforts to receive a special US Trea sury waiver to drill in sanctioned Rus sia failed in 2017
12 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364
13 Sarp Ozkan ldquoSaudi Aramcorsquos Port Arthur Refinery and the US Refinery Fleetrdquo Drilling Info May 11 2017
https infodrillinginfo com saudi - aramcos - port - arthur - refinery - us - refinery - fleet
14 Graham Kates ldquoTrea sury Secretary Rus siarsquos Citgo Deal a National Security Issuerdquo CBS News May 1 2017
http wwwcbsnews com news rosneft - citgo - steven - mnuchin - national - security
594-71613_ch01_4Pindd 29 102017 404 PM
US-Russia Economic Relations30
Table 58 Valerorsquos Refineries Pro cessing Rus sian Oil Thousands of Barrels 2016
Saint Charles Louisiana 29206 535
Corpus Christi Texas 20626 378
Wilmington California 4250 78
Total USA 54590 100
Source US EIA ldquoRefinery Capacity Reportrdquo January 1 2017
table 5 wwweia gov petroleum refinerycapacity table5 pdf
authorrsquos computation
Table 59 ExxonMobil Refineries Pro cessing Rus sian Oil Thousands of Barrels 2016
Baytown Texas 15037 88
Baton Rouge Louisiana 2046 12
Total USA 17083 100
Source US EIA ldquoRefinery Capacity Reportrdquo authorrsquos computation
Table 510 Chevronrsquos Refineries Pro cessing Rus sian Oil Thousands of Barrels 2016
Pascagoula Mississippi 12767 840
El Segundo California 2372 155
Saint Rose Louisiana 78 05
Total USA 15217 100
Source US EIA ldquoRefinery Capacity Reportrdquo authorrsquos computation
594-71613_ch01_4Pindd 30 102017 404 PM
Vadim Grishin 31
HEAVY METAL
Taken together US imports of metals and US imports of oil compose about 80 percent of US
total imports from Rus sia (Figure 59) Trade of metals like other commodities is strongly afected
by market price fluctuations Nevertheless metal imports from Rus sia have been fairly resilient to
market volatility and their average annual value has hovered at about $4 billion in the last five years
(Figure 510) This market resilience was forged at the end of the 1990searly 2000s when Rus sian
metal producers gradually modernized their plants adjusting quality of production to Western
standards and enhancing integration into global value and supply chains Some of them conquered
their share of the highly competitive US market struggling with peers from Canada and certain
BRICS countries (China India and Brazil) To attract additional resources all Rus sian large metal-
producing companies became public and were listed on stock exchanges chiefly the London Stock
Exchange (Severstalrsquo PAO Evraz MMK OAO Novolipetsk Steel Norilsk Nikel and TMK PAO) one
on the New York Stock Exchange (Mechel) and one on the Hong Kong Stock Exchange (Rusal)
Business logic pushed some of them to invest in the US metal- making industry which was hit
hard by crisis Later on some of those assets were sold (eg two US steel mills acquired by
Severstal in 2004 were purchased 10 years later by Steel Dynamics Inc and AK Steel Corp)
Figure 57 Share of US States Rus sian Oil Imports 2016
Source US EIA ldquoUS Imports from Rus sia of Crude Oil and Petroleum Productsrdquo Petroleum amp Other
Liquids September 29 2017 https www eia gov dnav pet hist LeafHandler ashx nshy=shyPETampsshy=shyMTTIM _ NUS
- NRS _ 1ampfshy=shyM authorrsquos computation
0
10
20
30
40
50
60
70
80
90
100
Maine
Massachusetts
Maryland
Connecticut
Georgia
Rhode Island
Virginia
Florida
New York
Alabama
Puerto Rico
Pennsylvania
Delaware
Hawaii
Washington
Mississippi
California
New Jersey
Louisiana
Texas
594-71613_ch01_4Pindd 31 102017 404 PM
Figure 58 US Imports from Rus sia by State Million US$ 2013ndash2016
Source US Census Bureau ldquoState and Metropolitan Area Trade Datardquo Foreign Trade last modified
October 2 2017 https wwwcensus gov foreign - trade statistics state
Alaska
Connecticut
Delaware
Hawaii
Louisiana
Maryland
North Dakota 0
$1000
$2000
$3000
$4000
$5000
$6000
2013 2014 2015 2016
Alabama
Alaska
Connecticut
Delaware
Hawaii
Louisiana
Maryland
Maine
Mississippi
Montana
North Dakota
Mississippi
Figure 59 US Imports from Rus sia Share of Oil and Metals Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
83
82
85
86
87
88
85
82
7375
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
$40000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil and Metals
594-71613_ch01_4Pindd 32 102017 404 PM
Vadim Grishin 33
Obviously the market dynamic of dif er ent metals varies (eg iron steel aluminum platinum and
nickel) Caps to increase their trade and production in a ldquored oceanrdquo global environment with
anemic demand is rather limited despite Figure 510 showing a spike of iron and steel imports
from Rus sia in 2014 and aluminum in 2016 Some opportunities may exist for Russian- owned steel
plants in the United States (such as NLMK) to participate in energy proj ects resumed under Presi-
dent Trump who has required that new pipelines use only American- made steel15
Rus sia occupies a special niche in the US market for titanium products a high- end metal indus-
try Twenty years ago a long- term contract was signed between Rus sian titanium producer
VSMPO- AVISMA and Boeing The Rus sian com pany entered the selective club of Boeing suppliers
for the manufacture of components and semi- finished products Since the signing of this contract
VSMPO has delivered more than 35 percent of all titanium placed on Boeing civil aircraft16 They
are hidden in the trade data in an import category for Civilian Aircrafts and Parts (Figure 511) At
the end of 2016 Boeing announced an extension of its framework agreement with AVISMA
15 E Scheyder C Ngai and T Sylvester ldquoAmerican Steel Unlikely to Get Keystone Boost Despite Trump Orderrdquo
Reuters January 27 2017 http wwwreuters com article usa - trump - pipeline - transcanada - idUSL1N1FH1ZD
16 A Kramer ldquoTitanium Fills Vital Role for Boeing and Rus siardquo New York Times July 5 2013 http wwwnytimes com
2013 07 06 business global titanium - fills - vital - role - for - boeing - and - russia html mcubzshy=shy3
Figure 510 US Imports from Rus sia Iron Steel Bauxite Aluminum Nickel Nonferrous Metals and Other Precious Metals and Materials US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
0
$6000000000
$5000000000
$4000000000
$3000000000
$2000000000
$1000000000
2007 2008 2009 2010 2011 20122013
20142015
2016
Finished metal shapes
Iron and steel advanced
Iron and steel products nec
Nonferrous metals other
Other precious metals
Nickel
Bauxite and aluminum
Iron and steel mill products
Steelmaking materials
594-71613_ch01_4Pindd 33 102017 404 PM
US-Russia Economic Relations34
through 2022 and additional investments in the construction of a new robotic plant in Titanium
Valley a special economic zone located in the Sverdlovsk region that will open in 2018 The pro-
cessing of titanium forgings in all Boeing civil aircraft will be performed there including 787s 737
MAXs and 777Xs17 The contract extension with AVISMA may add several hundred million dollars
in value to annual US imports from Rus sia
How can such heavy reliance on imports of Rus sian titanium exist during a period of rising geopo-
liti cal tensions The answer is straightforward VSMPO- AVISMA is a highly specialized natu ral
mono poly producing 45 percent of the worldrsquos aerospace titanium Only four other countries
smelt high- grade titanium in industrial quantities the United States Germany Japan and China
Overall global production capacity is limited while demand is growing The United States cur-
rently imports around 79 percent of all the titanium it consumes each year18
17 ldquoBoeing and VSMPO Avisma to Launch Second Joint Production Siterdquo Rus sian Aviation Insider December 22 2016
http wwwrusaviainsider com boeing - and - vsmpo - avisma - to - launch - second - joint - production - site
18 Jon Ostrower and Andy Pasztor ldquoBoeing United Technologies Stockpile Titanium Partsrdquo Wall Street Journal
August 7 2014 https wwwwsj com articles boeing - united - technologies - stockpiling - titanium - parts - 1407441886
Figure 511 US Imports from Rus sia Civilian Aircrafts and Parts US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
$200000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Parts-civilian aircraft
Civilian aircraft
594-71613_ch01_4Pindd 34 102017 404 PM
Vadim Grishin 35
The Sanctions Act authorizes the secretary of the trea sury (in a nonmandatory way) to impose
restrictions (without specifying them) against Rus sian state- owned entities operating in the railway
metals and mining sectors of the Rus sian economy Despite the commanding heights of Rus siarsquos
state sector owner ship in its economy (70 percent of GDP) the metal- producing companies have
remained mostly in private hands
NUCLEAR AFFAIRS
Historically owners and operators of the 104 commercial nuclear power reactors in the United
States have purchased more than 80 percent of their uranium from foreign countries Uranium
shipping from Rus sia accounted for about 13 percent of the 58 million pounds of uranium pur-
chased overseas in 201219 At the same time the Rus sian state- owned mono poly Rosatom ac-
counts for 20 percent of Kazakhstanrsquos uranium production (which in turn comprises 11 percent of
all US uranium imports) and 20 percent of US domestic uranium production capacity (with
owner ship of exploration tracts in Wyoming)20
Nuclear fuel and nuclear power continue to be po liti cally sensitive topics both in the United
States and Rus sia Bilateral cooperation in this sector (being surprisingly stable with imports of
nuclear fuel from Rus sia at a level of $1 billion annually in the last five years [Figure 512 and 513])
is under constant po liti cal and lobbying pressure and has been a source of several po liti cal scan-
dals21 Consequently upside risks in this area of interaction are minimal and downside risks are
much higher especially when we are seeing more decommissioning of nuclear plants in the
United States than new constructions The US EIArsquos 2017 Annual Energy Outlook assumes
that about 25 percent of the nuclear capacity now operating will be removed from ser vice
by 205022
WHY IS THE GRASS GREENER ON THE OTHER SIDE
The United States continues to significantly reduce imports of chemical fertilizers as domestic pro-
duction increases In 2016 the United States imported 13 percent less ammonia and 11 percent
less urea and UAN which is a liquid urea and ammonium nitrate fertilizer Rus sia accounts for
around 40 percent of UAN imported by the United States The United States canceled antidumping
duties on imports of ammonium nitrate and urea from Rus sia in 2016 but it did not prevent import
19 US EIA ldquoThe US Relies on Foreign Uranium Enrichment Ser vices to Fuel Its Nuclear Power Plantsrdquo Today in
Energy August 28 2013 https wwweia gov todayinenergy detail php idshy=shy1273
20 Colin Chilcoat ldquoDoes Rus sia Really Own 20 Percent of the USrsquo Uranium Reservesrdquo OilPricecom May 6 2015
http oilpricecom Alternative - Energy Nuclear - Power Does - Russia - Really - Own - 20 - Of - The - US - Uranium - Reserves
html
21 Michelle Ye Hee Lee ldquoThe Facts behind Trumprsquos Repeated Claim about Hillary Clintonrsquos Role in the Rus sian Ura-
nium Dealrdquo Washington Post October 26 2016
22 US EIA ldquoAnnual Energy Outlook 2017 with Projections to 2050rdquo 81ndash82
594-71613_ch01_4Pindd 35 102017 404 PM
Figure 512 US Imports from Rus sia Share of Oil Metals and Nuclear Fuel Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
87
86
90
90
90
91
88
86
7882
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals and Nuclear Fuel
Figure 513 US Imports from Rus sia Nuclear Fuel Materials US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$-
$200000000
$400000000
$600000000
$800000000
$1200000000
$1000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 36 102017 404 PM
Vadim Grishin 37
drops twice last year (Figures 514 and 515) According to forecasts UAN imports are expected to
decline further to 15 million tons this year down over 46 percent from 28 million tons imported
last year23 The downside trend in imports of fertilizers will likely continue because of oversupply
BIG FISH
US imports of fish and shellfish from Rus sia are best understood in comparison with US fish
exports to the Rus sian market which slipped to zero in August 2014 after Rus sia issued an order
banning certain agricultural imports from the United States (Figure 516) While the volume of US
supply was not very large it was impor tant because it broke up the monopolistic dominance of a
few vertically integrated Rus sian companies that have kept prices high by restricting the entry of
new producers Seeking to implement import substitution policies Rus sia has tried to reduce
exports as well as imports of fish and seafood products in the last couple of years This symmetri-
cal approach was intended to ldquocompensaterdquo for a decrease of fish products in the domestic
23 Deepika Thapliyal ldquoPotashCorp Forecasts Sharp Drop in US Nitrogen Imports in 2017rdquo ICIS News February 7
2017 https wwwicis com resources news 2017 02 07 10076734 potashcorp - forecasts - sharp - drop - in - us - nitrogen
- imports - in - 2017
Figure 514 US Imports from Rus sia Share of Oil Metals Nuclear Fuel and Fertilizers Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
90
93
92
93
94
95
92
91
85
86
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals Nuclear Fuel and Fertilizers
594-71613_ch01_4Pindd 37 102017 404 PM
Figure 515 US Imports from Rus sia Chemical- Fertilizers US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
S-
$200000000
$400000000
$600000000
$800000000
$1000000000
$1200000000
$1400000000
$1600000000
$1800000000
$2000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Figure 516 US Exports to Rus sia Fish and Shellfish US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$10000000
$20000000
$30000000
$40000000
$50000000
$60000000
$70000000
$80000000
$90000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Fish and shellfish
594-71613_ch01_4Pindd 38 102017 404 PM
Vadim Grishin 39
consumer market caused by Rus siarsquos import ban but it has failed As result the group most af-
fected by the self- imposed counter- sanctions were Rus sian consumers
With a significant drop in fish imports a devaluation of the ruble and inflationary pressures on
seafood prices yearly consumption of fish in Rus sia has declined precipitously In 2015 alone
fish prices increased 20 percent and consumption dropped to 14 kilograms per person24 from
22 kilograms in 201425 In 2016 food rose to 355 percent of house hold expenditure as a result of
increases in food prices26 This has pushed vertically integrated fishing monopolies to sell even
more of their catch abroad rather than deliver to the Rus sian Federation (Figure 517) Thus we
cannot exclude the possibility of further growth in US fish and shellfish imports from Rus sia on a
marginal scale
24 Александр Савельев ldquoПотребление рыбы в России упало до 14 кг на человекаrdquo [Fish consumption in Rus sia fell to
14 kg per person] Экономика Интерфакс January 28 2015 http wwwinterfax ru business 492038
25 Илья Шестаков ldquoПотебление рыбы в России снизилось на 10 процентов из- за роста ценrdquo [Fish consumption in
Rus sia dropped by 10 percent due to price increases] RNS March 8 2017 https rnsonline consumer - market
Potreblenie - ribi - v - Rossii - snizilos - na - 10 - iz - za - rosta - tsen - 2017 - 03 - 08
26 Zoya Sheftalovich and Christian Oliver ldquoRus siarsquos Boom (Farming) Economyrdquo Politico November 8 2016 http
wwwpolitico eu article russias - boom - farming - economy
Figure 517 US Imports from Rus sia Fish and Shellfish US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$50000000
$100000000
$150000000
$200000000
$250000000
$300000000
$350000000
$400000000
$450000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 39 102017 404 PM
US-Russia Economic Relations40
SPACE ODYSSEY
Among high- end products beyond the top five groups of goods imported from Rus sia cheap and
efficient Rus sian engines have been used to launch US rockets into space for about 16 years
(Figure 518) There was a serious po liti cal strug gle around a 2014 ban on the purchase of Rus sian
RD-180 rocket engines revealing the conflicting business interests of power ful high- tech companies
This restrictive mea sure was temporary and was quickly lifted because of significant cost impacts
and risks of disruption to launch schedules27 For the same reason the Sanctions Act does not autho-
rize ldquothe imposition of any sanction or other condition limitation restriction or prohibition that
directly or indirectly impedes the supply by any entity of the Rus sian Federation of any product or
ser vice or the procurement of such product or ser vice by any contractor or subcontractor of the
United States or any other entity relating to or in connection with any space launch conducted for
the National Aeronautics and Space Administration or any other nonndash Department of Defense
customerrdquo28
Nevertheless many experts believe that US domestic alternatives to replace Rus sian engines will
be viable in five to eight years
27 Ken Dilanian ldquoWhy Does the US Use Rus sian Rockets to Launch Its Satellitesrdquo NBC News updated November 15
2016 http wwwnbcnews com why - does - u - s - use - russian - rockets - launch - its - satellites - n588526
28 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364
Figure 518 Spacecraft Excluding Military US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 40 102017 404 PM
41
Diversity and technological complexity are the most vis i ble advantages supporting US exports to
Rus sia Three major groups of export goods include civilian aircraft engines and parts (Figure 61)
drilling and oil field equipment (Figure 62) and industrial machines and engines (Figure 63)
Despite sanctions against the transfer of advanced oil producing and pro cessing technologies the
realization of US drilling and oil field equipment in Rus sia is sustainable although some bilateral
proj ects have been frozen
Another category of goods that has demonstrated resilience is the phar ma ceu ti cal industry (Fig-
ure 64) because most drugs in Rus sia are imported (about 70 percent of the Rus sian phar ma ceu-
ti cal market in value) Import substitution policies have had only modest results in this industry
As confirmed by American Chamber of Commerce surveys US exports to Rus sia are closely
connected to US FDI 30 percent of total imports of US companies working in the Rus sian
market come from the United States (more than $2 billion in 2016) In other words about
40 percent of all US exports to Rus sia are related to a US corporate- sector business pro cess in
the country The major sectors of activity of these companies are energy and natu ral resources
(52 percent) manufacturing (17 percent) information and communications technology or ICT
(13 percent) retail (7 percent) automotive industry (6 percent) phar ma ceu ti cal production
(1 percent) professional ser vices (05 percent) and other (2 percent)1
Some obvious constraints on US exports to Rus sia have resulted from a reduction in demand A
deterioration of bilateral relations and implementation of sanctions and counter- sanctions have
directly or indirectly afected all businesses Figures 65 and 66 provide data regarding a dramatic
drop in the sale of US agricultural production in Rus sia with all other categories of exports in
goods showing big cuts as well (see Figures 67ndash69)
Exports of civilian aircraft engines and parts put the state of Washington in first place among
other states as a leading exporter to the Rus sian market (Figure 610)
1 American Chamber of Commerce in Rus sia ldquoInvestment and Import to Rus sia 2nd Surveyrdquo 13
Diversity and Constraints
06
594-71613_ch01_4Pindd 41 102017 404 PM
Figure 61 US Exports of Civilian Aircraft Engines Equipment and Parts to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
$2500000000
$2000000000
$1500000000
$1000000000
$500000000
$-
Figure 62 US Exports of Drilling and Oil Field Equipment US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
$40000000
$45000000
$50000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 42 102017 404 PM
Figure 63 US Exports of Industrial Engines to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Figure 64 US Exports of Phar ma ceu ti cal Preparations to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 43 102017 404 PM
Figure 65 US Exports of Meat and Poultry to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Meat poultry etc
$1000000000
$800000000
$600000000
$400000000
$200000000
$-
$1200000000
$1400000000
$1600000000
Figure 66 US Exports of Soybeans to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
$200000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 44 102017 404 PM
Figure 67 US Exports of Vehicles Engines and Parts to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Other parts and accessories of vehicles
Automotive tires and tubes
Bodies and chassis for passenger cars
Engines and engine parts (carburetors pistonsrings and valves)
Trucks buses and special purpose vehicles
Passenger cars new and used
$2500000000
$2000000000
$1500000000
$500000000
$-
$1000000000
Figure 68 US Exports of Medicinal Equipment to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 45 102017 404 PM
Figure 610 US Exports to Rus sia by States (2016 US$ Value) Million US$ 2013ndash2016
Source US Census Bureau ldquoState and Metropolitan Area Trade Datardquo
Iowa Kentucky
North Dakota
Oklahoma
South Carolina
Washington
0
$500
$1000
$1500
$2000
2013 2014 2015 2016
District of Columbia
Iowa
Kentucky
North Dakota
Oklahoma
South Carolina
Washington
Figure 69 US Exports of Excavating Machinery to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
$40000000
$45000000
$50000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 46 102017 404 PM
47
Upon reviewing the current trend in US- Russia economic relations we must acknowledge that
the existing trade model is obsolete and exhausted Imports are resource- oriented and reflect
constraints of the Rus sian economic structure while five groups of goodsmdash oil metals nuclear
fuels fertilizers and fishmdash make up more than 90 percent of total imports from Rus sia (Figure 71)
Each of these industries has a limited capacity for growth in the foreseeable future
Rus siarsquos core export to the United Statesmdash oilmdash will inevitably decrease in the mid- term under any
scenario The value and volume of Rus sian exports to the United States are open to global market
volatility and po liti cal pressures with limited hedging mechanisms
Overall US exports to Rus sia are unsustainable due to bilateral po liti cal tensions the whims of
commodity markets and changing domestic policies Sanctions and counter- sanctions have
created additional barriers particularly in finance banking high- tech energy and agro- business
According to the American Chamber of Commerce 69 percent of US companies working in the
country consider the impact of US sanctions against Rus sia on their business as negative At the
same time 60 percent of companies do not expect big changes in business relations between
Rus sia and the United States under Trump1 as the new law codifies existing sanctions fortifies
them and extends them to new sectors
Current US investments are low due to the weak rule of law in Rus sia a lack of property right
protections and proper contract enforcement high levels of statization and monopolization in the
economy a poor business climate outdated capital stock dependence on natural- resource
sectors and of course sanction and counter- sanction mea sures Bloated administrative compo-
nents created as risk mitigation instruments have also served as impediments The countryrsquos
institutional weakness low level of productivity bud get constraints and a declining inflexible
workforce will restrain future economic growth even if commodity prices recover Rus sian eco-
nomic policy will likely continue to be statist and protectionist relying mostly on import
substitutions
1 Ibid 11
Existing Trends and Future Scenarios
07
594-71613_ch01_4Pindd 47 102017 404 PM
US-Russia Economic Relations48
What scenarios can be expected in such a challenging environment
One probability (no peace no war) is based on the assumption that matters will not deteriorate
further and implementation of the Sanctions Act will be cursory This will cause relatively slow
degradation in the economic field with occasional flashes of activity in selected areas (eg closer
cooperation against Islamist terrorist groups in Syria)
A second worse case or critical scenario is the intensive and full- scale execution of current sanc-
tion legislation and even the imposition of new economic punitive and restrictive mea sures which
could incite asymmetric retaliatory actions and lead to the introduction of additional protectionist
policies This in turn could trigger a further escalation of mutual confrontation and could eventu-
ally destroy the fundamentals of the current bilateral trade system Rus sian leadership has charac-
terized the Sanctions Act as a declaration of a trade war that ends all hope for improving bilateral
relations2
2 Дмитрий Медведев ldquoПодписание президентом США нового санкционного закона против России создает несколько
последствийrdquo [The US Presidentrsquos signing of the package of new sanctions against Rus sia will have a few conse-
quences] Facebook August 2 2017 https wwwfacebook com Dmitry Medvedev posts 10154587161801851
Figure 71 US Imports from Rus sia Share of Oil Metals Nuclear Fuel Fertilizers and Fish Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
93
94
93
94
95
96
93
92
87
89
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals Nuclear FuelFertilizers and Fish
594-71613_ch01_4Pindd 48 102017 404 PM
Vadim Grishin 49
The best case and most favorable scenario looks less probable now It assumes the realization of
structural reforms in Rus sia in such a way that would adapt Rus siarsquos foreign policy to national
economic needs reduce confrontations with the West and make a concerted efort to integrate
Rus sian businesses into global supply and value chains A revitalization of the structural reform
agendamdash including eforts to diversify economic activities through de- monopolization and support
for SMEs a restructuring of the banking sector the creation of a vibrant business climate to foster
entrepreneurships and innovation the implementation of administrative and judicial reforms to
tackle red tape and endemic corruption and the reduction of state control over key sectors of the
economy via wide- spread privatization could kick- start the development of a nonoil economy and
improve long- term growth prospects Despite ongoing discussion of reform strategies deep
economic and po liti cal changes are extremely complicated over the next po liti calelectoral cycle
(2018ndash2024) particularly because of re sis tance of vested interests and growing commodity prices
The urgency to tackle structural shortcomings in natu ral resource- dependent economies usually
correlates with the price of those resources and the degree to which resource rents drive eco-
nomic activity However there may be marginal improvements in the efficiency of the current
economic system
Future US- Russia relations can be thought of through three pillars one pillar focuses on areas
where both countries maintain a competitive rivalry another looks at potential areas of interaction
under pres ent conditions a third pillar and one that has evaporated from the current bilateral
agenda concentrates on future cooperation Stronger economic ties could not only be a kind of
po liti cal shock absorber but contribute to the building of this future (particularly business contacts
aim to support future structural reforms) although po liti cal factors are depressing the prospects
for cooperation To escape deadlock it will be impor tant to establish the right balance between
politics and economics and create a model of collaboration within the framework of contention
594-71613_ch01_4Pindd 49 102017 404 PM
About the Author
Vadim Grishin PhD MBA has been involved in the reform pro cess in Rus sia as adviser to the
deputy prime minister of Rus sia in 1992ndash1993 and 2006ndash2010 He has extensive experience
working with the Bretton Woods Institutions He was the board member of the World Bank Group
and served as se nior adviser at the International Monetary Fund Currently he is a con sul tant to the
chief economistrsquos office of the International Finance Corporation and teaches the economics of
transition at Georgetown University in Washington DC
50
594-71613_ch99_4Pindd 50 102017 403 PM
Blank
COVER PHOTO ADOBE STOCK
1616 Rhode Island Avenue NW
Washington DC 20036
202 887 0200 | wwwcsisorg
v++ISBN 978-1-4422-8035-9
Lanham bull Boulder bull New York bull London
4501 Forbes Boulevard
Lanham MD 20706
301 459 3366 | wwwrowmancom
A U T H O R
Vadim Grishin
Myths and Realities
A Report of the
CSIS RUSSIA AND EURASIA PROGRAM
US-RussiaEconomicRelations
O C T O B E R 2 0 1 7
Euml|xHSLEOCy280359z
The Man Pupu Nyor Rock Formations at the Northern Urals also known as Seven
Strong Man or Little Mountain of the God in the local tribe (Mansi) language
15
The current structure of US- Russia economic relations emerged in the early 2000s when the
model of trade and investment interaction took on a character similar to that which existed be-
tween the United States and developing economies US imports from Rus sia centered on com-
modities while technology along with food products lead American exports The primary
exception was that Rus sia supplied nuclear fuel including highly enriched uranium extracted from
nuclear weapons for US power plants and provided ser vices to the aerospace industry primarily
in satellite launches However both these exceptions can be explained as a legacy of the Soviet
past and not a harbinger of the future economic relationship (Figure 41)
In the last 15 years this trade structure has not changed significantly The only noticeable shift in
trade was a dramatic drop (to practically nothing) in exports of US agricultural products a result
of Rus siarsquos policy of import substitution and so- called counter- sanction mea sures it took in re-
sponse to US sanctions over the Ukraine crisis (Figure 42)
Promising new directions of cooperation in the IT sector and in engineering ser vices for the
aerospace industry appeared in the early 2000s1 but did not spill into other sectors and conse-
quently did little to renew economic cooperation on the whole The integration of Rus sian high-
tech ser vices into large- scale global production and value chains was constrained by the usual
culprits a lack of financial resources managerial experience skilled labor modern infrastructure
RampD investments and an adequate business environment High commodity prices incentivized the
restoration of an economic system centered on resource rents The leading role of oil and gas
extraction and transportation discouraged the development of a nonenergy sector that might
have created advanced and complex production and ser vices An import substitution policy could
not work efficiently in an economic environment plagued by the Dutch disease where currency
1 The Boeing Design Center was created in Moscow It consists of nearly 250 Boeing employees managing
a team of 1200 contract engineers from Rus sian and Ukrainian aerospace companies ldquoBackgrounder Boeing in
Rus siardquo Boeing last modified January 2017 http wwwboeing com resources boeingdotcom company key _ orgs
boeing - international pdf russia - cisbackgrounder pdf
Are the United States and Rus sia ldquoNatu ralrdquo Trading Partners A Little Bit of History
04
594-71613_ch01_4Pindd 15 102017 404 PM
US-Russia Economic Relations16
inflows (oil money) lead to ruble appreciation and render a countryrsquos production less competitive
During that time Rus siarsquos industry did not receive preferential access to larger markets and could
not expand its share in the global economy particularly because of its self- isolation from the
regional trade agreements (except for its participation in the Eurasian Economic Union with some
neighboring countries of the former Soviet Union) As a result neither import substitution nor
export- led strategy promoted growth and specialization in nonoil production A long- awaited
modernization and reallocation of resources from an inefficient nontrade sector to a trade sector
did not materialize
These limits were later augmented with sanctions and an extension of domestic restrictions on
cooperation with Western partners Importantly the rapid growth of state- monopoly structures in
the Rus sian economy over the past 15 years has created additional obstacles to the development
and diversification of US- Russia economic ties
Figure 41 US Imports from Rus sia US$ 2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2016)
Fish and shellfish 3
Crude oil 5
Fuel oil 37
Petroleum products other
8
Nuclear fuel materials
7
Chemicals-fertilizers 4
Steelmaking materials 5
Iron and steel mill products 4
Bauxite and aluminum 9
Other precious metals 4
Nonferrous metals other 1
Finished metal shapes 1
Synthetic rubber--primary
1
Spacecraftexcluding military
594-71613_ch01_4Pindd 16 102017 404 PM
Fig
ure
42
U
S E
xpo
rts
to R
us s
ia U
S$ 2
016
Sou
rce
US
Ce
nsu
s B
ure
au ldquo
Trad
e in
Go
od
s w
ith
Ru
s sia
rdquo (s
ee
dat
a fo
r 2
016
)
Bak
ery
pro
du
cts
Win
e b
eer
an
d r
elat
ed
pro
du
cts
New
spri
nt
Pla
stic
mat
eria
ls
Ch
emic
als-
fert
ilize
rs
Ch
emic
als-
ino
rgan
icC
hem
ical
s-o
rgan
ic
Ch
emic
als-
oth
erC
ott
on
fib
er c
loth
In
du
stri
al r
ub
ber
pro
du
cts
Min
eral
su
pp
lies-
man
ufa
ctu
red
Gen
erat
ors
acc
esso
ries
Ele
ctri
c ap
par
atu
s
Dri
llin
g amp
oilfi
eld
eq
uip
men
t Sp
ecia
lized
min
ing
Exc
avat
ing
mac
hin
ery
No
nfa
rm t
ract
ors
an
d p
arts
In
du
stri
al e
ng
ines
Fo
od
to
bac
co m
ach
iner
y M
etal
wo
rkin
g m
ach
ine
too
ls
Tex
tile
sew
ing
m
ach
ines
W
oo
d g
lass
p
last
ic
Pu
lp a
nd
pap
er
mac
hin
ery
Mea
suri
ng
tes
tin
g
con
tro
l in
stru
men
ts
Mat
eria
ls h
and
ling
equ
ipm
ent
Ind
ust
rial
mac
hin
es
oth
er
Ph
oto
ser
vice
ind
ust
ry m
ach
iner
y A
gri
cult
ura
l mac
hin
ery
eq
uip
men
t C
om
pu
ters
Co
mp
ute
r ac
cess
ori
es
Sem
ico
nd
uct
ors
Tel
eco
mm
un
icat
ion
seq
uip
men
t
Bu
sin
ess
mac
hin
es a
nd
eq
uip
men
t
Lab
ora
tory
tes
tin
g in
stru
men
ts
Med
icin
al e
qu
ipm
ent
Civ
ilian
air
craf
t e
ng
ines
eq
uip
men
t a
nd
par
ts
Rai
lway
tra
nsp
ort
atio
n
equ
ipm
ent
Ves
sels
exc
lud
ing
scr
ap
Co
mm
erci
al v
esse
ls o
ther
M
arin
e en
gin
es p
arts
Spac
ecra
ft e
xclu
din
g
mili
tary
Pas
sen
ger
car
s
new
an
d u
sed
Tru
cks
bu
ses
and
sp
ecia
l p
urp
ose
ve
hic
les
En
gin
es a
nd
en
gin
e p
arts
(c
arb
ure
tors
pis
ton
s r
ing
s
and
val
ves)
B
od
ies
and
ch
assi
s fo
r p
asse
ng
er c
ars
Au
tom
oti
ve t
ires
an
d t
ub
es
Oth
er p
arts
an
d a
cces
sori
es o
f ve
hic
les
Ap
par
el h
ou
seh
old
go
od
s -
text
ile
Ph
arm
aceu
tica
lp
rep
arat
ion
s
Furn
itu
re h
ou
seh
old
go
od
s
etc
R
ug
s
Cel
l ph
on
es a
nd
oth
er
ho
use
ho
ld g
oo
ds
ne
c
594-71613_ch01_4Pindd 17 102017 404 PM
US-Russia Economic Relations18
Figure 43 US Trade in Goods with Rus sia Million US$ 1992ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
Russian Financial Crisis
Oil price Increased from$2446 USD per barrel (2001)
to $9694 USD per barrel(2008)
Global Financial Crisis
Oil price high record in2011-2012
(more that $111 USD perbarrel)
Oil price crashed
$-
$5000
$10000
$15000
$20000
$25000
$30000
$35000
$40000
$45000
$50000
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia US Exports to Russia US-Russia Trade in Goods
No doubt po liti cal ups and downs add volatility to US- Russia trade Nevertheless Rus siarsquos eco-
nomic structure exhausted itself before the Ukrainian crisis and the recent Rus sian recession Its
limitations are not only due to some mistakes in policy or negative coincidences of circumstances
but rather to deeply rooted properties in the current bilateral trade model related to structural
issues in the Rus sian economy Structural constraints such as the weak enforcement of property
rights poor business regulation and nondiversified exports weighed on Rus sian trade with the
United States From this perspective the term ldquonaturalunnatural trading partnersrdquo does not ad-
dress the unused capacity of bilateral interaction or the real challenges that kind of interaction
faces It just adds metaphysical flavor to the very specific economic and po liti cal factors that
determine the US- Russia trajectory
Overall the outlines of bilateral trade (Figure 43) resemble the famous ldquoRus sian Mountainsrdquo that
were a pre de ces sor of the modern roller coaster icy hills supported by wooden constructionsmdash a
rigid and immobile structure that sooner or later would melt This unfortunately is what is hap-
pening to US- Russia trade cooperation now
594-71613_ch01_4Pindd 18 102017 404 PM
19
ARE LITTLE FISH REALLY SWEET
Low US- Russia economic interaction has at least two consequences First it limits the capacity of
policymakers to exploit trade as an instrument for geopo liti cal combat Even the question of a US
trade deficit which used to be a headache for many US trading partners has become so insig-
nificant in absolute terms (about $87 billion in 2016) that it seems hardly worth caring about
When the volume of trade between two countries becomes very small in absolute terms whether
a country is running a surplus or deficit is no longer relevant But it also renders another type of
confrontations (sometimes more dangerous) more likely since the two traders have little to lose
Second in an environment marked by low levels of bilateral trade both sides could incentivize (if
and when a desire for po liti cal rapprochement exists) the signing of new trade deals which are
elevated symbolically as a turning point in bilateral po liti cal relations (ie the sale of Boeings to
Rus sia or the delivery via tankers of Rus sian oil to US refineries) Sometimes markets themselves
pres ent ldquogiftsrdquo that can be capitalized on po liti cally US- USSR grain trade in the 1970s was one
such ldquogiftrdquo large sales of American grain to the Soviet Union helped US policymakers win favor
with the po liti cally impor tant American farming sector and permitted Soviet leaders to maintain
access to a dietary staple for the Soviet population
The strong 32 percent growth in value of US imports from Rus sia from January to May 2017
versus January to May 2016 ( Table 51) is an example of a development that has tempted officials
to pres ent it as a sign of positive change due to ldquogrowing business activitiesrdquo (this kind of statement
was heard before the bilateral summit in Germany in July 2017) although the reason for that leap
was evidently an increase in commodity prices (mainly of oilmdash see Table 52) and not a rise in
entrepreneurial interactions The primary beneficiaries of that upside rally have been two other
petro- economies Saudi Arabia and Venezuela ( Tables 53 and 54)
Sector Analyses
05
594-71613_ch01_4Pindd 19 102017 404 PM
US-Russia Economic Relations20
Table 51 US Imports from Rus sia Million US$ Januaryndash May 2016 vs Januaryndash May 2017
Year January February March April May Total
2016 9603 6871 11097 12257 10977 50805
2017 12215 10220 16979 13471 14147 67032
Change 271 487 530 99 289 319
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
Table 52 Change in Urals Crude Oil Prices US$ per Barrel Januaryndash May 2016 vs Januaryndash May 2017
Januaryndash May 2016 Januaryndash May 2017 Change ($) Change ()
3601 5129 1528 424
Source Ministry of Finance of the Rus sian Federation https wwwminfin ru ru ixzz4mMIZ7XtC
Table 53 US Imports from Saudi Arabia Million US$ Januaryndash May 2016 vs Januaryndash May 2017
Year January February March April May Total
2016 15114 9036 13555 10844 14679 63228
2017 19802 20298 21650 16211 19542 97503
Change 3101 12463 5972 495 331 542
Source US Census Bureau ldquoTrade in Goods with Saudi Arabiardquo Foreign Trade last modified June 29 2017
https wwwcensus gov foreign - trade balance c5170 html (see data for 2016ndash2017)
594-71613_ch01_4Pindd 20 102017 404 PM
Vadim Grishin 21
Table 54 US Imports from Venezuela Million US$ Januaryndash May 2016 vs Januaryndash May 2017
Year January February March April May Total
2016 6657 5560 7140 8007 7922 35286
2017 13041 10864 123500 11148 12243 59646
Change 9590 9540 7297 3923 5454 6903
Source US Census Bureau ldquoTrade in Goods with Venezuelardquo Foreign Trade last modified June 29 2017
https wwwcensus gov foreign - trade balance c3070 html (see data for 2016ndash2017)
Table 55 US Exports to Rus sia Million US$ Januaryndash May 2016 vs Januaryndash May 2017
Year January February March April May Total
2016 3628 3577 7298 4657 4947 24107
2017 3144 4277 5386 6670 4806 24283
Change minus133 196 minus262 432 minus29 minus07
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2016ndash2017)
At the same time US exports to Rus sia continue to stagnate ( Table 55) due to low levels of
consumption during a two-and- a- half-year economic crisis a deep ruble devaluation sanctions
and counter- sanctions
Given the very dif er ent economic structures and resource endowments of Rus sia and the United
States it is not surprising that US- Russia trade is asymmetric and oil driven (Figure 51) A
3 percent increase in Urals oil prices translates into a one percent increase in US import growth
from Rus sia Thus in 2016 every $10 increase in Urals crude oil added $15 billion to the value of
US imports or 11 percent to the total value of imports from Rus sia
OIL ADDICTION
Oil is a core pillar of US- Russia bilateral trade A bumpy ride in oil markets afects commerce
Nevertheless Rus sian oil exports to the United States in physical terms have been rather
594-71613_ch01_4Pindd 21 102017 404 PM
US-Russia Economic Relations22
sustainable Starting from 2005 average annual deliveries have been above 150 million barrels
(Figure 52) Crude and heating oil have dominated while petroleum products and liquefied petro-
leum gases have not (Figure 53) In 2011 oil exports peaked at 228 million barrels but declined to
159 million barrels in 2016mdash a drop of 30 percent Rec ord high shipments of Rus sian oil to the United
States coincided with an elevation in oil prices which made the subsequent decline in oil shipment
value between 2011 and 2016 (by about 72 percent as shown in Figure 54) seem more stark The
increase in price also raised the share of oil in Rus sian exports by 74 percent in 2011 (Figure 55)
The Rus sian share in total US oil imports was around 55 percent in 2011 and 43 percent in 2016
( Table 56) In the last five years the United States has relied exclusively on consumption of Rus sian
oil for the rough equivalent of one week out of the year (Figure 56)
It is unlikely that Rus sia can significantly increase its share of the US oil market and there is a real
possibility for a downward trend There are several reasons the historically high Rus sian hydrocar-
bon export threshold of 2011 will not soon if ever be surpassed
First US energy consumption will likely be flat According to the US Energy Information Adminis-
tration (EIA) demand for petroleum and other liquids in the United States will be about 35ndash36
quadrillion British thermal units (BTUs) with minimal variation over the next 25 years1
1 US EIA ldquoAnnual Energy Outlook 2017 with Projections to 2050rdquo January 5 2017 7ndash8
Figure 51 US- Russia Trade Growth () vs US and Rus sia Real GDP Growth () 1993ndash2016
Source IMF ldquoIMF Datardquo accessed September 27 2017 http wwwimf org en Data US Census Bureau
ldquoTrade in Goods with Rus siardquo
Note rGDPthinsp=thinspreal gross domestic product
Trade
USA rGDP growth
Russia rGDP growth
-60
-40
-20
0
20
40
60
80
100
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Gro
wth
All spikes in US-Russia trade have been connected with two main
variables volume and price of crude oil
594-71613_ch01_4Pindd 22 102017 404 PM
Vadim Grishin 23
Second the United States will become a net energy exporter between 2020 and 2030 in most
cases under dif er ent combinations of oil and natu ral gas prices GDP growth technological
breakthroughs and the availability of energy resources The role of oil imports will dramatically
fall2
Third oil price scenarios as described by the International Energy Agency (IEA) international
financial organ izations (IFIs) and many national agencies are very cautious and assume that even
by 2035 to 2040 oil prices will not to recover to the levels of 2011ndash20123
Fourth Rus sian oil production and export growth will be modest and driven by Asian economic
expansion and will comprise a decreasing share of Western markets4 According to forecasts from
2 Ibid 15ndash18
3 Ibid table 3 ldquoEnergy Prices by Sector and Sourcesrdquo World Bank World Bank Commodity Markets Price Forecasts
(Washington DC World Bank 2017) httpswwwworldbank org en research commodity - markets Organ ization of the
Petroleum Exporting Countries (OPEC) World Oil Outlook 2016 (Vienna OPEC 2016)
4 E D Belotskaia et al Global and Rus sian Energy Outlook 2016 (Moscow Energy Research Institute of the Rus sian
Acad emy of Science Analytical Center for the Government of the Rus sian Federation 2016) http acgov ru files
publication a 12767 pdf
Figure 52 US Imports from Rus sia Crude Oil and Petroleum Products Thousands of Barrels 1995ndash2016
Source US EIA ldquoUS Imports by Country of Origin Rus siardquo Petroleum amp Other Liquids September 13
2017 http wwweia gov dnav pet PET _ MOVE _ IMPCUS _ D _ NUS _ NRS _ MBBL _ M htm
0
50000
100000
150000
200000
250000
Date 1995 1996 1997 1998 199920002001200220032004200520062007200820092010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 23 102017 404 PM
US-Russia Economic Relations24
the Organ ization of the Petroleum Exporting Countries (OPEC) crude oil exports from Rus sia and
the Caspian region to the United States will dis appear by 20255
So why does the Rus sian Urals blend continue to be attractive for oil traders and US refineries
which could pro cess greater volumes of domestically produced lighter crude There are two main
reasons One is related to the preference of US high conversion refineries (the most sophisticated
in the world) to work with heavy oil blends produced by Canada Mexico Iraq Venezuela and
Rus sia Pro cessing heavy crude now is as profitable as pro cessing lighter crude The so- called
crack spreadmdash the diference between the cost of relatively cheap heavy crude oil and the final
price of value- added consumer products (diesel gasoline jet fuel and heating oil)mdash has become
the same as the refinery margins of light sweet crude6 This has primarily afected light oil produc-
ing countries such as Angola Algeria and Nigeria
5 OPEC World Oil Outlook 2016 306ndash309
6 ldquoHow Much for That Heavy Oilrdquo Oil Sands Magazine December 26 2015 https wwwoilsandsmagazine com
news 2015 12 26 how - much - for - that - heavy - oil
Figure 53 US Imports from Rus sia Oil and Petroleum Products US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$-
$25000000000
$20000000000
$15000000000
$10000000000
$5000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Liquefied petroleum gases
Petroleum products other
Fuel oil
Crude oil
594-71613_ch01_4Pindd 24 102017 404 PM
Vadim Grishin 25
Another factor afecting purchase of Rus sian oil is a new trend among oil companies for further
consolidation of scale and for integrating operations of upstream and downstream business7
There have been several waves of separation and unification of production transportation and
pro cessing in the last 50 years The current business cycle can be seen as an adaptation to a
period of low prices and oversupply Companies that buy andor produce oil in Rus sia most likely
prefer to transport and pro cess this oil in their own modern refineries in the United States At the
same time some of the newest refinery designs specifically for pro cessing heavy oils have been
built in Asia thus extending the choices of heavy oil producing countries
We should also consider that leading US and international oil traders along with oil producing
companies working with or owning US refineries frequently buy Rus sian oil on the open market
and have long- term contracts on Rus sian crude oil delivery Many Rus sian oil companies prefer to
pay for purchases or ser vices with their future production instead of cash creating situations of
ldquostickyrdquo oil imports that are difficult to replace The best- known example is an interaction between
7 ldquoEnergy and Utilities Sectorrdquo Roundtable Financier Worldwide December 2015 https wwwfinancierworldwide
com roundtable - energy - utilities - sector - dec15
Figure 54 US Imports of Oil and Petroleum Products from Rus sia vs Oil Prices Eu rope Brent Spot Price Free on Board (FOB) 1996ndash2017
Source US EIA ldquoUS Imports by Country of Origin Rus siardquo
0
20
40
60
80
100
120
140
0
5000
10000
15000
20000
25000
30000
Jan
-19
96
Jun
-19
96
No
v-19
96
Ap
r-19
97
Sep
-19
97
Feb
-19
98
Jul-
199
8D
ec-1
99
8M
ay-1
99
9O
ct-1
99
9M
ar-2
00
0A
ug
-20
00
Jan
-20
01
Jun
-20
01
No
v-2
00
1A
pr-
20
02
Sep
-20
02
Feb
-20
03
Jul-
20
03
Dec
-20
03
May
-20
04
Oct
-20
04
Mar
-20
05
Au
g-2
00
5Ja
n-2
00
6Ju
n-2
00
6N
ov-
20
06
Ap
r-2
00
7Se
p-2
00
7Fe
b-2
00
8Ju
l-2
00
8D
ec-2
00
8M
ay-2
00
9O
ct-2
00
9M
ar-2
010
Au
g-2
010
Jan
-20
11Ju
n-2
011
No
v-2
011
Ap
r-2
012
Sep
-20
12Fe
b-2
013
Jul-
20
13D
ec-2
013
May
-20
14O
ct-2
014
Mar
-20
15A
ug
-20
15Ja
n-2
016
Jun
-20
16N
ov-
20
16
USD
per
Bar
rel
Th
ou
san
d B
arr
els
US Imports from Russia of Crude Oil and Petroleum Products (Thousand Barrels)
Europe Brent Spot Price FOB (Dollars per Barrel)
594-71613_ch01_4Pindd 25 102017 404 PM
US-Russia Economic Relations26
Table 56 US Oil Imports All Countries vs Rus sia Thousand Barrels per Day 2011ndash2016
Years 2011 2012 2013 2014 2015 2016
All Countries 11436 10598 9859 9241 9449 10058
Rus sia 624 477 460 330 371 433
Share 546 450 467 357 393 431
Sources US EIA ldquoUS Imports by Country of Origin Total Crude Oil and Productsrdquo Petroleum amp Other
Liquids September 13 2017 wwweia gov dnav pet pet_move_impcus_a2_nus_ep00_im0_mbbl_m htm
authorrsquos computation
Figure 55 US Imports from Rus sia Share of Crude Oil and Petroleum Products Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
57
64
73
72
74
73
72
59
52 50
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
$40000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil and Petroleum Products
594-71613_ch01_4Pindd 26 102017 404 PM
Vadim Grishin 27
the Rus sian state mono poly Rosneft and commodity trading and mining giant Glencore which
along with energy and commodities com pany Vitol participated in a $10 billion prepayment
deal with Rosneft for crude supplies in 2013
There have been a number of ongoing transactions between the Rus sian oil industry and interna-
tional oil companies including several that top the list of importers of Rus sian oil to the United
States ( Table 57) In December 2016 Glencore participated in a controversial privatization opera-
tion purchasing in tandem with the Qatar sovereign wealth fund a 195 percent stake in Rosneft
which was on the US and EU list of sanctioned firms8 Glencore has also taken a blocking stake in
midsize oil producer RussNeft BP owns a 1975 percent stake in Rosneft Chevron holds a
15 percent interest in the 935- mile- long CPC9 pipeline which transports an average of 959000
barrels of crude oil per day including 76000 barrels daily from Rus sia10 ExxonMobil has formed
8 E Mazneva and I Arkhipov ldquoRus sia Sells $11 Billion Stake in Rosneft to Glencore Qatarrdquo Bloomberg December 7
2016
9 CPCthinsp=thinspCaspian Pipeline Consortium
10 ldquoRus sia Highlights of Operations and Business Portfoliordquo Chevron accessed October 3 2017 https wwwchevron
com worldwide russia
Figure 56 Share of Rus sian Oil in Total US Oil Imports Thousands of Barrels per Day 1972ndash2016
Source US EIA ldquoUS Imports by Country of Origin Total Crude Oil and Productsrdquo
2000
4000
6000
8000
10000
12000
14000
16000
US Imports of Crude Oil and Petroleum Products (Thousand Barrels per Day)
US Imports from Russia of Crude Oil and Petroleum Products (Thousand Barrels per Day)19
7319
7419
7519
7619
7719
7819
7919
80
198
119
82
198
319
84
198
519
86
198
719
88
198
919
90
199
119
92
199
319
94
199
519
96
199
719
98
199
92
00
02
00
12
00
22
00
32
00
42
00
52
00
62
00
72
00
82
00
92
010
20
112
012
20
132
014
20
152
016
594-71613_ch01_4Pindd 27 102017 404 PM
Table 57 Top Importers of Rus sian Oil to the United States Thousands of Barrels 2016
VALERO MARKETING amp SUPPLY CO 54590 3616
EXXONMOBIL OIL CORP 17087 1130
CHEVRON USA INC 15217 1008
BP WEST COAST PRODUCTS LLC 10130 671
GEORGE E WARREN CORP 7272 48
PAULSBORO REFINING CO LLC 6838 453
TESORO CORP 5097 338
VITOL INC 5084 337
PHILLIPS 66 CO 4726 313
TRAFIGURA AG 4360 289
PAR HAWAII REFINING LLC 3893 258
MOTIVA ENTERPRISES LLC 3041 205
SHELL US TRADING CO 2863 19
MARATHON PETROLEUM CO LLC 2475 16
ATLANTIC TRADING amp MARKETING 2099 14
FREEPOINT COMMODITIES LLC 1439 1
GLENCORE LTD 1284 85
BEST PETROLEUM CORP 967 64
ROLYMPUS US COMMODITIES GROUP LLC 822 6
HUNT CRUDE OIL SUPPLY CO 666 4
GULF OIL LP 658 4
Source US EIA ldquoUS Imports by Country of Origin Crude Oilrdquo Petroleum amp Other Liquids September 13
2017 httpswwweiagovdnavpetpet_move_impcus_a2_nus_epc0_im0_mbblpd_ahtm authorrsquos
computation
594-71613_ch01_4Pindd 28 102017 404 PM
Vadim Grishin 29
several joint ventures with Rosneft to undertake ofshore exploration in the Black Sea and the Kara
Sea in Siberia11
According to the Sanctions Act US persons are prohibited from exporting or reexporting goods
ser vices (except financial ser vices) and technology in support of exploration or production of new
deep- water Arctic ofshore or shale oil proj ects that involve designated Rus sian entities or other
entities in which such sanctioned persons have a controlling interest or a substantial noncontrol-
ling owner ship interest defined as not less than 33 percent (previously it was 50 percent) The new
law also authorizesmdash but does not requiremdash the imposition of so- called secondary sanctions
against non- US entities that engage in activities involving the construction maintenance or
expansion of Rus sian energy export pipelines with a fair market value of $1 million or more or an
aggregate fair market value during a 12- month period of $5 million12 This provision has raised the
concerns of some Eu ro pean countries particularly Germany As result the final language of the
law included wording about coordination of this issue with allies of the United States
Shipments of Rus sian oil to the United States could be afected by activity in the US refinery
industry In early 2017 Saudi Aramco bought the United Statesrsquo largest oil refinery in Port Arthur
(Texas) and it announced plans to send more of its own crude to that refinery13 Serious concerns
exist however regarding the future of three refineries and nine pipelines owned by Citgo a US
branch of the Venezuelan state com pany PdVSA which is balancing precariously on the edge of
default Under certain conditions in the event of PdVSA bankruptcy Rosneft could claim a stake of
up to 499 percent in Citgo Such a possibility has raised concerns among politicians and US
government officials with Trea sury Secretary Steven Mnuchin calling it a ldquonational security issuerdquo14
Tables 58 59 and 510 show allocations of Rus sian oil imports to major US refineries some of
which work exclusively on Rus sian crude a total of two to three months per year In total 150940
thousand barrels of Rus sian oil were refined in 2016
Figure 57 confirms a leading position of Texas and Louisiana among the US states receiving
Rus sian crude followed by New Jersey California Mississippi Washington Hawaii and Delaware
In a paradoxical way Texas has dis appeared from the list of states as a main destination of US
imports from Rus sia (Figure 58) because Rus sian crude is mostly delivered to Louisiana ports and
registered there by US Customs as an import from Rus sia After that it transports to refineries in
Louisiana and Texas
Overall the short- term business rationale behind the sustainability of US oil imports from Rus sia
cannot overcome strong headwinds in the US energy sector facing all oil importers which will
inevitably lead to a contraction of Rus sian oil exports to the United States in the foreseeable future
11 Exxon eforts to receive a special US Trea sury waiver to drill in sanctioned Rus sia failed in 2017
12 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364
13 Sarp Ozkan ldquoSaudi Aramcorsquos Port Arthur Refinery and the US Refinery Fleetrdquo Drilling Info May 11 2017
https infodrillinginfo com saudi - aramcos - port - arthur - refinery - us - refinery - fleet
14 Graham Kates ldquoTrea sury Secretary Rus siarsquos Citgo Deal a National Security Issuerdquo CBS News May 1 2017
http wwwcbsnews com news rosneft - citgo - steven - mnuchin - national - security
594-71613_ch01_4Pindd 29 102017 404 PM
US-Russia Economic Relations30
Table 58 Valerorsquos Refineries Pro cessing Rus sian Oil Thousands of Barrels 2016
Saint Charles Louisiana 29206 535
Corpus Christi Texas 20626 378
Wilmington California 4250 78
Total USA 54590 100
Source US EIA ldquoRefinery Capacity Reportrdquo January 1 2017
table 5 wwweia gov petroleum refinerycapacity table5 pdf
authorrsquos computation
Table 59 ExxonMobil Refineries Pro cessing Rus sian Oil Thousands of Barrels 2016
Baytown Texas 15037 88
Baton Rouge Louisiana 2046 12
Total USA 17083 100
Source US EIA ldquoRefinery Capacity Reportrdquo authorrsquos computation
Table 510 Chevronrsquos Refineries Pro cessing Rus sian Oil Thousands of Barrels 2016
Pascagoula Mississippi 12767 840
El Segundo California 2372 155
Saint Rose Louisiana 78 05
Total USA 15217 100
Source US EIA ldquoRefinery Capacity Reportrdquo authorrsquos computation
594-71613_ch01_4Pindd 30 102017 404 PM
Vadim Grishin 31
HEAVY METAL
Taken together US imports of metals and US imports of oil compose about 80 percent of US
total imports from Rus sia (Figure 59) Trade of metals like other commodities is strongly afected
by market price fluctuations Nevertheless metal imports from Rus sia have been fairly resilient to
market volatility and their average annual value has hovered at about $4 billion in the last five years
(Figure 510) This market resilience was forged at the end of the 1990searly 2000s when Rus sian
metal producers gradually modernized their plants adjusting quality of production to Western
standards and enhancing integration into global value and supply chains Some of them conquered
their share of the highly competitive US market struggling with peers from Canada and certain
BRICS countries (China India and Brazil) To attract additional resources all Rus sian large metal-
producing companies became public and were listed on stock exchanges chiefly the London Stock
Exchange (Severstalrsquo PAO Evraz MMK OAO Novolipetsk Steel Norilsk Nikel and TMK PAO) one
on the New York Stock Exchange (Mechel) and one on the Hong Kong Stock Exchange (Rusal)
Business logic pushed some of them to invest in the US metal- making industry which was hit
hard by crisis Later on some of those assets were sold (eg two US steel mills acquired by
Severstal in 2004 were purchased 10 years later by Steel Dynamics Inc and AK Steel Corp)
Figure 57 Share of US States Rus sian Oil Imports 2016
Source US EIA ldquoUS Imports from Rus sia of Crude Oil and Petroleum Productsrdquo Petroleum amp Other
Liquids September 29 2017 https www eia gov dnav pet hist LeafHandler ashx nshy=shyPETampsshy=shyMTTIM _ NUS
- NRS _ 1ampfshy=shyM authorrsquos computation
0
10
20
30
40
50
60
70
80
90
100
Maine
Massachusetts
Maryland
Connecticut
Georgia
Rhode Island
Virginia
Florida
New York
Alabama
Puerto Rico
Pennsylvania
Delaware
Hawaii
Washington
Mississippi
California
New Jersey
Louisiana
Texas
594-71613_ch01_4Pindd 31 102017 404 PM
Figure 58 US Imports from Rus sia by State Million US$ 2013ndash2016
Source US Census Bureau ldquoState and Metropolitan Area Trade Datardquo Foreign Trade last modified
October 2 2017 https wwwcensus gov foreign - trade statistics state
Alaska
Connecticut
Delaware
Hawaii
Louisiana
Maryland
North Dakota 0
$1000
$2000
$3000
$4000
$5000
$6000
2013 2014 2015 2016
Alabama
Alaska
Connecticut
Delaware
Hawaii
Louisiana
Maryland
Maine
Mississippi
Montana
North Dakota
Mississippi
Figure 59 US Imports from Rus sia Share of Oil and Metals Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
83
82
85
86
87
88
85
82
7375
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
$40000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil and Metals
594-71613_ch01_4Pindd 32 102017 404 PM
Vadim Grishin 33
Obviously the market dynamic of dif er ent metals varies (eg iron steel aluminum platinum and
nickel) Caps to increase their trade and production in a ldquored oceanrdquo global environment with
anemic demand is rather limited despite Figure 510 showing a spike of iron and steel imports
from Rus sia in 2014 and aluminum in 2016 Some opportunities may exist for Russian- owned steel
plants in the United States (such as NLMK) to participate in energy proj ects resumed under Presi-
dent Trump who has required that new pipelines use only American- made steel15
Rus sia occupies a special niche in the US market for titanium products a high- end metal indus-
try Twenty years ago a long- term contract was signed between Rus sian titanium producer
VSMPO- AVISMA and Boeing The Rus sian com pany entered the selective club of Boeing suppliers
for the manufacture of components and semi- finished products Since the signing of this contract
VSMPO has delivered more than 35 percent of all titanium placed on Boeing civil aircraft16 They
are hidden in the trade data in an import category for Civilian Aircrafts and Parts (Figure 511) At
the end of 2016 Boeing announced an extension of its framework agreement with AVISMA
15 E Scheyder C Ngai and T Sylvester ldquoAmerican Steel Unlikely to Get Keystone Boost Despite Trump Orderrdquo
Reuters January 27 2017 http wwwreuters com article usa - trump - pipeline - transcanada - idUSL1N1FH1ZD
16 A Kramer ldquoTitanium Fills Vital Role for Boeing and Rus siardquo New York Times July 5 2013 http wwwnytimes com
2013 07 06 business global titanium - fills - vital - role - for - boeing - and - russia html mcubzshy=shy3
Figure 510 US Imports from Rus sia Iron Steel Bauxite Aluminum Nickel Nonferrous Metals and Other Precious Metals and Materials US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
0
$6000000000
$5000000000
$4000000000
$3000000000
$2000000000
$1000000000
2007 2008 2009 2010 2011 20122013
20142015
2016
Finished metal shapes
Iron and steel advanced
Iron and steel products nec
Nonferrous metals other
Other precious metals
Nickel
Bauxite and aluminum
Iron and steel mill products
Steelmaking materials
594-71613_ch01_4Pindd 33 102017 404 PM
US-Russia Economic Relations34
through 2022 and additional investments in the construction of a new robotic plant in Titanium
Valley a special economic zone located in the Sverdlovsk region that will open in 2018 The pro-
cessing of titanium forgings in all Boeing civil aircraft will be performed there including 787s 737
MAXs and 777Xs17 The contract extension with AVISMA may add several hundred million dollars
in value to annual US imports from Rus sia
How can such heavy reliance on imports of Rus sian titanium exist during a period of rising geopo-
liti cal tensions The answer is straightforward VSMPO- AVISMA is a highly specialized natu ral
mono poly producing 45 percent of the worldrsquos aerospace titanium Only four other countries
smelt high- grade titanium in industrial quantities the United States Germany Japan and China
Overall global production capacity is limited while demand is growing The United States cur-
rently imports around 79 percent of all the titanium it consumes each year18
17 ldquoBoeing and VSMPO Avisma to Launch Second Joint Production Siterdquo Rus sian Aviation Insider December 22 2016
http wwwrusaviainsider com boeing - and - vsmpo - avisma - to - launch - second - joint - production - site
18 Jon Ostrower and Andy Pasztor ldquoBoeing United Technologies Stockpile Titanium Partsrdquo Wall Street Journal
August 7 2014 https wwwwsj com articles boeing - united - technologies - stockpiling - titanium - parts - 1407441886
Figure 511 US Imports from Rus sia Civilian Aircrafts and Parts US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
$200000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Parts-civilian aircraft
Civilian aircraft
594-71613_ch01_4Pindd 34 102017 404 PM
Vadim Grishin 35
The Sanctions Act authorizes the secretary of the trea sury (in a nonmandatory way) to impose
restrictions (without specifying them) against Rus sian state- owned entities operating in the railway
metals and mining sectors of the Rus sian economy Despite the commanding heights of Rus siarsquos
state sector owner ship in its economy (70 percent of GDP) the metal- producing companies have
remained mostly in private hands
NUCLEAR AFFAIRS
Historically owners and operators of the 104 commercial nuclear power reactors in the United
States have purchased more than 80 percent of their uranium from foreign countries Uranium
shipping from Rus sia accounted for about 13 percent of the 58 million pounds of uranium pur-
chased overseas in 201219 At the same time the Rus sian state- owned mono poly Rosatom ac-
counts for 20 percent of Kazakhstanrsquos uranium production (which in turn comprises 11 percent of
all US uranium imports) and 20 percent of US domestic uranium production capacity (with
owner ship of exploration tracts in Wyoming)20
Nuclear fuel and nuclear power continue to be po liti cally sensitive topics both in the United
States and Rus sia Bilateral cooperation in this sector (being surprisingly stable with imports of
nuclear fuel from Rus sia at a level of $1 billion annually in the last five years [Figure 512 and 513])
is under constant po liti cal and lobbying pressure and has been a source of several po liti cal scan-
dals21 Consequently upside risks in this area of interaction are minimal and downside risks are
much higher especially when we are seeing more decommissioning of nuclear plants in the
United States than new constructions The US EIArsquos 2017 Annual Energy Outlook assumes
that about 25 percent of the nuclear capacity now operating will be removed from ser vice
by 205022
WHY IS THE GRASS GREENER ON THE OTHER SIDE
The United States continues to significantly reduce imports of chemical fertilizers as domestic pro-
duction increases In 2016 the United States imported 13 percent less ammonia and 11 percent
less urea and UAN which is a liquid urea and ammonium nitrate fertilizer Rus sia accounts for
around 40 percent of UAN imported by the United States The United States canceled antidumping
duties on imports of ammonium nitrate and urea from Rus sia in 2016 but it did not prevent import
19 US EIA ldquoThe US Relies on Foreign Uranium Enrichment Ser vices to Fuel Its Nuclear Power Plantsrdquo Today in
Energy August 28 2013 https wwweia gov todayinenergy detail php idshy=shy1273
20 Colin Chilcoat ldquoDoes Rus sia Really Own 20 Percent of the USrsquo Uranium Reservesrdquo OilPricecom May 6 2015
http oilpricecom Alternative - Energy Nuclear - Power Does - Russia - Really - Own - 20 - Of - The - US - Uranium - Reserves
html
21 Michelle Ye Hee Lee ldquoThe Facts behind Trumprsquos Repeated Claim about Hillary Clintonrsquos Role in the Rus sian Ura-
nium Dealrdquo Washington Post October 26 2016
22 US EIA ldquoAnnual Energy Outlook 2017 with Projections to 2050rdquo 81ndash82
594-71613_ch01_4Pindd 35 102017 404 PM
Figure 512 US Imports from Rus sia Share of Oil Metals and Nuclear Fuel Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
87
86
90
90
90
91
88
86
7882
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals and Nuclear Fuel
Figure 513 US Imports from Rus sia Nuclear Fuel Materials US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$-
$200000000
$400000000
$600000000
$800000000
$1200000000
$1000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 36 102017 404 PM
Vadim Grishin 37
drops twice last year (Figures 514 and 515) According to forecasts UAN imports are expected to
decline further to 15 million tons this year down over 46 percent from 28 million tons imported
last year23 The downside trend in imports of fertilizers will likely continue because of oversupply
BIG FISH
US imports of fish and shellfish from Rus sia are best understood in comparison with US fish
exports to the Rus sian market which slipped to zero in August 2014 after Rus sia issued an order
banning certain agricultural imports from the United States (Figure 516) While the volume of US
supply was not very large it was impor tant because it broke up the monopolistic dominance of a
few vertically integrated Rus sian companies that have kept prices high by restricting the entry of
new producers Seeking to implement import substitution policies Rus sia has tried to reduce
exports as well as imports of fish and seafood products in the last couple of years This symmetri-
cal approach was intended to ldquocompensaterdquo for a decrease of fish products in the domestic
23 Deepika Thapliyal ldquoPotashCorp Forecasts Sharp Drop in US Nitrogen Imports in 2017rdquo ICIS News February 7
2017 https wwwicis com resources news 2017 02 07 10076734 potashcorp - forecasts - sharp - drop - in - us - nitrogen
- imports - in - 2017
Figure 514 US Imports from Rus sia Share of Oil Metals Nuclear Fuel and Fertilizers Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
90
93
92
93
94
95
92
91
85
86
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals Nuclear Fuel and Fertilizers
594-71613_ch01_4Pindd 37 102017 404 PM
Figure 515 US Imports from Rus sia Chemical- Fertilizers US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
S-
$200000000
$400000000
$600000000
$800000000
$1000000000
$1200000000
$1400000000
$1600000000
$1800000000
$2000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Figure 516 US Exports to Rus sia Fish and Shellfish US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$10000000
$20000000
$30000000
$40000000
$50000000
$60000000
$70000000
$80000000
$90000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Fish and shellfish
594-71613_ch01_4Pindd 38 102017 404 PM
Vadim Grishin 39
consumer market caused by Rus siarsquos import ban but it has failed As result the group most af-
fected by the self- imposed counter- sanctions were Rus sian consumers
With a significant drop in fish imports a devaluation of the ruble and inflationary pressures on
seafood prices yearly consumption of fish in Rus sia has declined precipitously In 2015 alone
fish prices increased 20 percent and consumption dropped to 14 kilograms per person24 from
22 kilograms in 201425 In 2016 food rose to 355 percent of house hold expenditure as a result of
increases in food prices26 This has pushed vertically integrated fishing monopolies to sell even
more of their catch abroad rather than deliver to the Rus sian Federation (Figure 517) Thus we
cannot exclude the possibility of further growth in US fish and shellfish imports from Rus sia on a
marginal scale
24 Александр Савельев ldquoПотребление рыбы в России упало до 14 кг на человекаrdquo [Fish consumption in Rus sia fell to
14 kg per person] Экономика Интерфакс January 28 2015 http wwwinterfax ru business 492038
25 Илья Шестаков ldquoПотебление рыбы в России снизилось на 10 процентов из- за роста ценrdquo [Fish consumption in
Rus sia dropped by 10 percent due to price increases] RNS March 8 2017 https rnsonline consumer - market
Potreblenie - ribi - v - Rossii - snizilos - na - 10 - iz - za - rosta - tsen - 2017 - 03 - 08
26 Zoya Sheftalovich and Christian Oliver ldquoRus siarsquos Boom (Farming) Economyrdquo Politico November 8 2016 http
wwwpolitico eu article russias - boom - farming - economy
Figure 517 US Imports from Rus sia Fish and Shellfish US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$50000000
$100000000
$150000000
$200000000
$250000000
$300000000
$350000000
$400000000
$450000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 39 102017 404 PM
US-Russia Economic Relations40
SPACE ODYSSEY
Among high- end products beyond the top five groups of goods imported from Rus sia cheap and
efficient Rus sian engines have been used to launch US rockets into space for about 16 years
(Figure 518) There was a serious po liti cal strug gle around a 2014 ban on the purchase of Rus sian
RD-180 rocket engines revealing the conflicting business interests of power ful high- tech companies
This restrictive mea sure was temporary and was quickly lifted because of significant cost impacts
and risks of disruption to launch schedules27 For the same reason the Sanctions Act does not autho-
rize ldquothe imposition of any sanction or other condition limitation restriction or prohibition that
directly or indirectly impedes the supply by any entity of the Rus sian Federation of any product or
ser vice or the procurement of such product or ser vice by any contractor or subcontractor of the
United States or any other entity relating to or in connection with any space launch conducted for
the National Aeronautics and Space Administration or any other nonndash Department of Defense
customerrdquo28
Nevertheless many experts believe that US domestic alternatives to replace Rus sian engines will
be viable in five to eight years
27 Ken Dilanian ldquoWhy Does the US Use Rus sian Rockets to Launch Its Satellitesrdquo NBC News updated November 15
2016 http wwwnbcnews com why - does - u - s - use - russian - rockets - launch - its - satellites - n588526
28 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364
Figure 518 Spacecraft Excluding Military US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 40 102017 404 PM
41
Diversity and technological complexity are the most vis i ble advantages supporting US exports to
Rus sia Three major groups of export goods include civilian aircraft engines and parts (Figure 61)
drilling and oil field equipment (Figure 62) and industrial machines and engines (Figure 63)
Despite sanctions against the transfer of advanced oil producing and pro cessing technologies the
realization of US drilling and oil field equipment in Rus sia is sustainable although some bilateral
proj ects have been frozen
Another category of goods that has demonstrated resilience is the phar ma ceu ti cal industry (Fig-
ure 64) because most drugs in Rus sia are imported (about 70 percent of the Rus sian phar ma ceu-
ti cal market in value) Import substitution policies have had only modest results in this industry
As confirmed by American Chamber of Commerce surveys US exports to Rus sia are closely
connected to US FDI 30 percent of total imports of US companies working in the Rus sian
market come from the United States (more than $2 billion in 2016) In other words about
40 percent of all US exports to Rus sia are related to a US corporate- sector business pro cess in
the country The major sectors of activity of these companies are energy and natu ral resources
(52 percent) manufacturing (17 percent) information and communications technology or ICT
(13 percent) retail (7 percent) automotive industry (6 percent) phar ma ceu ti cal production
(1 percent) professional ser vices (05 percent) and other (2 percent)1
Some obvious constraints on US exports to Rus sia have resulted from a reduction in demand A
deterioration of bilateral relations and implementation of sanctions and counter- sanctions have
directly or indirectly afected all businesses Figures 65 and 66 provide data regarding a dramatic
drop in the sale of US agricultural production in Rus sia with all other categories of exports in
goods showing big cuts as well (see Figures 67ndash69)
Exports of civilian aircraft engines and parts put the state of Washington in first place among
other states as a leading exporter to the Rus sian market (Figure 610)
1 American Chamber of Commerce in Rus sia ldquoInvestment and Import to Rus sia 2nd Surveyrdquo 13
Diversity and Constraints
06
594-71613_ch01_4Pindd 41 102017 404 PM
Figure 61 US Exports of Civilian Aircraft Engines Equipment and Parts to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
$2500000000
$2000000000
$1500000000
$1000000000
$500000000
$-
Figure 62 US Exports of Drilling and Oil Field Equipment US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
$40000000
$45000000
$50000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 42 102017 404 PM
Figure 63 US Exports of Industrial Engines to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Figure 64 US Exports of Phar ma ceu ti cal Preparations to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 43 102017 404 PM
Figure 65 US Exports of Meat and Poultry to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Meat poultry etc
$1000000000
$800000000
$600000000
$400000000
$200000000
$-
$1200000000
$1400000000
$1600000000
Figure 66 US Exports of Soybeans to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
$200000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 44 102017 404 PM
Figure 67 US Exports of Vehicles Engines and Parts to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Other parts and accessories of vehicles
Automotive tires and tubes
Bodies and chassis for passenger cars
Engines and engine parts (carburetors pistonsrings and valves)
Trucks buses and special purpose vehicles
Passenger cars new and used
$2500000000
$2000000000
$1500000000
$500000000
$-
$1000000000
Figure 68 US Exports of Medicinal Equipment to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 45 102017 404 PM
Figure 610 US Exports to Rus sia by States (2016 US$ Value) Million US$ 2013ndash2016
Source US Census Bureau ldquoState and Metropolitan Area Trade Datardquo
Iowa Kentucky
North Dakota
Oklahoma
South Carolina
Washington
0
$500
$1000
$1500
$2000
2013 2014 2015 2016
District of Columbia
Iowa
Kentucky
North Dakota
Oklahoma
South Carolina
Washington
Figure 69 US Exports of Excavating Machinery to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
$40000000
$45000000
$50000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 46 102017 404 PM
47
Upon reviewing the current trend in US- Russia economic relations we must acknowledge that
the existing trade model is obsolete and exhausted Imports are resource- oriented and reflect
constraints of the Rus sian economic structure while five groups of goodsmdash oil metals nuclear
fuels fertilizers and fishmdash make up more than 90 percent of total imports from Rus sia (Figure 71)
Each of these industries has a limited capacity for growth in the foreseeable future
Rus siarsquos core export to the United Statesmdash oilmdash will inevitably decrease in the mid- term under any
scenario The value and volume of Rus sian exports to the United States are open to global market
volatility and po liti cal pressures with limited hedging mechanisms
Overall US exports to Rus sia are unsustainable due to bilateral po liti cal tensions the whims of
commodity markets and changing domestic policies Sanctions and counter- sanctions have
created additional barriers particularly in finance banking high- tech energy and agro- business
According to the American Chamber of Commerce 69 percent of US companies working in the
country consider the impact of US sanctions against Rus sia on their business as negative At the
same time 60 percent of companies do not expect big changes in business relations between
Rus sia and the United States under Trump1 as the new law codifies existing sanctions fortifies
them and extends them to new sectors
Current US investments are low due to the weak rule of law in Rus sia a lack of property right
protections and proper contract enforcement high levels of statization and monopolization in the
economy a poor business climate outdated capital stock dependence on natural- resource
sectors and of course sanction and counter- sanction mea sures Bloated administrative compo-
nents created as risk mitigation instruments have also served as impediments The countryrsquos
institutional weakness low level of productivity bud get constraints and a declining inflexible
workforce will restrain future economic growth even if commodity prices recover Rus sian eco-
nomic policy will likely continue to be statist and protectionist relying mostly on import
substitutions
1 Ibid 11
Existing Trends and Future Scenarios
07
594-71613_ch01_4Pindd 47 102017 404 PM
US-Russia Economic Relations48
What scenarios can be expected in such a challenging environment
One probability (no peace no war) is based on the assumption that matters will not deteriorate
further and implementation of the Sanctions Act will be cursory This will cause relatively slow
degradation in the economic field with occasional flashes of activity in selected areas (eg closer
cooperation against Islamist terrorist groups in Syria)
A second worse case or critical scenario is the intensive and full- scale execution of current sanc-
tion legislation and even the imposition of new economic punitive and restrictive mea sures which
could incite asymmetric retaliatory actions and lead to the introduction of additional protectionist
policies This in turn could trigger a further escalation of mutual confrontation and could eventu-
ally destroy the fundamentals of the current bilateral trade system Rus sian leadership has charac-
terized the Sanctions Act as a declaration of a trade war that ends all hope for improving bilateral
relations2
2 Дмитрий Медведев ldquoПодписание президентом США нового санкционного закона против России создает несколько
последствийrdquo [The US Presidentrsquos signing of the package of new sanctions against Rus sia will have a few conse-
quences] Facebook August 2 2017 https wwwfacebook com Dmitry Medvedev posts 10154587161801851
Figure 71 US Imports from Rus sia Share of Oil Metals Nuclear Fuel Fertilizers and Fish Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
93
94
93
94
95
96
93
92
87
89
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals Nuclear FuelFertilizers and Fish
594-71613_ch01_4Pindd 48 102017 404 PM
Vadim Grishin 49
The best case and most favorable scenario looks less probable now It assumes the realization of
structural reforms in Rus sia in such a way that would adapt Rus siarsquos foreign policy to national
economic needs reduce confrontations with the West and make a concerted efort to integrate
Rus sian businesses into global supply and value chains A revitalization of the structural reform
agendamdash including eforts to diversify economic activities through de- monopolization and support
for SMEs a restructuring of the banking sector the creation of a vibrant business climate to foster
entrepreneurships and innovation the implementation of administrative and judicial reforms to
tackle red tape and endemic corruption and the reduction of state control over key sectors of the
economy via wide- spread privatization could kick- start the development of a nonoil economy and
improve long- term growth prospects Despite ongoing discussion of reform strategies deep
economic and po liti cal changes are extremely complicated over the next po liti calelectoral cycle
(2018ndash2024) particularly because of re sis tance of vested interests and growing commodity prices
The urgency to tackle structural shortcomings in natu ral resource- dependent economies usually
correlates with the price of those resources and the degree to which resource rents drive eco-
nomic activity However there may be marginal improvements in the efficiency of the current
economic system
Future US- Russia relations can be thought of through three pillars one pillar focuses on areas
where both countries maintain a competitive rivalry another looks at potential areas of interaction
under pres ent conditions a third pillar and one that has evaporated from the current bilateral
agenda concentrates on future cooperation Stronger economic ties could not only be a kind of
po liti cal shock absorber but contribute to the building of this future (particularly business contacts
aim to support future structural reforms) although po liti cal factors are depressing the prospects
for cooperation To escape deadlock it will be impor tant to establish the right balance between
politics and economics and create a model of collaboration within the framework of contention
594-71613_ch01_4Pindd 49 102017 404 PM
About the Author
Vadim Grishin PhD MBA has been involved in the reform pro cess in Rus sia as adviser to the
deputy prime minister of Rus sia in 1992ndash1993 and 2006ndash2010 He has extensive experience
working with the Bretton Woods Institutions He was the board member of the World Bank Group
and served as se nior adviser at the International Monetary Fund Currently he is a con sul tant to the
chief economistrsquos office of the International Finance Corporation and teaches the economics of
transition at Georgetown University in Washington DC
50
594-71613_ch99_4Pindd 50 102017 403 PM
Blank
COVER PHOTO ADOBE STOCK
1616 Rhode Island Avenue NW
Washington DC 20036
202 887 0200 | wwwcsisorg
v++ISBN 978-1-4422-8035-9
Lanham bull Boulder bull New York bull London
4501 Forbes Boulevard
Lanham MD 20706
301 459 3366 | wwwrowmancom
A U T H O R
Vadim Grishin
Myths and Realities
A Report of the
CSIS RUSSIA AND EURASIA PROGRAM
US-RussiaEconomicRelations
O C T O B E R 2 0 1 7
Euml|xHSLEOCy280359z
The Man Pupu Nyor Rock Formations at the Northern Urals also known as Seven
Strong Man or Little Mountain of the God in the local tribe (Mansi) language
US-Russia Economic Relations16
inflows (oil money) lead to ruble appreciation and render a countryrsquos production less competitive
During that time Rus siarsquos industry did not receive preferential access to larger markets and could
not expand its share in the global economy particularly because of its self- isolation from the
regional trade agreements (except for its participation in the Eurasian Economic Union with some
neighboring countries of the former Soviet Union) As a result neither import substitution nor
export- led strategy promoted growth and specialization in nonoil production A long- awaited
modernization and reallocation of resources from an inefficient nontrade sector to a trade sector
did not materialize
These limits were later augmented with sanctions and an extension of domestic restrictions on
cooperation with Western partners Importantly the rapid growth of state- monopoly structures in
the Rus sian economy over the past 15 years has created additional obstacles to the development
and diversification of US- Russia economic ties
Figure 41 US Imports from Rus sia US$ 2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2016)
Fish and shellfish 3
Crude oil 5
Fuel oil 37
Petroleum products other
8
Nuclear fuel materials
7
Chemicals-fertilizers 4
Steelmaking materials 5
Iron and steel mill products 4
Bauxite and aluminum 9
Other precious metals 4
Nonferrous metals other 1
Finished metal shapes 1
Synthetic rubber--primary
1
Spacecraftexcluding military
594-71613_ch01_4Pindd 16 102017 404 PM
Fig
ure
42
U
S E
xpo
rts
to R
us s
ia U
S$ 2
016
Sou
rce
US
Ce
nsu
s B
ure
au ldquo
Trad
e in
Go
od
s w
ith
Ru
s sia
rdquo (s
ee
dat
a fo
r 2
016
)
Bak
ery
pro
du
cts
Win
e b
eer
an
d r
elat
ed
pro
du
cts
New
spri
nt
Pla
stic
mat
eria
ls
Ch
emic
als-
fert
ilize
rs
Ch
emic
als-
ino
rgan
icC
hem
ical
s-o
rgan
ic
Ch
emic
als-
oth
erC
ott
on
fib
er c
loth
In
du
stri
al r
ub
ber
pro
du
cts
Min
eral
su
pp
lies-
man
ufa
ctu
red
Gen
erat
ors
acc
esso
ries
Ele
ctri
c ap
par
atu
s
Dri
llin
g amp
oilfi
eld
eq
uip
men
t Sp
ecia
lized
min
ing
Exc
avat
ing
mac
hin
ery
No
nfa
rm t
ract
ors
an
d p
arts
In
du
stri
al e
ng
ines
Fo
od
to
bac
co m
ach
iner
y M
etal
wo
rkin
g m
ach
ine
too
ls
Tex
tile
sew
ing
m
ach
ines
W
oo
d g
lass
p
last
ic
Pu
lp a
nd
pap
er
mac
hin
ery
Mea
suri
ng
tes
tin
g
con
tro
l in
stru
men
ts
Mat
eria
ls h
and
ling
equ
ipm
ent
Ind
ust
rial
mac
hin
es
oth
er
Ph
oto
ser
vice
ind
ust
ry m
ach
iner
y A
gri
cult
ura
l mac
hin
ery
eq
uip
men
t C
om
pu
ters
Co
mp
ute
r ac
cess
ori
es
Sem
ico
nd
uct
ors
Tel
eco
mm
un
icat
ion
seq
uip
men
t
Bu
sin
ess
mac
hin
es a
nd
eq
uip
men
t
Lab
ora
tory
tes
tin
g in
stru
men
ts
Med
icin
al e
qu
ipm
ent
Civ
ilian
air
craf
t e
ng
ines
eq
uip
men
t a
nd
par
ts
Rai
lway
tra
nsp
ort
atio
n
equ
ipm
ent
Ves
sels
exc
lud
ing
scr
ap
Co
mm
erci
al v
esse
ls o
ther
M
arin
e en
gin
es p
arts
Spac
ecra
ft e
xclu
din
g
mili
tary
Pas
sen
ger
car
s
new
an
d u
sed
Tru
cks
bu
ses
and
sp
ecia
l p
urp
ose
ve
hic
les
En
gin
es a
nd
en
gin
e p
arts
(c
arb
ure
tors
pis
ton
s r
ing
s
and
val
ves)
B
od
ies
and
ch
assi
s fo
r p
asse
ng
er c
ars
Au
tom
oti
ve t
ires
an
d t
ub
es
Oth
er p
arts
an
d a
cces
sori
es o
f ve
hic
les
Ap
par
el h
ou
seh
old
go
od
s -
text
ile
Ph
arm
aceu
tica
lp
rep
arat
ion
s
Furn
itu
re h
ou
seh
old
go
od
s
etc
R
ug
s
Cel
l ph
on
es a
nd
oth
er
ho
use
ho
ld g
oo
ds
ne
c
594-71613_ch01_4Pindd 17 102017 404 PM
US-Russia Economic Relations18
Figure 43 US Trade in Goods with Rus sia Million US$ 1992ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
Russian Financial Crisis
Oil price Increased from$2446 USD per barrel (2001)
to $9694 USD per barrel(2008)
Global Financial Crisis
Oil price high record in2011-2012
(more that $111 USD perbarrel)
Oil price crashed
$-
$5000
$10000
$15000
$20000
$25000
$30000
$35000
$40000
$45000
$50000
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia US Exports to Russia US-Russia Trade in Goods
No doubt po liti cal ups and downs add volatility to US- Russia trade Nevertheless Rus siarsquos eco-
nomic structure exhausted itself before the Ukrainian crisis and the recent Rus sian recession Its
limitations are not only due to some mistakes in policy or negative coincidences of circumstances
but rather to deeply rooted properties in the current bilateral trade model related to structural
issues in the Rus sian economy Structural constraints such as the weak enforcement of property
rights poor business regulation and nondiversified exports weighed on Rus sian trade with the
United States From this perspective the term ldquonaturalunnatural trading partnersrdquo does not ad-
dress the unused capacity of bilateral interaction or the real challenges that kind of interaction
faces It just adds metaphysical flavor to the very specific economic and po liti cal factors that
determine the US- Russia trajectory
Overall the outlines of bilateral trade (Figure 43) resemble the famous ldquoRus sian Mountainsrdquo that
were a pre de ces sor of the modern roller coaster icy hills supported by wooden constructionsmdash a
rigid and immobile structure that sooner or later would melt This unfortunately is what is hap-
pening to US- Russia trade cooperation now
594-71613_ch01_4Pindd 18 102017 404 PM
19
ARE LITTLE FISH REALLY SWEET
Low US- Russia economic interaction has at least two consequences First it limits the capacity of
policymakers to exploit trade as an instrument for geopo liti cal combat Even the question of a US
trade deficit which used to be a headache for many US trading partners has become so insig-
nificant in absolute terms (about $87 billion in 2016) that it seems hardly worth caring about
When the volume of trade between two countries becomes very small in absolute terms whether
a country is running a surplus or deficit is no longer relevant But it also renders another type of
confrontations (sometimes more dangerous) more likely since the two traders have little to lose
Second in an environment marked by low levels of bilateral trade both sides could incentivize (if
and when a desire for po liti cal rapprochement exists) the signing of new trade deals which are
elevated symbolically as a turning point in bilateral po liti cal relations (ie the sale of Boeings to
Rus sia or the delivery via tankers of Rus sian oil to US refineries) Sometimes markets themselves
pres ent ldquogiftsrdquo that can be capitalized on po liti cally US- USSR grain trade in the 1970s was one
such ldquogiftrdquo large sales of American grain to the Soviet Union helped US policymakers win favor
with the po liti cally impor tant American farming sector and permitted Soviet leaders to maintain
access to a dietary staple for the Soviet population
The strong 32 percent growth in value of US imports from Rus sia from January to May 2017
versus January to May 2016 ( Table 51) is an example of a development that has tempted officials
to pres ent it as a sign of positive change due to ldquogrowing business activitiesrdquo (this kind of statement
was heard before the bilateral summit in Germany in July 2017) although the reason for that leap
was evidently an increase in commodity prices (mainly of oilmdash see Table 52) and not a rise in
entrepreneurial interactions The primary beneficiaries of that upside rally have been two other
petro- economies Saudi Arabia and Venezuela ( Tables 53 and 54)
Sector Analyses
05
594-71613_ch01_4Pindd 19 102017 404 PM
US-Russia Economic Relations20
Table 51 US Imports from Rus sia Million US$ Januaryndash May 2016 vs Januaryndash May 2017
Year January February March April May Total
2016 9603 6871 11097 12257 10977 50805
2017 12215 10220 16979 13471 14147 67032
Change 271 487 530 99 289 319
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
Table 52 Change in Urals Crude Oil Prices US$ per Barrel Januaryndash May 2016 vs Januaryndash May 2017
Januaryndash May 2016 Januaryndash May 2017 Change ($) Change ()
3601 5129 1528 424
Source Ministry of Finance of the Rus sian Federation https wwwminfin ru ru ixzz4mMIZ7XtC
Table 53 US Imports from Saudi Arabia Million US$ Januaryndash May 2016 vs Januaryndash May 2017
Year January February March April May Total
2016 15114 9036 13555 10844 14679 63228
2017 19802 20298 21650 16211 19542 97503
Change 3101 12463 5972 495 331 542
Source US Census Bureau ldquoTrade in Goods with Saudi Arabiardquo Foreign Trade last modified June 29 2017
https wwwcensus gov foreign - trade balance c5170 html (see data for 2016ndash2017)
594-71613_ch01_4Pindd 20 102017 404 PM
Vadim Grishin 21
Table 54 US Imports from Venezuela Million US$ Januaryndash May 2016 vs Januaryndash May 2017
Year January February March April May Total
2016 6657 5560 7140 8007 7922 35286
2017 13041 10864 123500 11148 12243 59646
Change 9590 9540 7297 3923 5454 6903
Source US Census Bureau ldquoTrade in Goods with Venezuelardquo Foreign Trade last modified June 29 2017
https wwwcensus gov foreign - trade balance c3070 html (see data for 2016ndash2017)
Table 55 US Exports to Rus sia Million US$ Januaryndash May 2016 vs Januaryndash May 2017
Year January February March April May Total
2016 3628 3577 7298 4657 4947 24107
2017 3144 4277 5386 6670 4806 24283
Change minus133 196 minus262 432 minus29 minus07
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2016ndash2017)
At the same time US exports to Rus sia continue to stagnate ( Table 55) due to low levels of
consumption during a two-and- a- half-year economic crisis a deep ruble devaluation sanctions
and counter- sanctions
Given the very dif er ent economic structures and resource endowments of Rus sia and the United
States it is not surprising that US- Russia trade is asymmetric and oil driven (Figure 51) A
3 percent increase in Urals oil prices translates into a one percent increase in US import growth
from Rus sia Thus in 2016 every $10 increase in Urals crude oil added $15 billion to the value of
US imports or 11 percent to the total value of imports from Rus sia
OIL ADDICTION
Oil is a core pillar of US- Russia bilateral trade A bumpy ride in oil markets afects commerce
Nevertheless Rus sian oil exports to the United States in physical terms have been rather
594-71613_ch01_4Pindd 21 102017 404 PM
US-Russia Economic Relations22
sustainable Starting from 2005 average annual deliveries have been above 150 million barrels
(Figure 52) Crude and heating oil have dominated while petroleum products and liquefied petro-
leum gases have not (Figure 53) In 2011 oil exports peaked at 228 million barrels but declined to
159 million barrels in 2016mdash a drop of 30 percent Rec ord high shipments of Rus sian oil to the United
States coincided with an elevation in oil prices which made the subsequent decline in oil shipment
value between 2011 and 2016 (by about 72 percent as shown in Figure 54) seem more stark The
increase in price also raised the share of oil in Rus sian exports by 74 percent in 2011 (Figure 55)
The Rus sian share in total US oil imports was around 55 percent in 2011 and 43 percent in 2016
( Table 56) In the last five years the United States has relied exclusively on consumption of Rus sian
oil for the rough equivalent of one week out of the year (Figure 56)
It is unlikely that Rus sia can significantly increase its share of the US oil market and there is a real
possibility for a downward trend There are several reasons the historically high Rus sian hydrocar-
bon export threshold of 2011 will not soon if ever be surpassed
First US energy consumption will likely be flat According to the US Energy Information Adminis-
tration (EIA) demand for petroleum and other liquids in the United States will be about 35ndash36
quadrillion British thermal units (BTUs) with minimal variation over the next 25 years1
1 US EIA ldquoAnnual Energy Outlook 2017 with Projections to 2050rdquo January 5 2017 7ndash8
Figure 51 US- Russia Trade Growth () vs US and Rus sia Real GDP Growth () 1993ndash2016
Source IMF ldquoIMF Datardquo accessed September 27 2017 http wwwimf org en Data US Census Bureau
ldquoTrade in Goods with Rus siardquo
Note rGDPthinsp=thinspreal gross domestic product
Trade
USA rGDP growth
Russia rGDP growth
-60
-40
-20
0
20
40
60
80
100
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Gro
wth
All spikes in US-Russia trade have been connected with two main
variables volume and price of crude oil
594-71613_ch01_4Pindd 22 102017 404 PM
Vadim Grishin 23
Second the United States will become a net energy exporter between 2020 and 2030 in most
cases under dif er ent combinations of oil and natu ral gas prices GDP growth technological
breakthroughs and the availability of energy resources The role of oil imports will dramatically
fall2
Third oil price scenarios as described by the International Energy Agency (IEA) international
financial organ izations (IFIs) and many national agencies are very cautious and assume that even
by 2035 to 2040 oil prices will not to recover to the levels of 2011ndash20123
Fourth Rus sian oil production and export growth will be modest and driven by Asian economic
expansion and will comprise a decreasing share of Western markets4 According to forecasts from
2 Ibid 15ndash18
3 Ibid table 3 ldquoEnergy Prices by Sector and Sourcesrdquo World Bank World Bank Commodity Markets Price Forecasts
(Washington DC World Bank 2017) httpswwwworldbank org en research commodity - markets Organ ization of the
Petroleum Exporting Countries (OPEC) World Oil Outlook 2016 (Vienna OPEC 2016)
4 E D Belotskaia et al Global and Rus sian Energy Outlook 2016 (Moscow Energy Research Institute of the Rus sian
Acad emy of Science Analytical Center for the Government of the Rus sian Federation 2016) http acgov ru files
publication a 12767 pdf
Figure 52 US Imports from Rus sia Crude Oil and Petroleum Products Thousands of Barrels 1995ndash2016
Source US EIA ldquoUS Imports by Country of Origin Rus siardquo Petroleum amp Other Liquids September 13
2017 http wwweia gov dnav pet PET _ MOVE _ IMPCUS _ D _ NUS _ NRS _ MBBL _ M htm
0
50000
100000
150000
200000
250000
Date 1995 1996 1997 1998 199920002001200220032004200520062007200820092010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 23 102017 404 PM
US-Russia Economic Relations24
the Organ ization of the Petroleum Exporting Countries (OPEC) crude oil exports from Rus sia and
the Caspian region to the United States will dis appear by 20255
So why does the Rus sian Urals blend continue to be attractive for oil traders and US refineries
which could pro cess greater volumes of domestically produced lighter crude There are two main
reasons One is related to the preference of US high conversion refineries (the most sophisticated
in the world) to work with heavy oil blends produced by Canada Mexico Iraq Venezuela and
Rus sia Pro cessing heavy crude now is as profitable as pro cessing lighter crude The so- called
crack spreadmdash the diference between the cost of relatively cheap heavy crude oil and the final
price of value- added consumer products (diesel gasoline jet fuel and heating oil)mdash has become
the same as the refinery margins of light sweet crude6 This has primarily afected light oil produc-
ing countries such as Angola Algeria and Nigeria
5 OPEC World Oil Outlook 2016 306ndash309
6 ldquoHow Much for That Heavy Oilrdquo Oil Sands Magazine December 26 2015 https wwwoilsandsmagazine com
news 2015 12 26 how - much - for - that - heavy - oil
Figure 53 US Imports from Rus sia Oil and Petroleum Products US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$-
$25000000000
$20000000000
$15000000000
$10000000000
$5000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Liquefied petroleum gases
Petroleum products other
Fuel oil
Crude oil
594-71613_ch01_4Pindd 24 102017 404 PM
Vadim Grishin 25
Another factor afecting purchase of Rus sian oil is a new trend among oil companies for further
consolidation of scale and for integrating operations of upstream and downstream business7
There have been several waves of separation and unification of production transportation and
pro cessing in the last 50 years The current business cycle can be seen as an adaptation to a
period of low prices and oversupply Companies that buy andor produce oil in Rus sia most likely
prefer to transport and pro cess this oil in their own modern refineries in the United States At the
same time some of the newest refinery designs specifically for pro cessing heavy oils have been
built in Asia thus extending the choices of heavy oil producing countries
We should also consider that leading US and international oil traders along with oil producing
companies working with or owning US refineries frequently buy Rus sian oil on the open market
and have long- term contracts on Rus sian crude oil delivery Many Rus sian oil companies prefer to
pay for purchases or ser vices with their future production instead of cash creating situations of
ldquostickyrdquo oil imports that are difficult to replace The best- known example is an interaction between
7 ldquoEnergy and Utilities Sectorrdquo Roundtable Financier Worldwide December 2015 https wwwfinancierworldwide
com roundtable - energy - utilities - sector - dec15
Figure 54 US Imports of Oil and Petroleum Products from Rus sia vs Oil Prices Eu rope Brent Spot Price Free on Board (FOB) 1996ndash2017
Source US EIA ldquoUS Imports by Country of Origin Rus siardquo
0
20
40
60
80
100
120
140
0
5000
10000
15000
20000
25000
30000
Jan
-19
96
Jun
-19
96
No
v-19
96
Ap
r-19
97
Sep
-19
97
Feb
-19
98
Jul-
199
8D
ec-1
99
8M
ay-1
99
9O
ct-1
99
9M
ar-2
00
0A
ug
-20
00
Jan
-20
01
Jun
-20
01
No
v-2
00
1A
pr-
20
02
Sep
-20
02
Feb
-20
03
Jul-
20
03
Dec
-20
03
May
-20
04
Oct
-20
04
Mar
-20
05
Au
g-2
00
5Ja
n-2
00
6Ju
n-2
00
6N
ov-
20
06
Ap
r-2
00
7Se
p-2
00
7Fe
b-2
00
8Ju
l-2
00
8D
ec-2
00
8M
ay-2
00
9O
ct-2
00
9M
ar-2
010
Au
g-2
010
Jan
-20
11Ju
n-2
011
No
v-2
011
Ap
r-2
012
Sep
-20
12Fe
b-2
013
Jul-
20
13D
ec-2
013
May
-20
14O
ct-2
014
Mar
-20
15A
ug
-20
15Ja
n-2
016
Jun
-20
16N
ov-
20
16
USD
per
Bar
rel
Th
ou
san
d B
arr
els
US Imports from Russia of Crude Oil and Petroleum Products (Thousand Barrels)
Europe Brent Spot Price FOB (Dollars per Barrel)
594-71613_ch01_4Pindd 25 102017 404 PM
US-Russia Economic Relations26
Table 56 US Oil Imports All Countries vs Rus sia Thousand Barrels per Day 2011ndash2016
Years 2011 2012 2013 2014 2015 2016
All Countries 11436 10598 9859 9241 9449 10058
Rus sia 624 477 460 330 371 433
Share 546 450 467 357 393 431
Sources US EIA ldquoUS Imports by Country of Origin Total Crude Oil and Productsrdquo Petroleum amp Other
Liquids September 13 2017 wwweia gov dnav pet pet_move_impcus_a2_nus_ep00_im0_mbbl_m htm
authorrsquos computation
Figure 55 US Imports from Rus sia Share of Crude Oil and Petroleum Products Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
57
64
73
72
74
73
72
59
52 50
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
$40000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil and Petroleum Products
594-71613_ch01_4Pindd 26 102017 404 PM
Vadim Grishin 27
the Rus sian state mono poly Rosneft and commodity trading and mining giant Glencore which
along with energy and commodities com pany Vitol participated in a $10 billion prepayment
deal with Rosneft for crude supplies in 2013
There have been a number of ongoing transactions between the Rus sian oil industry and interna-
tional oil companies including several that top the list of importers of Rus sian oil to the United
States ( Table 57) In December 2016 Glencore participated in a controversial privatization opera-
tion purchasing in tandem with the Qatar sovereign wealth fund a 195 percent stake in Rosneft
which was on the US and EU list of sanctioned firms8 Glencore has also taken a blocking stake in
midsize oil producer RussNeft BP owns a 1975 percent stake in Rosneft Chevron holds a
15 percent interest in the 935- mile- long CPC9 pipeline which transports an average of 959000
barrels of crude oil per day including 76000 barrels daily from Rus sia10 ExxonMobil has formed
8 E Mazneva and I Arkhipov ldquoRus sia Sells $11 Billion Stake in Rosneft to Glencore Qatarrdquo Bloomberg December 7
2016
9 CPCthinsp=thinspCaspian Pipeline Consortium
10 ldquoRus sia Highlights of Operations and Business Portfoliordquo Chevron accessed October 3 2017 https wwwchevron
com worldwide russia
Figure 56 Share of Rus sian Oil in Total US Oil Imports Thousands of Barrels per Day 1972ndash2016
Source US EIA ldquoUS Imports by Country of Origin Total Crude Oil and Productsrdquo
2000
4000
6000
8000
10000
12000
14000
16000
US Imports of Crude Oil and Petroleum Products (Thousand Barrels per Day)
US Imports from Russia of Crude Oil and Petroleum Products (Thousand Barrels per Day)19
7319
7419
7519
7619
7719
7819
7919
80
198
119
82
198
319
84
198
519
86
198
719
88
198
919
90
199
119
92
199
319
94
199
519
96
199
719
98
199
92
00
02
00
12
00
22
00
32
00
42
00
52
00
62
00
72
00
82
00
92
010
20
112
012
20
132
014
20
152
016
594-71613_ch01_4Pindd 27 102017 404 PM
Table 57 Top Importers of Rus sian Oil to the United States Thousands of Barrels 2016
VALERO MARKETING amp SUPPLY CO 54590 3616
EXXONMOBIL OIL CORP 17087 1130
CHEVRON USA INC 15217 1008
BP WEST COAST PRODUCTS LLC 10130 671
GEORGE E WARREN CORP 7272 48
PAULSBORO REFINING CO LLC 6838 453
TESORO CORP 5097 338
VITOL INC 5084 337
PHILLIPS 66 CO 4726 313
TRAFIGURA AG 4360 289
PAR HAWAII REFINING LLC 3893 258
MOTIVA ENTERPRISES LLC 3041 205
SHELL US TRADING CO 2863 19
MARATHON PETROLEUM CO LLC 2475 16
ATLANTIC TRADING amp MARKETING 2099 14
FREEPOINT COMMODITIES LLC 1439 1
GLENCORE LTD 1284 85
BEST PETROLEUM CORP 967 64
ROLYMPUS US COMMODITIES GROUP LLC 822 6
HUNT CRUDE OIL SUPPLY CO 666 4
GULF OIL LP 658 4
Source US EIA ldquoUS Imports by Country of Origin Crude Oilrdquo Petroleum amp Other Liquids September 13
2017 httpswwweiagovdnavpetpet_move_impcus_a2_nus_epc0_im0_mbblpd_ahtm authorrsquos
computation
594-71613_ch01_4Pindd 28 102017 404 PM
Vadim Grishin 29
several joint ventures with Rosneft to undertake ofshore exploration in the Black Sea and the Kara
Sea in Siberia11
According to the Sanctions Act US persons are prohibited from exporting or reexporting goods
ser vices (except financial ser vices) and technology in support of exploration or production of new
deep- water Arctic ofshore or shale oil proj ects that involve designated Rus sian entities or other
entities in which such sanctioned persons have a controlling interest or a substantial noncontrol-
ling owner ship interest defined as not less than 33 percent (previously it was 50 percent) The new
law also authorizesmdash but does not requiremdash the imposition of so- called secondary sanctions
against non- US entities that engage in activities involving the construction maintenance or
expansion of Rus sian energy export pipelines with a fair market value of $1 million or more or an
aggregate fair market value during a 12- month period of $5 million12 This provision has raised the
concerns of some Eu ro pean countries particularly Germany As result the final language of the
law included wording about coordination of this issue with allies of the United States
Shipments of Rus sian oil to the United States could be afected by activity in the US refinery
industry In early 2017 Saudi Aramco bought the United Statesrsquo largest oil refinery in Port Arthur
(Texas) and it announced plans to send more of its own crude to that refinery13 Serious concerns
exist however regarding the future of three refineries and nine pipelines owned by Citgo a US
branch of the Venezuelan state com pany PdVSA which is balancing precariously on the edge of
default Under certain conditions in the event of PdVSA bankruptcy Rosneft could claim a stake of
up to 499 percent in Citgo Such a possibility has raised concerns among politicians and US
government officials with Trea sury Secretary Steven Mnuchin calling it a ldquonational security issuerdquo14
Tables 58 59 and 510 show allocations of Rus sian oil imports to major US refineries some of
which work exclusively on Rus sian crude a total of two to three months per year In total 150940
thousand barrels of Rus sian oil were refined in 2016
Figure 57 confirms a leading position of Texas and Louisiana among the US states receiving
Rus sian crude followed by New Jersey California Mississippi Washington Hawaii and Delaware
In a paradoxical way Texas has dis appeared from the list of states as a main destination of US
imports from Rus sia (Figure 58) because Rus sian crude is mostly delivered to Louisiana ports and
registered there by US Customs as an import from Rus sia After that it transports to refineries in
Louisiana and Texas
Overall the short- term business rationale behind the sustainability of US oil imports from Rus sia
cannot overcome strong headwinds in the US energy sector facing all oil importers which will
inevitably lead to a contraction of Rus sian oil exports to the United States in the foreseeable future
11 Exxon eforts to receive a special US Trea sury waiver to drill in sanctioned Rus sia failed in 2017
12 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364
13 Sarp Ozkan ldquoSaudi Aramcorsquos Port Arthur Refinery and the US Refinery Fleetrdquo Drilling Info May 11 2017
https infodrillinginfo com saudi - aramcos - port - arthur - refinery - us - refinery - fleet
14 Graham Kates ldquoTrea sury Secretary Rus siarsquos Citgo Deal a National Security Issuerdquo CBS News May 1 2017
http wwwcbsnews com news rosneft - citgo - steven - mnuchin - national - security
594-71613_ch01_4Pindd 29 102017 404 PM
US-Russia Economic Relations30
Table 58 Valerorsquos Refineries Pro cessing Rus sian Oil Thousands of Barrels 2016
Saint Charles Louisiana 29206 535
Corpus Christi Texas 20626 378
Wilmington California 4250 78
Total USA 54590 100
Source US EIA ldquoRefinery Capacity Reportrdquo January 1 2017
table 5 wwweia gov petroleum refinerycapacity table5 pdf
authorrsquos computation
Table 59 ExxonMobil Refineries Pro cessing Rus sian Oil Thousands of Barrels 2016
Baytown Texas 15037 88
Baton Rouge Louisiana 2046 12
Total USA 17083 100
Source US EIA ldquoRefinery Capacity Reportrdquo authorrsquos computation
Table 510 Chevronrsquos Refineries Pro cessing Rus sian Oil Thousands of Barrels 2016
Pascagoula Mississippi 12767 840
El Segundo California 2372 155
Saint Rose Louisiana 78 05
Total USA 15217 100
Source US EIA ldquoRefinery Capacity Reportrdquo authorrsquos computation
594-71613_ch01_4Pindd 30 102017 404 PM
Vadim Grishin 31
HEAVY METAL
Taken together US imports of metals and US imports of oil compose about 80 percent of US
total imports from Rus sia (Figure 59) Trade of metals like other commodities is strongly afected
by market price fluctuations Nevertheless metal imports from Rus sia have been fairly resilient to
market volatility and their average annual value has hovered at about $4 billion in the last five years
(Figure 510) This market resilience was forged at the end of the 1990searly 2000s when Rus sian
metal producers gradually modernized their plants adjusting quality of production to Western
standards and enhancing integration into global value and supply chains Some of them conquered
their share of the highly competitive US market struggling with peers from Canada and certain
BRICS countries (China India and Brazil) To attract additional resources all Rus sian large metal-
producing companies became public and were listed on stock exchanges chiefly the London Stock
Exchange (Severstalrsquo PAO Evraz MMK OAO Novolipetsk Steel Norilsk Nikel and TMK PAO) one
on the New York Stock Exchange (Mechel) and one on the Hong Kong Stock Exchange (Rusal)
Business logic pushed some of them to invest in the US metal- making industry which was hit
hard by crisis Later on some of those assets were sold (eg two US steel mills acquired by
Severstal in 2004 were purchased 10 years later by Steel Dynamics Inc and AK Steel Corp)
Figure 57 Share of US States Rus sian Oil Imports 2016
Source US EIA ldquoUS Imports from Rus sia of Crude Oil and Petroleum Productsrdquo Petroleum amp Other
Liquids September 29 2017 https www eia gov dnav pet hist LeafHandler ashx nshy=shyPETampsshy=shyMTTIM _ NUS
- NRS _ 1ampfshy=shyM authorrsquos computation
0
10
20
30
40
50
60
70
80
90
100
Maine
Massachusetts
Maryland
Connecticut
Georgia
Rhode Island
Virginia
Florida
New York
Alabama
Puerto Rico
Pennsylvania
Delaware
Hawaii
Washington
Mississippi
California
New Jersey
Louisiana
Texas
594-71613_ch01_4Pindd 31 102017 404 PM
Figure 58 US Imports from Rus sia by State Million US$ 2013ndash2016
Source US Census Bureau ldquoState and Metropolitan Area Trade Datardquo Foreign Trade last modified
October 2 2017 https wwwcensus gov foreign - trade statistics state
Alaska
Connecticut
Delaware
Hawaii
Louisiana
Maryland
North Dakota 0
$1000
$2000
$3000
$4000
$5000
$6000
2013 2014 2015 2016
Alabama
Alaska
Connecticut
Delaware
Hawaii
Louisiana
Maryland
Maine
Mississippi
Montana
North Dakota
Mississippi
Figure 59 US Imports from Rus sia Share of Oil and Metals Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
83
82
85
86
87
88
85
82
7375
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
$40000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil and Metals
594-71613_ch01_4Pindd 32 102017 404 PM
Vadim Grishin 33
Obviously the market dynamic of dif er ent metals varies (eg iron steel aluminum platinum and
nickel) Caps to increase their trade and production in a ldquored oceanrdquo global environment with
anemic demand is rather limited despite Figure 510 showing a spike of iron and steel imports
from Rus sia in 2014 and aluminum in 2016 Some opportunities may exist for Russian- owned steel
plants in the United States (such as NLMK) to participate in energy proj ects resumed under Presi-
dent Trump who has required that new pipelines use only American- made steel15
Rus sia occupies a special niche in the US market for titanium products a high- end metal indus-
try Twenty years ago a long- term contract was signed between Rus sian titanium producer
VSMPO- AVISMA and Boeing The Rus sian com pany entered the selective club of Boeing suppliers
for the manufacture of components and semi- finished products Since the signing of this contract
VSMPO has delivered more than 35 percent of all titanium placed on Boeing civil aircraft16 They
are hidden in the trade data in an import category for Civilian Aircrafts and Parts (Figure 511) At
the end of 2016 Boeing announced an extension of its framework agreement with AVISMA
15 E Scheyder C Ngai and T Sylvester ldquoAmerican Steel Unlikely to Get Keystone Boost Despite Trump Orderrdquo
Reuters January 27 2017 http wwwreuters com article usa - trump - pipeline - transcanada - idUSL1N1FH1ZD
16 A Kramer ldquoTitanium Fills Vital Role for Boeing and Rus siardquo New York Times July 5 2013 http wwwnytimes com
2013 07 06 business global titanium - fills - vital - role - for - boeing - and - russia html mcubzshy=shy3
Figure 510 US Imports from Rus sia Iron Steel Bauxite Aluminum Nickel Nonferrous Metals and Other Precious Metals and Materials US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
0
$6000000000
$5000000000
$4000000000
$3000000000
$2000000000
$1000000000
2007 2008 2009 2010 2011 20122013
20142015
2016
Finished metal shapes
Iron and steel advanced
Iron and steel products nec
Nonferrous metals other
Other precious metals
Nickel
Bauxite and aluminum
Iron and steel mill products
Steelmaking materials
594-71613_ch01_4Pindd 33 102017 404 PM
US-Russia Economic Relations34
through 2022 and additional investments in the construction of a new robotic plant in Titanium
Valley a special economic zone located in the Sverdlovsk region that will open in 2018 The pro-
cessing of titanium forgings in all Boeing civil aircraft will be performed there including 787s 737
MAXs and 777Xs17 The contract extension with AVISMA may add several hundred million dollars
in value to annual US imports from Rus sia
How can such heavy reliance on imports of Rus sian titanium exist during a period of rising geopo-
liti cal tensions The answer is straightforward VSMPO- AVISMA is a highly specialized natu ral
mono poly producing 45 percent of the worldrsquos aerospace titanium Only four other countries
smelt high- grade titanium in industrial quantities the United States Germany Japan and China
Overall global production capacity is limited while demand is growing The United States cur-
rently imports around 79 percent of all the titanium it consumes each year18
17 ldquoBoeing and VSMPO Avisma to Launch Second Joint Production Siterdquo Rus sian Aviation Insider December 22 2016
http wwwrusaviainsider com boeing - and - vsmpo - avisma - to - launch - second - joint - production - site
18 Jon Ostrower and Andy Pasztor ldquoBoeing United Technologies Stockpile Titanium Partsrdquo Wall Street Journal
August 7 2014 https wwwwsj com articles boeing - united - technologies - stockpiling - titanium - parts - 1407441886
Figure 511 US Imports from Rus sia Civilian Aircrafts and Parts US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
$200000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Parts-civilian aircraft
Civilian aircraft
594-71613_ch01_4Pindd 34 102017 404 PM
Vadim Grishin 35
The Sanctions Act authorizes the secretary of the trea sury (in a nonmandatory way) to impose
restrictions (without specifying them) against Rus sian state- owned entities operating in the railway
metals and mining sectors of the Rus sian economy Despite the commanding heights of Rus siarsquos
state sector owner ship in its economy (70 percent of GDP) the metal- producing companies have
remained mostly in private hands
NUCLEAR AFFAIRS
Historically owners and operators of the 104 commercial nuclear power reactors in the United
States have purchased more than 80 percent of their uranium from foreign countries Uranium
shipping from Rus sia accounted for about 13 percent of the 58 million pounds of uranium pur-
chased overseas in 201219 At the same time the Rus sian state- owned mono poly Rosatom ac-
counts for 20 percent of Kazakhstanrsquos uranium production (which in turn comprises 11 percent of
all US uranium imports) and 20 percent of US domestic uranium production capacity (with
owner ship of exploration tracts in Wyoming)20
Nuclear fuel and nuclear power continue to be po liti cally sensitive topics both in the United
States and Rus sia Bilateral cooperation in this sector (being surprisingly stable with imports of
nuclear fuel from Rus sia at a level of $1 billion annually in the last five years [Figure 512 and 513])
is under constant po liti cal and lobbying pressure and has been a source of several po liti cal scan-
dals21 Consequently upside risks in this area of interaction are minimal and downside risks are
much higher especially when we are seeing more decommissioning of nuclear plants in the
United States than new constructions The US EIArsquos 2017 Annual Energy Outlook assumes
that about 25 percent of the nuclear capacity now operating will be removed from ser vice
by 205022
WHY IS THE GRASS GREENER ON THE OTHER SIDE
The United States continues to significantly reduce imports of chemical fertilizers as domestic pro-
duction increases In 2016 the United States imported 13 percent less ammonia and 11 percent
less urea and UAN which is a liquid urea and ammonium nitrate fertilizer Rus sia accounts for
around 40 percent of UAN imported by the United States The United States canceled antidumping
duties on imports of ammonium nitrate and urea from Rus sia in 2016 but it did not prevent import
19 US EIA ldquoThe US Relies on Foreign Uranium Enrichment Ser vices to Fuel Its Nuclear Power Plantsrdquo Today in
Energy August 28 2013 https wwweia gov todayinenergy detail php idshy=shy1273
20 Colin Chilcoat ldquoDoes Rus sia Really Own 20 Percent of the USrsquo Uranium Reservesrdquo OilPricecom May 6 2015
http oilpricecom Alternative - Energy Nuclear - Power Does - Russia - Really - Own - 20 - Of - The - US - Uranium - Reserves
html
21 Michelle Ye Hee Lee ldquoThe Facts behind Trumprsquos Repeated Claim about Hillary Clintonrsquos Role in the Rus sian Ura-
nium Dealrdquo Washington Post October 26 2016
22 US EIA ldquoAnnual Energy Outlook 2017 with Projections to 2050rdquo 81ndash82
594-71613_ch01_4Pindd 35 102017 404 PM
Figure 512 US Imports from Rus sia Share of Oil Metals and Nuclear Fuel Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
87
86
90
90
90
91
88
86
7882
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals and Nuclear Fuel
Figure 513 US Imports from Rus sia Nuclear Fuel Materials US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$-
$200000000
$400000000
$600000000
$800000000
$1200000000
$1000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 36 102017 404 PM
Vadim Grishin 37
drops twice last year (Figures 514 and 515) According to forecasts UAN imports are expected to
decline further to 15 million tons this year down over 46 percent from 28 million tons imported
last year23 The downside trend in imports of fertilizers will likely continue because of oversupply
BIG FISH
US imports of fish and shellfish from Rus sia are best understood in comparison with US fish
exports to the Rus sian market which slipped to zero in August 2014 after Rus sia issued an order
banning certain agricultural imports from the United States (Figure 516) While the volume of US
supply was not very large it was impor tant because it broke up the monopolistic dominance of a
few vertically integrated Rus sian companies that have kept prices high by restricting the entry of
new producers Seeking to implement import substitution policies Rus sia has tried to reduce
exports as well as imports of fish and seafood products in the last couple of years This symmetri-
cal approach was intended to ldquocompensaterdquo for a decrease of fish products in the domestic
23 Deepika Thapliyal ldquoPotashCorp Forecasts Sharp Drop in US Nitrogen Imports in 2017rdquo ICIS News February 7
2017 https wwwicis com resources news 2017 02 07 10076734 potashcorp - forecasts - sharp - drop - in - us - nitrogen
- imports - in - 2017
Figure 514 US Imports from Rus sia Share of Oil Metals Nuclear Fuel and Fertilizers Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
90
93
92
93
94
95
92
91
85
86
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals Nuclear Fuel and Fertilizers
594-71613_ch01_4Pindd 37 102017 404 PM
Figure 515 US Imports from Rus sia Chemical- Fertilizers US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
S-
$200000000
$400000000
$600000000
$800000000
$1000000000
$1200000000
$1400000000
$1600000000
$1800000000
$2000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Figure 516 US Exports to Rus sia Fish and Shellfish US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$10000000
$20000000
$30000000
$40000000
$50000000
$60000000
$70000000
$80000000
$90000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Fish and shellfish
594-71613_ch01_4Pindd 38 102017 404 PM
Vadim Grishin 39
consumer market caused by Rus siarsquos import ban but it has failed As result the group most af-
fected by the self- imposed counter- sanctions were Rus sian consumers
With a significant drop in fish imports a devaluation of the ruble and inflationary pressures on
seafood prices yearly consumption of fish in Rus sia has declined precipitously In 2015 alone
fish prices increased 20 percent and consumption dropped to 14 kilograms per person24 from
22 kilograms in 201425 In 2016 food rose to 355 percent of house hold expenditure as a result of
increases in food prices26 This has pushed vertically integrated fishing monopolies to sell even
more of their catch abroad rather than deliver to the Rus sian Federation (Figure 517) Thus we
cannot exclude the possibility of further growth in US fish and shellfish imports from Rus sia on a
marginal scale
24 Александр Савельев ldquoПотребление рыбы в России упало до 14 кг на человекаrdquo [Fish consumption in Rus sia fell to
14 kg per person] Экономика Интерфакс January 28 2015 http wwwinterfax ru business 492038
25 Илья Шестаков ldquoПотебление рыбы в России снизилось на 10 процентов из- за роста ценrdquo [Fish consumption in
Rus sia dropped by 10 percent due to price increases] RNS March 8 2017 https rnsonline consumer - market
Potreblenie - ribi - v - Rossii - snizilos - na - 10 - iz - za - rosta - tsen - 2017 - 03 - 08
26 Zoya Sheftalovich and Christian Oliver ldquoRus siarsquos Boom (Farming) Economyrdquo Politico November 8 2016 http
wwwpolitico eu article russias - boom - farming - economy
Figure 517 US Imports from Rus sia Fish and Shellfish US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$50000000
$100000000
$150000000
$200000000
$250000000
$300000000
$350000000
$400000000
$450000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 39 102017 404 PM
US-Russia Economic Relations40
SPACE ODYSSEY
Among high- end products beyond the top five groups of goods imported from Rus sia cheap and
efficient Rus sian engines have been used to launch US rockets into space for about 16 years
(Figure 518) There was a serious po liti cal strug gle around a 2014 ban on the purchase of Rus sian
RD-180 rocket engines revealing the conflicting business interests of power ful high- tech companies
This restrictive mea sure was temporary and was quickly lifted because of significant cost impacts
and risks of disruption to launch schedules27 For the same reason the Sanctions Act does not autho-
rize ldquothe imposition of any sanction or other condition limitation restriction or prohibition that
directly or indirectly impedes the supply by any entity of the Rus sian Federation of any product or
ser vice or the procurement of such product or ser vice by any contractor or subcontractor of the
United States or any other entity relating to or in connection with any space launch conducted for
the National Aeronautics and Space Administration or any other nonndash Department of Defense
customerrdquo28
Nevertheless many experts believe that US domestic alternatives to replace Rus sian engines will
be viable in five to eight years
27 Ken Dilanian ldquoWhy Does the US Use Rus sian Rockets to Launch Its Satellitesrdquo NBC News updated November 15
2016 http wwwnbcnews com why - does - u - s - use - russian - rockets - launch - its - satellites - n588526
28 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364
Figure 518 Spacecraft Excluding Military US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 40 102017 404 PM
41
Diversity and technological complexity are the most vis i ble advantages supporting US exports to
Rus sia Three major groups of export goods include civilian aircraft engines and parts (Figure 61)
drilling and oil field equipment (Figure 62) and industrial machines and engines (Figure 63)
Despite sanctions against the transfer of advanced oil producing and pro cessing technologies the
realization of US drilling and oil field equipment in Rus sia is sustainable although some bilateral
proj ects have been frozen
Another category of goods that has demonstrated resilience is the phar ma ceu ti cal industry (Fig-
ure 64) because most drugs in Rus sia are imported (about 70 percent of the Rus sian phar ma ceu-
ti cal market in value) Import substitution policies have had only modest results in this industry
As confirmed by American Chamber of Commerce surveys US exports to Rus sia are closely
connected to US FDI 30 percent of total imports of US companies working in the Rus sian
market come from the United States (more than $2 billion in 2016) In other words about
40 percent of all US exports to Rus sia are related to a US corporate- sector business pro cess in
the country The major sectors of activity of these companies are energy and natu ral resources
(52 percent) manufacturing (17 percent) information and communications technology or ICT
(13 percent) retail (7 percent) automotive industry (6 percent) phar ma ceu ti cal production
(1 percent) professional ser vices (05 percent) and other (2 percent)1
Some obvious constraints on US exports to Rus sia have resulted from a reduction in demand A
deterioration of bilateral relations and implementation of sanctions and counter- sanctions have
directly or indirectly afected all businesses Figures 65 and 66 provide data regarding a dramatic
drop in the sale of US agricultural production in Rus sia with all other categories of exports in
goods showing big cuts as well (see Figures 67ndash69)
Exports of civilian aircraft engines and parts put the state of Washington in first place among
other states as a leading exporter to the Rus sian market (Figure 610)
1 American Chamber of Commerce in Rus sia ldquoInvestment and Import to Rus sia 2nd Surveyrdquo 13
Diversity and Constraints
06
594-71613_ch01_4Pindd 41 102017 404 PM
Figure 61 US Exports of Civilian Aircraft Engines Equipment and Parts to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
$2500000000
$2000000000
$1500000000
$1000000000
$500000000
$-
Figure 62 US Exports of Drilling and Oil Field Equipment US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
$40000000
$45000000
$50000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 42 102017 404 PM
Figure 63 US Exports of Industrial Engines to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Figure 64 US Exports of Phar ma ceu ti cal Preparations to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 43 102017 404 PM
Figure 65 US Exports of Meat and Poultry to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Meat poultry etc
$1000000000
$800000000
$600000000
$400000000
$200000000
$-
$1200000000
$1400000000
$1600000000
Figure 66 US Exports of Soybeans to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
$200000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 44 102017 404 PM
Figure 67 US Exports of Vehicles Engines and Parts to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Other parts and accessories of vehicles
Automotive tires and tubes
Bodies and chassis for passenger cars
Engines and engine parts (carburetors pistonsrings and valves)
Trucks buses and special purpose vehicles
Passenger cars new and used
$2500000000
$2000000000
$1500000000
$500000000
$-
$1000000000
Figure 68 US Exports of Medicinal Equipment to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 45 102017 404 PM
Figure 610 US Exports to Rus sia by States (2016 US$ Value) Million US$ 2013ndash2016
Source US Census Bureau ldquoState and Metropolitan Area Trade Datardquo
Iowa Kentucky
North Dakota
Oklahoma
South Carolina
Washington
0
$500
$1000
$1500
$2000
2013 2014 2015 2016
District of Columbia
Iowa
Kentucky
North Dakota
Oklahoma
South Carolina
Washington
Figure 69 US Exports of Excavating Machinery to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
$40000000
$45000000
$50000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 46 102017 404 PM
47
Upon reviewing the current trend in US- Russia economic relations we must acknowledge that
the existing trade model is obsolete and exhausted Imports are resource- oriented and reflect
constraints of the Rus sian economic structure while five groups of goodsmdash oil metals nuclear
fuels fertilizers and fishmdash make up more than 90 percent of total imports from Rus sia (Figure 71)
Each of these industries has a limited capacity for growth in the foreseeable future
Rus siarsquos core export to the United Statesmdash oilmdash will inevitably decrease in the mid- term under any
scenario The value and volume of Rus sian exports to the United States are open to global market
volatility and po liti cal pressures with limited hedging mechanisms
Overall US exports to Rus sia are unsustainable due to bilateral po liti cal tensions the whims of
commodity markets and changing domestic policies Sanctions and counter- sanctions have
created additional barriers particularly in finance banking high- tech energy and agro- business
According to the American Chamber of Commerce 69 percent of US companies working in the
country consider the impact of US sanctions against Rus sia on their business as negative At the
same time 60 percent of companies do not expect big changes in business relations between
Rus sia and the United States under Trump1 as the new law codifies existing sanctions fortifies
them and extends them to new sectors
Current US investments are low due to the weak rule of law in Rus sia a lack of property right
protections and proper contract enforcement high levels of statization and monopolization in the
economy a poor business climate outdated capital stock dependence on natural- resource
sectors and of course sanction and counter- sanction mea sures Bloated administrative compo-
nents created as risk mitigation instruments have also served as impediments The countryrsquos
institutional weakness low level of productivity bud get constraints and a declining inflexible
workforce will restrain future economic growth even if commodity prices recover Rus sian eco-
nomic policy will likely continue to be statist and protectionist relying mostly on import
substitutions
1 Ibid 11
Existing Trends and Future Scenarios
07
594-71613_ch01_4Pindd 47 102017 404 PM
US-Russia Economic Relations48
What scenarios can be expected in such a challenging environment
One probability (no peace no war) is based on the assumption that matters will not deteriorate
further and implementation of the Sanctions Act will be cursory This will cause relatively slow
degradation in the economic field with occasional flashes of activity in selected areas (eg closer
cooperation against Islamist terrorist groups in Syria)
A second worse case or critical scenario is the intensive and full- scale execution of current sanc-
tion legislation and even the imposition of new economic punitive and restrictive mea sures which
could incite asymmetric retaliatory actions and lead to the introduction of additional protectionist
policies This in turn could trigger a further escalation of mutual confrontation and could eventu-
ally destroy the fundamentals of the current bilateral trade system Rus sian leadership has charac-
terized the Sanctions Act as a declaration of a trade war that ends all hope for improving bilateral
relations2
2 Дмитрий Медведев ldquoПодписание президентом США нового санкционного закона против России создает несколько
последствийrdquo [The US Presidentrsquos signing of the package of new sanctions against Rus sia will have a few conse-
quences] Facebook August 2 2017 https wwwfacebook com Dmitry Medvedev posts 10154587161801851
Figure 71 US Imports from Rus sia Share of Oil Metals Nuclear Fuel Fertilizers and Fish Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
93
94
93
94
95
96
93
92
87
89
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals Nuclear FuelFertilizers and Fish
594-71613_ch01_4Pindd 48 102017 404 PM
Vadim Grishin 49
The best case and most favorable scenario looks less probable now It assumes the realization of
structural reforms in Rus sia in such a way that would adapt Rus siarsquos foreign policy to national
economic needs reduce confrontations with the West and make a concerted efort to integrate
Rus sian businesses into global supply and value chains A revitalization of the structural reform
agendamdash including eforts to diversify economic activities through de- monopolization and support
for SMEs a restructuring of the banking sector the creation of a vibrant business climate to foster
entrepreneurships and innovation the implementation of administrative and judicial reforms to
tackle red tape and endemic corruption and the reduction of state control over key sectors of the
economy via wide- spread privatization could kick- start the development of a nonoil economy and
improve long- term growth prospects Despite ongoing discussion of reform strategies deep
economic and po liti cal changes are extremely complicated over the next po liti calelectoral cycle
(2018ndash2024) particularly because of re sis tance of vested interests and growing commodity prices
The urgency to tackle structural shortcomings in natu ral resource- dependent economies usually
correlates with the price of those resources and the degree to which resource rents drive eco-
nomic activity However there may be marginal improvements in the efficiency of the current
economic system
Future US- Russia relations can be thought of through three pillars one pillar focuses on areas
where both countries maintain a competitive rivalry another looks at potential areas of interaction
under pres ent conditions a third pillar and one that has evaporated from the current bilateral
agenda concentrates on future cooperation Stronger economic ties could not only be a kind of
po liti cal shock absorber but contribute to the building of this future (particularly business contacts
aim to support future structural reforms) although po liti cal factors are depressing the prospects
for cooperation To escape deadlock it will be impor tant to establish the right balance between
politics and economics and create a model of collaboration within the framework of contention
594-71613_ch01_4Pindd 49 102017 404 PM
About the Author
Vadim Grishin PhD MBA has been involved in the reform pro cess in Rus sia as adviser to the
deputy prime minister of Rus sia in 1992ndash1993 and 2006ndash2010 He has extensive experience
working with the Bretton Woods Institutions He was the board member of the World Bank Group
and served as se nior adviser at the International Monetary Fund Currently he is a con sul tant to the
chief economistrsquos office of the International Finance Corporation and teaches the economics of
transition at Georgetown University in Washington DC
50
594-71613_ch99_4Pindd 50 102017 403 PM
Blank
COVER PHOTO ADOBE STOCK
1616 Rhode Island Avenue NW
Washington DC 20036
202 887 0200 | wwwcsisorg
v++ISBN 978-1-4422-8035-9
Lanham bull Boulder bull New York bull London
4501 Forbes Boulevard
Lanham MD 20706
301 459 3366 | wwwrowmancom
A U T H O R
Vadim Grishin
Myths and Realities
A Report of the
CSIS RUSSIA AND EURASIA PROGRAM
US-RussiaEconomicRelations
O C T O B E R 2 0 1 7
Euml|xHSLEOCy280359z
The Man Pupu Nyor Rock Formations at the Northern Urals also known as Seven
Strong Man or Little Mountain of the God in the local tribe (Mansi) language
Fig
ure
42
U
S E
xpo
rts
to R
us s
ia U
S$ 2
016
Sou
rce
US
Ce
nsu
s B
ure
au ldquo
Trad
e in
Go
od
s w
ith
Ru
s sia
rdquo (s
ee
dat
a fo
r 2
016
)
Bak
ery
pro
du
cts
Win
e b
eer
an
d r
elat
ed
pro
du
cts
New
spri
nt
Pla
stic
mat
eria
ls
Ch
emic
als-
fert
ilize
rs
Ch
emic
als-
ino
rgan
icC
hem
ical
s-o
rgan
ic
Ch
emic
als-
oth
erC
ott
on
fib
er c
loth
In
du
stri
al r
ub
ber
pro
du
cts
Min
eral
su
pp
lies-
man
ufa
ctu
red
Gen
erat
ors
acc
esso
ries
Ele
ctri
c ap
par
atu
s
Dri
llin
g amp
oilfi
eld
eq
uip
men
t Sp
ecia
lized
min
ing
Exc
avat
ing
mac
hin
ery
No
nfa
rm t
ract
ors
an
d p
arts
In
du
stri
al e
ng
ines
Fo
od
to
bac
co m
ach
iner
y M
etal
wo
rkin
g m
ach
ine
too
ls
Tex
tile
sew
ing
m
ach
ines
W
oo
d g
lass
p
last
ic
Pu
lp a
nd
pap
er
mac
hin
ery
Mea
suri
ng
tes
tin
g
con
tro
l in
stru
men
ts
Mat
eria
ls h
and
ling
equ
ipm
ent
Ind
ust
rial
mac
hin
es
oth
er
Ph
oto
ser
vice
ind
ust
ry m
ach
iner
y A
gri
cult
ura
l mac
hin
ery
eq
uip
men
t C
om
pu
ters
Co
mp
ute
r ac
cess
ori
es
Sem
ico
nd
uct
ors
Tel
eco
mm
un
icat
ion
seq
uip
men
t
Bu
sin
ess
mac
hin
es a
nd
eq
uip
men
t
Lab
ora
tory
tes
tin
g in
stru
men
ts
Med
icin
al e
qu
ipm
ent
Civ
ilian
air
craf
t e
ng
ines
eq
uip
men
t a
nd
par
ts
Rai
lway
tra
nsp
ort
atio
n
equ
ipm
ent
Ves
sels
exc
lud
ing
scr
ap
Co
mm
erci
al v
esse
ls o
ther
M
arin
e en
gin
es p
arts
Spac
ecra
ft e
xclu
din
g
mili
tary
Pas
sen
ger
car
s
new
an
d u
sed
Tru
cks
bu
ses
and
sp
ecia
l p
urp
ose
ve
hic
les
En
gin
es a
nd
en
gin
e p
arts
(c
arb
ure
tors
pis
ton
s r
ing
s
and
val
ves)
B
od
ies
and
ch
assi
s fo
r p
asse
ng
er c
ars
Au
tom
oti
ve t
ires
an
d t
ub
es
Oth
er p
arts
an
d a
cces
sori
es o
f ve
hic
les
Ap
par
el h
ou
seh
old
go
od
s -
text
ile
Ph
arm
aceu
tica
lp
rep
arat
ion
s
Furn
itu
re h
ou
seh
old
go
od
s
etc
R
ug
s
Cel
l ph
on
es a
nd
oth
er
ho
use
ho
ld g
oo
ds
ne
c
594-71613_ch01_4Pindd 17 102017 404 PM
US-Russia Economic Relations18
Figure 43 US Trade in Goods with Rus sia Million US$ 1992ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
Russian Financial Crisis
Oil price Increased from$2446 USD per barrel (2001)
to $9694 USD per barrel(2008)
Global Financial Crisis
Oil price high record in2011-2012
(more that $111 USD perbarrel)
Oil price crashed
$-
$5000
$10000
$15000
$20000
$25000
$30000
$35000
$40000
$45000
$50000
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia US Exports to Russia US-Russia Trade in Goods
No doubt po liti cal ups and downs add volatility to US- Russia trade Nevertheless Rus siarsquos eco-
nomic structure exhausted itself before the Ukrainian crisis and the recent Rus sian recession Its
limitations are not only due to some mistakes in policy or negative coincidences of circumstances
but rather to deeply rooted properties in the current bilateral trade model related to structural
issues in the Rus sian economy Structural constraints such as the weak enforcement of property
rights poor business regulation and nondiversified exports weighed on Rus sian trade with the
United States From this perspective the term ldquonaturalunnatural trading partnersrdquo does not ad-
dress the unused capacity of bilateral interaction or the real challenges that kind of interaction
faces It just adds metaphysical flavor to the very specific economic and po liti cal factors that
determine the US- Russia trajectory
Overall the outlines of bilateral trade (Figure 43) resemble the famous ldquoRus sian Mountainsrdquo that
were a pre de ces sor of the modern roller coaster icy hills supported by wooden constructionsmdash a
rigid and immobile structure that sooner or later would melt This unfortunately is what is hap-
pening to US- Russia trade cooperation now
594-71613_ch01_4Pindd 18 102017 404 PM
19
ARE LITTLE FISH REALLY SWEET
Low US- Russia economic interaction has at least two consequences First it limits the capacity of
policymakers to exploit trade as an instrument for geopo liti cal combat Even the question of a US
trade deficit which used to be a headache for many US trading partners has become so insig-
nificant in absolute terms (about $87 billion in 2016) that it seems hardly worth caring about
When the volume of trade between two countries becomes very small in absolute terms whether
a country is running a surplus or deficit is no longer relevant But it also renders another type of
confrontations (sometimes more dangerous) more likely since the two traders have little to lose
Second in an environment marked by low levels of bilateral trade both sides could incentivize (if
and when a desire for po liti cal rapprochement exists) the signing of new trade deals which are
elevated symbolically as a turning point in bilateral po liti cal relations (ie the sale of Boeings to
Rus sia or the delivery via tankers of Rus sian oil to US refineries) Sometimes markets themselves
pres ent ldquogiftsrdquo that can be capitalized on po liti cally US- USSR grain trade in the 1970s was one
such ldquogiftrdquo large sales of American grain to the Soviet Union helped US policymakers win favor
with the po liti cally impor tant American farming sector and permitted Soviet leaders to maintain
access to a dietary staple for the Soviet population
The strong 32 percent growth in value of US imports from Rus sia from January to May 2017
versus January to May 2016 ( Table 51) is an example of a development that has tempted officials
to pres ent it as a sign of positive change due to ldquogrowing business activitiesrdquo (this kind of statement
was heard before the bilateral summit in Germany in July 2017) although the reason for that leap
was evidently an increase in commodity prices (mainly of oilmdash see Table 52) and not a rise in
entrepreneurial interactions The primary beneficiaries of that upside rally have been two other
petro- economies Saudi Arabia and Venezuela ( Tables 53 and 54)
Sector Analyses
05
594-71613_ch01_4Pindd 19 102017 404 PM
US-Russia Economic Relations20
Table 51 US Imports from Rus sia Million US$ Januaryndash May 2016 vs Januaryndash May 2017
Year January February March April May Total
2016 9603 6871 11097 12257 10977 50805
2017 12215 10220 16979 13471 14147 67032
Change 271 487 530 99 289 319
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
Table 52 Change in Urals Crude Oil Prices US$ per Barrel Januaryndash May 2016 vs Januaryndash May 2017
Januaryndash May 2016 Januaryndash May 2017 Change ($) Change ()
3601 5129 1528 424
Source Ministry of Finance of the Rus sian Federation https wwwminfin ru ru ixzz4mMIZ7XtC
Table 53 US Imports from Saudi Arabia Million US$ Januaryndash May 2016 vs Januaryndash May 2017
Year January February March April May Total
2016 15114 9036 13555 10844 14679 63228
2017 19802 20298 21650 16211 19542 97503
Change 3101 12463 5972 495 331 542
Source US Census Bureau ldquoTrade in Goods with Saudi Arabiardquo Foreign Trade last modified June 29 2017
https wwwcensus gov foreign - trade balance c5170 html (see data for 2016ndash2017)
594-71613_ch01_4Pindd 20 102017 404 PM
Vadim Grishin 21
Table 54 US Imports from Venezuela Million US$ Januaryndash May 2016 vs Januaryndash May 2017
Year January February March April May Total
2016 6657 5560 7140 8007 7922 35286
2017 13041 10864 123500 11148 12243 59646
Change 9590 9540 7297 3923 5454 6903
Source US Census Bureau ldquoTrade in Goods with Venezuelardquo Foreign Trade last modified June 29 2017
https wwwcensus gov foreign - trade balance c3070 html (see data for 2016ndash2017)
Table 55 US Exports to Rus sia Million US$ Januaryndash May 2016 vs Januaryndash May 2017
Year January February March April May Total
2016 3628 3577 7298 4657 4947 24107
2017 3144 4277 5386 6670 4806 24283
Change minus133 196 minus262 432 minus29 minus07
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2016ndash2017)
At the same time US exports to Rus sia continue to stagnate ( Table 55) due to low levels of
consumption during a two-and- a- half-year economic crisis a deep ruble devaluation sanctions
and counter- sanctions
Given the very dif er ent economic structures and resource endowments of Rus sia and the United
States it is not surprising that US- Russia trade is asymmetric and oil driven (Figure 51) A
3 percent increase in Urals oil prices translates into a one percent increase in US import growth
from Rus sia Thus in 2016 every $10 increase in Urals crude oil added $15 billion to the value of
US imports or 11 percent to the total value of imports from Rus sia
OIL ADDICTION
Oil is a core pillar of US- Russia bilateral trade A bumpy ride in oil markets afects commerce
Nevertheless Rus sian oil exports to the United States in physical terms have been rather
594-71613_ch01_4Pindd 21 102017 404 PM
US-Russia Economic Relations22
sustainable Starting from 2005 average annual deliveries have been above 150 million barrels
(Figure 52) Crude and heating oil have dominated while petroleum products and liquefied petro-
leum gases have not (Figure 53) In 2011 oil exports peaked at 228 million barrels but declined to
159 million barrels in 2016mdash a drop of 30 percent Rec ord high shipments of Rus sian oil to the United
States coincided with an elevation in oil prices which made the subsequent decline in oil shipment
value between 2011 and 2016 (by about 72 percent as shown in Figure 54) seem more stark The
increase in price also raised the share of oil in Rus sian exports by 74 percent in 2011 (Figure 55)
The Rus sian share in total US oil imports was around 55 percent in 2011 and 43 percent in 2016
( Table 56) In the last five years the United States has relied exclusively on consumption of Rus sian
oil for the rough equivalent of one week out of the year (Figure 56)
It is unlikely that Rus sia can significantly increase its share of the US oil market and there is a real
possibility for a downward trend There are several reasons the historically high Rus sian hydrocar-
bon export threshold of 2011 will not soon if ever be surpassed
First US energy consumption will likely be flat According to the US Energy Information Adminis-
tration (EIA) demand for petroleum and other liquids in the United States will be about 35ndash36
quadrillion British thermal units (BTUs) with minimal variation over the next 25 years1
1 US EIA ldquoAnnual Energy Outlook 2017 with Projections to 2050rdquo January 5 2017 7ndash8
Figure 51 US- Russia Trade Growth () vs US and Rus sia Real GDP Growth () 1993ndash2016
Source IMF ldquoIMF Datardquo accessed September 27 2017 http wwwimf org en Data US Census Bureau
ldquoTrade in Goods with Rus siardquo
Note rGDPthinsp=thinspreal gross domestic product
Trade
USA rGDP growth
Russia rGDP growth
-60
-40
-20
0
20
40
60
80
100
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Gro
wth
All spikes in US-Russia trade have been connected with two main
variables volume and price of crude oil
594-71613_ch01_4Pindd 22 102017 404 PM
Vadim Grishin 23
Second the United States will become a net energy exporter between 2020 and 2030 in most
cases under dif er ent combinations of oil and natu ral gas prices GDP growth technological
breakthroughs and the availability of energy resources The role of oil imports will dramatically
fall2
Third oil price scenarios as described by the International Energy Agency (IEA) international
financial organ izations (IFIs) and many national agencies are very cautious and assume that even
by 2035 to 2040 oil prices will not to recover to the levels of 2011ndash20123
Fourth Rus sian oil production and export growth will be modest and driven by Asian economic
expansion and will comprise a decreasing share of Western markets4 According to forecasts from
2 Ibid 15ndash18
3 Ibid table 3 ldquoEnergy Prices by Sector and Sourcesrdquo World Bank World Bank Commodity Markets Price Forecasts
(Washington DC World Bank 2017) httpswwwworldbank org en research commodity - markets Organ ization of the
Petroleum Exporting Countries (OPEC) World Oil Outlook 2016 (Vienna OPEC 2016)
4 E D Belotskaia et al Global and Rus sian Energy Outlook 2016 (Moscow Energy Research Institute of the Rus sian
Acad emy of Science Analytical Center for the Government of the Rus sian Federation 2016) http acgov ru files
publication a 12767 pdf
Figure 52 US Imports from Rus sia Crude Oil and Petroleum Products Thousands of Barrels 1995ndash2016
Source US EIA ldquoUS Imports by Country of Origin Rus siardquo Petroleum amp Other Liquids September 13
2017 http wwweia gov dnav pet PET _ MOVE _ IMPCUS _ D _ NUS _ NRS _ MBBL _ M htm
0
50000
100000
150000
200000
250000
Date 1995 1996 1997 1998 199920002001200220032004200520062007200820092010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 23 102017 404 PM
US-Russia Economic Relations24
the Organ ization of the Petroleum Exporting Countries (OPEC) crude oil exports from Rus sia and
the Caspian region to the United States will dis appear by 20255
So why does the Rus sian Urals blend continue to be attractive for oil traders and US refineries
which could pro cess greater volumes of domestically produced lighter crude There are two main
reasons One is related to the preference of US high conversion refineries (the most sophisticated
in the world) to work with heavy oil blends produced by Canada Mexico Iraq Venezuela and
Rus sia Pro cessing heavy crude now is as profitable as pro cessing lighter crude The so- called
crack spreadmdash the diference between the cost of relatively cheap heavy crude oil and the final
price of value- added consumer products (diesel gasoline jet fuel and heating oil)mdash has become
the same as the refinery margins of light sweet crude6 This has primarily afected light oil produc-
ing countries such as Angola Algeria and Nigeria
5 OPEC World Oil Outlook 2016 306ndash309
6 ldquoHow Much for That Heavy Oilrdquo Oil Sands Magazine December 26 2015 https wwwoilsandsmagazine com
news 2015 12 26 how - much - for - that - heavy - oil
Figure 53 US Imports from Rus sia Oil and Petroleum Products US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$-
$25000000000
$20000000000
$15000000000
$10000000000
$5000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Liquefied petroleum gases
Petroleum products other
Fuel oil
Crude oil
594-71613_ch01_4Pindd 24 102017 404 PM
Vadim Grishin 25
Another factor afecting purchase of Rus sian oil is a new trend among oil companies for further
consolidation of scale and for integrating operations of upstream and downstream business7
There have been several waves of separation and unification of production transportation and
pro cessing in the last 50 years The current business cycle can be seen as an adaptation to a
period of low prices and oversupply Companies that buy andor produce oil in Rus sia most likely
prefer to transport and pro cess this oil in their own modern refineries in the United States At the
same time some of the newest refinery designs specifically for pro cessing heavy oils have been
built in Asia thus extending the choices of heavy oil producing countries
We should also consider that leading US and international oil traders along with oil producing
companies working with or owning US refineries frequently buy Rus sian oil on the open market
and have long- term contracts on Rus sian crude oil delivery Many Rus sian oil companies prefer to
pay for purchases or ser vices with their future production instead of cash creating situations of
ldquostickyrdquo oil imports that are difficult to replace The best- known example is an interaction between
7 ldquoEnergy and Utilities Sectorrdquo Roundtable Financier Worldwide December 2015 https wwwfinancierworldwide
com roundtable - energy - utilities - sector - dec15
Figure 54 US Imports of Oil and Petroleum Products from Rus sia vs Oil Prices Eu rope Brent Spot Price Free on Board (FOB) 1996ndash2017
Source US EIA ldquoUS Imports by Country of Origin Rus siardquo
0
20
40
60
80
100
120
140
0
5000
10000
15000
20000
25000
30000
Jan
-19
96
Jun
-19
96
No
v-19
96
Ap
r-19
97
Sep
-19
97
Feb
-19
98
Jul-
199
8D
ec-1
99
8M
ay-1
99
9O
ct-1
99
9M
ar-2
00
0A
ug
-20
00
Jan
-20
01
Jun
-20
01
No
v-2
00
1A
pr-
20
02
Sep
-20
02
Feb
-20
03
Jul-
20
03
Dec
-20
03
May
-20
04
Oct
-20
04
Mar
-20
05
Au
g-2
00
5Ja
n-2
00
6Ju
n-2
00
6N
ov-
20
06
Ap
r-2
00
7Se
p-2
00
7Fe
b-2
00
8Ju
l-2
00
8D
ec-2
00
8M
ay-2
00
9O
ct-2
00
9M
ar-2
010
Au
g-2
010
Jan
-20
11Ju
n-2
011
No
v-2
011
Ap
r-2
012
Sep
-20
12Fe
b-2
013
Jul-
20
13D
ec-2
013
May
-20
14O
ct-2
014
Mar
-20
15A
ug
-20
15Ja
n-2
016
Jun
-20
16N
ov-
20
16
USD
per
Bar
rel
Th
ou
san
d B
arr
els
US Imports from Russia of Crude Oil and Petroleum Products (Thousand Barrels)
Europe Brent Spot Price FOB (Dollars per Barrel)
594-71613_ch01_4Pindd 25 102017 404 PM
US-Russia Economic Relations26
Table 56 US Oil Imports All Countries vs Rus sia Thousand Barrels per Day 2011ndash2016
Years 2011 2012 2013 2014 2015 2016
All Countries 11436 10598 9859 9241 9449 10058
Rus sia 624 477 460 330 371 433
Share 546 450 467 357 393 431
Sources US EIA ldquoUS Imports by Country of Origin Total Crude Oil and Productsrdquo Petroleum amp Other
Liquids September 13 2017 wwweia gov dnav pet pet_move_impcus_a2_nus_ep00_im0_mbbl_m htm
authorrsquos computation
Figure 55 US Imports from Rus sia Share of Crude Oil and Petroleum Products Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
57
64
73
72
74
73
72
59
52 50
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
$40000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil and Petroleum Products
594-71613_ch01_4Pindd 26 102017 404 PM
Vadim Grishin 27
the Rus sian state mono poly Rosneft and commodity trading and mining giant Glencore which
along with energy and commodities com pany Vitol participated in a $10 billion prepayment
deal with Rosneft for crude supplies in 2013
There have been a number of ongoing transactions between the Rus sian oil industry and interna-
tional oil companies including several that top the list of importers of Rus sian oil to the United
States ( Table 57) In December 2016 Glencore participated in a controversial privatization opera-
tion purchasing in tandem with the Qatar sovereign wealth fund a 195 percent stake in Rosneft
which was on the US and EU list of sanctioned firms8 Glencore has also taken a blocking stake in
midsize oil producer RussNeft BP owns a 1975 percent stake in Rosneft Chevron holds a
15 percent interest in the 935- mile- long CPC9 pipeline which transports an average of 959000
barrels of crude oil per day including 76000 barrels daily from Rus sia10 ExxonMobil has formed
8 E Mazneva and I Arkhipov ldquoRus sia Sells $11 Billion Stake in Rosneft to Glencore Qatarrdquo Bloomberg December 7
2016
9 CPCthinsp=thinspCaspian Pipeline Consortium
10 ldquoRus sia Highlights of Operations and Business Portfoliordquo Chevron accessed October 3 2017 https wwwchevron
com worldwide russia
Figure 56 Share of Rus sian Oil in Total US Oil Imports Thousands of Barrels per Day 1972ndash2016
Source US EIA ldquoUS Imports by Country of Origin Total Crude Oil and Productsrdquo
2000
4000
6000
8000
10000
12000
14000
16000
US Imports of Crude Oil and Petroleum Products (Thousand Barrels per Day)
US Imports from Russia of Crude Oil and Petroleum Products (Thousand Barrels per Day)19
7319
7419
7519
7619
7719
7819
7919
80
198
119
82
198
319
84
198
519
86
198
719
88
198
919
90
199
119
92
199
319
94
199
519
96
199
719
98
199
92
00
02
00
12
00
22
00
32
00
42
00
52
00
62
00
72
00
82
00
92
010
20
112
012
20
132
014
20
152
016
594-71613_ch01_4Pindd 27 102017 404 PM
Table 57 Top Importers of Rus sian Oil to the United States Thousands of Barrels 2016
VALERO MARKETING amp SUPPLY CO 54590 3616
EXXONMOBIL OIL CORP 17087 1130
CHEVRON USA INC 15217 1008
BP WEST COAST PRODUCTS LLC 10130 671
GEORGE E WARREN CORP 7272 48
PAULSBORO REFINING CO LLC 6838 453
TESORO CORP 5097 338
VITOL INC 5084 337
PHILLIPS 66 CO 4726 313
TRAFIGURA AG 4360 289
PAR HAWAII REFINING LLC 3893 258
MOTIVA ENTERPRISES LLC 3041 205
SHELL US TRADING CO 2863 19
MARATHON PETROLEUM CO LLC 2475 16
ATLANTIC TRADING amp MARKETING 2099 14
FREEPOINT COMMODITIES LLC 1439 1
GLENCORE LTD 1284 85
BEST PETROLEUM CORP 967 64
ROLYMPUS US COMMODITIES GROUP LLC 822 6
HUNT CRUDE OIL SUPPLY CO 666 4
GULF OIL LP 658 4
Source US EIA ldquoUS Imports by Country of Origin Crude Oilrdquo Petroleum amp Other Liquids September 13
2017 httpswwweiagovdnavpetpet_move_impcus_a2_nus_epc0_im0_mbblpd_ahtm authorrsquos
computation
594-71613_ch01_4Pindd 28 102017 404 PM
Vadim Grishin 29
several joint ventures with Rosneft to undertake ofshore exploration in the Black Sea and the Kara
Sea in Siberia11
According to the Sanctions Act US persons are prohibited from exporting or reexporting goods
ser vices (except financial ser vices) and technology in support of exploration or production of new
deep- water Arctic ofshore or shale oil proj ects that involve designated Rus sian entities or other
entities in which such sanctioned persons have a controlling interest or a substantial noncontrol-
ling owner ship interest defined as not less than 33 percent (previously it was 50 percent) The new
law also authorizesmdash but does not requiremdash the imposition of so- called secondary sanctions
against non- US entities that engage in activities involving the construction maintenance or
expansion of Rus sian energy export pipelines with a fair market value of $1 million or more or an
aggregate fair market value during a 12- month period of $5 million12 This provision has raised the
concerns of some Eu ro pean countries particularly Germany As result the final language of the
law included wording about coordination of this issue with allies of the United States
Shipments of Rus sian oil to the United States could be afected by activity in the US refinery
industry In early 2017 Saudi Aramco bought the United Statesrsquo largest oil refinery in Port Arthur
(Texas) and it announced plans to send more of its own crude to that refinery13 Serious concerns
exist however regarding the future of three refineries and nine pipelines owned by Citgo a US
branch of the Venezuelan state com pany PdVSA which is balancing precariously on the edge of
default Under certain conditions in the event of PdVSA bankruptcy Rosneft could claim a stake of
up to 499 percent in Citgo Such a possibility has raised concerns among politicians and US
government officials with Trea sury Secretary Steven Mnuchin calling it a ldquonational security issuerdquo14
Tables 58 59 and 510 show allocations of Rus sian oil imports to major US refineries some of
which work exclusively on Rus sian crude a total of two to three months per year In total 150940
thousand barrels of Rus sian oil were refined in 2016
Figure 57 confirms a leading position of Texas and Louisiana among the US states receiving
Rus sian crude followed by New Jersey California Mississippi Washington Hawaii and Delaware
In a paradoxical way Texas has dis appeared from the list of states as a main destination of US
imports from Rus sia (Figure 58) because Rus sian crude is mostly delivered to Louisiana ports and
registered there by US Customs as an import from Rus sia After that it transports to refineries in
Louisiana and Texas
Overall the short- term business rationale behind the sustainability of US oil imports from Rus sia
cannot overcome strong headwinds in the US energy sector facing all oil importers which will
inevitably lead to a contraction of Rus sian oil exports to the United States in the foreseeable future
11 Exxon eforts to receive a special US Trea sury waiver to drill in sanctioned Rus sia failed in 2017
12 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364
13 Sarp Ozkan ldquoSaudi Aramcorsquos Port Arthur Refinery and the US Refinery Fleetrdquo Drilling Info May 11 2017
https infodrillinginfo com saudi - aramcos - port - arthur - refinery - us - refinery - fleet
14 Graham Kates ldquoTrea sury Secretary Rus siarsquos Citgo Deal a National Security Issuerdquo CBS News May 1 2017
http wwwcbsnews com news rosneft - citgo - steven - mnuchin - national - security
594-71613_ch01_4Pindd 29 102017 404 PM
US-Russia Economic Relations30
Table 58 Valerorsquos Refineries Pro cessing Rus sian Oil Thousands of Barrels 2016
Saint Charles Louisiana 29206 535
Corpus Christi Texas 20626 378
Wilmington California 4250 78
Total USA 54590 100
Source US EIA ldquoRefinery Capacity Reportrdquo January 1 2017
table 5 wwweia gov petroleum refinerycapacity table5 pdf
authorrsquos computation
Table 59 ExxonMobil Refineries Pro cessing Rus sian Oil Thousands of Barrels 2016
Baytown Texas 15037 88
Baton Rouge Louisiana 2046 12
Total USA 17083 100
Source US EIA ldquoRefinery Capacity Reportrdquo authorrsquos computation
Table 510 Chevronrsquos Refineries Pro cessing Rus sian Oil Thousands of Barrels 2016
Pascagoula Mississippi 12767 840
El Segundo California 2372 155
Saint Rose Louisiana 78 05
Total USA 15217 100
Source US EIA ldquoRefinery Capacity Reportrdquo authorrsquos computation
594-71613_ch01_4Pindd 30 102017 404 PM
Vadim Grishin 31
HEAVY METAL
Taken together US imports of metals and US imports of oil compose about 80 percent of US
total imports from Rus sia (Figure 59) Trade of metals like other commodities is strongly afected
by market price fluctuations Nevertheless metal imports from Rus sia have been fairly resilient to
market volatility and their average annual value has hovered at about $4 billion in the last five years
(Figure 510) This market resilience was forged at the end of the 1990searly 2000s when Rus sian
metal producers gradually modernized their plants adjusting quality of production to Western
standards and enhancing integration into global value and supply chains Some of them conquered
their share of the highly competitive US market struggling with peers from Canada and certain
BRICS countries (China India and Brazil) To attract additional resources all Rus sian large metal-
producing companies became public and were listed on stock exchanges chiefly the London Stock
Exchange (Severstalrsquo PAO Evraz MMK OAO Novolipetsk Steel Norilsk Nikel and TMK PAO) one
on the New York Stock Exchange (Mechel) and one on the Hong Kong Stock Exchange (Rusal)
Business logic pushed some of them to invest in the US metal- making industry which was hit
hard by crisis Later on some of those assets were sold (eg two US steel mills acquired by
Severstal in 2004 were purchased 10 years later by Steel Dynamics Inc and AK Steel Corp)
Figure 57 Share of US States Rus sian Oil Imports 2016
Source US EIA ldquoUS Imports from Rus sia of Crude Oil and Petroleum Productsrdquo Petroleum amp Other
Liquids September 29 2017 https www eia gov dnav pet hist LeafHandler ashx nshy=shyPETampsshy=shyMTTIM _ NUS
- NRS _ 1ampfshy=shyM authorrsquos computation
0
10
20
30
40
50
60
70
80
90
100
Maine
Massachusetts
Maryland
Connecticut
Georgia
Rhode Island
Virginia
Florida
New York
Alabama
Puerto Rico
Pennsylvania
Delaware
Hawaii
Washington
Mississippi
California
New Jersey
Louisiana
Texas
594-71613_ch01_4Pindd 31 102017 404 PM
Figure 58 US Imports from Rus sia by State Million US$ 2013ndash2016
Source US Census Bureau ldquoState and Metropolitan Area Trade Datardquo Foreign Trade last modified
October 2 2017 https wwwcensus gov foreign - trade statistics state
Alaska
Connecticut
Delaware
Hawaii
Louisiana
Maryland
North Dakota 0
$1000
$2000
$3000
$4000
$5000
$6000
2013 2014 2015 2016
Alabama
Alaska
Connecticut
Delaware
Hawaii
Louisiana
Maryland
Maine
Mississippi
Montana
North Dakota
Mississippi
Figure 59 US Imports from Rus sia Share of Oil and Metals Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
83
82
85
86
87
88
85
82
7375
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
$40000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil and Metals
594-71613_ch01_4Pindd 32 102017 404 PM
Vadim Grishin 33
Obviously the market dynamic of dif er ent metals varies (eg iron steel aluminum platinum and
nickel) Caps to increase their trade and production in a ldquored oceanrdquo global environment with
anemic demand is rather limited despite Figure 510 showing a spike of iron and steel imports
from Rus sia in 2014 and aluminum in 2016 Some opportunities may exist for Russian- owned steel
plants in the United States (such as NLMK) to participate in energy proj ects resumed under Presi-
dent Trump who has required that new pipelines use only American- made steel15
Rus sia occupies a special niche in the US market for titanium products a high- end metal indus-
try Twenty years ago a long- term contract was signed between Rus sian titanium producer
VSMPO- AVISMA and Boeing The Rus sian com pany entered the selective club of Boeing suppliers
for the manufacture of components and semi- finished products Since the signing of this contract
VSMPO has delivered more than 35 percent of all titanium placed on Boeing civil aircraft16 They
are hidden in the trade data in an import category for Civilian Aircrafts and Parts (Figure 511) At
the end of 2016 Boeing announced an extension of its framework agreement with AVISMA
15 E Scheyder C Ngai and T Sylvester ldquoAmerican Steel Unlikely to Get Keystone Boost Despite Trump Orderrdquo
Reuters January 27 2017 http wwwreuters com article usa - trump - pipeline - transcanada - idUSL1N1FH1ZD
16 A Kramer ldquoTitanium Fills Vital Role for Boeing and Rus siardquo New York Times July 5 2013 http wwwnytimes com
2013 07 06 business global titanium - fills - vital - role - for - boeing - and - russia html mcubzshy=shy3
Figure 510 US Imports from Rus sia Iron Steel Bauxite Aluminum Nickel Nonferrous Metals and Other Precious Metals and Materials US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
0
$6000000000
$5000000000
$4000000000
$3000000000
$2000000000
$1000000000
2007 2008 2009 2010 2011 20122013
20142015
2016
Finished metal shapes
Iron and steel advanced
Iron and steel products nec
Nonferrous metals other
Other precious metals
Nickel
Bauxite and aluminum
Iron and steel mill products
Steelmaking materials
594-71613_ch01_4Pindd 33 102017 404 PM
US-Russia Economic Relations34
through 2022 and additional investments in the construction of a new robotic plant in Titanium
Valley a special economic zone located in the Sverdlovsk region that will open in 2018 The pro-
cessing of titanium forgings in all Boeing civil aircraft will be performed there including 787s 737
MAXs and 777Xs17 The contract extension with AVISMA may add several hundred million dollars
in value to annual US imports from Rus sia
How can such heavy reliance on imports of Rus sian titanium exist during a period of rising geopo-
liti cal tensions The answer is straightforward VSMPO- AVISMA is a highly specialized natu ral
mono poly producing 45 percent of the worldrsquos aerospace titanium Only four other countries
smelt high- grade titanium in industrial quantities the United States Germany Japan and China
Overall global production capacity is limited while demand is growing The United States cur-
rently imports around 79 percent of all the titanium it consumes each year18
17 ldquoBoeing and VSMPO Avisma to Launch Second Joint Production Siterdquo Rus sian Aviation Insider December 22 2016
http wwwrusaviainsider com boeing - and - vsmpo - avisma - to - launch - second - joint - production - site
18 Jon Ostrower and Andy Pasztor ldquoBoeing United Technologies Stockpile Titanium Partsrdquo Wall Street Journal
August 7 2014 https wwwwsj com articles boeing - united - technologies - stockpiling - titanium - parts - 1407441886
Figure 511 US Imports from Rus sia Civilian Aircrafts and Parts US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
$200000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Parts-civilian aircraft
Civilian aircraft
594-71613_ch01_4Pindd 34 102017 404 PM
Vadim Grishin 35
The Sanctions Act authorizes the secretary of the trea sury (in a nonmandatory way) to impose
restrictions (without specifying them) against Rus sian state- owned entities operating in the railway
metals and mining sectors of the Rus sian economy Despite the commanding heights of Rus siarsquos
state sector owner ship in its economy (70 percent of GDP) the metal- producing companies have
remained mostly in private hands
NUCLEAR AFFAIRS
Historically owners and operators of the 104 commercial nuclear power reactors in the United
States have purchased more than 80 percent of their uranium from foreign countries Uranium
shipping from Rus sia accounted for about 13 percent of the 58 million pounds of uranium pur-
chased overseas in 201219 At the same time the Rus sian state- owned mono poly Rosatom ac-
counts for 20 percent of Kazakhstanrsquos uranium production (which in turn comprises 11 percent of
all US uranium imports) and 20 percent of US domestic uranium production capacity (with
owner ship of exploration tracts in Wyoming)20
Nuclear fuel and nuclear power continue to be po liti cally sensitive topics both in the United
States and Rus sia Bilateral cooperation in this sector (being surprisingly stable with imports of
nuclear fuel from Rus sia at a level of $1 billion annually in the last five years [Figure 512 and 513])
is under constant po liti cal and lobbying pressure and has been a source of several po liti cal scan-
dals21 Consequently upside risks in this area of interaction are minimal and downside risks are
much higher especially when we are seeing more decommissioning of nuclear plants in the
United States than new constructions The US EIArsquos 2017 Annual Energy Outlook assumes
that about 25 percent of the nuclear capacity now operating will be removed from ser vice
by 205022
WHY IS THE GRASS GREENER ON THE OTHER SIDE
The United States continues to significantly reduce imports of chemical fertilizers as domestic pro-
duction increases In 2016 the United States imported 13 percent less ammonia and 11 percent
less urea and UAN which is a liquid urea and ammonium nitrate fertilizer Rus sia accounts for
around 40 percent of UAN imported by the United States The United States canceled antidumping
duties on imports of ammonium nitrate and urea from Rus sia in 2016 but it did not prevent import
19 US EIA ldquoThe US Relies on Foreign Uranium Enrichment Ser vices to Fuel Its Nuclear Power Plantsrdquo Today in
Energy August 28 2013 https wwweia gov todayinenergy detail php idshy=shy1273
20 Colin Chilcoat ldquoDoes Rus sia Really Own 20 Percent of the USrsquo Uranium Reservesrdquo OilPricecom May 6 2015
http oilpricecom Alternative - Energy Nuclear - Power Does - Russia - Really - Own - 20 - Of - The - US - Uranium - Reserves
html
21 Michelle Ye Hee Lee ldquoThe Facts behind Trumprsquos Repeated Claim about Hillary Clintonrsquos Role in the Rus sian Ura-
nium Dealrdquo Washington Post October 26 2016
22 US EIA ldquoAnnual Energy Outlook 2017 with Projections to 2050rdquo 81ndash82
594-71613_ch01_4Pindd 35 102017 404 PM
Figure 512 US Imports from Rus sia Share of Oil Metals and Nuclear Fuel Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
87
86
90
90
90
91
88
86
7882
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals and Nuclear Fuel
Figure 513 US Imports from Rus sia Nuclear Fuel Materials US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$-
$200000000
$400000000
$600000000
$800000000
$1200000000
$1000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 36 102017 404 PM
Vadim Grishin 37
drops twice last year (Figures 514 and 515) According to forecasts UAN imports are expected to
decline further to 15 million tons this year down over 46 percent from 28 million tons imported
last year23 The downside trend in imports of fertilizers will likely continue because of oversupply
BIG FISH
US imports of fish and shellfish from Rus sia are best understood in comparison with US fish
exports to the Rus sian market which slipped to zero in August 2014 after Rus sia issued an order
banning certain agricultural imports from the United States (Figure 516) While the volume of US
supply was not very large it was impor tant because it broke up the monopolistic dominance of a
few vertically integrated Rus sian companies that have kept prices high by restricting the entry of
new producers Seeking to implement import substitution policies Rus sia has tried to reduce
exports as well as imports of fish and seafood products in the last couple of years This symmetri-
cal approach was intended to ldquocompensaterdquo for a decrease of fish products in the domestic
23 Deepika Thapliyal ldquoPotashCorp Forecasts Sharp Drop in US Nitrogen Imports in 2017rdquo ICIS News February 7
2017 https wwwicis com resources news 2017 02 07 10076734 potashcorp - forecasts - sharp - drop - in - us - nitrogen
- imports - in - 2017
Figure 514 US Imports from Rus sia Share of Oil Metals Nuclear Fuel and Fertilizers Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
90
93
92
93
94
95
92
91
85
86
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals Nuclear Fuel and Fertilizers
594-71613_ch01_4Pindd 37 102017 404 PM
Figure 515 US Imports from Rus sia Chemical- Fertilizers US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
S-
$200000000
$400000000
$600000000
$800000000
$1000000000
$1200000000
$1400000000
$1600000000
$1800000000
$2000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Figure 516 US Exports to Rus sia Fish and Shellfish US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$10000000
$20000000
$30000000
$40000000
$50000000
$60000000
$70000000
$80000000
$90000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Fish and shellfish
594-71613_ch01_4Pindd 38 102017 404 PM
Vadim Grishin 39
consumer market caused by Rus siarsquos import ban but it has failed As result the group most af-
fected by the self- imposed counter- sanctions were Rus sian consumers
With a significant drop in fish imports a devaluation of the ruble and inflationary pressures on
seafood prices yearly consumption of fish in Rus sia has declined precipitously In 2015 alone
fish prices increased 20 percent and consumption dropped to 14 kilograms per person24 from
22 kilograms in 201425 In 2016 food rose to 355 percent of house hold expenditure as a result of
increases in food prices26 This has pushed vertically integrated fishing monopolies to sell even
more of their catch abroad rather than deliver to the Rus sian Federation (Figure 517) Thus we
cannot exclude the possibility of further growth in US fish and shellfish imports from Rus sia on a
marginal scale
24 Александр Савельев ldquoПотребление рыбы в России упало до 14 кг на человекаrdquo [Fish consumption in Rus sia fell to
14 kg per person] Экономика Интерфакс January 28 2015 http wwwinterfax ru business 492038
25 Илья Шестаков ldquoПотебление рыбы в России снизилось на 10 процентов из- за роста ценrdquo [Fish consumption in
Rus sia dropped by 10 percent due to price increases] RNS March 8 2017 https rnsonline consumer - market
Potreblenie - ribi - v - Rossii - snizilos - na - 10 - iz - za - rosta - tsen - 2017 - 03 - 08
26 Zoya Sheftalovich and Christian Oliver ldquoRus siarsquos Boom (Farming) Economyrdquo Politico November 8 2016 http
wwwpolitico eu article russias - boom - farming - economy
Figure 517 US Imports from Rus sia Fish and Shellfish US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$50000000
$100000000
$150000000
$200000000
$250000000
$300000000
$350000000
$400000000
$450000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 39 102017 404 PM
US-Russia Economic Relations40
SPACE ODYSSEY
Among high- end products beyond the top five groups of goods imported from Rus sia cheap and
efficient Rus sian engines have been used to launch US rockets into space for about 16 years
(Figure 518) There was a serious po liti cal strug gle around a 2014 ban on the purchase of Rus sian
RD-180 rocket engines revealing the conflicting business interests of power ful high- tech companies
This restrictive mea sure was temporary and was quickly lifted because of significant cost impacts
and risks of disruption to launch schedules27 For the same reason the Sanctions Act does not autho-
rize ldquothe imposition of any sanction or other condition limitation restriction or prohibition that
directly or indirectly impedes the supply by any entity of the Rus sian Federation of any product or
ser vice or the procurement of such product or ser vice by any contractor or subcontractor of the
United States or any other entity relating to or in connection with any space launch conducted for
the National Aeronautics and Space Administration or any other nonndash Department of Defense
customerrdquo28
Nevertheless many experts believe that US domestic alternatives to replace Rus sian engines will
be viable in five to eight years
27 Ken Dilanian ldquoWhy Does the US Use Rus sian Rockets to Launch Its Satellitesrdquo NBC News updated November 15
2016 http wwwnbcnews com why - does - u - s - use - russian - rockets - launch - its - satellites - n588526
28 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364
Figure 518 Spacecraft Excluding Military US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 40 102017 404 PM
41
Diversity and technological complexity are the most vis i ble advantages supporting US exports to
Rus sia Three major groups of export goods include civilian aircraft engines and parts (Figure 61)
drilling and oil field equipment (Figure 62) and industrial machines and engines (Figure 63)
Despite sanctions against the transfer of advanced oil producing and pro cessing technologies the
realization of US drilling and oil field equipment in Rus sia is sustainable although some bilateral
proj ects have been frozen
Another category of goods that has demonstrated resilience is the phar ma ceu ti cal industry (Fig-
ure 64) because most drugs in Rus sia are imported (about 70 percent of the Rus sian phar ma ceu-
ti cal market in value) Import substitution policies have had only modest results in this industry
As confirmed by American Chamber of Commerce surveys US exports to Rus sia are closely
connected to US FDI 30 percent of total imports of US companies working in the Rus sian
market come from the United States (more than $2 billion in 2016) In other words about
40 percent of all US exports to Rus sia are related to a US corporate- sector business pro cess in
the country The major sectors of activity of these companies are energy and natu ral resources
(52 percent) manufacturing (17 percent) information and communications technology or ICT
(13 percent) retail (7 percent) automotive industry (6 percent) phar ma ceu ti cal production
(1 percent) professional ser vices (05 percent) and other (2 percent)1
Some obvious constraints on US exports to Rus sia have resulted from a reduction in demand A
deterioration of bilateral relations and implementation of sanctions and counter- sanctions have
directly or indirectly afected all businesses Figures 65 and 66 provide data regarding a dramatic
drop in the sale of US agricultural production in Rus sia with all other categories of exports in
goods showing big cuts as well (see Figures 67ndash69)
Exports of civilian aircraft engines and parts put the state of Washington in first place among
other states as a leading exporter to the Rus sian market (Figure 610)
1 American Chamber of Commerce in Rus sia ldquoInvestment and Import to Rus sia 2nd Surveyrdquo 13
Diversity and Constraints
06
594-71613_ch01_4Pindd 41 102017 404 PM
Figure 61 US Exports of Civilian Aircraft Engines Equipment and Parts to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
$2500000000
$2000000000
$1500000000
$1000000000
$500000000
$-
Figure 62 US Exports of Drilling and Oil Field Equipment US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
$40000000
$45000000
$50000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 42 102017 404 PM
Figure 63 US Exports of Industrial Engines to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Figure 64 US Exports of Phar ma ceu ti cal Preparations to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 43 102017 404 PM
Figure 65 US Exports of Meat and Poultry to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Meat poultry etc
$1000000000
$800000000
$600000000
$400000000
$200000000
$-
$1200000000
$1400000000
$1600000000
Figure 66 US Exports of Soybeans to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
$200000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 44 102017 404 PM
Figure 67 US Exports of Vehicles Engines and Parts to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Other parts and accessories of vehicles
Automotive tires and tubes
Bodies and chassis for passenger cars
Engines and engine parts (carburetors pistonsrings and valves)
Trucks buses and special purpose vehicles
Passenger cars new and used
$2500000000
$2000000000
$1500000000
$500000000
$-
$1000000000
Figure 68 US Exports of Medicinal Equipment to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 45 102017 404 PM
Figure 610 US Exports to Rus sia by States (2016 US$ Value) Million US$ 2013ndash2016
Source US Census Bureau ldquoState and Metropolitan Area Trade Datardquo
Iowa Kentucky
North Dakota
Oklahoma
South Carolina
Washington
0
$500
$1000
$1500
$2000
2013 2014 2015 2016
District of Columbia
Iowa
Kentucky
North Dakota
Oklahoma
South Carolina
Washington
Figure 69 US Exports of Excavating Machinery to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
$40000000
$45000000
$50000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 46 102017 404 PM
47
Upon reviewing the current trend in US- Russia economic relations we must acknowledge that
the existing trade model is obsolete and exhausted Imports are resource- oriented and reflect
constraints of the Rus sian economic structure while five groups of goodsmdash oil metals nuclear
fuels fertilizers and fishmdash make up more than 90 percent of total imports from Rus sia (Figure 71)
Each of these industries has a limited capacity for growth in the foreseeable future
Rus siarsquos core export to the United Statesmdash oilmdash will inevitably decrease in the mid- term under any
scenario The value and volume of Rus sian exports to the United States are open to global market
volatility and po liti cal pressures with limited hedging mechanisms
Overall US exports to Rus sia are unsustainable due to bilateral po liti cal tensions the whims of
commodity markets and changing domestic policies Sanctions and counter- sanctions have
created additional barriers particularly in finance banking high- tech energy and agro- business
According to the American Chamber of Commerce 69 percent of US companies working in the
country consider the impact of US sanctions against Rus sia on their business as negative At the
same time 60 percent of companies do not expect big changes in business relations between
Rus sia and the United States under Trump1 as the new law codifies existing sanctions fortifies
them and extends them to new sectors
Current US investments are low due to the weak rule of law in Rus sia a lack of property right
protections and proper contract enforcement high levels of statization and monopolization in the
economy a poor business climate outdated capital stock dependence on natural- resource
sectors and of course sanction and counter- sanction mea sures Bloated administrative compo-
nents created as risk mitigation instruments have also served as impediments The countryrsquos
institutional weakness low level of productivity bud get constraints and a declining inflexible
workforce will restrain future economic growth even if commodity prices recover Rus sian eco-
nomic policy will likely continue to be statist and protectionist relying mostly on import
substitutions
1 Ibid 11
Existing Trends and Future Scenarios
07
594-71613_ch01_4Pindd 47 102017 404 PM
US-Russia Economic Relations48
What scenarios can be expected in such a challenging environment
One probability (no peace no war) is based on the assumption that matters will not deteriorate
further and implementation of the Sanctions Act will be cursory This will cause relatively slow
degradation in the economic field with occasional flashes of activity in selected areas (eg closer
cooperation against Islamist terrorist groups in Syria)
A second worse case or critical scenario is the intensive and full- scale execution of current sanc-
tion legislation and even the imposition of new economic punitive and restrictive mea sures which
could incite asymmetric retaliatory actions and lead to the introduction of additional protectionist
policies This in turn could trigger a further escalation of mutual confrontation and could eventu-
ally destroy the fundamentals of the current bilateral trade system Rus sian leadership has charac-
terized the Sanctions Act as a declaration of a trade war that ends all hope for improving bilateral
relations2
2 Дмитрий Медведев ldquoПодписание президентом США нового санкционного закона против России создает несколько
последствийrdquo [The US Presidentrsquos signing of the package of new sanctions against Rus sia will have a few conse-
quences] Facebook August 2 2017 https wwwfacebook com Dmitry Medvedev posts 10154587161801851
Figure 71 US Imports from Rus sia Share of Oil Metals Nuclear Fuel Fertilizers and Fish Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
93
94
93
94
95
96
93
92
87
89
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals Nuclear FuelFertilizers and Fish
594-71613_ch01_4Pindd 48 102017 404 PM
Vadim Grishin 49
The best case and most favorable scenario looks less probable now It assumes the realization of
structural reforms in Rus sia in such a way that would adapt Rus siarsquos foreign policy to national
economic needs reduce confrontations with the West and make a concerted efort to integrate
Rus sian businesses into global supply and value chains A revitalization of the structural reform
agendamdash including eforts to diversify economic activities through de- monopolization and support
for SMEs a restructuring of the banking sector the creation of a vibrant business climate to foster
entrepreneurships and innovation the implementation of administrative and judicial reforms to
tackle red tape and endemic corruption and the reduction of state control over key sectors of the
economy via wide- spread privatization could kick- start the development of a nonoil economy and
improve long- term growth prospects Despite ongoing discussion of reform strategies deep
economic and po liti cal changes are extremely complicated over the next po liti calelectoral cycle
(2018ndash2024) particularly because of re sis tance of vested interests and growing commodity prices
The urgency to tackle structural shortcomings in natu ral resource- dependent economies usually
correlates with the price of those resources and the degree to which resource rents drive eco-
nomic activity However there may be marginal improvements in the efficiency of the current
economic system
Future US- Russia relations can be thought of through three pillars one pillar focuses on areas
where both countries maintain a competitive rivalry another looks at potential areas of interaction
under pres ent conditions a third pillar and one that has evaporated from the current bilateral
agenda concentrates on future cooperation Stronger economic ties could not only be a kind of
po liti cal shock absorber but contribute to the building of this future (particularly business contacts
aim to support future structural reforms) although po liti cal factors are depressing the prospects
for cooperation To escape deadlock it will be impor tant to establish the right balance between
politics and economics and create a model of collaboration within the framework of contention
594-71613_ch01_4Pindd 49 102017 404 PM
About the Author
Vadim Grishin PhD MBA has been involved in the reform pro cess in Rus sia as adviser to the
deputy prime minister of Rus sia in 1992ndash1993 and 2006ndash2010 He has extensive experience
working with the Bretton Woods Institutions He was the board member of the World Bank Group
and served as se nior adviser at the International Monetary Fund Currently he is a con sul tant to the
chief economistrsquos office of the International Finance Corporation and teaches the economics of
transition at Georgetown University in Washington DC
50
594-71613_ch99_4Pindd 50 102017 403 PM
Blank
COVER PHOTO ADOBE STOCK
1616 Rhode Island Avenue NW
Washington DC 20036
202 887 0200 | wwwcsisorg
v++ISBN 978-1-4422-8035-9
Lanham bull Boulder bull New York bull London
4501 Forbes Boulevard
Lanham MD 20706
301 459 3366 | wwwrowmancom
A U T H O R
Vadim Grishin
Myths and Realities
A Report of the
CSIS RUSSIA AND EURASIA PROGRAM
US-RussiaEconomicRelations
O C T O B E R 2 0 1 7
Euml|xHSLEOCy280359z
The Man Pupu Nyor Rock Formations at the Northern Urals also known as Seven
Strong Man or Little Mountain of the God in the local tribe (Mansi) language
US-Russia Economic Relations18
Figure 43 US Trade in Goods with Rus sia Million US$ 1992ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
Russian Financial Crisis
Oil price Increased from$2446 USD per barrel (2001)
to $9694 USD per barrel(2008)
Global Financial Crisis
Oil price high record in2011-2012
(more that $111 USD perbarrel)
Oil price crashed
$-
$5000
$10000
$15000
$20000
$25000
$30000
$35000
$40000
$45000
$50000
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia US Exports to Russia US-Russia Trade in Goods
No doubt po liti cal ups and downs add volatility to US- Russia trade Nevertheless Rus siarsquos eco-
nomic structure exhausted itself before the Ukrainian crisis and the recent Rus sian recession Its
limitations are not only due to some mistakes in policy or negative coincidences of circumstances
but rather to deeply rooted properties in the current bilateral trade model related to structural
issues in the Rus sian economy Structural constraints such as the weak enforcement of property
rights poor business regulation and nondiversified exports weighed on Rus sian trade with the
United States From this perspective the term ldquonaturalunnatural trading partnersrdquo does not ad-
dress the unused capacity of bilateral interaction or the real challenges that kind of interaction
faces It just adds metaphysical flavor to the very specific economic and po liti cal factors that
determine the US- Russia trajectory
Overall the outlines of bilateral trade (Figure 43) resemble the famous ldquoRus sian Mountainsrdquo that
were a pre de ces sor of the modern roller coaster icy hills supported by wooden constructionsmdash a
rigid and immobile structure that sooner or later would melt This unfortunately is what is hap-
pening to US- Russia trade cooperation now
594-71613_ch01_4Pindd 18 102017 404 PM
19
ARE LITTLE FISH REALLY SWEET
Low US- Russia economic interaction has at least two consequences First it limits the capacity of
policymakers to exploit trade as an instrument for geopo liti cal combat Even the question of a US
trade deficit which used to be a headache for many US trading partners has become so insig-
nificant in absolute terms (about $87 billion in 2016) that it seems hardly worth caring about
When the volume of trade between two countries becomes very small in absolute terms whether
a country is running a surplus or deficit is no longer relevant But it also renders another type of
confrontations (sometimes more dangerous) more likely since the two traders have little to lose
Second in an environment marked by low levels of bilateral trade both sides could incentivize (if
and when a desire for po liti cal rapprochement exists) the signing of new trade deals which are
elevated symbolically as a turning point in bilateral po liti cal relations (ie the sale of Boeings to
Rus sia or the delivery via tankers of Rus sian oil to US refineries) Sometimes markets themselves
pres ent ldquogiftsrdquo that can be capitalized on po liti cally US- USSR grain trade in the 1970s was one
such ldquogiftrdquo large sales of American grain to the Soviet Union helped US policymakers win favor
with the po liti cally impor tant American farming sector and permitted Soviet leaders to maintain
access to a dietary staple for the Soviet population
The strong 32 percent growth in value of US imports from Rus sia from January to May 2017
versus January to May 2016 ( Table 51) is an example of a development that has tempted officials
to pres ent it as a sign of positive change due to ldquogrowing business activitiesrdquo (this kind of statement
was heard before the bilateral summit in Germany in July 2017) although the reason for that leap
was evidently an increase in commodity prices (mainly of oilmdash see Table 52) and not a rise in
entrepreneurial interactions The primary beneficiaries of that upside rally have been two other
petro- economies Saudi Arabia and Venezuela ( Tables 53 and 54)
Sector Analyses
05
594-71613_ch01_4Pindd 19 102017 404 PM
US-Russia Economic Relations20
Table 51 US Imports from Rus sia Million US$ Januaryndash May 2016 vs Januaryndash May 2017
Year January February March April May Total
2016 9603 6871 11097 12257 10977 50805
2017 12215 10220 16979 13471 14147 67032
Change 271 487 530 99 289 319
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
Table 52 Change in Urals Crude Oil Prices US$ per Barrel Januaryndash May 2016 vs Januaryndash May 2017
Januaryndash May 2016 Januaryndash May 2017 Change ($) Change ()
3601 5129 1528 424
Source Ministry of Finance of the Rus sian Federation https wwwminfin ru ru ixzz4mMIZ7XtC
Table 53 US Imports from Saudi Arabia Million US$ Januaryndash May 2016 vs Januaryndash May 2017
Year January February March April May Total
2016 15114 9036 13555 10844 14679 63228
2017 19802 20298 21650 16211 19542 97503
Change 3101 12463 5972 495 331 542
Source US Census Bureau ldquoTrade in Goods with Saudi Arabiardquo Foreign Trade last modified June 29 2017
https wwwcensus gov foreign - trade balance c5170 html (see data for 2016ndash2017)
594-71613_ch01_4Pindd 20 102017 404 PM
Vadim Grishin 21
Table 54 US Imports from Venezuela Million US$ Januaryndash May 2016 vs Januaryndash May 2017
Year January February March April May Total
2016 6657 5560 7140 8007 7922 35286
2017 13041 10864 123500 11148 12243 59646
Change 9590 9540 7297 3923 5454 6903
Source US Census Bureau ldquoTrade in Goods with Venezuelardquo Foreign Trade last modified June 29 2017
https wwwcensus gov foreign - trade balance c3070 html (see data for 2016ndash2017)
Table 55 US Exports to Rus sia Million US$ Januaryndash May 2016 vs Januaryndash May 2017
Year January February March April May Total
2016 3628 3577 7298 4657 4947 24107
2017 3144 4277 5386 6670 4806 24283
Change minus133 196 minus262 432 minus29 minus07
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2016ndash2017)
At the same time US exports to Rus sia continue to stagnate ( Table 55) due to low levels of
consumption during a two-and- a- half-year economic crisis a deep ruble devaluation sanctions
and counter- sanctions
Given the very dif er ent economic structures and resource endowments of Rus sia and the United
States it is not surprising that US- Russia trade is asymmetric and oil driven (Figure 51) A
3 percent increase in Urals oil prices translates into a one percent increase in US import growth
from Rus sia Thus in 2016 every $10 increase in Urals crude oil added $15 billion to the value of
US imports or 11 percent to the total value of imports from Rus sia
OIL ADDICTION
Oil is a core pillar of US- Russia bilateral trade A bumpy ride in oil markets afects commerce
Nevertheless Rus sian oil exports to the United States in physical terms have been rather
594-71613_ch01_4Pindd 21 102017 404 PM
US-Russia Economic Relations22
sustainable Starting from 2005 average annual deliveries have been above 150 million barrels
(Figure 52) Crude and heating oil have dominated while petroleum products and liquefied petro-
leum gases have not (Figure 53) In 2011 oil exports peaked at 228 million barrels but declined to
159 million barrels in 2016mdash a drop of 30 percent Rec ord high shipments of Rus sian oil to the United
States coincided with an elevation in oil prices which made the subsequent decline in oil shipment
value between 2011 and 2016 (by about 72 percent as shown in Figure 54) seem more stark The
increase in price also raised the share of oil in Rus sian exports by 74 percent in 2011 (Figure 55)
The Rus sian share in total US oil imports was around 55 percent in 2011 and 43 percent in 2016
( Table 56) In the last five years the United States has relied exclusively on consumption of Rus sian
oil for the rough equivalent of one week out of the year (Figure 56)
It is unlikely that Rus sia can significantly increase its share of the US oil market and there is a real
possibility for a downward trend There are several reasons the historically high Rus sian hydrocar-
bon export threshold of 2011 will not soon if ever be surpassed
First US energy consumption will likely be flat According to the US Energy Information Adminis-
tration (EIA) demand for petroleum and other liquids in the United States will be about 35ndash36
quadrillion British thermal units (BTUs) with minimal variation over the next 25 years1
1 US EIA ldquoAnnual Energy Outlook 2017 with Projections to 2050rdquo January 5 2017 7ndash8
Figure 51 US- Russia Trade Growth () vs US and Rus sia Real GDP Growth () 1993ndash2016
Source IMF ldquoIMF Datardquo accessed September 27 2017 http wwwimf org en Data US Census Bureau
ldquoTrade in Goods with Rus siardquo
Note rGDPthinsp=thinspreal gross domestic product
Trade
USA rGDP growth
Russia rGDP growth
-60
-40
-20
0
20
40
60
80
100
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Gro
wth
All spikes in US-Russia trade have been connected with two main
variables volume and price of crude oil
594-71613_ch01_4Pindd 22 102017 404 PM
Vadim Grishin 23
Second the United States will become a net energy exporter between 2020 and 2030 in most
cases under dif er ent combinations of oil and natu ral gas prices GDP growth technological
breakthroughs and the availability of energy resources The role of oil imports will dramatically
fall2
Third oil price scenarios as described by the International Energy Agency (IEA) international
financial organ izations (IFIs) and many national agencies are very cautious and assume that even
by 2035 to 2040 oil prices will not to recover to the levels of 2011ndash20123
Fourth Rus sian oil production and export growth will be modest and driven by Asian economic
expansion and will comprise a decreasing share of Western markets4 According to forecasts from
2 Ibid 15ndash18
3 Ibid table 3 ldquoEnergy Prices by Sector and Sourcesrdquo World Bank World Bank Commodity Markets Price Forecasts
(Washington DC World Bank 2017) httpswwwworldbank org en research commodity - markets Organ ization of the
Petroleum Exporting Countries (OPEC) World Oil Outlook 2016 (Vienna OPEC 2016)
4 E D Belotskaia et al Global and Rus sian Energy Outlook 2016 (Moscow Energy Research Institute of the Rus sian
Acad emy of Science Analytical Center for the Government of the Rus sian Federation 2016) http acgov ru files
publication a 12767 pdf
Figure 52 US Imports from Rus sia Crude Oil and Petroleum Products Thousands of Barrels 1995ndash2016
Source US EIA ldquoUS Imports by Country of Origin Rus siardquo Petroleum amp Other Liquids September 13
2017 http wwweia gov dnav pet PET _ MOVE _ IMPCUS _ D _ NUS _ NRS _ MBBL _ M htm
0
50000
100000
150000
200000
250000
Date 1995 1996 1997 1998 199920002001200220032004200520062007200820092010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 23 102017 404 PM
US-Russia Economic Relations24
the Organ ization of the Petroleum Exporting Countries (OPEC) crude oil exports from Rus sia and
the Caspian region to the United States will dis appear by 20255
So why does the Rus sian Urals blend continue to be attractive for oil traders and US refineries
which could pro cess greater volumes of domestically produced lighter crude There are two main
reasons One is related to the preference of US high conversion refineries (the most sophisticated
in the world) to work with heavy oil blends produced by Canada Mexico Iraq Venezuela and
Rus sia Pro cessing heavy crude now is as profitable as pro cessing lighter crude The so- called
crack spreadmdash the diference between the cost of relatively cheap heavy crude oil and the final
price of value- added consumer products (diesel gasoline jet fuel and heating oil)mdash has become
the same as the refinery margins of light sweet crude6 This has primarily afected light oil produc-
ing countries such as Angola Algeria and Nigeria
5 OPEC World Oil Outlook 2016 306ndash309
6 ldquoHow Much for That Heavy Oilrdquo Oil Sands Magazine December 26 2015 https wwwoilsandsmagazine com
news 2015 12 26 how - much - for - that - heavy - oil
Figure 53 US Imports from Rus sia Oil and Petroleum Products US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$-
$25000000000
$20000000000
$15000000000
$10000000000
$5000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Liquefied petroleum gases
Petroleum products other
Fuel oil
Crude oil
594-71613_ch01_4Pindd 24 102017 404 PM
Vadim Grishin 25
Another factor afecting purchase of Rus sian oil is a new trend among oil companies for further
consolidation of scale and for integrating operations of upstream and downstream business7
There have been several waves of separation and unification of production transportation and
pro cessing in the last 50 years The current business cycle can be seen as an adaptation to a
period of low prices and oversupply Companies that buy andor produce oil in Rus sia most likely
prefer to transport and pro cess this oil in their own modern refineries in the United States At the
same time some of the newest refinery designs specifically for pro cessing heavy oils have been
built in Asia thus extending the choices of heavy oil producing countries
We should also consider that leading US and international oil traders along with oil producing
companies working with or owning US refineries frequently buy Rus sian oil on the open market
and have long- term contracts on Rus sian crude oil delivery Many Rus sian oil companies prefer to
pay for purchases or ser vices with their future production instead of cash creating situations of
ldquostickyrdquo oil imports that are difficult to replace The best- known example is an interaction between
7 ldquoEnergy and Utilities Sectorrdquo Roundtable Financier Worldwide December 2015 https wwwfinancierworldwide
com roundtable - energy - utilities - sector - dec15
Figure 54 US Imports of Oil and Petroleum Products from Rus sia vs Oil Prices Eu rope Brent Spot Price Free on Board (FOB) 1996ndash2017
Source US EIA ldquoUS Imports by Country of Origin Rus siardquo
0
20
40
60
80
100
120
140
0
5000
10000
15000
20000
25000
30000
Jan
-19
96
Jun
-19
96
No
v-19
96
Ap
r-19
97
Sep
-19
97
Feb
-19
98
Jul-
199
8D
ec-1
99
8M
ay-1
99
9O
ct-1
99
9M
ar-2
00
0A
ug
-20
00
Jan
-20
01
Jun
-20
01
No
v-2
00
1A
pr-
20
02
Sep
-20
02
Feb
-20
03
Jul-
20
03
Dec
-20
03
May
-20
04
Oct
-20
04
Mar
-20
05
Au
g-2
00
5Ja
n-2
00
6Ju
n-2
00
6N
ov-
20
06
Ap
r-2
00
7Se
p-2
00
7Fe
b-2
00
8Ju
l-2
00
8D
ec-2
00
8M
ay-2
00
9O
ct-2
00
9M
ar-2
010
Au
g-2
010
Jan
-20
11Ju
n-2
011
No
v-2
011
Ap
r-2
012
Sep
-20
12Fe
b-2
013
Jul-
20
13D
ec-2
013
May
-20
14O
ct-2
014
Mar
-20
15A
ug
-20
15Ja
n-2
016
Jun
-20
16N
ov-
20
16
USD
per
Bar
rel
Th
ou
san
d B
arr
els
US Imports from Russia of Crude Oil and Petroleum Products (Thousand Barrels)
Europe Brent Spot Price FOB (Dollars per Barrel)
594-71613_ch01_4Pindd 25 102017 404 PM
US-Russia Economic Relations26
Table 56 US Oil Imports All Countries vs Rus sia Thousand Barrels per Day 2011ndash2016
Years 2011 2012 2013 2014 2015 2016
All Countries 11436 10598 9859 9241 9449 10058
Rus sia 624 477 460 330 371 433
Share 546 450 467 357 393 431
Sources US EIA ldquoUS Imports by Country of Origin Total Crude Oil and Productsrdquo Petroleum amp Other
Liquids September 13 2017 wwweia gov dnav pet pet_move_impcus_a2_nus_ep00_im0_mbbl_m htm
authorrsquos computation
Figure 55 US Imports from Rus sia Share of Crude Oil and Petroleum Products Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
57
64
73
72
74
73
72
59
52 50
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
$40000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil and Petroleum Products
594-71613_ch01_4Pindd 26 102017 404 PM
Vadim Grishin 27
the Rus sian state mono poly Rosneft and commodity trading and mining giant Glencore which
along with energy and commodities com pany Vitol participated in a $10 billion prepayment
deal with Rosneft for crude supplies in 2013
There have been a number of ongoing transactions between the Rus sian oil industry and interna-
tional oil companies including several that top the list of importers of Rus sian oil to the United
States ( Table 57) In December 2016 Glencore participated in a controversial privatization opera-
tion purchasing in tandem with the Qatar sovereign wealth fund a 195 percent stake in Rosneft
which was on the US and EU list of sanctioned firms8 Glencore has also taken a blocking stake in
midsize oil producer RussNeft BP owns a 1975 percent stake in Rosneft Chevron holds a
15 percent interest in the 935- mile- long CPC9 pipeline which transports an average of 959000
barrels of crude oil per day including 76000 barrels daily from Rus sia10 ExxonMobil has formed
8 E Mazneva and I Arkhipov ldquoRus sia Sells $11 Billion Stake in Rosneft to Glencore Qatarrdquo Bloomberg December 7
2016
9 CPCthinsp=thinspCaspian Pipeline Consortium
10 ldquoRus sia Highlights of Operations and Business Portfoliordquo Chevron accessed October 3 2017 https wwwchevron
com worldwide russia
Figure 56 Share of Rus sian Oil in Total US Oil Imports Thousands of Barrels per Day 1972ndash2016
Source US EIA ldquoUS Imports by Country of Origin Total Crude Oil and Productsrdquo
2000
4000
6000
8000
10000
12000
14000
16000
US Imports of Crude Oil and Petroleum Products (Thousand Barrels per Day)
US Imports from Russia of Crude Oil and Petroleum Products (Thousand Barrels per Day)19
7319
7419
7519
7619
7719
7819
7919
80
198
119
82
198
319
84
198
519
86
198
719
88
198
919
90
199
119
92
199
319
94
199
519
96
199
719
98
199
92
00
02
00
12
00
22
00
32
00
42
00
52
00
62
00
72
00
82
00
92
010
20
112
012
20
132
014
20
152
016
594-71613_ch01_4Pindd 27 102017 404 PM
Table 57 Top Importers of Rus sian Oil to the United States Thousands of Barrels 2016
VALERO MARKETING amp SUPPLY CO 54590 3616
EXXONMOBIL OIL CORP 17087 1130
CHEVRON USA INC 15217 1008
BP WEST COAST PRODUCTS LLC 10130 671
GEORGE E WARREN CORP 7272 48
PAULSBORO REFINING CO LLC 6838 453
TESORO CORP 5097 338
VITOL INC 5084 337
PHILLIPS 66 CO 4726 313
TRAFIGURA AG 4360 289
PAR HAWAII REFINING LLC 3893 258
MOTIVA ENTERPRISES LLC 3041 205
SHELL US TRADING CO 2863 19
MARATHON PETROLEUM CO LLC 2475 16
ATLANTIC TRADING amp MARKETING 2099 14
FREEPOINT COMMODITIES LLC 1439 1
GLENCORE LTD 1284 85
BEST PETROLEUM CORP 967 64
ROLYMPUS US COMMODITIES GROUP LLC 822 6
HUNT CRUDE OIL SUPPLY CO 666 4
GULF OIL LP 658 4
Source US EIA ldquoUS Imports by Country of Origin Crude Oilrdquo Petroleum amp Other Liquids September 13
2017 httpswwweiagovdnavpetpet_move_impcus_a2_nus_epc0_im0_mbblpd_ahtm authorrsquos
computation
594-71613_ch01_4Pindd 28 102017 404 PM
Vadim Grishin 29
several joint ventures with Rosneft to undertake ofshore exploration in the Black Sea and the Kara
Sea in Siberia11
According to the Sanctions Act US persons are prohibited from exporting or reexporting goods
ser vices (except financial ser vices) and technology in support of exploration or production of new
deep- water Arctic ofshore or shale oil proj ects that involve designated Rus sian entities or other
entities in which such sanctioned persons have a controlling interest or a substantial noncontrol-
ling owner ship interest defined as not less than 33 percent (previously it was 50 percent) The new
law also authorizesmdash but does not requiremdash the imposition of so- called secondary sanctions
against non- US entities that engage in activities involving the construction maintenance or
expansion of Rus sian energy export pipelines with a fair market value of $1 million or more or an
aggregate fair market value during a 12- month period of $5 million12 This provision has raised the
concerns of some Eu ro pean countries particularly Germany As result the final language of the
law included wording about coordination of this issue with allies of the United States
Shipments of Rus sian oil to the United States could be afected by activity in the US refinery
industry In early 2017 Saudi Aramco bought the United Statesrsquo largest oil refinery in Port Arthur
(Texas) and it announced plans to send more of its own crude to that refinery13 Serious concerns
exist however regarding the future of three refineries and nine pipelines owned by Citgo a US
branch of the Venezuelan state com pany PdVSA which is balancing precariously on the edge of
default Under certain conditions in the event of PdVSA bankruptcy Rosneft could claim a stake of
up to 499 percent in Citgo Such a possibility has raised concerns among politicians and US
government officials with Trea sury Secretary Steven Mnuchin calling it a ldquonational security issuerdquo14
Tables 58 59 and 510 show allocations of Rus sian oil imports to major US refineries some of
which work exclusively on Rus sian crude a total of two to three months per year In total 150940
thousand barrels of Rus sian oil were refined in 2016
Figure 57 confirms a leading position of Texas and Louisiana among the US states receiving
Rus sian crude followed by New Jersey California Mississippi Washington Hawaii and Delaware
In a paradoxical way Texas has dis appeared from the list of states as a main destination of US
imports from Rus sia (Figure 58) because Rus sian crude is mostly delivered to Louisiana ports and
registered there by US Customs as an import from Rus sia After that it transports to refineries in
Louisiana and Texas
Overall the short- term business rationale behind the sustainability of US oil imports from Rus sia
cannot overcome strong headwinds in the US energy sector facing all oil importers which will
inevitably lead to a contraction of Rus sian oil exports to the United States in the foreseeable future
11 Exxon eforts to receive a special US Trea sury waiver to drill in sanctioned Rus sia failed in 2017
12 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364
13 Sarp Ozkan ldquoSaudi Aramcorsquos Port Arthur Refinery and the US Refinery Fleetrdquo Drilling Info May 11 2017
https infodrillinginfo com saudi - aramcos - port - arthur - refinery - us - refinery - fleet
14 Graham Kates ldquoTrea sury Secretary Rus siarsquos Citgo Deal a National Security Issuerdquo CBS News May 1 2017
http wwwcbsnews com news rosneft - citgo - steven - mnuchin - national - security
594-71613_ch01_4Pindd 29 102017 404 PM
US-Russia Economic Relations30
Table 58 Valerorsquos Refineries Pro cessing Rus sian Oil Thousands of Barrels 2016
Saint Charles Louisiana 29206 535
Corpus Christi Texas 20626 378
Wilmington California 4250 78
Total USA 54590 100
Source US EIA ldquoRefinery Capacity Reportrdquo January 1 2017
table 5 wwweia gov petroleum refinerycapacity table5 pdf
authorrsquos computation
Table 59 ExxonMobil Refineries Pro cessing Rus sian Oil Thousands of Barrels 2016
Baytown Texas 15037 88
Baton Rouge Louisiana 2046 12
Total USA 17083 100
Source US EIA ldquoRefinery Capacity Reportrdquo authorrsquos computation
Table 510 Chevronrsquos Refineries Pro cessing Rus sian Oil Thousands of Barrels 2016
Pascagoula Mississippi 12767 840
El Segundo California 2372 155
Saint Rose Louisiana 78 05
Total USA 15217 100
Source US EIA ldquoRefinery Capacity Reportrdquo authorrsquos computation
594-71613_ch01_4Pindd 30 102017 404 PM
Vadim Grishin 31
HEAVY METAL
Taken together US imports of metals and US imports of oil compose about 80 percent of US
total imports from Rus sia (Figure 59) Trade of metals like other commodities is strongly afected
by market price fluctuations Nevertheless metal imports from Rus sia have been fairly resilient to
market volatility and their average annual value has hovered at about $4 billion in the last five years
(Figure 510) This market resilience was forged at the end of the 1990searly 2000s when Rus sian
metal producers gradually modernized their plants adjusting quality of production to Western
standards and enhancing integration into global value and supply chains Some of them conquered
their share of the highly competitive US market struggling with peers from Canada and certain
BRICS countries (China India and Brazil) To attract additional resources all Rus sian large metal-
producing companies became public and were listed on stock exchanges chiefly the London Stock
Exchange (Severstalrsquo PAO Evraz MMK OAO Novolipetsk Steel Norilsk Nikel and TMK PAO) one
on the New York Stock Exchange (Mechel) and one on the Hong Kong Stock Exchange (Rusal)
Business logic pushed some of them to invest in the US metal- making industry which was hit
hard by crisis Later on some of those assets were sold (eg two US steel mills acquired by
Severstal in 2004 were purchased 10 years later by Steel Dynamics Inc and AK Steel Corp)
Figure 57 Share of US States Rus sian Oil Imports 2016
Source US EIA ldquoUS Imports from Rus sia of Crude Oil and Petroleum Productsrdquo Petroleum amp Other
Liquids September 29 2017 https www eia gov dnav pet hist LeafHandler ashx nshy=shyPETampsshy=shyMTTIM _ NUS
- NRS _ 1ampfshy=shyM authorrsquos computation
0
10
20
30
40
50
60
70
80
90
100
Maine
Massachusetts
Maryland
Connecticut
Georgia
Rhode Island
Virginia
Florida
New York
Alabama
Puerto Rico
Pennsylvania
Delaware
Hawaii
Washington
Mississippi
California
New Jersey
Louisiana
Texas
594-71613_ch01_4Pindd 31 102017 404 PM
Figure 58 US Imports from Rus sia by State Million US$ 2013ndash2016
Source US Census Bureau ldquoState and Metropolitan Area Trade Datardquo Foreign Trade last modified
October 2 2017 https wwwcensus gov foreign - trade statistics state
Alaska
Connecticut
Delaware
Hawaii
Louisiana
Maryland
North Dakota 0
$1000
$2000
$3000
$4000
$5000
$6000
2013 2014 2015 2016
Alabama
Alaska
Connecticut
Delaware
Hawaii
Louisiana
Maryland
Maine
Mississippi
Montana
North Dakota
Mississippi
Figure 59 US Imports from Rus sia Share of Oil and Metals Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
83
82
85
86
87
88
85
82
7375
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
$40000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil and Metals
594-71613_ch01_4Pindd 32 102017 404 PM
Vadim Grishin 33
Obviously the market dynamic of dif er ent metals varies (eg iron steel aluminum platinum and
nickel) Caps to increase their trade and production in a ldquored oceanrdquo global environment with
anemic demand is rather limited despite Figure 510 showing a spike of iron and steel imports
from Rus sia in 2014 and aluminum in 2016 Some opportunities may exist for Russian- owned steel
plants in the United States (such as NLMK) to participate in energy proj ects resumed under Presi-
dent Trump who has required that new pipelines use only American- made steel15
Rus sia occupies a special niche in the US market for titanium products a high- end metal indus-
try Twenty years ago a long- term contract was signed between Rus sian titanium producer
VSMPO- AVISMA and Boeing The Rus sian com pany entered the selective club of Boeing suppliers
for the manufacture of components and semi- finished products Since the signing of this contract
VSMPO has delivered more than 35 percent of all titanium placed on Boeing civil aircraft16 They
are hidden in the trade data in an import category for Civilian Aircrafts and Parts (Figure 511) At
the end of 2016 Boeing announced an extension of its framework agreement with AVISMA
15 E Scheyder C Ngai and T Sylvester ldquoAmerican Steel Unlikely to Get Keystone Boost Despite Trump Orderrdquo
Reuters January 27 2017 http wwwreuters com article usa - trump - pipeline - transcanada - idUSL1N1FH1ZD
16 A Kramer ldquoTitanium Fills Vital Role for Boeing and Rus siardquo New York Times July 5 2013 http wwwnytimes com
2013 07 06 business global titanium - fills - vital - role - for - boeing - and - russia html mcubzshy=shy3
Figure 510 US Imports from Rus sia Iron Steel Bauxite Aluminum Nickel Nonferrous Metals and Other Precious Metals and Materials US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
0
$6000000000
$5000000000
$4000000000
$3000000000
$2000000000
$1000000000
2007 2008 2009 2010 2011 20122013
20142015
2016
Finished metal shapes
Iron and steel advanced
Iron and steel products nec
Nonferrous metals other
Other precious metals
Nickel
Bauxite and aluminum
Iron and steel mill products
Steelmaking materials
594-71613_ch01_4Pindd 33 102017 404 PM
US-Russia Economic Relations34
through 2022 and additional investments in the construction of a new robotic plant in Titanium
Valley a special economic zone located in the Sverdlovsk region that will open in 2018 The pro-
cessing of titanium forgings in all Boeing civil aircraft will be performed there including 787s 737
MAXs and 777Xs17 The contract extension with AVISMA may add several hundred million dollars
in value to annual US imports from Rus sia
How can such heavy reliance on imports of Rus sian titanium exist during a period of rising geopo-
liti cal tensions The answer is straightforward VSMPO- AVISMA is a highly specialized natu ral
mono poly producing 45 percent of the worldrsquos aerospace titanium Only four other countries
smelt high- grade titanium in industrial quantities the United States Germany Japan and China
Overall global production capacity is limited while demand is growing The United States cur-
rently imports around 79 percent of all the titanium it consumes each year18
17 ldquoBoeing and VSMPO Avisma to Launch Second Joint Production Siterdquo Rus sian Aviation Insider December 22 2016
http wwwrusaviainsider com boeing - and - vsmpo - avisma - to - launch - second - joint - production - site
18 Jon Ostrower and Andy Pasztor ldquoBoeing United Technologies Stockpile Titanium Partsrdquo Wall Street Journal
August 7 2014 https wwwwsj com articles boeing - united - technologies - stockpiling - titanium - parts - 1407441886
Figure 511 US Imports from Rus sia Civilian Aircrafts and Parts US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
$200000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Parts-civilian aircraft
Civilian aircraft
594-71613_ch01_4Pindd 34 102017 404 PM
Vadim Grishin 35
The Sanctions Act authorizes the secretary of the trea sury (in a nonmandatory way) to impose
restrictions (without specifying them) against Rus sian state- owned entities operating in the railway
metals and mining sectors of the Rus sian economy Despite the commanding heights of Rus siarsquos
state sector owner ship in its economy (70 percent of GDP) the metal- producing companies have
remained mostly in private hands
NUCLEAR AFFAIRS
Historically owners and operators of the 104 commercial nuclear power reactors in the United
States have purchased more than 80 percent of their uranium from foreign countries Uranium
shipping from Rus sia accounted for about 13 percent of the 58 million pounds of uranium pur-
chased overseas in 201219 At the same time the Rus sian state- owned mono poly Rosatom ac-
counts for 20 percent of Kazakhstanrsquos uranium production (which in turn comprises 11 percent of
all US uranium imports) and 20 percent of US domestic uranium production capacity (with
owner ship of exploration tracts in Wyoming)20
Nuclear fuel and nuclear power continue to be po liti cally sensitive topics both in the United
States and Rus sia Bilateral cooperation in this sector (being surprisingly stable with imports of
nuclear fuel from Rus sia at a level of $1 billion annually in the last five years [Figure 512 and 513])
is under constant po liti cal and lobbying pressure and has been a source of several po liti cal scan-
dals21 Consequently upside risks in this area of interaction are minimal and downside risks are
much higher especially when we are seeing more decommissioning of nuclear plants in the
United States than new constructions The US EIArsquos 2017 Annual Energy Outlook assumes
that about 25 percent of the nuclear capacity now operating will be removed from ser vice
by 205022
WHY IS THE GRASS GREENER ON THE OTHER SIDE
The United States continues to significantly reduce imports of chemical fertilizers as domestic pro-
duction increases In 2016 the United States imported 13 percent less ammonia and 11 percent
less urea and UAN which is a liquid urea and ammonium nitrate fertilizer Rus sia accounts for
around 40 percent of UAN imported by the United States The United States canceled antidumping
duties on imports of ammonium nitrate and urea from Rus sia in 2016 but it did not prevent import
19 US EIA ldquoThe US Relies on Foreign Uranium Enrichment Ser vices to Fuel Its Nuclear Power Plantsrdquo Today in
Energy August 28 2013 https wwweia gov todayinenergy detail php idshy=shy1273
20 Colin Chilcoat ldquoDoes Rus sia Really Own 20 Percent of the USrsquo Uranium Reservesrdquo OilPricecom May 6 2015
http oilpricecom Alternative - Energy Nuclear - Power Does - Russia - Really - Own - 20 - Of - The - US - Uranium - Reserves
html
21 Michelle Ye Hee Lee ldquoThe Facts behind Trumprsquos Repeated Claim about Hillary Clintonrsquos Role in the Rus sian Ura-
nium Dealrdquo Washington Post October 26 2016
22 US EIA ldquoAnnual Energy Outlook 2017 with Projections to 2050rdquo 81ndash82
594-71613_ch01_4Pindd 35 102017 404 PM
Figure 512 US Imports from Rus sia Share of Oil Metals and Nuclear Fuel Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
87
86
90
90
90
91
88
86
7882
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals and Nuclear Fuel
Figure 513 US Imports from Rus sia Nuclear Fuel Materials US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$-
$200000000
$400000000
$600000000
$800000000
$1200000000
$1000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 36 102017 404 PM
Vadim Grishin 37
drops twice last year (Figures 514 and 515) According to forecasts UAN imports are expected to
decline further to 15 million tons this year down over 46 percent from 28 million tons imported
last year23 The downside trend in imports of fertilizers will likely continue because of oversupply
BIG FISH
US imports of fish and shellfish from Rus sia are best understood in comparison with US fish
exports to the Rus sian market which slipped to zero in August 2014 after Rus sia issued an order
banning certain agricultural imports from the United States (Figure 516) While the volume of US
supply was not very large it was impor tant because it broke up the monopolistic dominance of a
few vertically integrated Rus sian companies that have kept prices high by restricting the entry of
new producers Seeking to implement import substitution policies Rus sia has tried to reduce
exports as well as imports of fish and seafood products in the last couple of years This symmetri-
cal approach was intended to ldquocompensaterdquo for a decrease of fish products in the domestic
23 Deepika Thapliyal ldquoPotashCorp Forecasts Sharp Drop in US Nitrogen Imports in 2017rdquo ICIS News February 7
2017 https wwwicis com resources news 2017 02 07 10076734 potashcorp - forecasts - sharp - drop - in - us - nitrogen
- imports - in - 2017
Figure 514 US Imports from Rus sia Share of Oil Metals Nuclear Fuel and Fertilizers Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
90
93
92
93
94
95
92
91
85
86
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals Nuclear Fuel and Fertilizers
594-71613_ch01_4Pindd 37 102017 404 PM
Figure 515 US Imports from Rus sia Chemical- Fertilizers US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
S-
$200000000
$400000000
$600000000
$800000000
$1000000000
$1200000000
$1400000000
$1600000000
$1800000000
$2000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Figure 516 US Exports to Rus sia Fish and Shellfish US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$10000000
$20000000
$30000000
$40000000
$50000000
$60000000
$70000000
$80000000
$90000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Fish and shellfish
594-71613_ch01_4Pindd 38 102017 404 PM
Vadim Grishin 39
consumer market caused by Rus siarsquos import ban but it has failed As result the group most af-
fected by the self- imposed counter- sanctions were Rus sian consumers
With a significant drop in fish imports a devaluation of the ruble and inflationary pressures on
seafood prices yearly consumption of fish in Rus sia has declined precipitously In 2015 alone
fish prices increased 20 percent and consumption dropped to 14 kilograms per person24 from
22 kilograms in 201425 In 2016 food rose to 355 percent of house hold expenditure as a result of
increases in food prices26 This has pushed vertically integrated fishing monopolies to sell even
more of their catch abroad rather than deliver to the Rus sian Federation (Figure 517) Thus we
cannot exclude the possibility of further growth in US fish and shellfish imports from Rus sia on a
marginal scale
24 Александр Савельев ldquoПотребление рыбы в России упало до 14 кг на человекаrdquo [Fish consumption in Rus sia fell to
14 kg per person] Экономика Интерфакс January 28 2015 http wwwinterfax ru business 492038
25 Илья Шестаков ldquoПотебление рыбы в России снизилось на 10 процентов из- за роста ценrdquo [Fish consumption in
Rus sia dropped by 10 percent due to price increases] RNS March 8 2017 https rnsonline consumer - market
Potreblenie - ribi - v - Rossii - snizilos - na - 10 - iz - za - rosta - tsen - 2017 - 03 - 08
26 Zoya Sheftalovich and Christian Oliver ldquoRus siarsquos Boom (Farming) Economyrdquo Politico November 8 2016 http
wwwpolitico eu article russias - boom - farming - economy
Figure 517 US Imports from Rus sia Fish and Shellfish US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$50000000
$100000000
$150000000
$200000000
$250000000
$300000000
$350000000
$400000000
$450000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 39 102017 404 PM
US-Russia Economic Relations40
SPACE ODYSSEY
Among high- end products beyond the top five groups of goods imported from Rus sia cheap and
efficient Rus sian engines have been used to launch US rockets into space for about 16 years
(Figure 518) There was a serious po liti cal strug gle around a 2014 ban on the purchase of Rus sian
RD-180 rocket engines revealing the conflicting business interests of power ful high- tech companies
This restrictive mea sure was temporary and was quickly lifted because of significant cost impacts
and risks of disruption to launch schedules27 For the same reason the Sanctions Act does not autho-
rize ldquothe imposition of any sanction or other condition limitation restriction or prohibition that
directly or indirectly impedes the supply by any entity of the Rus sian Federation of any product or
ser vice or the procurement of such product or ser vice by any contractor or subcontractor of the
United States or any other entity relating to or in connection with any space launch conducted for
the National Aeronautics and Space Administration or any other nonndash Department of Defense
customerrdquo28
Nevertheless many experts believe that US domestic alternatives to replace Rus sian engines will
be viable in five to eight years
27 Ken Dilanian ldquoWhy Does the US Use Rus sian Rockets to Launch Its Satellitesrdquo NBC News updated November 15
2016 http wwwnbcnews com why - does - u - s - use - russian - rockets - launch - its - satellites - n588526
28 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364
Figure 518 Spacecraft Excluding Military US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 40 102017 404 PM
41
Diversity and technological complexity are the most vis i ble advantages supporting US exports to
Rus sia Three major groups of export goods include civilian aircraft engines and parts (Figure 61)
drilling and oil field equipment (Figure 62) and industrial machines and engines (Figure 63)
Despite sanctions against the transfer of advanced oil producing and pro cessing technologies the
realization of US drilling and oil field equipment in Rus sia is sustainable although some bilateral
proj ects have been frozen
Another category of goods that has demonstrated resilience is the phar ma ceu ti cal industry (Fig-
ure 64) because most drugs in Rus sia are imported (about 70 percent of the Rus sian phar ma ceu-
ti cal market in value) Import substitution policies have had only modest results in this industry
As confirmed by American Chamber of Commerce surveys US exports to Rus sia are closely
connected to US FDI 30 percent of total imports of US companies working in the Rus sian
market come from the United States (more than $2 billion in 2016) In other words about
40 percent of all US exports to Rus sia are related to a US corporate- sector business pro cess in
the country The major sectors of activity of these companies are energy and natu ral resources
(52 percent) manufacturing (17 percent) information and communications technology or ICT
(13 percent) retail (7 percent) automotive industry (6 percent) phar ma ceu ti cal production
(1 percent) professional ser vices (05 percent) and other (2 percent)1
Some obvious constraints on US exports to Rus sia have resulted from a reduction in demand A
deterioration of bilateral relations and implementation of sanctions and counter- sanctions have
directly or indirectly afected all businesses Figures 65 and 66 provide data regarding a dramatic
drop in the sale of US agricultural production in Rus sia with all other categories of exports in
goods showing big cuts as well (see Figures 67ndash69)
Exports of civilian aircraft engines and parts put the state of Washington in first place among
other states as a leading exporter to the Rus sian market (Figure 610)
1 American Chamber of Commerce in Rus sia ldquoInvestment and Import to Rus sia 2nd Surveyrdquo 13
Diversity and Constraints
06
594-71613_ch01_4Pindd 41 102017 404 PM
Figure 61 US Exports of Civilian Aircraft Engines Equipment and Parts to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
$2500000000
$2000000000
$1500000000
$1000000000
$500000000
$-
Figure 62 US Exports of Drilling and Oil Field Equipment US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
$40000000
$45000000
$50000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 42 102017 404 PM
Figure 63 US Exports of Industrial Engines to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Figure 64 US Exports of Phar ma ceu ti cal Preparations to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 43 102017 404 PM
Figure 65 US Exports of Meat and Poultry to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Meat poultry etc
$1000000000
$800000000
$600000000
$400000000
$200000000
$-
$1200000000
$1400000000
$1600000000
Figure 66 US Exports of Soybeans to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
$200000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 44 102017 404 PM
Figure 67 US Exports of Vehicles Engines and Parts to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Other parts and accessories of vehicles
Automotive tires and tubes
Bodies and chassis for passenger cars
Engines and engine parts (carburetors pistonsrings and valves)
Trucks buses and special purpose vehicles
Passenger cars new and used
$2500000000
$2000000000
$1500000000
$500000000
$-
$1000000000
Figure 68 US Exports of Medicinal Equipment to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 45 102017 404 PM
Figure 610 US Exports to Rus sia by States (2016 US$ Value) Million US$ 2013ndash2016
Source US Census Bureau ldquoState and Metropolitan Area Trade Datardquo
Iowa Kentucky
North Dakota
Oklahoma
South Carolina
Washington
0
$500
$1000
$1500
$2000
2013 2014 2015 2016
District of Columbia
Iowa
Kentucky
North Dakota
Oklahoma
South Carolina
Washington
Figure 69 US Exports of Excavating Machinery to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
$40000000
$45000000
$50000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 46 102017 404 PM
47
Upon reviewing the current trend in US- Russia economic relations we must acknowledge that
the existing trade model is obsolete and exhausted Imports are resource- oriented and reflect
constraints of the Rus sian economic structure while five groups of goodsmdash oil metals nuclear
fuels fertilizers and fishmdash make up more than 90 percent of total imports from Rus sia (Figure 71)
Each of these industries has a limited capacity for growth in the foreseeable future
Rus siarsquos core export to the United Statesmdash oilmdash will inevitably decrease in the mid- term under any
scenario The value and volume of Rus sian exports to the United States are open to global market
volatility and po liti cal pressures with limited hedging mechanisms
Overall US exports to Rus sia are unsustainable due to bilateral po liti cal tensions the whims of
commodity markets and changing domestic policies Sanctions and counter- sanctions have
created additional barriers particularly in finance banking high- tech energy and agro- business
According to the American Chamber of Commerce 69 percent of US companies working in the
country consider the impact of US sanctions against Rus sia on their business as negative At the
same time 60 percent of companies do not expect big changes in business relations between
Rus sia and the United States under Trump1 as the new law codifies existing sanctions fortifies
them and extends them to new sectors
Current US investments are low due to the weak rule of law in Rus sia a lack of property right
protections and proper contract enforcement high levels of statization and monopolization in the
economy a poor business climate outdated capital stock dependence on natural- resource
sectors and of course sanction and counter- sanction mea sures Bloated administrative compo-
nents created as risk mitigation instruments have also served as impediments The countryrsquos
institutional weakness low level of productivity bud get constraints and a declining inflexible
workforce will restrain future economic growth even if commodity prices recover Rus sian eco-
nomic policy will likely continue to be statist and protectionist relying mostly on import
substitutions
1 Ibid 11
Existing Trends and Future Scenarios
07
594-71613_ch01_4Pindd 47 102017 404 PM
US-Russia Economic Relations48
What scenarios can be expected in such a challenging environment
One probability (no peace no war) is based on the assumption that matters will not deteriorate
further and implementation of the Sanctions Act will be cursory This will cause relatively slow
degradation in the economic field with occasional flashes of activity in selected areas (eg closer
cooperation against Islamist terrorist groups in Syria)
A second worse case or critical scenario is the intensive and full- scale execution of current sanc-
tion legislation and even the imposition of new economic punitive and restrictive mea sures which
could incite asymmetric retaliatory actions and lead to the introduction of additional protectionist
policies This in turn could trigger a further escalation of mutual confrontation and could eventu-
ally destroy the fundamentals of the current bilateral trade system Rus sian leadership has charac-
terized the Sanctions Act as a declaration of a trade war that ends all hope for improving bilateral
relations2
2 Дмитрий Медведев ldquoПодписание президентом США нового санкционного закона против России создает несколько
последствийrdquo [The US Presidentrsquos signing of the package of new sanctions against Rus sia will have a few conse-
quences] Facebook August 2 2017 https wwwfacebook com Dmitry Medvedev posts 10154587161801851
Figure 71 US Imports from Rus sia Share of Oil Metals Nuclear Fuel Fertilizers and Fish Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
93
94
93
94
95
96
93
92
87
89
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals Nuclear FuelFertilizers and Fish
594-71613_ch01_4Pindd 48 102017 404 PM
Vadim Grishin 49
The best case and most favorable scenario looks less probable now It assumes the realization of
structural reforms in Rus sia in such a way that would adapt Rus siarsquos foreign policy to national
economic needs reduce confrontations with the West and make a concerted efort to integrate
Rus sian businesses into global supply and value chains A revitalization of the structural reform
agendamdash including eforts to diversify economic activities through de- monopolization and support
for SMEs a restructuring of the banking sector the creation of a vibrant business climate to foster
entrepreneurships and innovation the implementation of administrative and judicial reforms to
tackle red tape and endemic corruption and the reduction of state control over key sectors of the
economy via wide- spread privatization could kick- start the development of a nonoil economy and
improve long- term growth prospects Despite ongoing discussion of reform strategies deep
economic and po liti cal changes are extremely complicated over the next po liti calelectoral cycle
(2018ndash2024) particularly because of re sis tance of vested interests and growing commodity prices
The urgency to tackle structural shortcomings in natu ral resource- dependent economies usually
correlates with the price of those resources and the degree to which resource rents drive eco-
nomic activity However there may be marginal improvements in the efficiency of the current
economic system
Future US- Russia relations can be thought of through three pillars one pillar focuses on areas
where both countries maintain a competitive rivalry another looks at potential areas of interaction
under pres ent conditions a third pillar and one that has evaporated from the current bilateral
agenda concentrates on future cooperation Stronger economic ties could not only be a kind of
po liti cal shock absorber but contribute to the building of this future (particularly business contacts
aim to support future structural reforms) although po liti cal factors are depressing the prospects
for cooperation To escape deadlock it will be impor tant to establish the right balance between
politics and economics and create a model of collaboration within the framework of contention
594-71613_ch01_4Pindd 49 102017 404 PM
About the Author
Vadim Grishin PhD MBA has been involved in the reform pro cess in Rus sia as adviser to the
deputy prime minister of Rus sia in 1992ndash1993 and 2006ndash2010 He has extensive experience
working with the Bretton Woods Institutions He was the board member of the World Bank Group
and served as se nior adviser at the International Monetary Fund Currently he is a con sul tant to the
chief economistrsquos office of the International Finance Corporation and teaches the economics of
transition at Georgetown University in Washington DC
50
594-71613_ch99_4Pindd 50 102017 403 PM
Blank
COVER PHOTO ADOBE STOCK
1616 Rhode Island Avenue NW
Washington DC 20036
202 887 0200 | wwwcsisorg
v++ISBN 978-1-4422-8035-9
Lanham bull Boulder bull New York bull London
4501 Forbes Boulevard
Lanham MD 20706
301 459 3366 | wwwrowmancom
A U T H O R
Vadim Grishin
Myths and Realities
A Report of the
CSIS RUSSIA AND EURASIA PROGRAM
US-RussiaEconomicRelations
O C T O B E R 2 0 1 7
Euml|xHSLEOCy280359z
The Man Pupu Nyor Rock Formations at the Northern Urals also known as Seven
Strong Man or Little Mountain of the God in the local tribe (Mansi) language
19
ARE LITTLE FISH REALLY SWEET
Low US- Russia economic interaction has at least two consequences First it limits the capacity of
policymakers to exploit trade as an instrument for geopo liti cal combat Even the question of a US
trade deficit which used to be a headache for many US trading partners has become so insig-
nificant in absolute terms (about $87 billion in 2016) that it seems hardly worth caring about
When the volume of trade between two countries becomes very small in absolute terms whether
a country is running a surplus or deficit is no longer relevant But it also renders another type of
confrontations (sometimes more dangerous) more likely since the two traders have little to lose
Second in an environment marked by low levels of bilateral trade both sides could incentivize (if
and when a desire for po liti cal rapprochement exists) the signing of new trade deals which are
elevated symbolically as a turning point in bilateral po liti cal relations (ie the sale of Boeings to
Rus sia or the delivery via tankers of Rus sian oil to US refineries) Sometimes markets themselves
pres ent ldquogiftsrdquo that can be capitalized on po liti cally US- USSR grain trade in the 1970s was one
such ldquogiftrdquo large sales of American grain to the Soviet Union helped US policymakers win favor
with the po liti cally impor tant American farming sector and permitted Soviet leaders to maintain
access to a dietary staple for the Soviet population
The strong 32 percent growth in value of US imports from Rus sia from January to May 2017
versus January to May 2016 ( Table 51) is an example of a development that has tempted officials
to pres ent it as a sign of positive change due to ldquogrowing business activitiesrdquo (this kind of statement
was heard before the bilateral summit in Germany in July 2017) although the reason for that leap
was evidently an increase in commodity prices (mainly of oilmdash see Table 52) and not a rise in
entrepreneurial interactions The primary beneficiaries of that upside rally have been two other
petro- economies Saudi Arabia and Venezuela ( Tables 53 and 54)
Sector Analyses
05
594-71613_ch01_4Pindd 19 102017 404 PM
US-Russia Economic Relations20
Table 51 US Imports from Rus sia Million US$ Januaryndash May 2016 vs Januaryndash May 2017
Year January February March April May Total
2016 9603 6871 11097 12257 10977 50805
2017 12215 10220 16979 13471 14147 67032
Change 271 487 530 99 289 319
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
Table 52 Change in Urals Crude Oil Prices US$ per Barrel Januaryndash May 2016 vs Januaryndash May 2017
Januaryndash May 2016 Januaryndash May 2017 Change ($) Change ()
3601 5129 1528 424
Source Ministry of Finance of the Rus sian Federation https wwwminfin ru ru ixzz4mMIZ7XtC
Table 53 US Imports from Saudi Arabia Million US$ Januaryndash May 2016 vs Januaryndash May 2017
Year January February March April May Total
2016 15114 9036 13555 10844 14679 63228
2017 19802 20298 21650 16211 19542 97503
Change 3101 12463 5972 495 331 542
Source US Census Bureau ldquoTrade in Goods with Saudi Arabiardquo Foreign Trade last modified June 29 2017
https wwwcensus gov foreign - trade balance c5170 html (see data for 2016ndash2017)
594-71613_ch01_4Pindd 20 102017 404 PM
Vadim Grishin 21
Table 54 US Imports from Venezuela Million US$ Januaryndash May 2016 vs Januaryndash May 2017
Year January February March April May Total
2016 6657 5560 7140 8007 7922 35286
2017 13041 10864 123500 11148 12243 59646
Change 9590 9540 7297 3923 5454 6903
Source US Census Bureau ldquoTrade in Goods with Venezuelardquo Foreign Trade last modified June 29 2017
https wwwcensus gov foreign - trade balance c3070 html (see data for 2016ndash2017)
Table 55 US Exports to Rus sia Million US$ Januaryndash May 2016 vs Januaryndash May 2017
Year January February March April May Total
2016 3628 3577 7298 4657 4947 24107
2017 3144 4277 5386 6670 4806 24283
Change minus133 196 minus262 432 minus29 minus07
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2016ndash2017)
At the same time US exports to Rus sia continue to stagnate ( Table 55) due to low levels of
consumption during a two-and- a- half-year economic crisis a deep ruble devaluation sanctions
and counter- sanctions
Given the very dif er ent economic structures and resource endowments of Rus sia and the United
States it is not surprising that US- Russia trade is asymmetric and oil driven (Figure 51) A
3 percent increase in Urals oil prices translates into a one percent increase in US import growth
from Rus sia Thus in 2016 every $10 increase in Urals crude oil added $15 billion to the value of
US imports or 11 percent to the total value of imports from Rus sia
OIL ADDICTION
Oil is a core pillar of US- Russia bilateral trade A bumpy ride in oil markets afects commerce
Nevertheless Rus sian oil exports to the United States in physical terms have been rather
594-71613_ch01_4Pindd 21 102017 404 PM
US-Russia Economic Relations22
sustainable Starting from 2005 average annual deliveries have been above 150 million barrels
(Figure 52) Crude and heating oil have dominated while petroleum products and liquefied petro-
leum gases have not (Figure 53) In 2011 oil exports peaked at 228 million barrels but declined to
159 million barrels in 2016mdash a drop of 30 percent Rec ord high shipments of Rus sian oil to the United
States coincided with an elevation in oil prices which made the subsequent decline in oil shipment
value between 2011 and 2016 (by about 72 percent as shown in Figure 54) seem more stark The
increase in price also raised the share of oil in Rus sian exports by 74 percent in 2011 (Figure 55)
The Rus sian share in total US oil imports was around 55 percent in 2011 and 43 percent in 2016
( Table 56) In the last five years the United States has relied exclusively on consumption of Rus sian
oil for the rough equivalent of one week out of the year (Figure 56)
It is unlikely that Rus sia can significantly increase its share of the US oil market and there is a real
possibility for a downward trend There are several reasons the historically high Rus sian hydrocar-
bon export threshold of 2011 will not soon if ever be surpassed
First US energy consumption will likely be flat According to the US Energy Information Adminis-
tration (EIA) demand for petroleum and other liquids in the United States will be about 35ndash36
quadrillion British thermal units (BTUs) with minimal variation over the next 25 years1
1 US EIA ldquoAnnual Energy Outlook 2017 with Projections to 2050rdquo January 5 2017 7ndash8
Figure 51 US- Russia Trade Growth () vs US and Rus sia Real GDP Growth () 1993ndash2016
Source IMF ldquoIMF Datardquo accessed September 27 2017 http wwwimf org en Data US Census Bureau
ldquoTrade in Goods with Rus siardquo
Note rGDPthinsp=thinspreal gross domestic product
Trade
USA rGDP growth
Russia rGDP growth
-60
-40
-20
0
20
40
60
80
100
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Gro
wth
All spikes in US-Russia trade have been connected with two main
variables volume and price of crude oil
594-71613_ch01_4Pindd 22 102017 404 PM
Vadim Grishin 23
Second the United States will become a net energy exporter between 2020 and 2030 in most
cases under dif er ent combinations of oil and natu ral gas prices GDP growth technological
breakthroughs and the availability of energy resources The role of oil imports will dramatically
fall2
Third oil price scenarios as described by the International Energy Agency (IEA) international
financial organ izations (IFIs) and many national agencies are very cautious and assume that even
by 2035 to 2040 oil prices will not to recover to the levels of 2011ndash20123
Fourth Rus sian oil production and export growth will be modest and driven by Asian economic
expansion and will comprise a decreasing share of Western markets4 According to forecasts from
2 Ibid 15ndash18
3 Ibid table 3 ldquoEnergy Prices by Sector and Sourcesrdquo World Bank World Bank Commodity Markets Price Forecasts
(Washington DC World Bank 2017) httpswwwworldbank org en research commodity - markets Organ ization of the
Petroleum Exporting Countries (OPEC) World Oil Outlook 2016 (Vienna OPEC 2016)
4 E D Belotskaia et al Global and Rus sian Energy Outlook 2016 (Moscow Energy Research Institute of the Rus sian
Acad emy of Science Analytical Center for the Government of the Rus sian Federation 2016) http acgov ru files
publication a 12767 pdf
Figure 52 US Imports from Rus sia Crude Oil and Petroleum Products Thousands of Barrels 1995ndash2016
Source US EIA ldquoUS Imports by Country of Origin Rus siardquo Petroleum amp Other Liquids September 13
2017 http wwweia gov dnav pet PET _ MOVE _ IMPCUS _ D _ NUS _ NRS _ MBBL _ M htm
0
50000
100000
150000
200000
250000
Date 1995 1996 1997 1998 199920002001200220032004200520062007200820092010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 23 102017 404 PM
US-Russia Economic Relations24
the Organ ization of the Petroleum Exporting Countries (OPEC) crude oil exports from Rus sia and
the Caspian region to the United States will dis appear by 20255
So why does the Rus sian Urals blend continue to be attractive for oil traders and US refineries
which could pro cess greater volumes of domestically produced lighter crude There are two main
reasons One is related to the preference of US high conversion refineries (the most sophisticated
in the world) to work with heavy oil blends produced by Canada Mexico Iraq Venezuela and
Rus sia Pro cessing heavy crude now is as profitable as pro cessing lighter crude The so- called
crack spreadmdash the diference between the cost of relatively cheap heavy crude oil and the final
price of value- added consumer products (diesel gasoline jet fuel and heating oil)mdash has become
the same as the refinery margins of light sweet crude6 This has primarily afected light oil produc-
ing countries such as Angola Algeria and Nigeria
5 OPEC World Oil Outlook 2016 306ndash309
6 ldquoHow Much for That Heavy Oilrdquo Oil Sands Magazine December 26 2015 https wwwoilsandsmagazine com
news 2015 12 26 how - much - for - that - heavy - oil
Figure 53 US Imports from Rus sia Oil and Petroleum Products US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$-
$25000000000
$20000000000
$15000000000
$10000000000
$5000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Liquefied petroleum gases
Petroleum products other
Fuel oil
Crude oil
594-71613_ch01_4Pindd 24 102017 404 PM
Vadim Grishin 25
Another factor afecting purchase of Rus sian oil is a new trend among oil companies for further
consolidation of scale and for integrating operations of upstream and downstream business7
There have been several waves of separation and unification of production transportation and
pro cessing in the last 50 years The current business cycle can be seen as an adaptation to a
period of low prices and oversupply Companies that buy andor produce oil in Rus sia most likely
prefer to transport and pro cess this oil in their own modern refineries in the United States At the
same time some of the newest refinery designs specifically for pro cessing heavy oils have been
built in Asia thus extending the choices of heavy oil producing countries
We should also consider that leading US and international oil traders along with oil producing
companies working with or owning US refineries frequently buy Rus sian oil on the open market
and have long- term contracts on Rus sian crude oil delivery Many Rus sian oil companies prefer to
pay for purchases or ser vices with their future production instead of cash creating situations of
ldquostickyrdquo oil imports that are difficult to replace The best- known example is an interaction between
7 ldquoEnergy and Utilities Sectorrdquo Roundtable Financier Worldwide December 2015 https wwwfinancierworldwide
com roundtable - energy - utilities - sector - dec15
Figure 54 US Imports of Oil and Petroleum Products from Rus sia vs Oil Prices Eu rope Brent Spot Price Free on Board (FOB) 1996ndash2017
Source US EIA ldquoUS Imports by Country of Origin Rus siardquo
0
20
40
60
80
100
120
140
0
5000
10000
15000
20000
25000
30000
Jan
-19
96
Jun
-19
96
No
v-19
96
Ap
r-19
97
Sep
-19
97
Feb
-19
98
Jul-
199
8D
ec-1
99
8M
ay-1
99
9O
ct-1
99
9M
ar-2
00
0A
ug
-20
00
Jan
-20
01
Jun
-20
01
No
v-2
00
1A
pr-
20
02
Sep
-20
02
Feb
-20
03
Jul-
20
03
Dec
-20
03
May
-20
04
Oct
-20
04
Mar
-20
05
Au
g-2
00
5Ja
n-2
00
6Ju
n-2
00
6N
ov-
20
06
Ap
r-2
00
7Se
p-2
00
7Fe
b-2
00
8Ju
l-2
00
8D
ec-2
00
8M
ay-2
00
9O
ct-2
00
9M
ar-2
010
Au
g-2
010
Jan
-20
11Ju
n-2
011
No
v-2
011
Ap
r-2
012
Sep
-20
12Fe
b-2
013
Jul-
20
13D
ec-2
013
May
-20
14O
ct-2
014
Mar
-20
15A
ug
-20
15Ja
n-2
016
Jun
-20
16N
ov-
20
16
USD
per
Bar
rel
Th
ou
san
d B
arr
els
US Imports from Russia of Crude Oil and Petroleum Products (Thousand Barrels)
Europe Brent Spot Price FOB (Dollars per Barrel)
594-71613_ch01_4Pindd 25 102017 404 PM
US-Russia Economic Relations26
Table 56 US Oil Imports All Countries vs Rus sia Thousand Barrels per Day 2011ndash2016
Years 2011 2012 2013 2014 2015 2016
All Countries 11436 10598 9859 9241 9449 10058
Rus sia 624 477 460 330 371 433
Share 546 450 467 357 393 431
Sources US EIA ldquoUS Imports by Country of Origin Total Crude Oil and Productsrdquo Petroleum amp Other
Liquids September 13 2017 wwweia gov dnav pet pet_move_impcus_a2_nus_ep00_im0_mbbl_m htm
authorrsquos computation
Figure 55 US Imports from Rus sia Share of Crude Oil and Petroleum Products Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
57
64
73
72
74
73
72
59
52 50
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
$40000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil and Petroleum Products
594-71613_ch01_4Pindd 26 102017 404 PM
Vadim Grishin 27
the Rus sian state mono poly Rosneft and commodity trading and mining giant Glencore which
along with energy and commodities com pany Vitol participated in a $10 billion prepayment
deal with Rosneft for crude supplies in 2013
There have been a number of ongoing transactions between the Rus sian oil industry and interna-
tional oil companies including several that top the list of importers of Rus sian oil to the United
States ( Table 57) In December 2016 Glencore participated in a controversial privatization opera-
tion purchasing in tandem with the Qatar sovereign wealth fund a 195 percent stake in Rosneft
which was on the US and EU list of sanctioned firms8 Glencore has also taken a blocking stake in
midsize oil producer RussNeft BP owns a 1975 percent stake in Rosneft Chevron holds a
15 percent interest in the 935- mile- long CPC9 pipeline which transports an average of 959000
barrels of crude oil per day including 76000 barrels daily from Rus sia10 ExxonMobil has formed
8 E Mazneva and I Arkhipov ldquoRus sia Sells $11 Billion Stake in Rosneft to Glencore Qatarrdquo Bloomberg December 7
2016
9 CPCthinsp=thinspCaspian Pipeline Consortium
10 ldquoRus sia Highlights of Operations and Business Portfoliordquo Chevron accessed October 3 2017 https wwwchevron
com worldwide russia
Figure 56 Share of Rus sian Oil in Total US Oil Imports Thousands of Barrels per Day 1972ndash2016
Source US EIA ldquoUS Imports by Country of Origin Total Crude Oil and Productsrdquo
2000
4000
6000
8000
10000
12000
14000
16000
US Imports of Crude Oil and Petroleum Products (Thousand Barrels per Day)
US Imports from Russia of Crude Oil and Petroleum Products (Thousand Barrels per Day)19
7319
7419
7519
7619
7719
7819
7919
80
198
119
82
198
319
84
198
519
86
198
719
88
198
919
90
199
119
92
199
319
94
199
519
96
199
719
98
199
92
00
02
00
12
00
22
00
32
00
42
00
52
00
62
00
72
00
82
00
92
010
20
112
012
20
132
014
20
152
016
594-71613_ch01_4Pindd 27 102017 404 PM
Table 57 Top Importers of Rus sian Oil to the United States Thousands of Barrels 2016
VALERO MARKETING amp SUPPLY CO 54590 3616
EXXONMOBIL OIL CORP 17087 1130
CHEVRON USA INC 15217 1008
BP WEST COAST PRODUCTS LLC 10130 671
GEORGE E WARREN CORP 7272 48
PAULSBORO REFINING CO LLC 6838 453
TESORO CORP 5097 338
VITOL INC 5084 337
PHILLIPS 66 CO 4726 313
TRAFIGURA AG 4360 289
PAR HAWAII REFINING LLC 3893 258
MOTIVA ENTERPRISES LLC 3041 205
SHELL US TRADING CO 2863 19
MARATHON PETROLEUM CO LLC 2475 16
ATLANTIC TRADING amp MARKETING 2099 14
FREEPOINT COMMODITIES LLC 1439 1
GLENCORE LTD 1284 85
BEST PETROLEUM CORP 967 64
ROLYMPUS US COMMODITIES GROUP LLC 822 6
HUNT CRUDE OIL SUPPLY CO 666 4
GULF OIL LP 658 4
Source US EIA ldquoUS Imports by Country of Origin Crude Oilrdquo Petroleum amp Other Liquids September 13
2017 httpswwweiagovdnavpetpet_move_impcus_a2_nus_epc0_im0_mbblpd_ahtm authorrsquos
computation
594-71613_ch01_4Pindd 28 102017 404 PM
Vadim Grishin 29
several joint ventures with Rosneft to undertake ofshore exploration in the Black Sea and the Kara
Sea in Siberia11
According to the Sanctions Act US persons are prohibited from exporting or reexporting goods
ser vices (except financial ser vices) and technology in support of exploration or production of new
deep- water Arctic ofshore or shale oil proj ects that involve designated Rus sian entities or other
entities in which such sanctioned persons have a controlling interest or a substantial noncontrol-
ling owner ship interest defined as not less than 33 percent (previously it was 50 percent) The new
law also authorizesmdash but does not requiremdash the imposition of so- called secondary sanctions
against non- US entities that engage in activities involving the construction maintenance or
expansion of Rus sian energy export pipelines with a fair market value of $1 million or more or an
aggregate fair market value during a 12- month period of $5 million12 This provision has raised the
concerns of some Eu ro pean countries particularly Germany As result the final language of the
law included wording about coordination of this issue with allies of the United States
Shipments of Rus sian oil to the United States could be afected by activity in the US refinery
industry In early 2017 Saudi Aramco bought the United Statesrsquo largest oil refinery in Port Arthur
(Texas) and it announced plans to send more of its own crude to that refinery13 Serious concerns
exist however regarding the future of three refineries and nine pipelines owned by Citgo a US
branch of the Venezuelan state com pany PdVSA which is balancing precariously on the edge of
default Under certain conditions in the event of PdVSA bankruptcy Rosneft could claim a stake of
up to 499 percent in Citgo Such a possibility has raised concerns among politicians and US
government officials with Trea sury Secretary Steven Mnuchin calling it a ldquonational security issuerdquo14
Tables 58 59 and 510 show allocations of Rus sian oil imports to major US refineries some of
which work exclusively on Rus sian crude a total of two to three months per year In total 150940
thousand barrels of Rus sian oil were refined in 2016
Figure 57 confirms a leading position of Texas and Louisiana among the US states receiving
Rus sian crude followed by New Jersey California Mississippi Washington Hawaii and Delaware
In a paradoxical way Texas has dis appeared from the list of states as a main destination of US
imports from Rus sia (Figure 58) because Rus sian crude is mostly delivered to Louisiana ports and
registered there by US Customs as an import from Rus sia After that it transports to refineries in
Louisiana and Texas
Overall the short- term business rationale behind the sustainability of US oil imports from Rus sia
cannot overcome strong headwinds in the US energy sector facing all oil importers which will
inevitably lead to a contraction of Rus sian oil exports to the United States in the foreseeable future
11 Exxon eforts to receive a special US Trea sury waiver to drill in sanctioned Rus sia failed in 2017
12 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364
13 Sarp Ozkan ldquoSaudi Aramcorsquos Port Arthur Refinery and the US Refinery Fleetrdquo Drilling Info May 11 2017
https infodrillinginfo com saudi - aramcos - port - arthur - refinery - us - refinery - fleet
14 Graham Kates ldquoTrea sury Secretary Rus siarsquos Citgo Deal a National Security Issuerdquo CBS News May 1 2017
http wwwcbsnews com news rosneft - citgo - steven - mnuchin - national - security
594-71613_ch01_4Pindd 29 102017 404 PM
US-Russia Economic Relations30
Table 58 Valerorsquos Refineries Pro cessing Rus sian Oil Thousands of Barrels 2016
Saint Charles Louisiana 29206 535
Corpus Christi Texas 20626 378
Wilmington California 4250 78
Total USA 54590 100
Source US EIA ldquoRefinery Capacity Reportrdquo January 1 2017
table 5 wwweia gov petroleum refinerycapacity table5 pdf
authorrsquos computation
Table 59 ExxonMobil Refineries Pro cessing Rus sian Oil Thousands of Barrels 2016
Baytown Texas 15037 88
Baton Rouge Louisiana 2046 12
Total USA 17083 100
Source US EIA ldquoRefinery Capacity Reportrdquo authorrsquos computation
Table 510 Chevronrsquos Refineries Pro cessing Rus sian Oil Thousands of Barrels 2016
Pascagoula Mississippi 12767 840
El Segundo California 2372 155
Saint Rose Louisiana 78 05
Total USA 15217 100
Source US EIA ldquoRefinery Capacity Reportrdquo authorrsquos computation
594-71613_ch01_4Pindd 30 102017 404 PM
Vadim Grishin 31
HEAVY METAL
Taken together US imports of metals and US imports of oil compose about 80 percent of US
total imports from Rus sia (Figure 59) Trade of metals like other commodities is strongly afected
by market price fluctuations Nevertheless metal imports from Rus sia have been fairly resilient to
market volatility and their average annual value has hovered at about $4 billion in the last five years
(Figure 510) This market resilience was forged at the end of the 1990searly 2000s when Rus sian
metal producers gradually modernized their plants adjusting quality of production to Western
standards and enhancing integration into global value and supply chains Some of them conquered
their share of the highly competitive US market struggling with peers from Canada and certain
BRICS countries (China India and Brazil) To attract additional resources all Rus sian large metal-
producing companies became public and were listed on stock exchanges chiefly the London Stock
Exchange (Severstalrsquo PAO Evraz MMK OAO Novolipetsk Steel Norilsk Nikel and TMK PAO) one
on the New York Stock Exchange (Mechel) and one on the Hong Kong Stock Exchange (Rusal)
Business logic pushed some of them to invest in the US metal- making industry which was hit
hard by crisis Later on some of those assets were sold (eg two US steel mills acquired by
Severstal in 2004 were purchased 10 years later by Steel Dynamics Inc and AK Steel Corp)
Figure 57 Share of US States Rus sian Oil Imports 2016
Source US EIA ldquoUS Imports from Rus sia of Crude Oil and Petroleum Productsrdquo Petroleum amp Other
Liquids September 29 2017 https www eia gov dnav pet hist LeafHandler ashx nshy=shyPETampsshy=shyMTTIM _ NUS
- NRS _ 1ampfshy=shyM authorrsquos computation
0
10
20
30
40
50
60
70
80
90
100
Maine
Massachusetts
Maryland
Connecticut
Georgia
Rhode Island
Virginia
Florida
New York
Alabama
Puerto Rico
Pennsylvania
Delaware
Hawaii
Washington
Mississippi
California
New Jersey
Louisiana
Texas
594-71613_ch01_4Pindd 31 102017 404 PM
Figure 58 US Imports from Rus sia by State Million US$ 2013ndash2016
Source US Census Bureau ldquoState and Metropolitan Area Trade Datardquo Foreign Trade last modified
October 2 2017 https wwwcensus gov foreign - trade statistics state
Alaska
Connecticut
Delaware
Hawaii
Louisiana
Maryland
North Dakota 0
$1000
$2000
$3000
$4000
$5000
$6000
2013 2014 2015 2016
Alabama
Alaska
Connecticut
Delaware
Hawaii
Louisiana
Maryland
Maine
Mississippi
Montana
North Dakota
Mississippi
Figure 59 US Imports from Rus sia Share of Oil and Metals Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
83
82
85
86
87
88
85
82
7375
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
$40000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil and Metals
594-71613_ch01_4Pindd 32 102017 404 PM
Vadim Grishin 33
Obviously the market dynamic of dif er ent metals varies (eg iron steel aluminum platinum and
nickel) Caps to increase their trade and production in a ldquored oceanrdquo global environment with
anemic demand is rather limited despite Figure 510 showing a spike of iron and steel imports
from Rus sia in 2014 and aluminum in 2016 Some opportunities may exist for Russian- owned steel
plants in the United States (such as NLMK) to participate in energy proj ects resumed under Presi-
dent Trump who has required that new pipelines use only American- made steel15
Rus sia occupies a special niche in the US market for titanium products a high- end metal indus-
try Twenty years ago a long- term contract was signed between Rus sian titanium producer
VSMPO- AVISMA and Boeing The Rus sian com pany entered the selective club of Boeing suppliers
for the manufacture of components and semi- finished products Since the signing of this contract
VSMPO has delivered more than 35 percent of all titanium placed on Boeing civil aircraft16 They
are hidden in the trade data in an import category for Civilian Aircrafts and Parts (Figure 511) At
the end of 2016 Boeing announced an extension of its framework agreement with AVISMA
15 E Scheyder C Ngai and T Sylvester ldquoAmerican Steel Unlikely to Get Keystone Boost Despite Trump Orderrdquo
Reuters January 27 2017 http wwwreuters com article usa - trump - pipeline - transcanada - idUSL1N1FH1ZD
16 A Kramer ldquoTitanium Fills Vital Role for Boeing and Rus siardquo New York Times July 5 2013 http wwwnytimes com
2013 07 06 business global titanium - fills - vital - role - for - boeing - and - russia html mcubzshy=shy3
Figure 510 US Imports from Rus sia Iron Steel Bauxite Aluminum Nickel Nonferrous Metals and Other Precious Metals and Materials US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
0
$6000000000
$5000000000
$4000000000
$3000000000
$2000000000
$1000000000
2007 2008 2009 2010 2011 20122013
20142015
2016
Finished metal shapes
Iron and steel advanced
Iron and steel products nec
Nonferrous metals other
Other precious metals
Nickel
Bauxite and aluminum
Iron and steel mill products
Steelmaking materials
594-71613_ch01_4Pindd 33 102017 404 PM
US-Russia Economic Relations34
through 2022 and additional investments in the construction of a new robotic plant in Titanium
Valley a special economic zone located in the Sverdlovsk region that will open in 2018 The pro-
cessing of titanium forgings in all Boeing civil aircraft will be performed there including 787s 737
MAXs and 777Xs17 The contract extension with AVISMA may add several hundred million dollars
in value to annual US imports from Rus sia
How can such heavy reliance on imports of Rus sian titanium exist during a period of rising geopo-
liti cal tensions The answer is straightforward VSMPO- AVISMA is a highly specialized natu ral
mono poly producing 45 percent of the worldrsquos aerospace titanium Only four other countries
smelt high- grade titanium in industrial quantities the United States Germany Japan and China
Overall global production capacity is limited while demand is growing The United States cur-
rently imports around 79 percent of all the titanium it consumes each year18
17 ldquoBoeing and VSMPO Avisma to Launch Second Joint Production Siterdquo Rus sian Aviation Insider December 22 2016
http wwwrusaviainsider com boeing - and - vsmpo - avisma - to - launch - second - joint - production - site
18 Jon Ostrower and Andy Pasztor ldquoBoeing United Technologies Stockpile Titanium Partsrdquo Wall Street Journal
August 7 2014 https wwwwsj com articles boeing - united - technologies - stockpiling - titanium - parts - 1407441886
Figure 511 US Imports from Rus sia Civilian Aircrafts and Parts US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
$200000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Parts-civilian aircraft
Civilian aircraft
594-71613_ch01_4Pindd 34 102017 404 PM
Vadim Grishin 35
The Sanctions Act authorizes the secretary of the trea sury (in a nonmandatory way) to impose
restrictions (without specifying them) against Rus sian state- owned entities operating in the railway
metals and mining sectors of the Rus sian economy Despite the commanding heights of Rus siarsquos
state sector owner ship in its economy (70 percent of GDP) the metal- producing companies have
remained mostly in private hands
NUCLEAR AFFAIRS
Historically owners and operators of the 104 commercial nuclear power reactors in the United
States have purchased more than 80 percent of their uranium from foreign countries Uranium
shipping from Rus sia accounted for about 13 percent of the 58 million pounds of uranium pur-
chased overseas in 201219 At the same time the Rus sian state- owned mono poly Rosatom ac-
counts for 20 percent of Kazakhstanrsquos uranium production (which in turn comprises 11 percent of
all US uranium imports) and 20 percent of US domestic uranium production capacity (with
owner ship of exploration tracts in Wyoming)20
Nuclear fuel and nuclear power continue to be po liti cally sensitive topics both in the United
States and Rus sia Bilateral cooperation in this sector (being surprisingly stable with imports of
nuclear fuel from Rus sia at a level of $1 billion annually in the last five years [Figure 512 and 513])
is under constant po liti cal and lobbying pressure and has been a source of several po liti cal scan-
dals21 Consequently upside risks in this area of interaction are minimal and downside risks are
much higher especially when we are seeing more decommissioning of nuclear plants in the
United States than new constructions The US EIArsquos 2017 Annual Energy Outlook assumes
that about 25 percent of the nuclear capacity now operating will be removed from ser vice
by 205022
WHY IS THE GRASS GREENER ON THE OTHER SIDE
The United States continues to significantly reduce imports of chemical fertilizers as domestic pro-
duction increases In 2016 the United States imported 13 percent less ammonia and 11 percent
less urea and UAN which is a liquid urea and ammonium nitrate fertilizer Rus sia accounts for
around 40 percent of UAN imported by the United States The United States canceled antidumping
duties on imports of ammonium nitrate and urea from Rus sia in 2016 but it did not prevent import
19 US EIA ldquoThe US Relies on Foreign Uranium Enrichment Ser vices to Fuel Its Nuclear Power Plantsrdquo Today in
Energy August 28 2013 https wwweia gov todayinenergy detail php idshy=shy1273
20 Colin Chilcoat ldquoDoes Rus sia Really Own 20 Percent of the USrsquo Uranium Reservesrdquo OilPricecom May 6 2015
http oilpricecom Alternative - Energy Nuclear - Power Does - Russia - Really - Own - 20 - Of - The - US - Uranium - Reserves
html
21 Michelle Ye Hee Lee ldquoThe Facts behind Trumprsquos Repeated Claim about Hillary Clintonrsquos Role in the Rus sian Ura-
nium Dealrdquo Washington Post October 26 2016
22 US EIA ldquoAnnual Energy Outlook 2017 with Projections to 2050rdquo 81ndash82
594-71613_ch01_4Pindd 35 102017 404 PM
Figure 512 US Imports from Rus sia Share of Oil Metals and Nuclear Fuel Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
87
86
90
90
90
91
88
86
7882
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals and Nuclear Fuel
Figure 513 US Imports from Rus sia Nuclear Fuel Materials US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$-
$200000000
$400000000
$600000000
$800000000
$1200000000
$1000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 36 102017 404 PM
Vadim Grishin 37
drops twice last year (Figures 514 and 515) According to forecasts UAN imports are expected to
decline further to 15 million tons this year down over 46 percent from 28 million tons imported
last year23 The downside trend in imports of fertilizers will likely continue because of oversupply
BIG FISH
US imports of fish and shellfish from Rus sia are best understood in comparison with US fish
exports to the Rus sian market which slipped to zero in August 2014 after Rus sia issued an order
banning certain agricultural imports from the United States (Figure 516) While the volume of US
supply was not very large it was impor tant because it broke up the monopolistic dominance of a
few vertically integrated Rus sian companies that have kept prices high by restricting the entry of
new producers Seeking to implement import substitution policies Rus sia has tried to reduce
exports as well as imports of fish and seafood products in the last couple of years This symmetri-
cal approach was intended to ldquocompensaterdquo for a decrease of fish products in the domestic
23 Deepika Thapliyal ldquoPotashCorp Forecasts Sharp Drop in US Nitrogen Imports in 2017rdquo ICIS News February 7
2017 https wwwicis com resources news 2017 02 07 10076734 potashcorp - forecasts - sharp - drop - in - us - nitrogen
- imports - in - 2017
Figure 514 US Imports from Rus sia Share of Oil Metals Nuclear Fuel and Fertilizers Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
90
93
92
93
94
95
92
91
85
86
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals Nuclear Fuel and Fertilizers
594-71613_ch01_4Pindd 37 102017 404 PM
Figure 515 US Imports from Rus sia Chemical- Fertilizers US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
S-
$200000000
$400000000
$600000000
$800000000
$1000000000
$1200000000
$1400000000
$1600000000
$1800000000
$2000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Figure 516 US Exports to Rus sia Fish and Shellfish US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$10000000
$20000000
$30000000
$40000000
$50000000
$60000000
$70000000
$80000000
$90000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Fish and shellfish
594-71613_ch01_4Pindd 38 102017 404 PM
Vadim Grishin 39
consumer market caused by Rus siarsquos import ban but it has failed As result the group most af-
fected by the self- imposed counter- sanctions were Rus sian consumers
With a significant drop in fish imports a devaluation of the ruble and inflationary pressures on
seafood prices yearly consumption of fish in Rus sia has declined precipitously In 2015 alone
fish prices increased 20 percent and consumption dropped to 14 kilograms per person24 from
22 kilograms in 201425 In 2016 food rose to 355 percent of house hold expenditure as a result of
increases in food prices26 This has pushed vertically integrated fishing monopolies to sell even
more of their catch abroad rather than deliver to the Rus sian Federation (Figure 517) Thus we
cannot exclude the possibility of further growth in US fish and shellfish imports from Rus sia on a
marginal scale
24 Александр Савельев ldquoПотребление рыбы в России упало до 14 кг на человекаrdquo [Fish consumption in Rus sia fell to
14 kg per person] Экономика Интерфакс January 28 2015 http wwwinterfax ru business 492038
25 Илья Шестаков ldquoПотебление рыбы в России снизилось на 10 процентов из- за роста ценrdquo [Fish consumption in
Rus sia dropped by 10 percent due to price increases] RNS March 8 2017 https rnsonline consumer - market
Potreblenie - ribi - v - Rossii - snizilos - na - 10 - iz - za - rosta - tsen - 2017 - 03 - 08
26 Zoya Sheftalovich and Christian Oliver ldquoRus siarsquos Boom (Farming) Economyrdquo Politico November 8 2016 http
wwwpolitico eu article russias - boom - farming - economy
Figure 517 US Imports from Rus sia Fish and Shellfish US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$50000000
$100000000
$150000000
$200000000
$250000000
$300000000
$350000000
$400000000
$450000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 39 102017 404 PM
US-Russia Economic Relations40
SPACE ODYSSEY
Among high- end products beyond the top five groups of goods imported from Rus sia cheap and
efficient Rus sian engines have been used to launch US rockets into space for about 16 years
(Figure 518) There was a serious po liti cal strug gle around a 2014 ban on the purchase of Rus sian
RD-180 rocket engines revealing the conflicting business interests of power ful high- tech companies
This restrictive mea sure was temporary and was quickly lifted because of significant cost impacts
and risks of disruption to launch schedules27 For the same reason the Sanctions Act does not autho-
rize ldquothe imposition of any sanction or other condition limitation restriction or prohibition that
directly or indirectly impedes the supply by any entity of the Rus sian Federation of any product or
ser vice or the procurement of such product or ser vice by any contractor or subcontractor of the
United States or any other entity relating to or in connection with any space launch conducted for
the National Aeronautics and Space Administration or any other nonndash Department of Defense
customerrdquo28
Nevertheless many experts believe that US domestic alternatives to replace Rus sian engines will
be viable in five to eight years
27 Ken Dilanian ldquoWhy Does the US Use Rus sian Rockets to Launch Its Satellitesrdquo NBC News updated November 15
2016 http wwwnbcnews com why - does - u - s - use - russian - rockets - launch - its - satellites - n588526
28 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364
Figure 518 Spacecraft Excluding Military US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 40 102017 404 PM
41
Diversity and technological complexity are the most vis i ble advantages supporting US exports to
Rus sia Three major groups of export goods include civilian aircraft engines and parts (Figure 61)
drilling and oil field equipment (Figure 62) and industrial machines and engines (Figure 63)
Despite sanctions against the transfer of advanced oil producing and pro cessing technologies the
realization of US drilling and oil field equipment in Rus sia is sustainable although some bilateral
proj ects have been frozen
Another category of goods that has demonstrated resilience is the phar ma ceu ti cal industry (Fig-
ure 64) because most drugs in Rus sia are imported (about 70 percent of the Rus sian phar ma ceu-
ti cal market in value) Import substitution policies have had only modest results in this industry
As confirmed by American Chamber of Commerce surveys US exports to Rus sia are closely
connected to US FDI 30 percent of total imports of US companies working in the Rus sian
market come from the United States (more than $2 billion in 2016) In other words about
40 percent of all US exports to Rus sia are related to a US corporate- sector business pro cess in
the country The major sectors of activity of these companies are energy and natu ral resources
(52 percent) manufacturing (17 percent) information and communications technology or ICT
(13 percent) retail (7 percent) automotive industry (6 percent) phar ma ceu ti cal production
(1 percent) professional ser vices (05 percent) and other (2 percent)1
Some obvious constraints on US exports to Rus sia have resulted from a reduction in demand A
deterioration of bilateral relations and implementation of sanctions and counter- sanctions have
directly or indirectly afected all businesses Figures 65 and 66 provide data regarding a dramatic
drop in the sale of US agricultural production in Rus sia with all other categories of exports in
goods showing big cuts as well (see Figures 67ndash69)
Exports of civilian aircraft engines and parts put the state of Washington in first place among
other states as a leading exporter to the Rus sian market (Figure 610)
1 American Chamber of Commerce in Rus sia ldquoInvestment and Import to Rus sia 2nd Surveyrdquo 13
Diversity and Constraints
06
594-71613_ch01_4Pindd 41 102017 404 PM
Figure 61 US Exports of Civilian Aircraft Engines Equipment and Parts to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
$2500000000
$2000000000
$1500000000
$1000000000
$500000000
$-
Figure 62 US Exports of Drilling and Oil Field Equipment US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
$40000000
$45000000
$50000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 42 102017 404 PM
Figure 63 US Exports of Industrial Engines to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Figure 64 US Exports of Phar ma ceu ti cal Preparations to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 43 102017 404 PM
Figure 65 US Exports of Meat and Poultry to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Meat poultry etc
$1000000000
$800000000
$600000000
$400000000
$200000000
$-
$1200000000
$1400000000
$1600000000
Figure 66 US Exports of Soybeans to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
$200000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 44 102017 404 PM
Figure 67 US Exports of Vehicles Engines and Parts to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Other parts and accessories of vehicles
Automotive tires and tubes
Bodies and chassis for passenger cars
Engines and engine parts (carburetors pistonsrings and valves)
Trucks buses and special purpose vehicles
Passenger cars new and used
$2500000000
$2000000000
$1500000000
$500000000
$-
$1000000000
Figure 68 US Exports of Medicinal Equipment to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 45 102017 404 PM
Figure 610 US Exports to Rus sia by States (2016 US$ Value) Million US$ 2013ndash2016
Source US Census Bureau ldquoState and Metropolitan Area Trade Datardquo
Iowa Kentucky
North Dakota
Oklahoma
South Carolina
Washington
0
$500
$1000
$1500
$2000
2013 2014 2015 2016
District of Columbia
Iowa
Kentucky
North Dakota
Oklahoma
South Carolina
Washington
Figure 69 US Exports of Excavating Machinery to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
$40000000
$45000000
$50000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 46 102017 404 PM
47
Upon reviewing the current trend in US- Russia economic relations we must acknowledge that
the existing trade model is obsolete and exhausted Imports are resource- oriented and reflect
constraints of the Rus sian economic structure while five groups of goodsmdash oil metals nuclear
fuels fertilizers and fishmdash make up more than 90 percent of total imports from Rus sia (Figure 71)
Each of these industries has a limited capacity for growth in the foreseeable future
Rus siarsquos core export to the United Statesmdash oilmdash will inevitably decrease in the mid- term under any
scenario The value and volume of Rus sian exports to the United States are open to global market
volatility and po liti cal pressures with limited hedging mechanisms
Overall US exports to Rus sia are unsustainable due to bilateral po liti cal tensions the whims of
commodity markets and changing domestic policies Sanctions and counter- sanctions have
created additional barriers particularly in finance banking high- tech energy and agro- business
According to the American Chamber of Commerce 69 percent of US companies working in the
country consider the impact of US sanctions against Rus sia on their business as negative At the
same time 60 percent of companies do not expect big changes in business relations between
Rus sia and the United States under Trump1 as the new law codifies existing sanctions fortifies
them and extends them to new sectors
Current US investments are low due to the weak rule of law in Rus sia a lack of property right
protections and proper contract enforcement high levels of statization and monopolization in the
economy a poor business climate outdated capital stock dependence on natural- resource
sectors and of course sanction and counter- sanction mea sures Bloated administrative compo-
nents created as risk mitigation instruments have also served as impediments The countryrsquos
institutional weakness low level of productivity bud get constraints and a declining inflexible
workforce will restrain future economic growth even if commodity prices recover Rus sian eco-
nomic policy will likely continue to be statist and protectionist relying mostly on import
substitutions
1 Ibid 11
Existing Trends and Future Scenarios
07
594-71613_ch01_4Pindd 47 102017 404 PM
US-Russia Economic Relations48
What scenarios can be expected in such a challenging environment
One probability (no peace no war) is based on the assumption that matters will not deteriorate
further and implementation of the Sanctions Act will be cursory This will cause relatively slow
degradation in the economic field with occasional flashes of activity in selected areas (eg closer
cooperation against Islamist terrorist groups in Syria)
A second worse case or critical scenario is the intensive and full- scale execution of current sanc-
tion legislation and even the imposition of new economic punitive and restrictive mea sures which
could incite asymmetric retaliatory actions and lead to the introduction of additional protectionist
policies This in turn could trigger a further escalation of mutual confrontation and could eventu-
ally destroy the fundamentals of the current bilateral trade system Rus sian leadership has charac-
terized the Sanctions Act as a declaration of a trade war that ends all hope for improving bilateral
relations2
2 Дмитрий Медведев ldquoПодписание президентом США нового санкционного закона против России создает несколько
последствийrdquo [The US Presidentrsquos signing of the package of new sanctions against Rus sia will have a few conse-
quences] Facebook August 2 2017 https wwwfacebook com Dmitry Medvedev posts 10154587161801851
Figure 71 US Imports from Rus sia Share of Oil Metals Nuclear Fuel Fertilizers and Fish Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
93
94
93
94
95
96
93
92
87
89
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals Nuclear FuelFertilizers and Fish
594-71613_ch01_4Pindd 48 102017 404 PM
Vadim Grishin 49
The best case and most favorable scenario looks less probable now It assumes the realization of
structural reforms in Rus sia in such a way that would adapt Rus siarsquos foreign policy to national
economic needs reduce confrontations with the West and make a concerted efort to integrate
Rus sian businesses into global supply and value chains A revitalization of the structural reform
agendamdash including eforts to diversify economic activities through de- monopolization and support
for SMEs a restructuring of the banking sector the creation of a vibrant business climate to foster
entrepreneurships and innovation the implementation of administrative and judicial reforms to
tackle red tape and endemic corruption and the reduction of state control over key sectors of the
economy via wide- spread privatization could kick- start the development of a nonoil economy and
improve long- term growth prospects Despite ongoing discussion of reform strategies deep
economic and po liti cal changes are extremely complicated over the next po liti calelectoral cycle
(2018ndash2024) particularly because of re sis tance of vested interests and growing commodity prices
The urgency to tackle structural shortcomings in natu ral resource- dependent economies usually
correlates with the price of those resources and the degree to which resource rents drive eco-
nomic activity However there may be marginal improvements in the efficiency of the current
economic system
Future US- Russia relations can be thought of through three pillars one pillar focuses on areas
where both countries maintain a competitive rivalry another looks at potential areas of interaction
under pres ent conditions a third pillar and one that has evaporated from the current bilateral
agenda concentrates on future cooperation Stronger economic ties could not only be a kind of
po liti cal shock absorber but contribute to the building of this future (particularly business contacts
aim to support future structural reforms) although po liti cal factors are depressing the prospects
for cooperation To escape deadlock it will be impor tant to establish the right balance between
politics and economics and create a model of collaboration within the framework of contention
594-71613_ch01_4Pindd 49 102017 404 PM
About the Author
Vadim Grishin PhD MBA has been involved in the reform pro cess in Rus sia as adviser to the
deputy prime minister of Rus sia in 1992ndash1993 and 2006ndash2010 He has extensive experience
working with the Bretton Woods Institutions He was the board member of the World Bank Group
and served as se nior adviser at the International Monetary Fund Currently he is a con sul tant to the
chief economistrsquos office of the International Finance Corporation and teaches the economics of
transition at Georgetown University in Washington DC
50
594-71613_ch99_4Pindd 50 102017 403 PM
Blank
COVER PHOTO ADOBE STOCK
1616 Rhode Island Avenue NW
Washington DC 20036
202 887 0200 | wwwcsisorg
v++ISBN 978-1-4422-8035-9
Lanham bull Boulder bull New York bull London
4501 Forbes Boulevard
Lanham MD 20706
301 459 3366 | wwwrowmancom
A U T H O R
Vadim Grishin
Myths and Realities
A Report of the
CSIS RUSSIA AND EURASIA PROGRAM
US-RussiaEconomicRelations
O C T O B E R 2 0 1 7
Euml|xHSLEOCy280359z
The Man Pupu Nyor Rock Formations at the Northern Urals also known as Seven
Strong Man or Little Mountain of the God in the local tribe (Mansi) language
US-Russia Economic Relations20
Table 51 US Imports from Rus sia Million US$ Januaryndash May 2016 vs Januaryndash May 2017
Year January February March April May Total
2016 9603 6871 11097 12257 10977 50805
2017 12215 10220 16979 13471 14147 67032
Change 271 487 530 99 289 319
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
Table 52 Change in Urals Crude Oil Prices US$ per Barrel Januaryndash May 2016 vs Januaryndash May 2017
Januaryndash May 2016 Januaryndash May 2017 Change ($) Change ()
3601 5129 1528 424
Source Ministry of Finance of the Rus sian Federation https wwwminfin ru ru ixzz4mMIZ7XtC
Table 53 US Imports from Saudi Arabia Million US$ Januaryndash May 2016 vs Januaryndash May 2017
Year January February March April May Total
2016 15114 9036 13555 10844 14679 63228
2017 19802 20298 21650 16211 19542 97503
Change 3101 12463 5972 495 331 542
Source US Census Bureau ldquoTrade in Goods with Saudi Arabiardquo Foreign Trade last modified June 29 2017
https wwwcensus gov foreign - trade balance c5170 html (see data for 2016ndash2017)
594-71613_ch01_4Pindd 20 102017 404 PM
Vadim Grishin 21
Table 54 US Imports from Venezuela Million US$ Januaryndash May 2016 vs Januaryndash May 2017
Year January February March April May Total
2016 6657 5560 7140 8007 7922 35286
2017 13041 10864 123500 11148 12243 59646
Change 9590 9540 7297 3923 5454 6903
Source US Census Bureau ldquoTrade in Goods with Venezuelardquo Foreign Trade last modified June 29 2017
https wwwcensus gov foreign - trade balance c3070 html (see data for 2016ndash2017)
Table 55 US Exports to Rus sia Million US$ Januaryndash May 2016 vs Januaryndash May 2017
Year January February March April May Total
2016 3628 3577 7298 4657 4947 24107
2017 3144 4277 5386 6670 4806 24283
Change minus133 196 minus262 432 minus29 minus07
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2016ndash2017)
At the same time US exports to Rus sia continue to stagnate ( Table 55) due to low levels of
consumption during a two-and- a- half-year economic crisis a deep ruble devaluation sanctions
and counter- sanctions
Given the very dif er ent economic structures and resource endowments of Rus sia and the United
States it is not surprising that US- Russia trade is asymmetric and oil driven (Figure 51) A
3 percent increase in Urals oil prices translates into a one percent increase in US import growth
from Rus sia Thus in 2016 every $10 increase in Urals crude oil added $15 billion to the value of
US imports or 11 percent to the total value of imports from Rus sia
OIL ADDICTION
Oil is a core pillar of US- Russia bilateral trade A bumpy ride in oil markets afects commerce
Nevertheless Rus sian oil exports to the United States in physical terms have been rather
594-71613_ch01_4Pindd 21 102017 404 PM
US-Russia Economic Relations22
sustainable Starting from 2005 average annual deliveries have been above 150 million barrels
(Figure 52) Crude and heating oil have dominated while petroleum products and liquefied petro-
leum gases have not (Figure 53) In 2011 oil exports peaked at 228 million barrels but declined to
159 million barrels in 2016mdash a drop of 30 percent Rec ord high shipments of Rus sian oil to the United
States coincided with an elevation in oil prices which made the subsequent decline in oil shipment
value between 2011 and 2016 (by about 72 percent as shown in Figure 54) seem more stark The
increase in price also raised the share of oil in Rus sian exports by 74 percent in 2011 (Figure 55)
The Rus sian share in total US oil imports was around 55 percent in 2011 and 43 percent in 2016
( Table 56) In the last five years the United States has relied exclusively on consumption of Rus sian
oil for the rough equivalent of one week out of the year (Figure 56)
It is unlikely that Rus sia can significantly increase its share of the US oil market and there is a real
possibility for a downward trend There are several reasons the historically high Rus sian hydrocar-
bon export threshold of 2011 will not soon if ever be surpassed
First US energy consumption will likely be flat According to the US Energy Information Adminis-
tration (EIA) demand for petroleum and other liquids in the United States will be about 35ndash36
quadrillion British thermal units (BTUs) with minimal variation over the next 25 years1
1 US EIA ldquoAnnual Energy Outlook 2017 with Projections to 2050rdquo January 5 2017 7ndash8
Figure 51 US- Russia Trade Growth () vs US and Rus sia Real GDP Growth () 1993ndash2016
Source IMF ldquoIMF Datardquo accessed September 27 2017 http wwwimf org en Data US Census Bureau
ldquoTrade in Goods with Rus siardquo
Note rGDPthinsp=thinspreal gross domestic product
Trade
USA rGDP growth
Russia rGDP growth
-60
-40
-20
0
20
40
60
80
100
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Gro
wth
All spikes in US-Russia trade have been connected with two main
variables volume and price of crude oil
594-71613_ch01_4Pindd 22 102017 404 PM
Vadim Grishin 23
Second the United States will become a net energy exporter between 2020 and 2030 in most
cases under dif er ent combinations of oil and natu ral gas prices GDP growth technological
breakthroughs and the availability of energy resources The role of oil imports will dramatically
fall2
Third oil price scenarios as described by the International Energy Agency (IEA) international
financial organ izations (IFIs) and many national agencies are very cautious and assume that even
by 2035 to 2040 oil prices will not to recover to the levels of 2011ndash20123
Fourth Rus sian oil production and export growth will be modest and driven by Asian economic
expansion and will comprise a decreasing share of Western markets4 According to forecasts from
2 Ibid 15ndash18
3 Ibid table 3 ldquoEnergy Prices by Sector and Sourcesrdquo World Bank World Bank Commodity Markets Price Forecasts
(Washington DC World Bank 2017) httpswwwworldbank org en research commodity - markets Organ ization of the
Petroleum Exporting Countries (OPEC) World Oil Outlook 2016 (Vienna OPEC 2016)
4 E D Belotskaia et al Global and Rus sian Energy Outlook 2016 (Moscow Energy Research Institute of the Rus sian
Acad emy of Science Analytical Center for the Government of the Rus sian Federation 2016) http acgov ru files
publication a 12767 pdf
Figure 52 US Imports from Rus sia Crude Oil and Petroleum Products Thousands of Barrels 1995ndash2016
Source US EIA ldquoUS Imports by Country of Origin Rus siardquo Petroleum amp Other Liquids September 13
2017 http wwweia gov dnav pet PET _ MOVE _ IMPCUS _ D _ NUS _ NRS _ MBBL _ M htm
0
50000
100000
150000
200000
250000
Date 1995 1996 1997 1998 199920002001200220032004200520062007200820092010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 23 102017 404 PM
US-Russia Economic Relations24
the Organ ization of the Petroleum Exporting Countries (OPEC) crude oil exports from Rus sia and
the Caspian region to the United States will dis appear by 20255
So why does the Rus sian Urals blend continue to be attractive for oil traders and US refineries
which could pro cess greater volumes of domestically produced lighter crude There are two main
reasons One is related to the preference of US high conversion refineries (the most sophisticated
in the world) to work with heavy oil blends produced by Canada Mexico Iraq Venezuela and
Rus sia Pro cessing heavy crude now is as profitable as pro cessing lighter crude The so- called
crack spreadmdash the diference between the cost of relatively cheap heavy crude oil and the final
price of value- added consumer products (diesel gasoline jet fuel and heating oil)mdash has become
the same as the refinery margins of light sweet crude6 This has primarily afected light oil produc-
ing countries such as Angola Algeria and Nigeria
5 OPEC World Oil Outlook 2016 306ndash309
6 ldquoHow Much for That Heavy Oilrdquo Oil Sands Magazine December 26 2015 https wwwoilsandsmagazine com
news 2015 12 26 how - much - for - that - heavy - oil
Figure 53 US Imports from Rus sia Oil and Petroleum Products US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$-
$25000000000
$20000000000
$15000000000
$10000000000
$5000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Liquefied petroleum gases
Petroleum products other
Fuel oil
Crude oil
594-71613_ch01_4Pindd 24 102017 404 PM
Vadim Grishin 25
Another factor afecting purchase of Rus sian oil is a new trend among oil companies for further
consolidation of scale and for integrating operations of upstream and downstream business7
There have been several waves of separation and unification of production transportation and
pro cessing in the last 50 years The current business cycle can be seen as an adaptation to a
period of low prices and oversupply Companies that buy andor produce oil in Rus sia most likely
prefer to transport and pro cess this oil in their own modern refineries in the United States At the
same time some of the newest refinery designs specifically for pro cessing heavy oils have been
built in Asia thus extending the choices of heavy oil producing countries
We should also consider that leading US and international oil traders along with oil producing
companies working with or owning US refineries frequently buy Rus sian oil on the open market
and have long- term contracts on Rus sian crude oil delivery Many Rus sian oil companies prefer to
pay for purchases or ser vices with their future production instead of cash creating situations of
ldquostickyrdquo oil imports that are difficult to replace The best- known example is an interaction between
7 ldquoEnergy and Utilities Sectorrdquo Roundtable Financier Worldwide December 2015 https wwwfinancierworldwide
com roundtable - energy - utilities - sector - dec15
Figure 54 US Imports of Oil and Petroleum Products from Rus sia vs Oil Prices Eu rope Brent Spot Price Free on Board (FOB) 1996ndash2017
Source US EIA ldquoUS Imports by Country of Origin Rus siardquo
0
20
40
60
80
100
120
140
0
5000
10000
15000
20000
25000
30000
Jan
-19
96
Jun
-19
96
No
v-19
96
Ap
r-19
97
Sep
-19
97
Feb
-19
98
Jul-
199
8D
ec-1
99
8M
ay-1
99
9O
ct-1
99
9M
ar-2
00
0A
ug
-20
00
Jan
-20
01
Jun
-20
01
No
v-2
00
1A
pr-
20
02
Sep
-20
02
Feb
-20
03
Jul-
20
03
Dec
-20
03
May
-20
04
Oct
-20
04
Mar
-20
05
Au
g-2
00
5Ja
n-2
00
6Ju
n-2
00
6N
ov-
20
06
Ap
r-2
00
7Se
p-2
00
7Fe
b-2
00
8Ju
l-2
00
8D
ec-2
00
8M
ay-2
00
9O
ct-2
00
9M
ar-2
010
Au
g-2
010
Jan
-20
11Ju
n-2
011
No
v-2
011
Ap
r-2
012
Sep
-20
12Fe
b-2
013
Jul-
20
13D
ec-2
013
May
-20
14O
ct-2
014
Mar
-20
15A
ug
-20
15Ja
n-2
016
Jun
-20
16N
ov-
20
16
USD
per
Bar
rel
Th
ou
san
d B
arr
els
US Imports from Russia of Crude Oil and Petroleum Products (Thousand Barrels)
Europe Brent Spot Price FOB (Dollars per Barrel)
594-71613_ch01_4Pindd 25 102017 404 PM
US-Russia Economic Relations26
Table 56 US Oil Imports All Countries vs Rus sia Thousand Barrels per Day 2011ndash2016
Years 2011 2012 2013 2014 2015 2016
All Countries 11436 10598 9859 9241 9449 10058
Rus sia 624 477 460 330 371 433
Share 546 450 467 357 393 431
Sources US EIA ldquoUS Imports by Country of Origin Total Crude Oil and Productsrdquo Petroleum amp Other
Liquids September 13 2017 wwweia gov dnav pet pet_move_impcus_a2_nus_ep00_im0_mbbl_m htm
authorrsquos computation
Figure 55 US Imports from Rus sia Share of Crude Oil and Petroleum Products Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
57
64
73
72
74
73
72
59
52 50
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
$40000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil and Petroleum Products
594-71613_ch01_4Pindd 26 102017 404 PM
Vadim Grishin 27
the Rus sian state mono poly Rosneft and commodity trading and mining giant Glencore which
along with energy and commodities com pany Vitol participated in a $10 billion prepayment
deal with Rosneft for crude supplies in 2013
There have been a number of ongoing transactions between the Rus sian oil industry and interna-
tional oil companies including several that top the list of importers of Rus sian oil to the United
States ( Table 57) In December 2016 Glencore participated in a controversial privatization opera-
tion purchasing in tandem with the Qatar sovereign wealth fund a 195 percent stake in Rosneft
which was on the US and EU list of sanctioned firms8 Glencore has also taken a blocking stake in
midsize oil producer RussNeft BP owns a 1975 percent stake in Rosneft Chevron holds a
15 percent interest in the 935- mile- long CPC9 pipeline which transports an average of 959000
barrels of crude oil per day including 76000 barrels daily from Rus sia10 ExxonMobil has formed
8 E Mazneva and I Arkhipov ldquoRus sia Sells $11 Billion Stake in Rosneft to Glencore Qatarrdquo Bloomberg December 7
2016
9 CPCthinsp=thinspCaspian Pipeline Consortium
10 ldquoRus sia Highlights of Operations and Business Portfoliordquo Chevron accessed October 3 2017 https wwwchevron
com worldwide russia
Figure 56 Share of Rus sian Oil in Total US Oil Imports Thousands of Barrels per Day 1972ndash2016
Source US EIA ldquoUS Imports by Country of Origin Total Crude Oil and Productsrdquo
2000
4000
6000
8000
10000
12000
14000
16000
US Imports of Crude Oil and Petroleum Products (Thousand Barrels per Day)
US Imports from Russia of Crude Oil and Petroleum Products (Thousand Barrels per Day)19
7319
7419
7519
7619
7719
7819
7919
80
198
119
82
198
319
84
198
519
86
198
719
88
198
919
90
199
119
92
199
319
94
199
519
96
199
719
98
199
92
00
02
00
12
00
22
00
32
00
42
00
52
00
62
00
72
00
82
00
92
010
20
112
012
20
132
014
20
152
016
594-71613_ch01_4Pindd 27 102017 404 PM
Table 57 Top Importers of Rus sian Oil to the United States Thousands of Barrels 2016
VALERO MARKETING amp SUPPLY CO 54590 3616
EXXONMOBIL OIL CORP 17087 1130
CHEVRON USA INC 15217 1008
BP WEST COAST PRODUCTS LLC 10130 671
GEORGE E WARREN CORP 7272 48
PAULSBORO REFINING CO LLC 6838 453
TESORO CORP 5097 338
VITOL INC 5084 337
PHILLIPS 66 CO 4726 313
TRAFIGURA AG 4360 289
PAR HAWAII REFINING LLC 3893 258
MOTIVA ENTERPRISES LLC 3041 205
SHELL US TRADING CO 2863 19
MARATHON PETROLEUM CO LLC 2475 16
ATLANTIC TRADING amp MARKETING 2099 14
FREEPOINT COMMODITIES LLC 1439 1
GLENCORE LTD 1284 85
BEST PETROLEUM CORP 967 64
ROLYMPUS US COMMODITIES GROUP LLC 822 6
HUNT CRUDE OIL SUPPLY CO 666 4
GULF OIL LP 658 4
Source US EIA ldquoUS Imports by Country of Origin Crude Oilrdquo Petroleum amp Other Liquids September 13
2017 httpswwweiagovdnavpetpet_move_impcus_a2_nus_epc0_im0_mbblpd_ahtm authorrsquos
computation
594-71613_ch01_4Pindd 28 102017 404 PM
Vadim Grishin 29
several joint ventures with Rosneft to undertake ofshore exploration in the Black Sea and the Kara
Sea in Siberia11
According to the Sanctions Act US persons are prohibited from exporting or reexporting goods
ser vices (except financial ser vices) and technology in support of exploration or production of new
deep- water Arctic ofshore or shale oil proj ects that involve designated Rus sian entities or other
entities in which such sanctioned persons have a controlling interest or a substantial noncontrol-
ling owner ship interest defined as not less than 33 percent (previously it was 50 percent) The new
law also authorizesmdash but does not requiremdash the imposition of so- called secondary sanctions
against non- US entities that engage in activities involving the construction maintenance or
expansion of Rus sian energy export pipelines with a fair market value of $1 million or more or an
aggregate fair market value during a 12- month period of $5 million12 This provision has raised the
concerns of some Eu ro pean countries particularly Germany As result the final language of the
law included wording about coordination of this issue with allies of the United States
Shipments of Rus sian oil to the United States could be afected by activity in the US refinery
industry In early 2017 Saudi Aramco bought the United Statesrsquo largest oil refinery in Port Arthur
(Texas) and it announced plans to send more of its own crude to that refinery13 Serious concerns
exist however regarding the future of three refineries and nine pipelines owned by Citgo a US
branch of the Venezuelan state com pany PdVSA which is balancing precariously on the edge of
default Under certain conditions in the event of PdVSA bankruptcy Rosneft could claim a stake of
up to 499 percent in Citgo Such a possibility has raised concerns among politicians and US
government officials with Trea sury Secretary Steven Mnuchin calling it a ldquonational security issuerdquo14
Tables 58 59 and 510 show allocations of Rus sian oil imports to major US refineries some of
which work exclusively on Rus sian crude a total of two to three months per year In total 150940
thousand barrels of Rus sian oil were refined in 2016
Figure 57 confirms a leading position of Texas and Louisiana among the US states receiving
Rus sian crude followed by New Jersey California Mississippi Washington Hawaii and Delaware
In a paradoxical way Texas has dis appeared from the list of states as a main destination of US
imports from Rus sia (Figure 58) because Rus sian crude is mostly delivered to Louisiana ports and
registered there by US Customs as an import from Rus sia After that it transports to refineries in
Louisiana and Texas
Overall the short- term business rationale behind the sustainability of US oil imports from Rus sia
cannot overcome strong headwinds in the US energy sector facing all oil importers which will
inevitably lead to a contraction of Rus sian oil exports to the United States in the foreseeable future
11 Exxon eforts to receive a special US Trea sury waiver to drill in sanctioned Rus sia failed in 2017
12 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364
13 Sarp Ozkan ldquoSaudi Aramcorsquos Port Arthur Refinery and the US Refinery Fleetrdquo Drilling Info May 11 2017
https infodrillinginfo com saudi - aramcos - port - arthur - refinery - us - refinery - fleet
14 Graham Kates ldquoTrea sury Secretary Rus siarsquos Citgo Deal a National Security Issuerdquo CBS News May 1 2017
http wwwcbsnews com news rosneft - citgo - steven - mnuchin - national - security
594-71613_ch01_4Pindd 29 102017 404 PM
US-Russia Economic Relations30
Table 58 Valerorsquos Refineries Pro cessing Rus sian Oil Thousands of Barrels 2016
Saint Charles Louisiana 29206 535
Corpus Christi Texas 20626 378
Wilmington California 4250 78
Total USA 54590 100
Source US EIA ldquoRefinery Capacity Reportrdquo January 1 2017
table 5 wwweia gov petroleum refinerycapacity table5 pdf
authorrsquos computation
Table 59 ExxonMobil Refineries Pro cessing Rus sian Oil Thousands of Barrels 2016
Baytown Texas 15037 88
Baton Rouge Louisiana 2046 12
Total USA 17083 100
Source US EIA ldquoRefinery Capacity Reportrdquo authorrsquos computation
Table 510 Chevronrsquos Refineries Pro cessing Rus sian Oil Thousands of Barrels 2016
Pascagoula Mississippi 12767 840
El Segundo California 2372 155
Saint Rose Louisiana 78 05
Total USA 15217 100
Source US EIA ldquoRefinery Capacity Reportrdquo authorrsquos computation
594-71613_ch01_4Pindd 30 102017 404 PM
Vadim Grishin 31
HEAVY METAL
Taken together US imports of metals and US imports of oil compose about 80 percent of US
total imports from Rus sia (Figure 59) Trade of metals like other commodities is strongly afected
by market price fluctuations Nevertheless metal imports from Rus sia have been fairly resilient to
market volatility and their average annual value has hovered at about $4 billion in the last five years
(Figure 510) This market resilience was forged at the end of the 1990searly 2000s when Rus sian
metal producers gradually modernized their plants adjusting quality of production to Western
standards and enhancing integration into global value and supply chains Some of them conquered
their share of the highly competitive US market struggling with peers from Canada and certain
BRICS countries (China India and Brazil) To attract additional resources all Rus sian large metal-
producing companies became public and were listed on stock exchanges chiefly the London Stock
Exchange (Severstalrsquo PAO Evraz MMK OAO Novolipetsk Steel Norilsk Nikel and TMK PAO) one
on the New York Stock Exchange (Mechel) and one on the Hong Kong Stock Exchange (Rusal)
Business logic pushed some of them to invest in the US metal- making industry which was hit
hard by crisis Later on some of those assets were sold (eg two US steel mills acquired by
Severstal in 2004 were purchased 10 years later by Steel Dynamics Inc and AK Steel Corp)
Figure 57 Share of US States Rus sian Oil Imports 2016
Source US EIA ldquoUS Imports from Rus sia of Crude Oil and Petroleum Productsrdquo Petroleum amp Other
Liquids September 29 2017 https www eia gov dnav pet hist LeafHandler ashx nshy=shyPETampsshy=shyMTTIM _ NUS
- NRS _ 1ampfshy=shyM authorrsquos computation
0
10
20
30
40
50
60
70
80
90
100
Maine
Massachusetts
Maryland
Connecticut
Georgia
Rhode Island
Virginia
Florida
New York
Alabama
Puerto Rico
Pennsylvania
Delaware
Hawaii
Washington
Mississippi
California
New Jersey
Louisiana
Texas
594-71613_ch01_4Pindd 31 102017 404 PM
Figure 58 US Imports from Rus sia by State Million US$ 2013ndash2016
Source US Census Bureau ldquoState and Metropolitan Area Trade Datardquo Foreign Trade last modified
October 2 2017 https wwwcensus gov foreign - trade statistics state
Alaska
Connecticut
Delaware
Hawaii
Louisiana
Maryland
North Dakota 0
$1000
$2000
$3000
$4000
$5000
$6000
2013 2014 2015 2016
Alabama
Alaska
Connecticut
Delaware
Hawaii
Louisiana
Maryland
Maine
Mississippi
Montana
North Dakota
Mississippi
Figure 59 US Imports from Rus sia Share of Oil and Metals Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
83
82
85
86
87
88
85
82
7375
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
$40000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil and Metals
594-71613_ch01_4Pindd 32 102017 404 PM
Vadim Grishin 33
Obviously the market dynamic of dif er ent metals varies (eg iron steel aluminum platinum and
nickel) Caps to increase their trade and production in a ldquored oceanrdquo global environment with
anemic demand is rather limited despite Figure 510 showing a spike of iron and steel imports
from Rus sia in 2014 and aluminum in 2016 Some opportunities may exist for Russian- owned steel
plants in the United States (such as NLMK) to participate in energy proj ects resumed under Presi-
dent Trump who has required that new pipelines use only American- made steel15
Rus sia occupies a special niche in the US market for titanium products a high- end metal indus-
try Twenty years ago a long- term contract was signed between Rus sian titanium producer
VSMPO- AVISMA and Boeing The Rus sian com pany entered the selective club of Boeing suppliers
for the manufacture of components and semi- finished products Since the signing of this contract
VSMPO has delivered more than 35 percent of all titanium placed on Boeing civil aircraft16 They
are hidden in the trade data in an import category for Civilian Aircrafts and Parts (Figure 511) At
the end of 2016 Boeing announced an extension of its framework agreement with AVISMA
15 E Scheyder C Ngai and T Sylvester ldquoAmerican Steel Unlikely to Get Keystone Boost Despite Trump Orderrdquo
Reuters January 27 2017 http wwwreuters com article usa - trump - pipeline - transcanada - idUSL1N1FH1ZD
16 A Kramer ldquoTitanium Fills Vital Role for Boeing and Rus siardquo New York Times July 5 2013 http wwwnytimes com
2013 07 06 business global titanium - fills - vital - role - for - boeing - and - russia html mcubzshy=shy3
Figure 510 US Imports from Rus sia Iron Steel Bauxite Aluminum Nickel Nonferrous Metals and Other Precious Metals and Materials US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
0
$6000000000
$5000000000
$4000000000
$3000000000
$2000000000
$1000000000
2007 2008 2009 2010 2011 20122013
20142015
2016
Finished metal shapes
Iron and steel advanced
Iron and steel products nec
Nonferrous metals other
Other precious metals
Nickel
Bauxite and aluminum
Iron and steel mill products
Steelmaking materials
594-71613_ch01_4Pindd 33 102017 404 PM
US-Russia Economic Relations34
through 2022 and additional investments in the construction of a new robotic plant in Titanium
Valley a special economic zone located in the Sverdlovsk region that will open in 2018 The pro-
cessing of titanium forgings in all Boeing civil aircraft will be performed there including 787s 737
MAXs and 777Xs17 The contract extension with AVISMA may add several hundred million dollars
in value to annual US imports from Rus sia
How can such heavy reliance on imports of Rus sian titanium exist during a period of rising geopo-
liti cal tensions The answer is straightforward VSMPO- AVISMA is a highly specialized natu ral
mono poly producing 45 percent of the worldrsquos aerospace titanium Only four other countries
smelt high- grade titanium in industrial quantities the United States Germany Japan and China
Overall global production capacity is limited while demand is growing The United States cur-
rently imports around 79 percent of all the titanium it consumes each year18
17 ldquoBoeing and VSMPO Avisma to Launch Second Joint Production Siterdquo Rus sian Aviation Insider December 22 2016
http wwwrusaviainsider com boeing - and - vsmpo - avisma - to - launch - second - joint - production - site
18 Jon Ostrower and Andy Pasztor ldquoBoeing United Technologies Stockpile Titanium Partsrdquo Wall Street Journal
August 7 2014 https wwwwsj com articles boeing - united - technologies - stockpiling - titanium - parts - 1407441886
Figure 511 US Imports from Rus sia Civilian Aircrafts and Parts US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
$200000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Parts-civilian aircraft
Civilian aircraft
594-71613_ch01_4Pindd 34 102017 404 PM
Vadim Grishin 35
The Sanctions Act authorizes the secretary of the trea sury (in a nonmandatory way) to impose
restrictions (without specifying them) against Rus sian state- owned entities operating in the railway
metals and mining sectors of the Rus sian economy Despite the commanding heights of Rus siarsquos
state sector owner ship in its economy (70 percent of GDP) the metal- producing companies have
remained mostly in private hands
NUCLEAR AFFAIRS
Historically owners and operators of the 104 commercial nuclear power reactors in the United
States have purchased more than 80 percent of their uranium from foreign countries Uranium
shipping from Rus sia accounted for about 13 percent of the 58 million pounds of uranium pur-
chased overseas in 201219 At the same time the Rus sian state- owned mono poly Rosatom ac-
counts for 20 percent of Kazakhstanrsquos uranium production (which in turn comprises 11 percent of
all US uranium imports) and 20 percent of US domestic uranium production capacity (with
owner ship of exploration tracts in Wyoming)20
Nuclear fuel and nuclear power continue to be po liti cally sensitive topics both in the United
States and Rus sia Bilateral cooperation in this sector (being surprisingly stable with imports of
nuclear fuel from Rus sia at a level of $1 billion annually in the last five years [Figure 512 and 513])
is under constant po liti cal and lobbying pressure and has been a source of several po liti cal scan-
dals21 Consequently upside risks in this area of interaction are minimal and downside risks are
much higher especially when we are seeing more decommissioning of nuclear plants in the
United States than new constructions The US EIArsquos 2017 Annual Energy Outlook assumes
that about 25 percent of the nuclear capacity now operating will be removed from ser vice
by 205022
WHY IS THE GRASS GREENER ON THE OTHER SIDE
The United States continues to significantly reduce imports of chemical fertilizers as domestic pro-
duction increases In 2016 the United States imported 13 percent less ammonia and 11 percent
less urea and UAN which is a liquid urea and ammonium nitrate fertilizer Rus sia accounts for
around 40 percent of UAN imported by the United States The United States canceled antidumping
duties on imports of ammonium nitrate and urea from Rus sia in 2016 but it did not prevent import
19 US EIA ldquoThe US Relies on Foreign Uranium Enrichment Ser vices to Fuel Its Nuclear Power Plantsrdquo Today in
Energy August 28 2013 https wwweia gov todayinenergy detail php idshy=shy1273
20 Colin Chilcoat ldquoDoes Rus sia Really Own 20 Percent of the USrsquo Uranium Reservesrdquo OilPricecom May 6 2015
http oilpricecom Alternative - Energy Nuclear - Power Does - Russia - Really - Own - 20 - Of - The - US - Uranium - Reserves
html
21 Michelle Ye Hee Lee ldquoThe Facts behind Trumprsquos Repeated Claim about Hillary Clintonrsquos Role in the Rus sian Ura-
nium Dealrdquo Washington Post October 26 2016
22 US EIA ldquoAnnual Energy Outlook 2017 with Projections to 2050rdquo 81ndash82
594-71613_ch01_4Pindd 35 102017 404 PM
Figure 512 US Imports from Rus sia Share of Oil Metals and Nuclear Fuel Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
87
86
90
90
90
91
88
86
7882
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals and Nuclear Fuel
Figure 513 US Imports from Rus sia Nuclear Fuel Materials US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$-
$200000000
$400000000
$600000000
$800000000
$1200000000
$1000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 36 102017 404 PM
Vadim Grishin 37
drops twice last year (Figures 514 and 515) According to forecasts UAN imports are expected to
decline further to 15 million tons this year down over 46 percent from 28 million tons imported
last year23 The downside trend in imports of fertilizers will likely continue because of oversupply
BIG FISH
US imports of fish and shellfish from Rus sia are best understood in comparison with US fish
exports to the Rus sian market which slipped to zero in August 2014 after Rus sia issued an order
banning certain agricultural imports from the United States (Figure 516) While the volume of US
supply was not very large it was impor tant because it broke up the monopolistic dominance of a
few vertically integrated Rus sian companies that have kept prices high by restricting the entry of
new producers Seeking to implement import substitution policies Rus sia has tried to reduce
exports as well as imports of fish and seafood products in the last couple of years This symmetri-
cal approach was intended to ldquocompensaterdquo for a decrease of fish products in the domestic
23 Deepika Thapliyal ldquoPotashCorp Forecasts Sharp Drop in US Nitrogen Imports in 2017rdquo ICIS News February 7
2017 https wwwicis com resources news 2017 02 07 10076734 potashcorp - forecasts - sharp - drop - in - us - nitrogen
- imports - in - 2017
Figure 514 US Imports from Rus sia Share of Oil Metals Nuclear Fuel and Fertilizers Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
90
93
92
93
94
95
92
91
85
86
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals Nuclear Fuel and Fertilizers
594-71613_ch01_4Pindd 37 102017 404 PM
Figure 515 US Imports from Rus sia Chemical- Fertilizers US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
S-
$200000000
$400000000
$600000000
$800000000
$1000000000
$1200000000
$1400000000
$1600000000
$1800000000
$2000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Figure 516 US Exports to Rus sia Fish and Shellfish US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$10000000
$20000000
$30000000
$40000000
$50000000
$60000000
$70000000
$80000000
$90000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Fish and shellfish
594-71613_ch01_4Pindd 38 102017 404 PM
Vadim Grishin 39
consumer market caused by Rus siarsquos import ban but it has failed As result the group most af-
fected by the self- imposed counter- sanctions were Rus sian consumers
With a significant drop in fish imports a devaluation of the ruble and inflationary pressures on
seafood prices yearly consumption of fish in Rus sia has declined precipitously In 2015 alone
fish prices increased 20 percent and consumption dropped to 14 kilograms per person24 from
22 kilograms in 201425 In 2016 food rose to 355 percent of house hold expenditure as a result of
increases in food prices26 This has pushed vertically integrated fishing monopolies to sell even
more of their catch abroad rather than deliver to the Rus sian Federation (Figure 517) Thus we
cannot exclude the possibility of further growth in US fish and shellfish imports from Rus sia on a
marginal scale
24 Александр Савельев ldquoПотребление рыбы в России упало до 14 кг на человекаrdquo [Fish consumption in Rus sia fell to
14 kg per person] Экономика Интерфакс January 28 2015 http wwwinterfax ru business 492038
25 Илья Шестаков ldquoПотебление рыбы в России снизилось на 10 процентов из- за роста ценrdquo [Fish consumption in
Rus sia dropped by 10 percent due to price increases] RNS March 8 2017 https rnsonline consumer - market
Potreblenie - ribi - v - Rossii - snizilos - na - 10 - iz - za - rosta - tsen - 2017 - 03 - 08
26 Zoya Sheftalovich and Christian Oliver ldquoRus siarsquos Boom (Farming) Economyrdquo Politico November 8 2016 http
wwwpolitico eu article russias - boom - farming - economy
Figure 517 US Imports from Rus sia Fish and Shellfish US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$50000000
$100000000
$150000000
$200000000
$250000000
$300000000
$350000000
$400000000
$450000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 39 102017 404 PM
US-Russia Economic Relations40
SPACE ODYSSEY
Among high- end products beyond the top five groups of goods imported from Rus sia cheap and
efficient Rus sian engines have been used to launch US rockets into space for about 16 years
(Figure 518) There was a serious po liti cal strug gle around a 2014 ban on the purchase of Rus sian
RD-180 rocket engines revealing the conflicting business interests of power ful high- tech companies
This restrictive mea sure was temporary and was quickly lifted because of significant cost impacts
and risks of disruption to launch schedules27 For the same reason the Sanctions Act does not autho-
rize ldquothe imposition of any sanction or other condition limitation restriction or prohibition that
directly or indirectly impedes the supply by any entity of the Rus sian Federation of any product or
ser vice or the procurement of such product or ser vice by any contractor or subcontractor of the
United States or any other entity relating to or in connection with any space launch conducted for
the National Aeronautics and Space Administration or any other nonndash Department of Defense
customerrdquo28
Nevertheless many experts believe that US domestic alternatives to replace Rus sian engines will
be viable in five to eight years
27 Ken Dilanian ldquoWhy Does the US Use Rus sian Rockets to Launch Its Satellitesrdquo NBC News updated November 15
2016 http wwwnbcnews com why - does - u - s - use - russian - rockets - launch - its - satellites - n588526
28 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364
Figure 518 Spacecraft Excluding Military US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 40 102017 404 PM
41
Diversity and technological complexity are the most vis i ble advantages supporting US exports to
Rus sia Three major groups of export goods include civilian aircraft engines and parts (Figure 61)
drilling and oil field equipment (Figure 62) and industrial machines and engines (Figure 63)
Despite sanctions against the transfer of advanced oil producing and pro cessing technologies the
realization of US drilling and oil field equipment in Rus sia is sustainable although some bilateral
proj ects have been frozen
Another category of goods that has demonstrated resilience is the phar ma ceu ti cal industry (Fig-
ure 64) because most drugs in Rus sia are imported (about 70 percent of the Rus sian phar ma ceu-
ti cal market in value) Import substitution policies have had only modest results in this industry
As confirmed by American Chamber of Commerce surveys US exports to Rus sia are closely
connected to US FDI 30 percent of total imports of US companies working in the Rus sian
market come from the United States (more than $2 billion in 2016) In other words about
40 percent of all US exports to Rus sia are related to a US corporate- sector business pro cess in
the country The major sectors of activity of these companies are energy and natu ral resources
(52 percent) manufacturing (17 percent) information and communications technology or ICT
(13 percent) retail (7 percent) automotive industry (6 percent) phar ma ceu ti cal production
(1 percent) professional ser vices (05 percent) and other (2 percent)1
Some obvious constraints on US exports to Rus sia have resulted from a reduction in demand A
deterioration of bilateral relations and implementation of sanctions and counter- sanctions have
directly or indirectly afected all businesses Figures 65 and 66 provide data regarding a dramatic
drop in the sale of US agricultural production in Rus sia with all other categories of exports in
goods showing big cuts as well (see Figures 67ndash69)
Exports of civilian aircraft engines and parts put the state of Washington in first place among
other states as a leading exporter to the Rus sian market (Figure 610)
1 American Chamber of Commerce in Rus sia ldquoInvestment and Import to Rus sia 2nd Surveyrdquo 13
Diversity and Constraints
06
594-71613_ch01_4Pindd 41 102017 404 PM
Figure 61 US Exports of Civilian Aircraft Engines Equipment and Parts to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
$2500000000
$2000000000
$1500000000
$1000000000
$500000000
$-
Figure 62 US Exports of Drilling and Oil Field Equipment US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
$40000000
$45000000
$50000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 42 102017 404 PM
Figure 63 US Exports of Industrial Engines to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Figure 64 US Exports of Phar ma ceu ti cal Preparations to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 43 102017 404 PM
Figure 65 US Exports of Meat and Poultry to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Meat poultry etc
$1000000000
$800000000
$600000000
$400000000
$200000000
$-
$1200000000
$1400000000
$1600000000
Figure 66 US Exports of Soybeans to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
$200000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 44 102017 404 PM
Figure 67 US Exports of Vehicles Engines and Parts to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Other parts and accessories of vehicles
Automotive tires and tubes
Bodies and chassis for passenger cars
Engines and engine parts (carburetors pistonsrings and valves)
Trucks buses and special purpose vehicles
Passenger cars new and used
$2500000000
$2000000000
$1500000000
$500000000
$-
$1000000000
Figure 68 US Exports of Medicinal Equipment to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 45 102017 404 PM
Figure 610 US Exports to Rus sia by States (2016 US$ Value) Million US$ 2013ndash2016
Source US Census Bureau ldquoState and Metropolitan Area Trade Datardquo
Iowa Kentucky
North Dakota
Oklahoma
South Carolina
Washington
0
$500
$1000
$1500
$2000
2013 2014 2015 2016
District of Columbia
Iowa
Kentucky
North Dakota
Oklahoma
South Carolina
Washington
Figure 69 US Exports of Excavating Machinery to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
$40000000
$45000000
$50000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 46 102017 404 PM
47
Upon reviewing the current trend in US- Russia economic relations we must acknowledge that
the existing trade model is obsolete and exhausted Imports are resource- oriented and reflect
constraints of the Rus sian economic structure while five groups of goodsmdash oil metals nuclear
fuels fertilizers and fishmdash make up more than 90 percent of total imports from Rus sia (Figure 71)
Each of these industries has a limited capacity for growth in the foreseeable future
Rus siarsquos core export to the United Statesmdash oilmdash will inevitably decrease in the mid- term under any
scenario The value and volume of Rus sian exports to the United States are open to global market
volatility and po liti cal pressures with limited hedging mechanisms
Overall US exports to Rus sia are unsustainable due to bilateral po liti cal tensions the whims of
commodity markets and changing domestic policies Sanctions and counter- sanctions have
created additional barriers particularly in finance banking high- tech energy and agro- business
According to the American Chamber of Commerce 69 percent of US companies working in the
country consider the impact of US sanctions against Rus sia on their business as negative At the
same time 60 percent of companies do not expect big changes in business relations between
Rus sia and the United States under Trump1 as the new law codifies existing sanctions fortifies
them and extends them to new sectors
Current US investments are low due to the weak rule of law in Rus sia a lack of property right
protections and proper contract enforcement high levels of statization and monopolization in the
economy a poor business climate outdated capital stock dependence on natural- resource
sectors and of course sanction and counter- sanction mea sures Bloated administrative compo-
nents created as risk mitigation instruments have also served as impediments The countryrsquos
institutional weakness low level of productivity bud get constraints and a declining inflexible
workforce will restrain future economic growth even if commodity prices recover Rus sian eco-
nomic policy will likely continue to be statist and protectionist relying mostly on import
substitutions
1 Ibid 11
Existing Trends and Future Scenarios
07
594-71613_ch01_4Pindd 47 102017 404 PM
US-Russia Economic Relations48
What scenarios can be expected in such a challenging environment
One probability (no peace no war) is based on the assumption that matters will not deteriorate
further and implementation of the Sanctions Act will be cursory This will cause relatively slow
degradation in the economic field with occasional flashes of activity in selected areas (eg closer
cooperation against Islamist terrorist groups in Syria)
A second worse case or critical scenario is the intensive and full- scale execution of current sanc-
tion legislation and even the imposition of new economic punitive and restrictive mea sures which
could incite asymmetric retaliatory actions and lead to the introduction of additional protectionist
policies This in turn could trigger a further escalation of mutual confrontation and could eventu-
ally destroy the fundamentals of the current bilateral trade system Rus sian leadership has charac-
terized the Sanctions Act as a declaration of a trade war that ends all hope for improving bilateral
relations2
2 Дмитрий Медведев ldquoПодписание президентом США нового санкционного закона против России создает несколько
последствийrdquo [The US Presidentrsquos signing of the package of new sanctions against Rus sia will have a few conse-
quences] Facebook August 2 2017 https wwwfacebook com Dmitry Medvedev posts 10154587161801851
Figure 71 US Imports from Rus sia Share of Oil Metals Nuclear Fuel Fertilizers and Fish Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
93
94
93
94
95
96
93
92
87
89
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals Nuclear FuelFertilizers and Fish
594-71613_ch01_4Pindd 48 102017 404 PM
Vadim Grishin 49
The best case and most favorable scenario looks less probable now It assumes the realization of
structural reforms in Rus sia in such a way that would adapt Rus siarsquos foreign policy to national
economic needs reduce confrontations with the West and make a concerted efort to integrate
Rus sian businesses into global supply and value chains A revitalization of the structural reform
agendamdash including eforts to diversify economic activities through de- monopolization and support
for SMEs a restructuring of the banking sector the creation of a vibrant business climate to foster
entrepreneurships and innovation the implementation of administrative and judicial reforms to
tackle red tape and endemic corruption and the reduction of state control over key sectors of the
economy via wide- spread privatization could kick- start the development of a nonoil economy and
improve long- term growth prospects Despite ongoing discussion of reform strategies deep
economic and po liti cal changes are extremely complicated over the next po liti calelectoral cycle
(2018ndash2024) particularly because of re sis tance of vested interests and growing commodity prices
The urgency to tackle structural shortcomings in natu ral resource- dependent economies usually
correlates with the price of those resources and the degree to which resource rents drive eco-
nomic activity However there may be marginal improvements in the efficiency of the current
economic system
Future US- Russia relations can be thought of through three pillars one pillar focuses on areas
where both countries maintain a competitive rivalry another looks at potential areas of interaction
under pres ent conditions a third pillar and one that has evaporated from the current bilateral
agenda concentrates on future cooperation Stronger economic ties could not only be a kind of
po liti cal shock absorber but contribute to the building of this future (particularly business contacts
aim to support future structural reforms) although po liti cal factors are depressing the prospects
for cooperation To escape deadlock it will be impor tant to establish the right balance between
politics and economics and create a model of collaboration within the framework of contention
594-71613_ch01_4Pindd 49 102017 404 PM
About the Author
Vadim Grishin PhD MBA has been involved in the reform pro cess in Rus sia as adviser to the
deputy prime minister of Rus sia in 1992ndash1993 and 2006ndash2010 He has extensive experience
working with the Bretton Woods Institutions He was the board member of the World Bank Group
and served as se nior adviser at the International Monetary Fund Currently he is a con sul tant to the
chief economistrsquos office of the International Finance Corporation and teaches the economics of
transition at Georgetown University in Washington DC
50
594-71613_ch99_4Pindd 50 102017 403 PM
Blank
COVER PHOTO ADOBE STOCK
1616 Rhode Island Avenue NW
Washington DC 20036
202 887 0200 | wwwcsisorg
v++ISBN 978-1-4422-8035-9
Lanham bull Boulder bull New York bull London
4501 Forbes Boulevard
Lanham MD 20706
301 459 3366 | wwwrowmancom
A U T H O R
Vadim Grishin
Myths and Realities
A Report of the
CSIS RUSSIA AND EURASIA PROGRAM
US-RussiaEconomicRelations
O C T O B E R 2 0 1 7
Euml|xHSLEOCy280359z
The Man Pupu Nyor Rock Formations at the Northern Urals also known as Seven
Strong Man or Little Mountain of the God in the local tribe (Mansi) language
Vadim Grishin 21
Table 54 US Imports from Venezuela Million US$ Januaryndash May 2016 vs Januaryndash May 2017
Year January February March April May Total
2016 6657 5560 7140 8007 7922 35286
2017 13041 10864 123500 11148 12243 59646
Change 9590 9540 7297 3923 5454 6903
Source US Census Bureau ldquoTrade in Goods with Venezuelardquo Foreign Trade last modified June 29 2017
https wwwcensus gov foreign - trade balance c3070 html (see data for 2016ndash2017)
Table 55 US Exports to Rus sia Million US$ Januaryndash May 2016 vs Januaryndash May 2017
Year January February March April May Total
2016 3628 3577 7298 4657 4947 24107
2017 3144 4277 5386 6670 4806 24283
Change minus133 196 minus262 432 minus29 minus07
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2016ndash2017)
At the same time US exports to Rus sia continue to stagnate ( Table 55) due to low levels of
consumption during a two-and- a- half-year economic crisis a deep ruble devaluation sanctions
and counter- sanctions
Given the very dif er ent economic structures and resource endowments of Rus sia and the United
States it is not surprising that US- Russia trade is asymmetric and oil driven (Figure 51) A
3 percent increase in Urals oil prices translates into a one percent increase in US import growth
from Rus sia Thus in 2016 every $10 increase in Urals crude oil added $15 billion to the value of
US imports or 11 percent to the total value of imports from Rus sia
OIL ADDICTION
Oil is a core pillar of US- Russia bilateral trade A bumpy ride in oil markets afects commerce
Nevertheless Rus sian oil exports to the United States in physical terms have been rather
594-71613_ch01_4Pindd 21 102017 404 PM
US-Russia Economic Relations22
sustainable Starting from 2005 average annual deliveries have been above 150 million barrels
(Figure 52) Crude and heating oil have dominated while petroleum products and liquefied petro-
leum gases have not (Figure 53) In 2011 oil exports peaked at 228 million barrels but declined to
159 million barrels in 2016mdash a drop of 30 percent Rec ord high shipments of Rus sian oil to the United
States coincided with an elevation in oil prices which made the subsequent decline in oil shipment
value between 2011 and 2016 (by about 72 percent as shown in Figure 54) seem more stark The
increase in price also raised the share of oil in Rus sian exports by 74 percent in 2011 (Figure 55)
The Rus sian share in total US oil imports was around 55 percent in 2011 and 43 percent in 2016
( Table 56) In the last five years the United States has relied exclusively on consumption of Rus sian
oil for the rough equivalent of one week out of the year (Figure 56)
It is unlikely that Rus sia can significantly increase its share of the US oil market and there is a real
possibility for a downward trend There are several reasons the historically high Rus sian hydrocar-
bon export threshold of 2011 will not soon if ever be surpassed
First US energy consumption will likely be flat According to the US Energy Information Adminis-
tration (EIA) demand for petroleum and other liquids in the United States will be about 35ndash36
quadrillion British thermal units (BTUs) with minimal variation over the next 25 years1
1 US EIA ldquoAnnual Energy Outlook 2017 with Projections to 2050rdquo January 5 2017 7ndash8
Figure 51 US- Russia Trade Growth () vs US and Rus sia Real GDP Growth () 1993ndash2016
Source IMF ldquoIMF Datardquo accessed September 27 2017 http wwwimf org en Data US Census Bureau
ldquoTrade in Goods with Rus siardquo
Note rGDPthinsp=thinspreal gross domestic product
Trade
USA rGDP growth
Russia rGDP growth
-60
-40
-20
0
20
40
60
80
100
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Gro
wth
All spikes in US-Russia trade have been connected with two main
variables volume and price of crude oil
594-71613_ch01_4Pindd 22 102017 404 PM
Vadim Grishin 23
Second the United States will become a net energy exporter between 2020 and 2030 in most
cases under dif er ent combinations of oil and natu ral gas prices GDP growth technological
breakthroughs and the availability of energy resources The role of oil imports will dramatically
fall2
Third oil price scenarios as described by the International Energy Agency (IEA) international
financial organ izations (IFIs) and many national agencies are very cautious and assume that even
by 2035 to 2040 oil prices will not to recover to the levels of 2011ndash20123
Fourth Rus sian oil production and export growth will be modest and driven by Asian economic
expansion and will comprise a decreasing share of Western markets4 According to forecasts from
2 Ibid 15ndash18
3 Ibid table 3 ldquoEnergy Prices by Sector and Sourcesrdquo World Bank World Bank Commodity Markets Price Forecasts
(Washington DC World Bank 2017) httpswwwworldbank org en research commodity - markets Organ ization of the
Petroleum Exporting Countries (OPEC) World Oil Outlook 2016 (Vienna OPEC 2016)
4 E D Belotskaia et al Global and Rus sian Energy Outlook 2016 (Moscow Energy Research Institute of the Rus sian
Acad emy of Science Analytical Center for the Government of the Rus sian Federation 2016) http acgov ru files
publication a 12767 pdf
Figure 52 US Imports from Rus sia Crude Oil and Petroleum Products Thousands of Barrels 1995ndash2016
Source US EIA ldquoUS Imports by Country of Origin Rus siardquo Petroleum amp Other Liquids September 13
2017 http wwweia gov dnav pet PET _ MOVE _ IMPCUS _ D _ NUS _ NRS _ MBBL _ M htm
0
50000
100000
150000
200000
250000
Date 1995 1996 1997 1998 199920002001200220032004200520062007200820092010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 23 102017 404 PM
US-Russia Economic Relations24
the Organ ization of the Petroleum Exporting Countries (OPEC) crude oil exports from Rus sia and
the Caspian region to the United States will dis appear by 20255
So why does the Rus sian Urals blend continue to be attractive for oil traders and US refineries
which could pro cess greater volumes of domestically produced lighter crude There are two main
reasons One is related to the preference of US high conversion refineries (the most sophisticated
in the world) to work with heavy oil blends produced by Canada Mexico Iraq Venezuela and
Rus sia Pro cessing heavy crude now is as profitable as pro cessing lighter crude The so- called
crack spreadmdash the diference between the cost of relatively cheap heavy crude oil and the final
price of value- added consumer products (diesel gasoline jet fuel and heating oil)mdash has become
the same as the refinery margins of light sweet crude6 This has primarily afected light oil produc-
ing countries such as Angola Algeria and Nigeria
5 OPEC World Oil Outlook 2016 306ndash309
6 ldquoHow Much for That Heavy Oilrdquo Oil Sands Magazine December 26 2015 https wwwoilsandsmagazine com
news 2015 12 26 how - much - for - that - heavy - oil
Figure 53 US Imports from Rus sia Oil and Petroleum Products US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$-
$25000000000
$20000000000
$15000000000
$10000000000
$5000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Liquefied petroleum gases
Petroleum products other
Fuel oil
Crude oil
594-71613_ch01_4Pindd 24 102017 404 PM
Vadim Grishin 25
Another factor afecting purchase of Rus sian oil is a new trend among oil companies for further
consolidation of scale and for integrating operations of upstream and downstream business7
There have been several waves of separation and unification of production transportation and
pro cessing in the last 50 years The current business cycle can be seen as an adaptation to a
period of low prices and oversupply Companies that buy andor produce oil in Rus sia most likely
prefer to transport and pro cess this oil in their own modern refineries in the United States At the
same time some of the newest refinery designs specifically for pro cessing heavy oils have been
built in Asia thus extending the choices of heavy oil producing countries
We should also consider that leading US and international oil traders along with oil producing
companies working with or owning US refineries frequently buy Rus sian oil on the open market
and have long- term contracts on Rus sian crude oil delivery Many Rus sian oil companies prefer to
pay for purchases or ser vices with their future production instead of cash creating situations of
ldquostickyrdquo oil imports that are difficult to replace The best- known example is an interaction between
7 ldquoEnergy and Utilities Sectorrdquo Roundtable Financier Worldwide December 2015 https wwwfinancierworldwide
com roundtable - energy - utilities - sector - dec15
Figure 54 US Imports of Oil and Petroleum Products from Rus sia vs Oil Prices Eu rope Brent Spot Price Free on Board (FOB) 1996ndash2017
Source US EIA ldquoUS Imports by Country of Origin Rus siardquo
0
20
40
60
80
100
120
140
0
5000
10000
15000
20000
25000
30000
Jan
-19
96
Jun
-19
96
No
v-19
96
Ap
r-19
97
Sep
-19
97
Feb
-19
98
Jul-
199
8D
ec-1
99
8M
ay-1
99
9O
ct-1
99
9M
ar-2
00
0A
ug
-20
00
Jan
-20
01
Jun
-20
01
No
v-2
00
1A
pr-
20
02
Sep
-20
02
Feb
-20
03
Jul-
20
03
Dec
-20
03
May
-20
04
Oct
-20
04
Mar
-20
05
Au
g-2
00
5Ja
n-2
00
6Ju
n-2
00
6N
ov-
20
06
Ap
r-2
00
7Se
p-2
00
7Fe
b-2
00
8Ju
l-2
00
8D
ec-2
00
8M
ay-2
00
9O
ct-2
00
9M
ar-2
010
Au
g-2
010
Jan
-20
11Ju
n-2
011
No
v-2
011
Ap
r-2
012
Sep
-20
12Fe
b-2
013
Jul-
20
13D
ec-2
013
May
-20
14O
ct-2
014
Mar
-20
15A
ug
-20
15Ja
n-2
016
Jun
-20
16N
ov-
20
16
USD
per
Bar
rel
Th
ou
san
d B
arr
els
US Imports from Russia of Crude Oil and Petroleum Products (Thousand Barrels)
Europe Brent Spot Price FOB (Dollars per Barrel)
594-71613_ch01_4Pindd 25 102017 404 PM
US-Russia Economic Relations26
Table 56 US Oil Imports All Countries vs Rus sia Thousand Barrels per Day 2011ndash2016
Years 2011 2012 2013 2014 2015 2016
All Countries 11436 10598 9859 9241 9449 10058
Rus sia 624 477 460 330 371 433
Share 546 450 467 357 393 431
Sources US EIA ldquoUS Imports by Country of Origin Total Crude Oil and Productsrdquo Petroleum amp Other
Liquids September 13 2017 wwweia gov dnav pet pet_move_impcus_a2_nus_ep00_im0_mbbl_m htm
authorrsquos computation
Figure 55 US Imports from Rus sia Share of Crude Oil and Petroleum Products Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
57
64
73
72
74
73
72
59
52 50
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
$40000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil and Petroleum Products
594-71613_ch01_4Pindd 26 102017 404 PM
Vadim Grishin 27
the Rus sian state mono poly Rosneft and commodity trading and mining giant Glencore which
along with energy and commodities com pany Vitol participated in a $10 billion prepayment
deal with Rosneft for crude supplies in 2013
There have been a number of ongoing transactions between the Rus sian oil industry and interna-
tional oil companies including several that top the list of importers of Rus sian oil to the United
States ( Table 57) In December 2016 Glencore participated in a controversial privatization opera-
tion purchasing in tandem with the Qatar sovereign wealth fund a 195 percent stake in Rosneft
which was on the US and EU list of sanctioned firms8 Glencore has also taken a blocking stake in
midsize oil producer RussNeft BP owns a 1975 percent stake in Rosneft Chevron holds a
15 percent interest in the 935- mile- long CPC9 pipeline which transports an average of 959000
barrels of crude oil per day including 76000 barrels daily from Rus sia10 ExxonMobil has formed
8 E Mazneva and I Arkhipov ldquoRus sia Sells $11 Billion Stake in Rosneft to Glencore Qatarrdquo Bloomberg December 7
2016
9 CPCthinsp=thinspCaspian Pipeline Consortium
10 ldquoRus sia Highlights of Operations and Business Portfoliordquo Chevron accessed October 3 2017 https wwwchevron
com worldwide russia
Figure 56 Share of Rus sian Oil in Total US Oil Imports Thousands of Barrels per Day 1972ndash2016
Source US EIA ldquoUS Imports by Country of Origin Total Crude Oil and Productsrdquo
2000
4000
6000
8000
10000
12000
14000
16000
US Imports of Crude Oil and Petroleum Products (Thousand Barrels per Day)
US Imports from Russia of Crude Oil and Petroleum Products (Thousand Barrels per Day)19
7319
7419
7519
7619
7719
7819
7919
80
198
119
82
198
319
84
198
519
86
198
719
88
198
919
90
199
119
92
199
319
94
199
519
96
199
719
98
199
92
00
02
00
12
00
22
00
32
00
42
00
52
00
62
00
72
00
82
00
92
010
20
112
012
20
132
014
20
152
016
594-71613_ch01_4Pindd 27 102017 404 PM
Table 57 Top Importers of Rus sian Oil to the United States Thousands of Barrels 2016
VALERO MARKETING amp SUPPLY CO 54590 3616
EXXONMOBIL OIL CORP 17087 1130
CHEVRON USA INC 15217 1008
BP WEST COAST PRODUCTS LLC 10130 671
GEORGE E WARREN CORP 7272 48
PAULSBORO REFINING CO LLC 6838 453
TESORO CORP 5097 338
VITOL INC 5084 337
PHILLIPS 66 CO 4726 313
TRAFIGURA AG 4360 289
PAR HAWAII REFINING LLC 3893 258
MOTIVA ENTERPRISES LLC 3041 205
SHELL US TRADING CO 2863 19
MARATHON PETROLEUM CO LLC 2475 16
ATLANTIC TRADING amp MARKETING 2099 14
FREEPOINT COMMODITIES LLC 1439 1
GLENCORE LTD 1284 85
BEST PETROLEUM CORP 967 64
ROLYMPUS US COMMODITIES GROUP LLC 822 6
HUNT CRUDE OIL SUPPLY CO 666 4
GULF OIL LP 658 4
Source US EIA ldquoUS Imports by Country of Origin Crude Oilrdquo Petroleum amp Other Liquids September 13
2017 httpswwweiagovdnavpetpet_move_impcus_a2_nus_epc0_im0_mbblpd_ahtm authorrsquos
computation
594-71613_ch01_4Pindd 28 102017 404 PM
Vadim Grishin 29
several joint ventures with Rosneft to undertake ofshore exploration in the Black Sea and the Kara
Sea in Siberia11
According to the Sanctions Act US persons are prohibited from exporting or reexporting goods
ser vices (except financial ser vices) and technology in support of exploration or production of new
deep- water Arctic ofshore or shale oil proj ects that involve designated Rus sian entities or other
entities in which such sanctioned persons have a controlling interest or a substantial noncontrol-
ling owner ship interest defined as not less than 33 percent (previously it was 50 percent) The new
law also authorizesmdash but does not requiremdash the imposition of so- called secondary sanctions
against non- US entities that engage in activities involving the construction maintenance or
expansion of Rus sian energy export pipelines with a fair market value of $1 million or more or an
aggregate fair market value during a 12- month period of $5 million12 This provision has raised the
concerns of some Eu ro pean countries particularly Germany As result the final language of the
law included wording about coordination of this issue with allies of the United States
Shipments of Rus sian oil to the United States could be afected by activity in the US refinery
industry In early 2017 Saudi Aramco bought the United Statesrsquo largest oil refinery in Port Arthur
(Texas) and it announced plans to send more of its own crude to that refinery13 Serious concerns
exist however regarding the future of three refineries and nine pipelines owned by Citgo a US
branch of the Venezuelan state com pany PdVSA which is balancing precariously on the edge of
default Under certain conditions in the event of PdVSA bankruptcy Rosneft could claim a stake of
up to 499 percent in Citgo Such a possibility has raised concerns among politicians and US
government officials with Trea sury Secretary Steven Mnuchin calling it a ldquonational security issuerdquo14
Tables 58 59 and 510 show allocations of Rus sian oil imports to major US refineries some of
which work exclusively on Rus sian crude a total of two to three months per year In total 150940
thousand barrels of Rus sian oil were refined in 2016
Figure 57 confirms a leading position of Texas and Louisiana among the US states receiving
Rus sian crude followed by New Jersey California Mississippi Washington Hawaii and Delaware
In a paradoxical way Texas has dis appeared from the list of states as a main destination of US
imports from Rus sia (Figure 58) because Rus sian crude is mostly delivered to Louisiana ports and
registered there by US Customs as an import from Rus sia After that it transports to refineries in
Louisiana and Texas
Overall the short- term business rationale behind the sustainability of US oil imports from Rus sia
cannot overcome strong headwinds in the US energy sector facing all oil importers which will
inevitably lead to a contraction of Rus sian oil exports to the United States in the foreseeable future
11 Exxon eforts to receive a special US Trea sury waiver to drill in sanctioned Rus sia failed in 2017
12 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364
13 Sarp Ozkan ldquoSaudi Aramcorsquos Port Arthur Refinery and the US Refinery Fleetrdquo Drilling Info May 11 2017
https infodrillinginfo com saudi - aramcos - port - arthur - refinery - us - refinery - fleet
14 Graham Kates ldquoTrea sury Secretary Rus siarsquos Citgo Deal a National Security Issuerdquo CBS News May 1 2017
http wwwcbsnews com news rosneft - citgo - steven - mnuchin - national - security
594-71613_ch01_4Pindd 29 102017 404 PM
US-Russia Economic Relations30
Table 58 Valerorsquos Refineries Pro cessing Rus sian Oil Thousands of Barrels 2016
Saint Charles Louisiana 29206 535
Corpus Christi Texas 20626 378
Wilmington California 4250 78
Total USA 54590 100
Source US EIA ldquoRefinery Capacity Reportrdquo January 1 2017
table 5 wwweia gov petroleum refinerycapacity table5 pdf
authorrsquos computation
Table 59 ExxonMobil Refineries Pro cessing Rus sian Oil Thousands of Barrels 2016
Baytown Texas 15037 88
Baton Rouge Louisiana 2046 12
Total USA 17083 100
Source US EIA ldquoRefinery Capacity Reportrdquo authorrsquos computation
Table 510 Chevronrsquos Refineries Pro cessing Rus sian Oil Thousands of Barrels 2016
Pascagoula Mississippi 12767 840
El Segundo California 2372 155
Saint Rose Louisiana 78 05
Total USA 15217 100
Source US EIA ldquoRefinery Capacity Reportrdquo authorrsquos computation
594-71613_ch01_4Pindd 30 102017 404 PM
Vadim Grishin 31
HEAVY METAL
Taken together US imports of metals and US imports of oil compose about 80 percent of US
total imports from Rus sia (Figure 59) Trade of metals like other commodities is strongly afected
by market price fluctuations Nevertheless metal imports from Rus sia have been fairly resilient to
market volatility and their average annual value has hovered at about $4 billion in the last five years
(Figure 510) This market resilience was forged at the end of the 1990searly 2000s when Rus sian
metal producers gradually modernized their plants adjusting quality of production to Western
standards and enhancing integration into global value and supply chains Some of them conquered
their share of the highly competitive US market struggling with peers from Canada and certain
BRICS countries (China India and Brazil) To attract additional resources all Rus sian large metal-
producing companies became public and were listed on stock exchanges chiefly the London Stock
Exchange (Severstalrsquo PAO Evraz MMK OAO Novolipetsk Steel Norilsk Nikel and TMK PAO) one
on the New York Stock Exchange (Mechel) and one on the Hong Kong Stock Exchange (Rusal)
Business logic pushed some of them to invest in the US metal- making industry which was hit
hard by crisis Later on some of those assets were sold (eg two US steel mills acquired by
Severstal in 2004 were purchased 10 years later by Steel Dynamics Inc and AK Steel Corp)
Figure 57 Share of US States Rus sian Oil Imports 2016
Source US EIA ldquoUS Imports from Rus sia of Crude Oil and Petroleum Productsrdquo Petroleum amp Other
Liquids September 29 2017 https www eia gov dnav pet hist LeafHandler ashx nshy=shyPETampsshy=shyMTTIM _ NUS
- NRS _ 1ampfshy=shyM authorrsquos computation
0
10
20
30
40
50
60
70
80
90
100
Maine
Massachusetts
Maryland
Connecticut
Georgia
Rhode Island
Virginia
Florida
New York
Alabama
Puerto Rico
Pennsylvania
Delaware
Hawaii
Washington
Mississippi
California
New Jersey
Louisiana
Texas
594-71613_ch01_4Pindd 31 102017 404 PM
Figure 58 US Imports from Rus sia by State Million US$ 2013ndash2016
Source US Census Bureau ldquoState and Metropolitan Area Trade Datardquo Foreign Trade last modified
October 2 2017 https wwwcensus gov foreign - trade statistics state
Alaska
Connecticut
Delaware
Hawaii
Louisiana
Maryland
North Dakota 0
$1000
$2000
$3000
$4000
$5000
$6000
2013 2014 2015 2016
Alabama
Alaska
Connecticut
Delaware
Hawaii
Louisiana
Maryland
Maine
Mississippi
Montana
North Dakota
Mississippi
Figure 59 US Imports from Rus sia Share of Oil and Metals Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
83
82
85
86
87
88
85
82
7375
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
$40000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil and Metals
594-71613_ch01_4Pindd 32 102017 404 PM
Vadim Grishin 33
Obviously the market dynamic of dif er ent metals varies (eg iron steel aluminum platinum and
nickel) Caps to increase their trade and production in a ldquored oceanrdquo global environment with
anemic demand is rather limited despite Figure 510 showing a spike of iron and steel imports
from Rus sia in 2014 and aluminum in 2016 Some opportunities may exist for Russian- owned steel
plants in the United States (such as NLMK) to participate in energy proj ects resumed under Presi-
dent Trump who has required that new pipelines use only American- made steel15
Rus sia occupies a special niche in the US market for titanium products a high- end metal indus-
try Twenty years ago a long- term contract was signed between Rus sian titanium producer
VSMPO- AVISMA and Boeing The Rus sian com pany entered the selective club of Boeing suppliers
for the manufacture of components and semi- finished products Since the signing of this contract
VSMPO has delivered more than 35 percent of all titanium placed on Boeing civil aircraft16 They
are hidden in the trade data in an import category for Civilian Aircrafts and Parts (Figure 511) At
the end of 2016 Boeing announced an extension of its framework agreement with AVISMA
15 E Scheyder C Ngai and T Sylvester ldquoAmerican Steel Unlikely to Get Keystone Boost Despite Trump Orderrdquo
Reuters January 27 2017 http wwwreuters com article usa - trump - pipeline - transcanada - idUSL1N1FH1ZD
16 A Kramer ldquoTitanium Fills Vital Role for Boeing and Rus siardquo New York Times July 5 2013 http wwwnytimes com
2013 07 06 business global titanium - fills - vital - role - for - boeing - and - russia html mcubzshy=shy3
Figure 510 US Imports from Rus sia Iron Steel Bauxite Aluminum Nickel Nonferrous Metals and Other Precious Metals and Materials US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
0
$6000000000
$5000000000
$4000000000
$3000000000
$2000000000
$1000000000
2007 2008 2009 2010 2011 20122013
20142015
2016
Finished metal shapes
Iron and steel advanced
Iron and steel products nec
Nonferrous metals other
Other precious metals
Nickel
Bauxite and aluminum
Iron and steel mill products
Steelmaking materials
594-71613_ch01_4Pindd 33 102017 404 PM
US-Russia Economic Relations34
through 2022 and additional investments in the construction of a new robotic plant in Titanium
Valley a special economic zone located in the Sverdlovsk region that will open in 2018 The pro-
cessing of titanium forgings in all Boeing civil aircraft will be performed there including 787s 737
MAXs and 777Xs17 The contract extension with AVISMA may add several hundred million dollars
in value to annual US imports from Rus sia
How can such heavy reliance on imports of Rus sian titanium exist during a period of rising geopo-
liti cal tensions The answer is straightforward VSMPO- AVISMA is a highly specialized natu ral
mono poly producing 45 percent of the worldrsquos aerospace titanium Only four other countries
smelt high- grade titanium in industrial quantities the United States Germany Japan and China
Overall global production capacity is limited while demand is growing The United States cur-
rently imports around 79 percent of all the titanium it consumes each year18
17 ldquoBoeing and VSMPO Avisma to Launch Second Joint Production Siterdquo Rus sian Aviation Insider December 22 2016
http wwwrusaviainsider com boeing - and - vsmpo - avisma - to - launch - second - joint - production - site
18 Jon Ostrower and Andy Pasztor ldquoBoeing United Technologies Stockpile Titanium Partsrdquo Wall Street Journal
August 7 2014 https wwwwsj com articles boeing - united - technologies - stockpiling - titanium - parts - 1407441886
Figure 511 US Imports from Rus sia Civilian Aircrafts and Parts US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
$200000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Parts-civilian aircraft
Civilian aircraft
594-71613_ch01_4Pindd 34 102017 404 PM
Vadim Grishin 35
The Sanctions Act authorizes the secretary of the trea sury (in a nonmandatory way) to impose
restrictions (without specifying them) against Rus sian state- owned entities operating in the railway
metals and mining sectors of the Rus sian economy Despite the commanding heights of Rus siarsquos
state sector owner ship in its economy (70 percent of GDP) the metal- producing companies have
remained mostly in private hands
NUCLEAR AFFAIRS
Historically owners and operators of the 104 commercial nuclear power reactors in the United
States have purchased more than 80 percent of their uranium from foreign countries Uranium
shipping from Rus sia accounted for about 13 percent of the 58 million pounds of uranium pur-
chased overseas in 201219 At the same time the Rus sian state- owned mono poly Rosatom ac-
counts for 20 percent of Kazakhstanrsquos uranium production (which in turn comprises 11 percent of
all US uranium imports) and 20 percent of US domestic uranium production capacity (with
owner ship of exploration tracts in Wyoming)20
Nuclear fuel and nuclear power continue to be po liti cally sensitive topics both in the United
States and Rus sia Bilateral cooperation in this sector (being surprisingly stable with imports of
nuclear fuel from Rus sia at a level of $1 billion annually in the last five years [Figure 512 and 513])
is under constant po liti cal and lobbying pressure and has been a source of several po liti cal scan-
dals21 Consequently upside risks in this area of interaction are minimal and downside risks are
much higher especially when we are seeing more decommissioning of nuclear plants in the
United States than new constructions The US EIArsquos 2017 Annual Energy Outlook assumes
that about 25 percent of the nuclear capacity now operating will be removed from ser vice
by 205022
WHY IS THE GRASS GREENER ON THE OTHER SIDE
The United States continues to significantly reduce imports of chemical fertilizers as domestic pro-
duction increases In 2016 the United States imported 13 percent less ammonia and 11 percent
less urea and UAN which is a liquid urea and ammonium nitrate fertilizer Rus sia accounts for
around 40 percent of UAN imported by the United States The United States canceled antidumping
duties on imports of ammonium nitrate and urea from Rus sia in 2016 but it did not prevent import
19 US EIA ldquoThe US Relies on Foreign Uranium Enrichment Ser vices to Fuel Its Nuclear Power Plantsrdquo Today in
Energy August 28 2013 https wwweia gov todayinenergy detail php idshy=shy1273
20 Colin Chilcoat ldquoDoes Rus sia Really Own 20 Percent of the USrsquo Uranium Reservesrdquo OilPricecom May 6 2015
http oilpricecom Alternative - Energy Nuclear - Power Does - Russia - Really - Own - 20 - Of - The - US - Uranium - Reserves
html
21 Michelle Ye Hee Lee ldquoThe Facts behind Trumprsquos Repeated Claim about Hillary Clintonrsquos Role in the Rus sian Ura-
nium Dealrdquo Washington Post October 26 2016
22 US EIA ldquoAnnual Energy Outlook 2017 with Projections to 2050rdquo 81ndash82
594-71613_ch01_4Pindd 35 102017 404 PM
Figure 512 US Imports from Rus sia Share of Oil Metals and Nuclear Fuel Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
87
86
90
90
90
91
88
86
7882
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals and Nuclear Fuel
Figure 513 US Imports from Rus sia Nuclear Fuel Materials US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$-
$200000000
$400000000
$600000000
$800000000
$1200000000
$1000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 36 102017 404 PM
Vadim Grishin 37
drops twice last year (Figures 514 and 515) According to forecasts UAN imports are expected to
decline further to 15 million tons this year down over 46 percent from 28 million tons imported
last year23 The downside trend in imports of fertilizers will likely continue because of oversupply
BIG FISH
US imports of fish and shellfish from Rus sia are best understood in comparison with US fish
exports to the Rus sian market which slipped to zero in August 2014 after Rus sia issued an order
banning certain agricultural imports from the United States (Figure 516) While the volume of US
supply was not very large it was impor tant because it broke up the monopolistic dominance of a
few vertically integrated Rus sian companies that have kept prices high by restricting the entry of
new producers Seeking to implement import substitution policies Rus sia has tried to reduce
exports as well as imports of fish and seafood products in the last couple of years This symmetri-
cal approach was intended to ldquocompensaterdquo for a decrease of fish products in the domestic
23 Deepika Thapliyal ldquoPotashCorp Forecasts Sharp Drop in US Nitrogen Imports in 2017rdquo ICIS News February 7
2017 https wwwicis com resources news 2017 02 07 10076734 potashcorp - forecasts - sharp - drop - in - us - nitrogen
- imports - in - 2017
Figure 514 US Imports from Rus sia Share of Oil Metals Nuclear Fuel and Fertilizers Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
90
93
92
93
94
95
92
91
85
86
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals Nuclear Fuel and Fertilizers
594-71613_ch01_4Pindd 37 102017 404 PM
Figure 515 US Imports from Rus sia Chemical- Fertilizers US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
S-
$200000000
$400000000
$600000000
$800000000
$1000000000
$1200000000
$1400000000
$1600000000
$1800000000
$2000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Figure 516 US Exports to Rus sia Fish and Shellfish US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$10000000
$20000000
$30000000
$40000000
$50000000
$60000000
$70000000
$80000000
$90000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Fish and shellfish
594-71613_ch01_4Pindd 38 102017 404 PM
Vadim Grishin 39
consumer market caused by Rus siarsquos import ban but it has failed As result the group most af-
fected by the self- imposed counter- sanctions were Rus sian consumers
With a significant drop in fish imports a devaluation of the ruble and inflationary pressures on
seafood prices yearly consumption of fish in Rus sia has declined precipitously In 2015 alone
fish prices increased 20 percent and consumption dropped to 14 kilograms per person24 from
22 kilograms in 201425 In 2016 food rose to 355 percent of house hold expenditure as a result of
increases in food prices26 This has pushed vertically integrated fishing monopolies to sell even
more of their catch abroad rather than deliver to the Rus sian Federation (Figure 517) Thus we
cannot exclude the possibility of further growth in US fish and shellfish imports from Rus sia on a
marginal scale
24 Александр Савельев ldquoПотребление рыбы в России упало до 14 кг на человекаrdquo [Fish consumption in Rus sia fell to
14 kg per person] Экономика Интерфакс January 28 2015 http wwwinterfax ru business 492038
25 Илья Шестаков ldquoПотебление рыбы в России снизилось на 10 процентов из- за роста ценrdquo [Fish consumption in
Rus sia dropped by 10 percent due to price increases] RNS March 8 2017 https rnsonline consumer - market
Potreblenie - ribi - v - Rossii - snizilos - na - 10 - iz - za - rosta - tsen - 2017 - 03 - 08
26 Zoya Sheftalovich and Christian Oliver ldquoRus siarsquos Boom (Farming) Economyrdquo Politico November 8 2016 http
wwwpolitico eu article russias - boom - farming - economy
Figure 517 US Imports from Rus sia Fish and Shellfish US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$50000000
$100000000
$150000000
$200000000
$250000000
$300000000
$350000000
$400000000
$450000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 39 102017 404 PM
US-Russia Economic Relations40
SPACE ODYSSEY
Among high- end products beyond the top five groups of goods imported from Rus sia cheap and
efficient Rus sian engines have been used to launch US rockets into space for about 16 years
(Figure 518) There was a serious po liti cal strug gle around a 2014 ban on the purchase of Rus sian
RD-180 rocket engines revealing the conflicting business interests of power ful high- tech companies
This restrictive mea sure was temporary and was quickly lifted because of significant cost impacts
and risks of disruption to launch schedules27 For the same reason the Sanctions Act does not autho-
rize ldquothe imposition of any sanction or other condition limitation restriction or prohibition that
directly or indirectly impedes the supply by any entity of the Rus sian Federation of any product or
ser vice or the procurement of such product or ser vice by any contractor or subcontractor of the
United States or any other entity relating to or in connection with any space launch conducted for
the National Aeronautics and Space Administration or any other nonndash Department of Defense
customerrdquo28
Nevertheless many experts believe that US domestic alternatives to replace Rus sian engines will
be viable in five to eight years
27 Ken Dilanian ldquoWhy Does the US Use Rus sian Rockets to Launch Its Satellitesrdquo NBC News updated November 15
2016 http wwwnbcnews com why - does - u - s - use - russian - rockets - launch - its - satellites - n588526
28 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364
Figure 518 Spacecraft Excluding Military US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 40 102017 404 PM
41
Diversity and technological complexity are the most vis i ble advantages supporting US exports to
Rus sia Three major groups of export goods include civilian aircraft engines and parts (Figure 61)
drilling and oil field equipment (Figure 62) and industrial machines and engines (Figure 63)
Despite sanctions against the transfer of advanced oil producing and pro cessing technologies the
realization of US drilling and oil field equipment in Rus sia is sustainable although some bilateral
proj ects have been frozen
Another category of goods that has demonstrated resilience is the phar ma ceu ti cal industry (Fig-
ure 64) because most drugs in Rus sia are imported (about 70 percent of the Rus sian phar ma ceu-
ti cal market in value) Import substitution policies have had only modest results in this industry
As confirmed by American Chamber of Commerce surveys US exports to Rus sia are closely
connected to US FDI 30 percent of total imports of US companies working in the Rus sian
market come from the United States (more than $2 billion in 2016) In other words about
40 percent of all US exports to Rus sia are related to a US corporate- sector business pro cess in
the country The major sectors of activity of these companies are energy and natu ral resources
(52 percent) manufacturing (17 percent) information and communications technology or ICT
(13 percent) retail (7 percent) automotive industry (6 percent) phar ma ceu ti cal production
(1 percent) professional ser vices (05 percent) and other (2 percent)1
Some obvious constraints on US exports to Rus sia have resulted from a reduction in demand A
deterioration of bilateral relations and implementation of sanctions and counter- sanctions have
directly or indirectly afected all businesses Figures 65 and 66 provide data regarding a dramatic
drop in the sale of US agricultural production in Rus sia with all other categories of exports in
goods showing big cuts as well (see Figures 67ndash69)
Exports of civilian aircraft engines and parts put the state of Washington in first place among
other states as a leading exporter to the Rus sian market (Figure 610)
1 American Chamber of Commerce in Rus sia ldquoInvestment and Import to Rus sia 2nd Surveyrdquo 13
Diversity and Constraints
06
594-71613_ch01_4Pindd 41 102017 404 PM
Figure 61 US Exports of Civilian Aircraft Engines Equipment and Parts to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
$2500000000
$2000000000
$1500000000
$1000000000
$500000000
$-
Figure 62 US Exports of Drilling and Oil Field Equipment US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
$40000000
$45000000
$50000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 42 102017 404 PM
Figure 63 US Exports of Industrial Engines to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Figure 64 US Exports of Phar ma ceu ti cal Preparations to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 43 102017 404 PM
Figure 65 US Exports of Meat and Poultry to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Meat poultry etc
$1000000000
$800000000
$600000000
$400000000
$200000000
$-
$1200000000
$1400000000
$1600000000
Figure 66 US Exports of Soybeans to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
$200000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 44 102017 404 PM
Figure 67 US Exports of Vehicles Engines and Parts to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Other parts and accessories of vehicles
Automotive tires and tubes
Bodies and chassis for passenger cars
Engines and engine parts (carburetors pistonsrings and valves)
Trucks buses and special purpose vehicles
Passenger cars new and used
$2500000000
$2000000000
$1500000000
$500000000
$-
$1000000000
Figure 68 US Exports of Medicinal Equipment to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 45 102017 404 PM
Figure 610 US Exports to Rus sia by States (2016 US$ Value) Million US$ 2013ndash2016
Source US Census Bureau ldquoState and Metropolitan Area Trade Datardquo
Iowa Kentucky
North Dakota
Oklahoma
South Carolina
Washington
0
$500
$1000
$1500
$2000
2013 2014 2015 2016
District of Columbia
Iowa
Kentucky
North Dakota
Oklahoma
South Carolina
Washington
Figure 69 US Exports of Excavating Machinery to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
$40000000
$45000000
$50000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 46 102017 404 PM
47
Upon reviewing the current trend in US- Russia economic relations we must acknowledge that
the existing trade model is obsolete and exhausted Imports are resource- oriented and reflect
constraints of the Rus sian economic structure while five groups of goodsmdash oil metals nuclear
fuels fertilizers and fishmdash make up more than 90 percent of total imports from Rus sia (Figure 71)
Each of these industries has a limited capacity for growth in the foreseeable future
Rus siarsquos core export to the United Statesmdash oilmdash will inevitably decrease in the mid- term under any
scenario The value and volume of Rus sian exports to the United States are open to global market
volatility and po liti cal pressures with limited hedging mechanisms
Overall US exports to Rus sia are unsustainable due to bilateral po liti cal tensions the whims of
commodity markets and changing domestic policies Sanctions and counter- sanctions have
created additional barriers particularly in finance banking high- tech energy and agro- business
According to the American Chamber of Commerce 69 percent of US companies working in the
country consider the impact of US sanctions against Rus sia on their business as negative At the
same time 60 percent of companies do not expect big changes in business relations between
Rus sia and the United States under Trump1 as the new law codifies existing sanctions fortifies
them and extends them to new sectors
Current US investments are low due to the weak rule of law in Rus sia a lack of property right
protections and proper contract enforcement high levels of statization and monopolization in the
economy a poor business climate outdated capital stock dependence on natural- resource
sectors and of course sanction and counter- sanction mea sures Bloated administrative compo-
nents created as risk mitigation instruments have also served as impediments The countryrsquos
institutional weakness low level of productivity bud get constraints and a declining inflexible
workforce will restrain future economic growth even if commodity prices recover Rus sian eco-
nomic policy will likely continue to be statist and protectionist relying mostly on import
substitutions
1 Ibid 11
Existing Trends and Future Scenarios
07
594-71613_ch01_4Pindd 47 102017 404 PM
US-Russia Economic Relations48
What scenarios can be expected in such a challenging environment
One probability (no peace no war) is based on the assumption that matters will not deteriorate
further and implementation of the Sanctions Act will be cursory This will cause relatively slow
degradation in the economic field with occasional flashes of activity in selected areas (eg closer
cooperation against Islamist terrorist groups in Syria)
A second worse case or critical scenario is the intensive and full- scale execution of current sanc-
tion legislation and even the imposition of new economic punitive and restrictive mea sures which
could incite asymmetric retaliatory actions and lead to the introduction of additional protectionist
policies This in turn could trigger a further escalation of mutual confrontation and could eventu-
ally destroy the fundamentals of the current bilateral trade system Rus sian leadership has charac-
terized the Sanctions Act as a declaration of a trade war that ends all hope for improving bilateral
relations2
2 Дмитрий Медведев ldquoПодписание президентом США нового санкционного закона против России создает несколько
последствийrdquo [The US Presidentrsquos signing of the package of new sanctions against Rus sia will have a few conse-
quences] Facebook August 2 2017 https wwwfacebook com Dmitry Medvedev posts 10154587161801851
Figure 71 US Imports from Rus sia Share of Oil Metals Nuclear Fuel Fertilizers and Fish Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
93
94
93
94
95
96
93
92
87
89
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals Nuclear FuelFertilizers and Fish
594-71613_ch01_4Pindd 48 102017 404 PM
Vadim Grishin 49
The best case and most favorable scenario looks less probable now It assumes the realization of
structural reforms in Rus sia in such a way that would adapt Rus siarsquos foreign policy to national
economic needs reduce confrontations with the West and make a concerted efort to integrate
Rus sian businesses into global supply and value chains A revitalization of the structural reform
agendamdash including eforts to diversify economic activities through de- monopolization and support
for SMEs a restructuring of the banking sector the creation of a vibrant business climate to foster
entrepreneurships and innovation the implementation of administrative and judicial reforms to
tackle red tape and endemic corruption and the reduction of state control over key sectors of the
economy via wide- spread privatization could kick- start the development of a nonoil economy and
improve long- term growth prospects Despite ongoing discussion of reform strategies deep
economic and po liti cal changes are extremely complicated over the next po liti calelectoral cycle
(2018ndash2024) particularly because of re sis tance of vested interests and growing commodity prices
The urgency to tackle structural shortcomings in natu ral resource- dependent economies usually
correlates with the price of those resources and the degree to which resource rents drive eco-
nomic activity However there may be marginal improvements in the efficiency of the current
economic system
Future US- Russia relations can be thought of through three pillars one pillar focuses on areas
where both countries maintain a competitive rivalry another looks at potential areas of interaction
under pres ent conditions a third pillar and one that has evaporated from the current bilateral
agenda concentrates on future cooperation Stronger economic ties could not only be a kind of
po liti cal shock absorber but contribute to the building of this future (particularly business contacts
aim to support future structural reforms) although po liti cal factors are depressing the prospects
for cooperation To escape deadlock it will be impor tant to establish the right balance between
politics and economics and create a model of collaboration within the framework of contention
594-71613_ch01_4Pindd 49 102017 404 PM
About the Author
Vadim Grishin PhD MBA has been involved in the reform pro cess in Rus sia as adviser to the
deputy prime minister of Rus sia in 1992ndash1993 and 2006ndash2010 He has extensive experience
working with the Bretton Woods Institutions He was the board member of the World Bank Group
and served as se nior adviser at the International Monetary Fund Currently he is a con sul tant to the
chief economistrsquos office of the International Finance Corporation and teaches the economics of
transition at Georgetown University in Washington DC
50
594-71613_ch99_4Pindd 50 102017 403 PM
Blank
COVER PHOTO ADOBE STOCK
1616 Rhode Island Avenue NW
Washington DC 20036
202 887 0200 | wwwcsisorg
v++ISBN 978-1-4422-8035-9
Lanham bull Boulder bull New York bull London
4501 Forbes Boulevard
Lanham MD 20706
301 459 3366 | wwwrowmancom
A U T H O R
Vadim Grishin
Myths and Realities
A Report of the
CSIS RUSSIA AND EURASIA PROGRAM
US-RussiaEconomicRelations
O C T O B E R 2 0 1 7
Euml|xHSLEOCy280359z
The Man Pupu Nyor Rock Formations at the Northern Urals also known as Seven
Strong Man or Little Mountain of the God in the local tribe (Mansi) language
US-Russia Economic Relations22
sustainable Starting from 2005 average annual deliveries have been above 150 million barrels
(Figure 52) Crude and heating oil have dominated while petroleum products and liquefied petro-
leum gases have not (Figure 53) In 2011 oil exports peaked at 228 million barrels but declined to
159 million barrels in 2016mdash a drop of 30 percent Rec ord high shipments of Rus sian oil to the United
States coincided with an elevation in oil prices which made the subsequent decline in oil shipment
value between 2011 and 2016 (by about 72 percent as shown in Figure 54) seem more stark The
increase in price also raised the share of oil in Rus sian exports by 74 percent in 2011 (Figure 55)
The Rus sian share in total US oil imports was around 55 percent in 2011 and 43 percent in 2016
( Table 56) In the last five years the United States has relied exclusively on consumption of Rus sian
oil for the rough equivalent of one week out of the year (Figure 56)
It is unlikely that Rus sia can significantly increase its share of the US oil market and there is a real
possibility for a downward trend There are several reasons the historically high Rus sian hydrocar-
bon export threshold of 2011 will not soon if ever be surpassed
First US energy consumption will likely be flat According to the US Energy Information Adminis-
tration (EIA) demand for petroleum and other liquids in the United States will be about 35ndash36
quadrillion British thermal units (BTUs) with minimal variation over the next 25 years1
1 US EIA ldquoAnnual Energy Outlook 2017 with Projections to 2050rdquo January 5 2017 7ndash8
Figure 51 US- Russia Trade Growth () vs US and Rus sia Real GDP Growth () 1993ndash2016
Source IMF ldquoIMF Datardquo accessed September 27 2017 http wwwimf org en Data US Census Bureau
ldquoTrade in Goods with Rus siardquo
Note rGDPthinsp=thinspreal gross domestic product
Trade
USA rGDP growth
Russia rGDP growth
-60
-40
-20
0
20
40
60
80
100
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Gro
wth
All spikes in US-Russia trade have been connected with two main
variables volume and price of crude oil
594-71613_ch01_4Pindd 22 102017 404 PM
Vadim Grishin 23
Second the United States will become a net energy exporter between 2020 and 2030 in most
cases under dif er ent combinations of oil and natu ral gas prices GDP growth technological
breakthroughs and the availability of energy resources The role of oil imports will dramatically
fall2
Third oil price scenarios as described by the International Energy Agency (IEA) international
financial organ izations (IFIs) and many national agencies are very cautious and assume that even
by 2035 to 2040 oil prices will not to recover to the levels of 2011ndash20123
Fourth Rus sian oil production and export growth will be modest and driven by Asian economic
expansion and will comprise a decreasing share of Western markets4 According to forecasts from
2 Ibid 15ndash18
3 Ibid table 3 ldquoEnergy Prices by Sector and Sourcesrdquo World Bank World Bank Commodity Markets Price Forecasts
(Washington DC World Bank 2017) httpswwwworldbank org en research commodity - markets Organ ization of the
Petroleum Exporting Countries (OPEC) World Oil Outlook 2016 (Vienna OPEC 2016)
4 E D Belotskaia et al Global and Rus sian Energy Outlook 2016 (Moscow Energy Research Institute of the Rus sian
Acad emy of Science Analytical Center for the Government of the Rus sian Federation 2016) http acgov ru files
publication a 12767 pdf
Figure 52 US Imports from Rus sia Crude Oil and Petroleum Products Thousands of Barrels 1995ndash2016
Source US EIA ldquoUS Imports by Country of Origin Rus siardquo Petroleum amp Other Liquids September 13
2017 http wwweia gov dnav pet PET _ MOVE _ IMPCUS _ D _ NUS _ NRS _ MBBL _ M htm
0
50000
100000
150000
200000
250000
Date 1995 1996 1997 1998 199920002001200220032004200520062007200820092010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 23 102017 404 PM
US-Russia Economic Relations24
the Organ ization of the Petroleum Exporting Countries (OPEC) crude oil exports from Rus sia and
the Caspian region to the United States will dis appear by 20255
So why does the Rus sian Urals blend continue to be attractive for oil traders and US refineries
which could pro cess greater volumes of domestically produced lighter crude There are two main
reasons One is related to the preference of US high conversion refineries (the most sophisticated
in the world) to work with heavy oil blends produced by Canada Mexico Iraq Venezuela and
Rus sia Pro cessing heavy crude now is as profitable as pro cessing lighter crude The so- called
crack spreadmdash the diference between the cost of relatively cheap heavy crude oil and the final
price of value- added consumer products (diesel gasoline jet fuel and heating oil)mdash has become
the same as the refinery margins of light sweet crude6 This has primarily afected light oil produc-
ing countries such as Angola Algeria and Nigeria
5 OPEC World Oil Outlook 2016 306ndash309
6 ldquoHow Much for That Heavy Oilrdquo Oil Sands Magazine December 26 2015 https wwwoilsandsmagazine com
news 2015 12 26 how - much - for - that - heavy - oil
Figure 53 US Imports from Rus sia Oil and Petroleum Products US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$-
$25000000000
$20000000000
$15000000000
$10000000000
$5000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Liquefied petroleum gases
Petroleum products other
Fuel oil
Crude oil
594-71613_ch01_4Pindd 24 102017 404 PM
Vadim Grishin 25
Another factor afecting purchase of Rus sian oil is a new trend among oil companies for further
consolidation of scale and for integrating operations of upstream and downstream business7
There have been several waves of separation and unification of production transportation and
pro cessing in the last 50 years The current business cycle can be seen as an adaptation to a
period of low prices and oversupply Companies that buy andor produce oil in Rus sia most likely
prefer to transport and pro cess this oil in their own modern refineries in the United States At the
same time some of the newest refinery designs specifically for pro cessing heavy oils have been
built in Asia thus extending the choices of heavy oil producing countries
We should also consider that leading US and international oil traders along with oil producing
companies working with or owning US refineries frequently buy Rus sian oil on the open market
and have long- term contracts on Rus sian crude oil delivery Many Rus sian oil companies prefer to
pay for purchases or ser vices with their future production instead of cash creating situations of
ldquostickyrdquo oil imports that are difficult to replace The best- known example is an interaction between
7 ldquoEnergy and Utilities Sectorrdquo Roundtable Financier Worldwide December 2015 https wwwfinancierworldwide
com roundtable - energy - utilities - sector - dec15
Figure 54 US Imports of Oil and Petroleum Products from Rus sia vs Oil Prices Eu rope Brent Spot Price Free on Board (FOB) 1996ndash2017
Source US EIA ldquoUS Imports by Country of Origin Rus siardquo
0
20
40
60
80
100
120
140
0
5000
10000
15000
20000
25000
30000
Jan
-19
96
Jun
-19
96
No
v-19
96
Ap
r-19
97
Sep
-19
97
Feb
-19
98
Jul-
199
8D
ec-1
99
8M
ay-1
99
9O
ct-1
99
9M
ar-2
00
0A
ug
-20
00
Jan
-20
01
Jun
-20
01
No
v-2
00
1A
pr-
20
02
Sep
-20
02
Feb
-20
03
Jul-
20
03
Dec
-20
03
May
-20
04
Oct
-20
04
Mar
-20
05
Au
g-2
00
5Ja
n-2
00
6Ju
n-2
00
6N
ov-
20
06
Ap
r-2
00
7Se
p-2
00
7Fe
b-2
00
8Ju
l-2
00
8D
ec-2
00
8M
ay-2
00
9O
ct-2
00
9M
ar-2
010
Au
g-2
010
Jan
-20
11Ju
n-2
011
No
v-2
011
Ap
r-2
012
Sep
-20
12Fe
b-2
013
Jul-
20
13D
ec-2
013
May
-20
14O
ct-2
014
Mar
-20
15A
ug
-20
15Ja
n-2
016
Jun
-20
16N
ov-
20
16
USD
per
Bar
rel
Th
ou
san
d B
arr
els
US Imports from Russia of Crude Oil and Petroleum Products (Thousand Barrels)
Europe Brent Spot Price FOB (Dollars per Barrel)
594-71613_ch01_4Pindd 25 102017 404 PM
US-Russia Economic Relations26
Table 56 US Oil Imports All Countries vs Rus sia Thousand Barrels per Day 2011ndash2016
Years 2011 2012 2013 2014 2015 2016
All Countries 11436 10598 9859 9241 9449 10058
Rus sia 624 477 460 330 371 433
Share 546 450 467 357 393 431
Sources US EIA ldquoUS Imports by Country of Origin Total Crude Oil and Productsrdquo Petroleum amp Other
Liquids September 13 2017 wwweia gov dnav pet pet_move_impcus_a2_nus_ep00_im0_mbbl_m htm
authorrsquos computation
Figure 55 US Imports from Rus sia Share of Crude Oil and Petroleum Products Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
57
64
73
72
74
73
72
59
52 50
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
$40000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil and Petroleum Products
594-71613_ch01_4Pindd 26 102017 404 PM
Vadim Grishin 27
the Rus sian state mono poly Rosneft and commodity trading and mining giant Glencore which
along with energy and commodities com pany Vitol participated in a $10 billion prepayment
deal with Rosneft for crude supplies in 2013
There have been a number of ongoing transactions between the Rus sian oil industry and interna-
tional oil companies including several that top the list of importers of Rus sian oil to the United
States ( Table 57) In December 2016 Glencore participated in a controversial privatization opera-
tion purchasing in tandem with the Qatar sovereign wealth fund a 195 percent stake in Rosneft
which was on the US and EU list of sanctioned firms8 Glencore has also taken a blocking stake in
midsize oil producer RussNeft BP owns a 1975 percent stake in Rosneft Chevron holds a
15 percent interest in the 935- mile- long CPC9 pipeline which transports an average of 959000
barrels of crude oil per day including 76000 barrels daily from Rus sia10 ExxonMobil has formed
8 E Mazneva and I Arkhipov ldquoRus sia Sells $11 Billion Stake in Rosneft to Glencore Qatarrdquo Bloomberg December 7
2016
9 CPCthinsp=thinspCaspian Pipeline Consortium
10 ldquoRus sia Highlights of Operations and Business Portfoliordquo Chevron accessed October 3 2017 https wwwchevron
com worldwide russia
Figure 56 Share of Rus sian Oil in Total US Oil Imports Thousands of Barrels per Day 1972ndash2016
Source US EIA ldquoUS Imports by Country of Origin Total Crude Oil and Productsrdquo
2000
4000
6000
8000
10000
12000
14000
16000
US Imports of Crude Oil and Petroleum Products (Thousand Barrels per Day)
US Imports from Russia of Crude Oil and Petroleum Products (Thousand Barrels per Day)19
7319
7419
7519
7619
7719
7819
7919
80
198
119
82
198
319
84
198
519
86
198
719
88
198
919
90
199
119
92
199
319
94
199
519
96
199
719
98
199
92
00
02
00
12
00
22
00
32
00
42
00
52
00
62
00
72
00
82
00
92
010
20
112
012
20
132
014
20
152
016
594-71613_ch01_4Pindd 27 102017 404 PM
Table 57 Top Importers of Rus sian Oil to the United States Thousands of Barrels 2016
VALERO MARKETING amp SUPPLY CO 54590 3616
EXXONMOBIL OIL CORP 17087 1130
CHEVRON USA INC 15217 1008
BP WEST COAST PRODUCTS LLC 10130 671
GEORGE E WARREN CORP 7272 48
PAULSBORO REFINING CO LLC 6838 453
TESORO CORP 5097 338
VITOL INC 5084 337
PHILLIPS 66 CO 4726 313
TRAFIGURA AG 4360 289
PAR HAWAII REFINING LLC 3893 258
MOTIVA ENTERPRISES LLC 3041 205
SHELL US TRADING CO 2863 19
MARATHON PETROLEUM CO LLC 2475 16
ATLANTIC TRADING amp MARKETING 2099 14
FREEPOINT COMMODITIES LLC 1439 1
GLENCORE LTD 1284 85
BEST PETROLEUM CORP 967 64
ROLYMPUS US COMMODITIES GROUP LLC 822 6
HUNT CRUDE OIL SUPPLY CO 666 4
GULF OIL LP 658 4
Source US EIA ldquoUS Imports by Country of Origin Crude Oilrdquo Petroleum amp Other Liquids September 13
2017 httpswwweiagovdnavpetpet_move_impcus_a2_nus_epc0_im0_mbblpd_ahtm authorrsquos
computation
594-71613_ch01_4Pindd 28 102017 404 PM
Vadim Grishin 29
several joint ventures with Rosneft to undertake ofshore exploration in the Black Sea and the Kara
Sea in Siberia11
According to the Sanctions Act US persons are prohibited from exporting or reexporting goods
ser vices (except financial ser vices) and technology in support of exploration or production of new
deep- water Arctic ofshore or shale oil proj ects that involve designated Rus sian entities or other
entities in which such sanctioned persons have a controlling interest or a substantial noncontrol-
ling owner ship interest defined as not less than 33 percent (previously it was 50 percent) The new
law also authorizesmdash but does not requiremdash the imposition of so- called secondary sanctions
against non- US entities that engage in activities involving the construction maintenance or
expansion of Rus sian energy export pipelines with a fair market value of $1 million or more or an
aggregate fair market value during a 12- month period of $5 million12 This provision has raised the
concerns of some Eu ro pean countries particularly Germany As result the final language of the
law included wording about coordination of this issue with allies of the United States
Shipments of Rus sian oil to the United States could be afected by activity in the US refinery
industry In early 2017 Saudi Aramco bought the United Statesrsquo largest oil refinery in Port Arthur
(Texas) and it announced plans to send more of its own crude to that refinery13 Serious concerns
exist however regarding the future of three refineries and nine pipelines owned by Citgo a US
branch of the Venezuelan state com pany PdVSA which is balancing precariously on the edge of
default Under certain conditions in the event of PdVSA bankruptcy Rosneft could claim a stake of
up to 499 percent in Citgo Such a possibility has raised concerns among politicians and US
government officials with Trea sury Secretary Steven Mnuchin calling it a ldquonational security issuerdquo14
Tables 58 59 and 510 show allocations of Rus sian oil imports to major US refineries some of
which work exclusively on Rus sian crude a total of two to three months per year In total 150940
thousand barrels of Rus sian oil were refined in 2016
Figure 57 confirms a leading position of Texas and Louisiana among the US states receiving
Rus sian crude followed by New Jersey California Mississippi Washington Hawaii and Delaware
In a paradoxical way Texas has dis appeared from the list of states as a main destination of US
imports from Rus sia (Figure 58) because Rus sian crude is mostly delivered to Louisiana ports and
registered there by US Customs as an import from Rus sia After that it transports to refineries in
Louisiana and Texas
Overall the short- term business rationale behind the sustainability of US oil imports from Rus sia
cannot overcome strong headwinds in the US energy sector facing all oil importers which will
inevitably lead to a contraction of Rus sian oil exports to the United States in the foreseeable future
11 Exxon eforts to receive a special US Trea sury waiver to drill in sanctioned Rus sia failed in 2017
12 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364
13 Sarp Ozkan ldquoSaudi Aramcorsquos Port Arthur Refinery and the US Refinery Fleetrdquo Drilling Info May 11 2017
https infodrillinginfo com saudi - aramcos - port - arthur - refinery - us - refinery - fleet
14 Graham Kates ldquoTrea sury Secretary Rus siarsquos Citgo Deal a National Security Issuerdquo CBS News May 1 2017
http wwwcbsnews com news rosneft - citgo - steven - mnuchin - national - security
594-71613_ch01_4Pindd 29 102017 404 PM
US-Russia Economic Relations30
Table 58 Valerorsquos Refineries Pro cessing Rus sian Oil Thousands of Barrels 2016
Saint Charles Louisiana 29206 535
Corpus Christi Texas 20626 378
Wilmington California 4250 78
Total USA 54590 100
Source US EIA ldquoRefinery Capacity Reportrdquo January 1 2017
table 5 wwweia gov petroleum refinerycapacity table5 pdf
authorrsquos computation
Table 59 ExxonMobil Refineries Pro cessing Rus sian Oil Thousands of Barrels 2016
Baytown Texas 15037 88
Baton Rouge Louisiana 2046 12
Total USA 17083 100
Source US EIA ldquoRefinery Capacity Reportrdquo authorrsquos computation
Table 510 Chevronrsquos Refineries Pro cessing Rus sian Oil Thousands of Barrels 2016
Pascagoula Mississippi 12767 840
El Segundo California 2372 155
Saint Rose Louisiana 78 05
Total USA 15217 100
Source US EIA ldquoRefinery Capacity Reportrdquo authorrsquos computation
594-71613_ch01_4Pindd 30 102017 404 PM
Vadim Grishin 31
HEAVY METAL
Taken together US imports of metals and US imports of oil compose about 80 percent of US
total imports from Rus sia (Figure 59) Trade of metals like other commodities is strongly afected
by market price fluctuations Nevertheless metal imports from Rus sia have been fairly resilient to
market volatility and their average annual value has hovered at about $4 billion in the last five years
(Figure 510) This market resilience was forged at the end of the 1990searly 2000s when Rus sian
metal producers gradually modernized their plants adjusting quality of production to Western
standards and enhancing integration into global value and supply chains Some of them conquered
their share of the highly competitive US market struggling with peers from Canada and certain
BRICS countries (China India and Brazil) To attract additional resources all Rus sian large metal-
producing companies became public and were listed on stock exchanges chiefly the London Stock
Exchange (Severstalrsquo PAO Evraz MMK OAO Novolipetsk Steel Norilsk Nikel and TMK PAO) one
on the New York Stock Exchange (Mechel) and one on the Hong Kong Stock Exchange (Rusal)
Business logic pushed some of them to invest in the US metal- making industry which was hit
hard by crisis Later on some of those assets were sold (eg two US steel mills acquired by
Severstal in 2004 were purchased 10 years later by Steel Dynamics Inc and AK Steel Corp)
Figure 57 Share of US States Rus sian Oil Imports 2016
Source US EIA ldquoUS Imports from Rus sia of Crude Oil and Petroleum Productsrdquo Petroleum amp Other
Liquids September 29 2017 https www eia gov dnav pet hist LeafHandler ashx nshy=shyPETampsshy=shyMTTIM _ NUS
- NRS _ 1ampfshy=shyM authorrsquos computation
0
10
20
30
40
50
60
70
80
90
100
Maine
Massachusetts
Maryland
Connecticut
Georgia
Rhode Island
Virginia
Florida
New York
Alabama
Puerto Rico
Pennsylvania
Delaware
Hawaii
Washington
Mississippi
California
New Jersey
Louisiana
Texas
594-71613_ch01_4Pindd 31 102017 404 PM
Figure 58 US Imports from Rus sia by State Million US$ 2013ndash2016
Source US Census Bureau ldquoState and Metropolitan Area Trade Datardquo Foreign Trade last modified
October 2 2017 https wwwcensus gov foreign - trade statistics state
Alaska
Connecticut
Delaware
Hawaii
Louisiana
Maryland
North Dakota 0
$1000
$2000
$3000
$4000
$5000
$6000
2013 2014 2015 2016
Alabama
Alaska
Connecticut
Delaware
Hawaii
Louisiana
Maryland
Maine
Mississippi
Montana
North Dakota
Mississippi
Figure 59 US Imports from Rus sia Share of Oil and Metals Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
83
82
85
86
87
88
85
82
7375
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
$40000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil and Metals
594-71613_ch01_4Pindd 32 102017 404 PM
Vadim Grishin 33
Obviously the market dynamic of dif er ent metals varies (eg iron steel aluminum platinum and
nickel) Caps to increase their trade and production in a ldquored oceanrdquo global environment with
anemic demand is rather limited despite Figure 510 showing a spike of iron and steel imports
from Rus sia in 2014 and aluminum in 2016 Some opportunities may exist for Russian- owned steel
plants in the United States (such as NLMK) to participate in energy proj ects resumed under Presi-
dent Trump who has required that new pipelines use only American- made steel15
Rus sia occupies a special niche in the US market for titanium products a high- end metal indus-
try Twenty years ago a long- term contract was signed between Rus sian titanium producer
VSMPO- AVISMA and Boeing The Rus sian com pany entered the selective club of Boeing suppliers
for the manufacture of components and semi- finished products Since the signing of this contract
VSMPO has delivered more than 35 percent of all titanium placed on Boeing civil aircraft16 They
are hidden in the trade data in an import category for Civilian Aircrafts and Parts (Figure 511) At
the end of 2016 Boeing announced an extension of its framework agreement with AVISMA
15 E Scheyder C Ngai and T Sylvester ldquoAmerican Steel Unlikely to Get Keystone Boost Despite Trump Orderrdquo
Reuters January 27 2017 http wwwreuters com article usa - trump - pipeline - transcanada - idUSL1N1FH1ZD
16 A Kramer ldquoTitanium Fills Vital Role for Boeing and Rus siardquo New York Times July 5 2013 http wwwnytimes com
2013 07 06 business global titanium - fills - vital - role - for - boeing - and - russia html mcubzshy=shy3
Figure 510 US Imports from Rus sia Iron Steel Bauxite Aluminum Nickel Nonferrous Metals and Other Precious Metals and Materials US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
0
$6000000000
$5000000000
$4000000000
$3000000000
$2000000000
$1000000000
2007 2008 2009 2010 2011 20122013
20142015
2016
Finished metal shapes
Iron and steel advanced
Iron and steel products nec
Nonferrous metals other
Other precious metals
Nickel
Bauxite and aluminum
Iron and steel mill products
Steelmaking materials
594-71613_ch01_4Pindd 33 102017 404 PM
US-Russia Economic Relations34
through 2022 and additional investments in the construction of a new robotic plant in Titanium
Valley a special economic zone located in the Sverdlovsk region that will open in 2018 The pro-
cessing of titanium forgings in all Boeing civil aircraft will be performed there including 787s 737
MAXs and 777Xs17 The contract extension with AVISMA may add several hundred million dollars
in value to annual US imports from Rus sia
How can such heavy reliance on imports of Rus sian titanium exist during a period of rising geopo-
liti cal tensions The answer is straightforward VSMPO- AVISMA is a highly specialized natu ral
mono poly producing 45 percent of the worldrsquos aerospace titanium Only four other countries
smelt high- grade titanium in industrial quantities the United States Germany Japan and China
Overall global production capacity is limited while demand is growing The United States cur-
rently imports around 79 percent of all the titanium it consumes each year18
17 ldquoBoeing and VSMPO Avisma to Launch Second Joint Production Siterdquo Rus sian Aviation Insider December 22 2016
http wwwrusaviainsider com boeing - and - vsmpo - avisma - to - launch - second - joint - production - site
18 Jon Ostrower and Andy Pasztor ldquoBoeing United Technologies Stockpile Titanium Partsrdquo Wall Street Journal
August 7 2014 https wwwwsj com articles boeing - united - technologies - stockpiling - titanium - parts - 1407441886
Figure 511 US Imports from Rus sia Civilian Aircrafts and Parts US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
$200000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Parts-civilian aircraft
Civilian aircraft
594-71613_ch01_4Pindd 34 102017 404 PM
Vadim Grishin 35
The Sanctions Act authorizes the secretary of the trea sury (in a nonmandatory way) to impose
restrictions (without specifying them) against Rus sian state- owned entities operating in the railway
metals and mining sectors of the Rus sian economy Despite the commanding heights of Rus siarsquos
state sector owner ship in its economy (70 percent of GDP) the metal- producing companies have
remained mostly in private hands
NUCLEAR AFFAIRS
Historically owners and operators of the 104 commercial nuclear power reactors in the United
States have purchased more than 80 percent of their uranium from foreign countries Uranium
shipping from Rus sia accounted for about 13 percent of the 58 million pounds of uranium pur-
chased overseas in 201219 At the same time the Rus sian state- owned mono poly Rosatom ac-
counts for 20 percent of Kazakhstanrsquos uranium production (which in turn comprises 11 percent of
all US uranium imports) and 20 percent of US domestic uranium production capacity (with
owner ship of exploration tracts in Wyoming)20
Nuclear fuel and nuclear power continue to be po liti cally sensitive topics both in the United
States and Rus sia Bilateral cooperation in this sector (being surprisingly stable with imports of
nuclear fuel from Rus sia at a level of $1 billion annually in the last five years [Figure 512 and 513])
is under constant po liti cal and lobbying pressure and has been a source of several po liti cal scan-
dals21 Consequently upside risks in this area of interaction are minimal and downside risks are
much higher especially when we are seeing more decommissioning of nuclear plants in the
United States than new constructions The US EIArsquos 2017 Annual Energy Outlook assumes
that about 25 percent of the nuclear capacity now operating will be removed from ser vice
by 205022
WHY IS THE GRASS GREENER ON THE OTHER SIDE
The United States continues to significantly reduce imports of chemical fertilizers as domestic pro-
duction increases In 2016 the United States imported 13 percent less ammonia and 11 percent
less urea and UAN which is a liquid urea and ammonium nitrate fertilizer Rus sia accounts for
around 40 percent of UAN imported by the United States The United States canceled antidumping
duties on imports of ammonium nitrate and urea from Rus sia in 2016 but it did not prevent import
19 US EIA ldquoThe US Relies on Foreign Uranium Enrichment Ser vices to Fuel Its Nuclear Power Plantsrdquo Today in
Energy August 28 2013 https wwweia gov todayinenergy detail php idshy=shy1273
20 Colin Chilcoat ldquoDoes Rus sia Really Own 20 Percent of the USrsquo Uranium Reservesrdquo OilPricecom May 6 2015
http oilpricecom Alternative - Energy Nuclear - Power Does - Russia - Really - Own - 20 - Of - The - US - Uranium - Reserves
html
21 Michelle Ye Hee Lee ldquoThe Facts behind Trumprsquos Repeated Claim about Hillary Clintonrsquos Role in the Rus sian Ura-
nium Dealrdquo Washington Post October 26 2016
22 US EIA ldquoAnnual Energy Outlook 2017 with Projections to 2050rdquo 81ndash82
594-71613_ch01_4Pindd 35 102017 404 PM
Figure 512 US Imports from Rus sia Share of Oil Metals and Nuclear Fuel Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
87
86
90
90
90
91
88
86
7882
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals and Nuclear Fuel
Figure 513 US Imports from Rus sia Nuclear Fuel Materials US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$-
$200000000
$400000000
$600000000
$800000000
$1200000000
$1000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 36 102017 404 PM
Vadim Grishin 37
drops twice last year (Figures 514 and 515) According to forecasts UAN imports are expected to
decline further to 15 million tons this year down over 46 percent from 28 million tons imported
last year23 The downside trend in imports of fertilizers will likely continue because of oversupply
BIG FISH
US imports of fish and shellfish from Rus sia are best understood in comparison with US fish
exports to the Rus sian market which slipped to zero in August 2014 after Rus sia issued an order
banning certain agricultural imports from the United States (Figure 516) While the volume of US
supply was not very large it was impor tant because it broke up the monopolistic dominance of a
few vertically integrated Rus sian companies that have kept prices high by restricting the entry of
new producers Seeking to implement import substitution policies Rus sia has tried to reduce
exports as well as imports of fish and seafood products in the last couple of years This symmetri-
cal approach was intended to ldquocompensaterdquo for a decrease of fish products in the domestic
23 Deepika Thapliyal ldquoPotashCorp Forecasts Sharp Drop in US Nitrogen Imports in 2017rdquo ICIS News February 7
2017 https wwwicis com resources news 2017 02 07 10076734 potashcorp - forecasts - sharp - drop - in - us - nitrogen
- imports - in - 2017
Figure 514 US Imports from Rus sia Share of Oil Metals Nuclear Fuel and Fertilizers Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
90
93
92
93
94
95
92
91
85
86
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals Nuclear Fuel and Fertilizers
594-71613_ch01_4Pindd 37 102017 404 PM
Figure 515 US Imports from Rus sia Chemical- Fertilizers US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
S-
$200000000
$400000000
$600000000
$800000000
$1000000000
$1200000000
$1400000000
$1600000000
$1800000000
$2000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Figure 516 US Exports to Rus sia Fish and Shellfish US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$10000000
$20000000
$30000000
$40000000
$50000000
$60000000
$70000000
$80000000
$90000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Fish and shellfish
594-71613_ch01_4Pindd 38 102017 404 PM
Vadim Grishin 39
consumer market caused by Rus siarsquos import ban but it has failed As result the group most af-
fected by the self- imposed counter- sanctions were Rus sian consumers
With a significant drop in fish imports a devaluation of the ruble and inflationary pressures on
seafood prices yearly consumption of fish in Rus sia has declined precipitously In 2015 alone
fish prices increased 20 percent and consumption dropped to 14 kilograms per person24 from
22 kilograms in 201425 In 2016 food rose to 355 percent of house hold expenditure as a result of
increases in food prices26 This has pushed vertically integrated fishing monopolies to sell even
more of their catch abroad rather than deliver to the Rus sian Federation (Figure 517) Thus we
cannot exclude the possibility of further growth in US fish and shellfish imports from Rus sia on a
marginal scale
24 Александр Савельев ldquoПотребление рыбы в России упало до 14 кг на человекаrdquo [Fish consumption in Rus sia fell to
14 kg per person] Экономика Интерфакс January 28 2015 http wwwinterfax ru business 492038
25 Илья Шестаков ldquoПотебление рыбы в России снизилось на 10 процентов из- за роста ценrdquo [Fish consumption in
Rus sia dropped by 10 percent due to price increases] RNS March 8 2017 https rnsonline consumer - market
Potreblenie - ribi - v - Rossii - snizilos - na - 10 - iz - za - rosta - tsen - 2017 - 03 - 08
26 Zoya Sheftalovich and Christian Oliver ldquoRus siarsquos Boom (Farming) Economyrdquo Politico November 8 2016 http
wwwpolitico eu article russias - boom - farming - economy
Figure 517 US Imports from Rus sia Fish and Shellfish US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$50000000
$100000000
$150000000
$200000000
$250000000
$300000000
$350000000
$400000000
$450000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 39 102017 404 PM
US-Russia Economic Relations40
SPACE ODYSSEY
Among high- end products beyond the top five groups of goods imported from Rus sia cheap and
efficient Rus sian engines have been used to launch US rockets into space for about 16 years
(Figure 518) There was a serious po liti cal strug gle around a 2014 ban on the purchase of Rus sian
RD-180 rocket engines revealing the conflicting business interests of power ful high- tech companies
This restrictive mea sure was temporary and was quickly lifted because of significant cost impacts
and risks of disruption to launch schedules27 For the same reason the Sanctions Act does not autho-
rize ldquothe imposition of any sanction or other condition limitation restriction or prohibition that
directly or indirectly impedes the supply by any entity of the Rus sian Federation of any product or
ser vice or the procurement of such product or ser vice by any contractor or subcontractor of the
United States or any other entity relating to or in connection with any space launch conducted for
the National Aeronautics and Space Administration or any other nonndash Department of Defense
customerrdquo28
Nevertheless many experts believe that US domestic alternatives to replace Rus sian engines will
be viable in five to eight years
27 Ken Dilanian ldquoWhy Does the US Use Rus sian Rockets to Launch Its Satellitesrdquo NBC News updated November 15
2016 http wwwnbcnews com why - does - u - s - use - russian - rockets - launch - its - satellites - n588526
28 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364
Figure 518 Spacecraft Excluding Military US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 40 102017 404 PM
41
Diversity and technological complexity are the most vis i ble advantages supporting US exports to
Rus sia Three major groups of export goods include civilian aircraft engines and parts (Figure 61)
drilling and oil field equipment (Figure 62) and industrial machines and engines (Figure 63)
Despite sanctions against the transfer of advanced oil producing and pro cessing technologies the
realization of US drilling and oil field equipment in Rus sia is sustainable although some bilateral
proj ects have been frozen
Another category of goods that has demonstrated resilience is the phar ma ceu ti cal industry (Fig-
ure 64) because most drugs in Rus sia are imported (about 70 percent of the Rus sian phar ma ceu-
ti cal market in value) Import substitution policies have had only modest results in this industry
As confirmed by American Chamber of Commerce surveys US exports to Rus sia are closely
connected to US FDI 30 percent of total imports of US companies working in the Rus sian
market come from the United States (more than $2 billion in 2016) In other words about
40 percent of all US exports to Rus sia are related to a US corporate- sector business pro cess in
the country The major sectors of activity of these companies are energy and natu ral resources
(52 percent) manufacturing (17 percent) information and communications technology or ICT
(13 percent) retail (7 percent) automotive industry (6 percent) phar ma ceu ti cal production
(1 percent) professional ser vices (05 percent) and other (2 percent)1
Some obvious constraints on US exports to Rus sia have resulted from a reduction in demand A
deterioration of bilateral relations and implementation of sanctions and counter- sanctions have
directly or indirectly afected all businesses Figures 65 and 66 provide data regarding a dramatic
drop in the sale of US agricultural production in Rus sia with all other categories of exports in
goods showing big cuts as well (see Figures 67ndash69)
Exports of civilian aircraft engines and parts put the state of Washington in first place among
other states as a leading exporter to the Rus sian market (Figure 610)
1 American Chamber of Commerce in Rus sia ldquoInvestment and Import to Rus sia 2nd Surveyrdquo 13
Diversity and Constraints
06
594-71613_ch01_4Pindd 41 102017 404 PM
Figure 61 US Exports of Civilian Aircraft Engines Equipment and Parts to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
$2500000000
$2000000000
$1500000000
$1000000000
$500000000
$-
Figure 62 US Exports of Drilling and Oil Field Equipment US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
$40000000
$45000000
$50000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 42 102017 404 PM
Figure 63 US Exports of Industrial Engines to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Figure 64 US Exports of Phar ma ceu ti cal Preparations to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 43 102017 404 PM
Figure 65 US Exports of Meat and Poultry to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Meat poultry etc
$1000000000
$800000000
$600000000
$400000000
$200000000
$-
$1200000000
$1400000000
$1600000000
Figure 66 US Exports of Soybeans to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
$200000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 44 102017 404 PM
Figure 67 US Exports of Vehicles Engines and Parts to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Other parts and accessories of vehicles
Automotive tires and tubes
Bodies and chassis for passenger cars
Engines and engine parts (carburetors pistonsrings and valves)
Trucks buses and special purpose vehicles
Passenger cars new and used
$2500000000
$2000000000
$1500000000
$500000000
$-
$1000000000
Figure 68 US Exports of Medicinal Equipment to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 45 102017 404 PM
Figure 610 US Exports to Rus sia by States (2016 US$ Value) Million US$ 2013ndash2016
Source US Census Bureau ldquoState and Metropolitan Area Trade Datardquo
Iowa Kentucky
North Dakota
Oklahoma
South Carolina
Washington
0
$500
$1000
$1500
$2000
2013 2014 2015 2016
District of Columbia
Iowa
Kentucky
North Dakota
Oklahoma
South Carolina
Washington
Figure 69 US Exports of Excavating Machinery to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
$40000000
$45000000
$50000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 46 102017 404 PM
47
Upon reviewing the current trend in US- Russia economic relations we must acknowledge that
the existing trade model is obsolete and exhausted Imports are resource- oriented and reflect
constraints of the Rus sian economic structure while five groups of goodsmdash oil metals nuclear
fuels fertilizers and fishmdash make up more than 90 percent of total imports from Rus sia (Figure 71)
Each of these industries has a limited capacity for growth in the foreseeable future
Rus siarsquos core export to the United Statesmdash oilmdash will inevitably decrease in the mid- term under any
scenario The value and volume of Rus sian exports to the United States are open to global market
volatility and po liti cal pressures with limited hedging mechanisms
Overall US exports to Rus sia are unsustainable due to bilateral po liti cal tensions the whims of
commodity markets and changing domestic policies Sanctions and counter- sanctions have
created additional barriers particularly in finance banking high- tech energy and agro- business
According to the American Chamber of Commerce 69 percent of US companies working in the
country consider the impact of US sanctions against Rus sia on their business as negative At the
same time 60 percent of companies do not expect big changes in business relations between
Rus sia and the United States under Trump1 as the new law codifies existing sanctions fortifies
them and extends them to new sectors
Current US investments are low due to the weak rule of law in Rus sia a lack of property right
protections and proper contract enforcement high levels of statization and monopolization in the
economy a poor business climate outdated capital stock dependence on natural- resource
sectors and of course sanction and counter- sanction mea sures Bloated administrative compo-
nents created as risk mitigation instruments have also served as impediments The countryrsquos
institutional weakness low level of productivity bud get constraints and a declining inflexible
workforce will restrain future economic growth even if commodity prices recover Rus sian eco-
nomic policy will likely continue to be statist and protectionist relying mostly on import
substitutions
1 Ibid 11
Existing Trends and Future Scenarios
07
594-71613_ch01_4Pindd 47 102017 404 PM
US-Russia Economic Relations48
What scenarios can be expected in such a challenging environment
One probability (no peace no war) is based on the assumption that matters will not deteriorate
further and implementation of the Sanctions Act will be cursory This will cause relatively slow
degradation in the economic field with occasional flashes of activity in selected areas (eg closer
cooperation against Islamist terrorist groups in Syria)
A second worse case or critical scenario is the intensive and full- scale execution of current sanc-
tion legislation and even the imposition of new economic punitive and restrictive mea sures which
could incite asymmetric retaliatory actions and lead to the introduction of additional protectionist
policies This in turn could trigger a further escalation of mutual confrontation and could eventu-
ally destroy the fundamentals of the current bilateral trade system Rus sian leadership has charac-
terized the Sanctions Act as a declaration of a trade war that ends all hope for improving bilateral
relations2
2 Дмитрий Медведев ldquoПодписание президентом США нового санкционного закона против России создает несколько
последствийrdquo [The US Presidentrsquos signing of the package of new sanctions against Rus sia will have a few conse-
quences] Facebook August 2 2017 https wwwfacebook com Dmitry Medvedev posts 10154587161801851
Figure 71 US Imports from Rus sia Share of Oil Metals Nuclear Fuel Fertilizers and Fish Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
93
94
93
94
95
96
93
92
87
89
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals Nuclear FuelFertilizers and Fish
594-71613_ch01_4Pindd 48 102017 404 PM
Vadim Grishin 49
The best case and most favorable scenario looks less probable now It assumes the realization of
structural reforms in Rus sia in such a way that would adapt Rus siarsquos foreign policy to national
economic needs reduce confrontations with the West and make a concerted efort to integrate
Rus sian businesses into global supply and value chains A revitalization of the structural reform
agendamdash including eforts to diversify economic activities through de- monopolization and support
for SMEs a restructuring of the banking sector the creation of a vibrant business climate to foster
entrepreneurships and innovation the implementation of administrative and judicial reforms to
tackle red tape and endemic corruption and the reduction of state control over key sectors of the
economy via wide- spread privatization could kick- start the development of a nonoil economy and
improve long- term growth prospects Despite ongoing discussion of reform strategies deep
economic and po liti cal changes are extremely complicated over the next po liti calelectoral cycle
(2018ndash2024) particularly because of re sis tance of vested interests and growing commodity prices
The urgency to tackle structural shortcomings in natu ral resource- dependent economies usually
correlates with the price of those resources and the degree to which resource rents drive eco-
nomic activity However there may be marginal improvements in the efficiency of the current
economic system
Future US- Russia relations can be thought of through three pillars one pillar focuses on areas
where both countries maintain a competitive rivalry another looks at potential areas of interaction
under pres ent conditions a third pillar and one that has evaporated from the current bilateral
agenda concentrates on future cooperation Stronger economic ties could not only be a kind of
po liti cal shock absorber but contribute to the building of this future (particularly business contacts
aim to support future structural reforms) although po liti cal factors are depressing the prospects
for cooperation To escape deadlock it will be impor tant to establish the right balance between
politics and economics and create a model of collaboration within the framework of contention
594-71613_ch01_4Pindd 49 102017 404 PM
About the Author
Vadim Grishin PhD MBA has been involved in the reform pro cess in Rus sia as adviser to the
deputy prime minister of Rus sia in 1992ndash1993 and 2006ndash2010 He has extensive experience
working with the Bretton Woods Institutions He was the board member of the World Bank Group
and served as se nior adviser at the International Monetary Fund Currently he is a con sul tant to the
chief economistrsquos office of the International Finance Corporation and teaches the economics of
transition at Georgetown University in Washington DC
50
594-71613_ch99_4Pindd 50 102017 403 PM
Blank
COVER PHOTO ADOBE STOCK
1616 Rhode Island Avenue NW
Washington DC 20036
202 887 0200 | wwwcsisorg
v++ISBN 978-1-4422-8035-9
Lanham bull Boulder bull New York bull London
4501 Forbes Boulevard
Lanham MD 20706
301 459 3366 | wwwrowmancom
A U T H O R
Vadim Grishin
Myths and Realities
A Report of the
CSIS RUSSIA AND EURASIA PROGRAM
US-RussiaEconomicRelations
O C T O B E R 2 0 1 7
Euml|xHSLEOCy280359z
The Man Pupu Nyor Rock Formations at the Northern Urals also known as Seven
Strong Man or Little Mountain of the God in the local tribe (Mansi) language
Vadim Grishin 23
Second the United States will become a net energy exporter between 2020 and 2030 in most
cases under dif er ent combinations of oil and natu ral gas prices GDP growth technological
breakthroughs and the availability of energy resources The role of oil imports will dramatically
fall2
Third oil price scenarios as described by the International Energy Agency (IEA) international
financial organ izations (IFIs) and many national agencies are very cautious and assume that even
by 2035 to 2040 oil prices will not to recover to the levels of 2011ndash20123
Fourth Rus sian oil production and export growth will be modest and driven by Asian economic
expansion and will comprise a decreasing share of Western markets4 According to forecasts from
2 Ibid 15ndash18
3 Ibid table 3 ldquoEnergy Prices by Sector and Sourcesrdquo World Bank World Bank Commodity Markets Price Forecasts
(Washington DC World Bank 2017) httpswwwworldbank org en research commodity - markets Organ ization of the
Petroleum Exporting Countries (OPEC) World Oil Outlook 2016 (Vienna OPEC 2016)
4 E D Belotskaia et al Global and Rus sian Energy Outlook 2016 (Moscow Energy Research Institute of the Rus sian
Acad emy of Science Analytical Center for the Government of the Rus sian Federation 2016) http acgov ru files
publication a 12767 pdf
Figure 52 US Imports from Rus sia Crude Oil and Petroleum Products Thousands of Barrels 1995ndash2016
Source US EIA ldquoUS Imports by Country of Origin Rus siardquo Petroleum amp Other Liquids September 13
2017 http wwweia gov dnav pet PET _ MOVE _ IMPCUS _ D _ NUS _ NRS _ MBBL _ M htm
0
50000
100000
150000
200000
250000
Date 1995 1996 1997 1998 199920002001200220032004200520062007200820092010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 23 102017 404 PM
US-Russia Economic Relations24
the Organ ization of the Petroleum Exporting Countries (OPEC) crude oil exports from Rus sia and
the Caspian region to the United States will dis appear by 20255
So why does the Rus sian Urals blend continue to be attractive for oil traders and US refineries
which could pro cess greater volumes of domestically produced lighter crude There are two main
reasons One is related to the preference of US high conversion refineries (the most sophisticated
in the world) to work with heavy oil blends produced by Canada Mexico Iraq Venezuela and
Rus sia Pro cessing heavy crude now is as profitable as pro cessing lighter crude The so- called
crack spreadmdash the diference between the cost of relatively cheap heavy crude oil and the final
price of value- added consumer products (diesel gasoline jet fuel and heating oil)mdash has become
the same as the refinery margins of light sweet crude6 This has primarily afected light oil produc-
ing countries such as Angola Algeria and Nigeria
5 OPEC World Oil Outlook 2016 306ndash309
6 ldquoHow Much for That Heavy Oilrdquo Oil Sands Magazine December 26 2015 https wwwoilsandsmagazine com
news 2015 12 26 how - much - for - that - heavy - oil
Figure 53 US Imports from Rus sia Oil and Petroleum Products US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$-
$25000000000
$20000000000
$15000000000
$10000000000
$5000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Liquefied petroleum gases
Petroleum products other
Fuel oil
Crude oil
594-71613_ch01_4Pindd 24 102017 404 PM
Vadim Grishin 25
Another factor afecting purchase of Rus sian oil is a new trend among oil companies for further
consolidation of scale and for integrating operations of upstream and downstream business7
There have been several waves of separation and unification of production transportation and
pro cessing in the last 50 years The current business cycle can be seen as an adaptation to a
period of low prices and oversupply Companies that buy andor produce oil in Rus sia most likely
prefer to transport and pro cess this oil in their own modern refineries in the United States At the
same time some of the newest refinery designs specifically for pro cessing heavy oils have been
built in Asia thus extending the choices of heavy oil producing countries
We should also consider that leading US and international oil traders along with oil producing
companies working with or owning US refineries frequently buy Rus sian oil on the open market
and have long- term contracts on Rus sian crude oil delivery Many Rus sian oil companies prefer to
pay for purchases or ser vices with their future production instead of cash creating situations of
ldquostickyrdquo oil imports that are difficult to replace The best- known example is an interaction between
7 ldquoEnergy and Utilities Sectorrdquo Roundtable Financier Worldwide December 2015 https wwwfinancierworldwide
com roundtable - energy - utilities - sector - dec15
Figure 54 US Imports of Oil and Petroleum Products from Rus sia vs Oil Prices Eu rope Brent Spot Price Free on Board (FOB) 1996ndash2017
Source US EIA ldquoUS Imports by Country of Origin Rus siardquo
0
20
40
60
80
100
120
140
0
5000
10000
15000
20000
25000
30000
Jan
-19
96
Jun
-19
96
No
v-19
96
Ap
r-19
97
Sep
-19
97
Feb
-19
98
Jul-
199
8D
ec-1
99
8M
ay-1
99
9O
ct-1
99
9M
ar-2
00
0A
ug
-20
00
Jan
-20
01
Jun
-20
01
No
v-2
00
1A
pr-
20
02
Sep
-20
02
Feb
-20
03
Jul-
20
03
Dec
-20
03
May
-20
04
Oct
-20
04
Mar
-20
05
Au
g-2
00
5Ja
n-2
00
6Ju
n-2
00
6N
ov-
20
06
Ap
r-2
00
7Se
p-2
00
7Fe
b-2
00
8Ju
l-2
00
8D
ec-2
00
8M
ay-2
00
9O
ct-2
00
9M
ar-2
010
Au
g-2
010
Jan
-20
11Ju
n-2
011
No
v-2
011
Ap
r-2
012
Sep
-20
12Fe
b-2
013
Jul-
20
13D
ec-2
013
May
-20
14O
ct-2
014
Mar
-20
15A
ug
-20
15Ja
n-2
016
Jun
-20
16N
ov-
20
16
USD
per
Bar
rel
Th
ou
san
d B
arr
els
US Imports from Russia of Crude Oil and Petroleum Products (Thousand Barrels)
Europe Brent Spot Price FOB (Dollars per Barrel)
594-71613_ch01_4Pindd 25 102017 404 PM
US-Russia Economic Relations26
Table 56 US Oil Imports All Countries vs Rus sia Thousand Barrels per Day 2011ndash2016
Years 2011 2012 2013 2014 2015 2016
All Countries 11436 10598 9859 9241 9449 10058
Rus sia 624 477 460 330 371 433
Share 546 450 467 357 393 431
Sources US EIA ldquoUS Imports by Country of Origin Total Crude Oil and Productsrdquo Petroleum amp Other
Liquids September 13 2017 wwweia gov dnav pet pet_move_impcus_a2_nus_ep00_im0_mbbl_m htm
authorrsquos computation
Figure 55 US Imports from Rus sia Share of Crude Oil and Petroleum Products Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
57
64
73
72
74
73
72
59
52 50
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
$40000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil and Petroleum Products
594-71613_ch01_4Pindd 26 102017 404 PM
Vadim Grishin 27
the Rus sian state mono poly Rosneft and commodity trading and mining giant Glencore which
along with energy and commodities com pany Vitol participated in a $10 billion prepayment
deal with Rosneft for crude supplies in 2013
There have been a number of ongoing transactions between the Rus sian oil industry and interna-
tional oil companies including several that top the list of importers of Rus sian oil to the United
States ( Table 57) In December 2016 Glencore participated in a controversial privatization opera-
tion purchasing in tandem with the Qatar sovereign wealth fund a 195 percent stake in Rosneft
which was on the US and EU list of sanctioned firms8 Glencore has also taken a blocking stake in
midsize oil producer RussNeft BP owns a 1975 percent stake in Rosneft Chevron holds a
15 percent interest in the 935- mile- long CPC9 pipeline which transports an average of 959000
barrels of crude oil per day including 76000 barrels daily from Rus sia10 ExxonMobil has formed
8 E Mazneva and I Arkhipov ldquoRus sia Sells $11 Billion Stake in Rosneft to Glencore Qatarrdquo Bloomberg December 7
2016
9 CPCthinsp=thinspCaspian Pipeline Consortium
10 ldquoRus sia Highlights of Operations and Business Portfoliordquo Chevron accessed October 3 2017 https wwwchevron
com worldwide russia
Figure 56 Share of Rus sian Oil in Total US Oil Imports Thousands of Barrels per Day 1972ndash2016
Source US EIA ldquoUS Imports by Country of Origin Total Crude Oil and Productsrdquo
2000
4000
6000
8000
10000
12000
14000
16000
US Imports of Crude Oil and Petroleum Products (Thousand Barrels per Day)
US Imports from Russia of Crude Oil and Petroleum Products (Thousand Barrels per Day)19
7319
7419
7519
7619
7719
7819
7919
80
198
119
82
198
319
84
198
519
86
198
719
88
198
919
90
199
119
92
199
319
94
199
519
96
199
719
98
199
92
00
02
00
12
00
22
00
32
00
42
00
52
00
62
00
72
00
82
00
92
010
20
112
012
20
132
014
20
152
016
594-71613_ch01_4Pindd 27 102017 404 PM
Table 57 Top Importers of Rus sian Oil to the United States Thousands of Barrels 2016
VALERO MARKETING amp SUPPLY CO 54590 3616
EXXONMOBIL OIL CORP 17087 1130
CHEVRON USA INC 15217 1008
BP WEST COAST PRODUCTS LLC 10130 671
GEORGE E WARREN CORP 7272 48
PAULSBORO REFINING CO LLC 6838 453
TESORO CORP 5097 338
VITOL INC 5084 337
PHILLIPS 66 CO 4726 313
TRAFIGURA AG 4360 289
PAR HAWAII REFINING LLC 3893 258
MOTIVA ENTERPRISES LLC 3041 205
SHELL US TRADING CO 2863 19
MARATHON PETROLEUM CO LLC 2475 16
ATLANTIC TRADING amp MARKETING 2099 14
FREEPOINT COMMODITIES LLC 1439 1
GLENCORE LTD 1284 85
BEST PETROLEUM CORP 967 64
ROLYMPUS US COMMODITIES GROUP LLC 822 6
HUNT CRUDE OIL SUPPLY CO 666 4
GULF OIL LP 658 4
Source US EIA ldquoUS Imports by Country of Origin Crude Oilrdquo Petroleum amp Other Liquids September 13
2017 httpswwweiagovdnavpetpet_move_impcus_a2_nus_epc0_im0_mbblpd_ahtm authorrsquos
computation
594-71613_ch01_4Pindd 28 102017 404 PM
Vadim Grishin 29
several joint ventures with Rosneft to undertake ofshore exploration in the Black Sea and the Kara
Sea in Siberia11
According to the Sanctions Act US persons are prohibited from exporting or reexporting goods
ser vices (except financial ser vices) and technology in support of exploration or production of new
deep- water Arctic ofshore or shale oil proj ects that involve designated Rus sian entities or other
entities in which such sanctioned persons have a controlling interest or a substantial noncontrol-
ling owner ship interest defined as not less than 33 percent (previously it was 50 percent) The new
law also authorizesmdash but does not requiremdash the imposition of so- called secondary sanctions
against non- US entities that engage in activities involving the construction maintenance or
expansion of Rus sian energy export pipelines with a fair market value of $1 million or more or an
aggregate fair market value during a 12- month period of $5 million12 This provision has raised the
concerns of some Eu ro pean countries particularly Germany As result the final language of the
law included wording about coordination of this issue with allies of the United States
Shipments of Rus sian oil to the United States could be afected by activity in the US refinery
industry In early 2017 Saudi Aramco bought the United Statesrsquo largest oil refinery in Port Arthur
(Texas) and it announced plans to send more of its own crude to that refinery13 Serious concerns
exist however regarding the future of three refineries and nine pipelines owned by Citgo a US
branch of the Venezuelan state com pany PdVSA which is balancing precariously on the edge of
default Under certain conditions in the event of PdVSA bankruptcy Rosneft could claim a stake of
up to 499 percent in Citgo Such a possibility has raised concerns among politicians and US
government officials with Trea sury Secretary Steven Mnuchin calling it a ldquonational security issuerdquo14
Tables 58 59 and 510 show allocations of Rus sian oil imports to major US refineries some of
which work exclusively on Rus sian crude a total of two to three months per year In total 150940
thousand barrels of Rus sian oil were refined in 2016
Figure 57 confirms a leading position of Texas and Louisiana among the US states receiving
Rus sian crude followed by New Jersey California Mississippi Washington Hawaii and Delaware
In a paradoxical way Texas has dis appeared from the list of states as a main destination of US
imports from Rus sia (Figure 58) because Rus sian crude is mostly delivered to Louisiana ports and
registered there by US Customs as an import from Rus sia After that it transports to refineries in
Louisiana and Texas
Overall the short- term business rationale behind the sustainability of US oil imports from Rus sia
cannot overcome strong headwinds in the US energy sector facing all oil importers which will
inevitably lead to a contraction of Rus sian oil exports to the United States in the foreseeable future
11 Exxon eforts to receive a special US Trea sury waiver to drill in sanctioned Rus sia failed in 2017
12 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364
13 Sarp Ozkan ldquoSaudi Aramcorsquos Port Arthur Refinery and the US Refinery Fleetrdquo Drilling Info May 11 2017
https infodrillinginfo com saudi - aramcos - port - arthur - refinery - us - refinery - fleet
14 Graham Kates ldquoTrea sury Secretary Rus siarsquos Citgo Deal a National Security Issuerdquo CBS News May 1 2017
http wwwcbsnews com news rosneft - citgo - steven - mnuchin - national - security
594-71613_ch01_4Pindd 29 102017 404 PM
US-Russia Economic Relations30
Table 58 Valerorsquos Refineries Pro cessing Rus sian Oil Thousands of Barrels 2016
Saint Charles Louisiana 29206 535
Corpus Christi Texas 20626 378
Wilmington California 4250 78
Total USA 54590 100
Source US EIA ldquoRefinery Capacity Reportrdquo January 1 2017
table 5 wwweia gov petroleum refinerycapacity table5 pdf
authorrsquos computation
Table 59 ExxonMobil Refineries Pro cessing Rus sian Oil Thousands of Barrels 2016
Baytown Texas 15037 88
Baton Rouge Louisiana 2046 12
Total USA 17083 100
Source US EIA ldquoRefinery Capacity Reportrdquo authorrsquos computation
Table 510 Chevronrsquos Refineries Pro cessing Rus sian Oil Thousands of Barrels 2016
Pascagoula Mississippi 12767 840
El Segundo California 2372 155
Saint Rose Louisiana 78 05
Total USA 15217 100
Source US EIA ldquoRefinery Capacity Reportrdquo authorrsquos computation
594-71613_ch01_4Pindd 30 102017 404 PM
Vadim Grishin 31
HEAVY METAL
Taken together US imports of metals and US imports of oil compose about 80 percent of US
total imports from Rus sia (Figure 59) Trade of metals like other commodities is strongly afected
by market price fluctuations Nevertheless metal imports from Rus sia have been fairly resilient to
market volatility and their average annual value has hovered at about $4 billion in the last five years
(Figure 510) This market resilience was forged at the end of the 1990searly 2000s when Rus sian
metal producers gradually modernized their plants adjusting quality of production to Western
standards and enhancing integration into global value and supply chains Some of them conquered
their share of the highly competitive US market struggling with peers from Canada and certain
BRICS countries (China India and Brazil) To attract additional resources all Rus sian large metal-
producing companies became public and were listed on stock exchanges chiefly the London Stock
Exchange (Severstalrsquo PAO Evraz MMK OAO Novolipetsk Steel Norilsk Nikel and TMK PAO) one
on the New York Stock Exchange (Mechel) and one on the Hong Kong Stock Exchange (Rusal)
Business logic pushed some of them to invest in the US metal- making industry which was hit
hard by crisis Later on some of those assets were sold (eg two US steel mills acquired by
Severstal in 2004 were purchased 10 years later by Steel Dynamics Inc and AK Steel Corp)
Figure 57 Share of US States Rus sian Oil Imports 2016
Source US EIA ldquoUS Imports from Rus sia of Crude Oil and Petroleum Productsrdquo Petroleum amp Other
Liquids September 29 2017 https www eia gov dnav pet hist LeafHandler ashx nshy=shyPETampsshy=shyMTTIM _ NUS
- NRS _ 1ampfshy=shyM authorrsquos computation
0
10
20
30
40
50
60
70
80
90
100
Maine
Massachusetts
Maryland
Connecticut
Georgia
Rhode Island
Virginia
Florida
New York
Alabama
Puerto Rico
Pennsylvania
Delaware
Hawaii
Washington
Mississippi
California
New Jersey
Louisiana
Texas
594-71613_ch01_4Pindd 31 102017 404 PM
Figure 58 US Imports from Rus sia by State Million US$ 2013ndash2016
Source US Census Bureau ldquoState and Metropolitan Area Trade Datardquo Foreign Trade last modified
October 2 2017 https wwwcensus gov foreign - trade statistics state
Alaska
Connecticut
Delaware
Hawaii
Louisiana
Maryland
North Dakota 0
$1000
$2000
$3000
$4000
$5000
$6000
2013 2014 2015 2016
Alabama
Alaska
Connecticut
Delaware
Hawaii
Louisiana
Maryland
Maine
Mississippi
Montana
North Dakota
Mississippi
Figure 59 US Imports from Rus sia Share of Oil and Metals Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
83
82
85
86
87
88
85
82
7375
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
$40000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil and Metals
594-71613_ch01_4Pindd 32 102017 404 PM
Vadim Grishin 33
Obviously the market dynamic of dif er ent metals varies (eg iron steel aluminum platinum and
nickel) Caps to increase their trade and production in a ldquored oceanrdquo global environment with
anemic demand is rather limited despite Figure 510 showing a spike of iron and steel imports
from Rus sia in 2014 and aluminum in 2016 Some opportunities may exist for Russian- owned steel
plants in the United States (such as NLMK) to participate in energy proj ects resumed under Presi-
dent Trump who has required that new pipelines use only American- made steel15
Rus sia occupies a special niche in the US market for titanium products a high- end metal indus-
try Twenty years ago a long- term contract was signed between Rus sian titanium producer
VSMPO- AVISMA and Boeing The Rus sian com pany entered the selective club of Boeing suppliers
for the manufacture of components and semi- finished products Since the signing of this contract
VSMPO has delivered more than 35 percent of all titanium placed on Boeing civil aircraft16 They
are hidden in the trade data in an import category for Civilian Aircrafts and Parts (Figure 511) At
the end of 2016 Boeing announced an extension of its framework agreement with AVISMA
15 E Scheyder C Ngai and T Sylvester ldquoAmerican Steel Unlikely to Get Keystone Boost Despite Trump Orderrdquo
Reuters January 27 2017 http wwwreuters com article usa - trump - pipeline - transcanada - idUSL1N1FH1ZD
16 A Kramer ldquoTitanium Fills Vital Role for Boeing and Rus siardquo New York Times July 5 2013 http wwwnytimes com
2013 07 06 business global titanium - fills - vital - role - for - boeing - and - russia html mcubzshy=shy3
Figure 510 US Imports from Rus sia Iron Steel Bauxite Aluminum Nickel Nonferrous Metals and Other Precious Metals and Materials US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
0
$6000000000
$5000000000
$4000000000
$3000000000
$2000000000
$1000000000
2007 2008 2009 2010 2011 20122013
20142015
2016
Finished metal shapes
Iron and steel advanced
Iron and steel products nec
Nonferrous metals other
Other precious metals
Nickel
Bauxite and aluminum
Iron and steel mill products
Steelmaking materials
594-71613_ch01_4Pindd 33 102017 404 PM
US-Russia Economic Relations34
through 2022 and additional investments in the construction of a new robotic plant in Titanium
Valley a special economic zone located in the Sverdlovsk region that will open in 2018 The pro-
cessing of titanium forgings in all Boeing civil aircraft will be performed there including 787s 737
MAXs and 777Xs17 The contract extension with AVISMA may add several hundred million dollars
in value to annual US imports from Rus sia
How can such heavy reliance on imports of Rus sian titanium exist during a period of rising geopo-
liti cal tensions The answer is straightforward VSMPO- AVISMA is a highly specialized natu ral
mono poly producing 45 percent of the worldrsquos aerospace titanium Only four other countries
smelt high- grade titanium in industrial quantities the United States Germany Japan and China
Overall global production capacity is limited while demand is growing The United States cur-
rently imports around 79 percent of all the titanium it consumes each year18
17 ldquoBoeing and VSMPO Avisma to Launch Second Joint Production Siterdquo Rus sian Aviation Insider December 22 2016
http wwwrusaviainsider com boeing - and - vsmpo - avisma - to - launch - second - joint - production - site
18 Jon Ostrower and Andy Pasztor ldquoBoeing United Technologies Stockpile Titanium Partsrdquo Wall Street Journal
August 7 2014 https wwwwsj com articles boeing - united - technologies - stockpiling - titanium - parts - 1407441886
Figure 511 US Imports from Rus sia Civilian Aircrafts and Parts US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
$200000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Parts-civilian aircraft
Civilian aircraft
594-71613_ch01_4Pindd 34 102017 404 PM
Vadim Grishin 35
The Sanctions Act authorizes the secretary of the trea sury (in a nonmandatory way) to impose
restrictions (without specifying them) against Rus sian state- owned entities operating in the railway
metals and mining sectors of the Rus sian economy Despite the commanding heights of Rus siarsquos
state sector owner ship in its economy (70 percent of GDP) the metal- producing companies have
remained mostly in private hands
NUCLEAR AFFAIRS
Historically owners and operators of the 104 commercial nuclear power reactors in the United
States have purchased more than 80 percent of their uranium from foreign countries Uranium
shipping from Rus sia accounted for about 13 percent of the 58 million pounds of uranium pur-
chased overseas in 201219 At the same time the Rus sian state- owned mono poly Rosatom ac-
counts for 20 percent of Kazakhstanrsquos uranium production (which in turn comprises 11 percent of
all US uranium imports) and 20 percent of US domestic uranium production capacity (with
owner ship of exploration tracts in Wyoming)20
Nuclear fuel and nuclear power continue to be po liti cally sensitive topics both in the United
States and Rus sia Bilateral cooperation in this sector (being surprisingly stable with imports of
nuclear fuel from Rus sia at a level of $1 billion annually in the last five years [Figure 512 and 513])
is under constant po liti cal and lobbying pressure and has been a source of several po liti cal scan-
dals21 Consequently upside risks in this area of interaction are minimal and downside risks are
much higher especially when we are seeing more decommissioning of nuclear plants in the
United States than new constructions The US EIArsquos 2017 Annual Energy Outlook assumes
that about 25 percent of the nuclear capacity now operating will be removed from ser vice
by 205022
WHY IS THE GRASS GREENER ON THE OTHER SIDE
The United States continues to significantly reduce imports of chemical fertilizers as domestic pro-
duction increases In 2016 the United States imported 13 percent less ammonia and 11 percent
less urea and UAN which is a liquid urea and ammonium nitrate fertilizer Rus sia accounts for
around 40 percent of UAN imported by the United States The United States canceled antidumping
duties on imports of ammonium nitrate and urea from Rus sia in 2016 but it did not prevent import
19 US EIA ldquoThe US Relies on Foreign Uranium Enrichment Ser vices to Fuel Its Nuclear Power Plantsrdquo Today in
Energy August 28 2013 https wwweia gov todayinenergy detail php idshy=shy1273
20 Colin Chilcoat ldquoDoes Rus sia Really Own 20 Percent of the USrsquo Uranium Reservesrdquo OilPricecom May 6 2015
http oilpricecom Alternative - Energy Nuclear - Power Does - Russia - Really - Own - 20 - Of - The - US - Uranium - Reserves
html
21 Michelle Ye Hee Lee ldquoThe Facts behind Trumprsquos Repeated Claim about Hillary Clintonrsquos Role in the Rus sian Ura-
nium Dealrdquo Washington Post October 26 2016
22 US EIA ldquoAnnual Energy Outlook 2017 with Projections to 2050rdquo 81ndash82
594-71613_ch01_4Pindd 35 102017 404 PM
Figure 512 US Imports from Rus sia Share of Oil Metals and Nuclear Fuel Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
87
86
90
90
90
91
88
86
7882
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals and Nuclear Fuel
Figure 513 US Imports from Rus sia Nuclear Fuel Materials US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$-
$200000000
$400000000
$600000000
$800000000
$1200000000
$1000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 36 102017 404 PM
Vadim Grishin 37
drops twice last year (Figures 514 and 515) According to forecasts UAN imports are expected to
decline further to 15 million tons this year down over 46 percent from 28 million tons imported
last year23 The downside trend in imports of fertilizers will likely continue because of oversupply
BIG FISH
US imports of fish and shellfish from Rus sia are best understood in comparison with US fish
exports to the Rus sian market which slipped to zero in August 2014 after Rus sia issued an order
banning certain agricultural imports from the United States (Figure 516) While the volume of US
supply was not very large it was impor tant because it broke up the monopolistic dominance of a
few vertically integrated Rus sian companies that have kept prices high by restricting the entry of
new producers Seeking to implement import substitution policies Rus sia has tried to reduce
exports as well as imports of fish and seafood products in the last couple of years This symmetri-
cal approach was intended to ldquocompensaterdquo for a decrease of fish products in the domestic
23 Deepika Thapliyal ldquoPotashCorp Forecasts Sharp Drop in US Nitrogen Imports in 2017rdquo ICIS News February 7
2017 https wwwicis com resources news 2017 02 07 10076734 potashcorp - forecasts - sharp - drop - in - us - nitrogen
- imports - in - 2017
Figure 514 US Imports from Rus sia Share of Oil Metals Nuclear Fuel and Fertilizers Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
90
93
92
93
94
95
92
91
85
86
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals Nuclear Fuel and Fertilizers
594-71613_ch01_4Pindd 37 102017 404 PM
Figure 515 US Imports from Rus sia Chemical- Fertilizers US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
S-
$200000000
$400000000
$600000000
$800000000
$1000000000
$1200000000
$1400000000
$1600000000
$1800000000
$2000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Figure 516 US Exports to Rus sia Fish and Shellfish US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$10000000
$20000000
$30000000
$40000000
$50000000
$60000000
$70000000
$80000000
$90000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Fish and shellfish
594-71613_ch01_4Pindd 38 102017 404 PM
Vadim Grishin 39
consumer market caused by Rus siarsquos import ban but it has failed As result the group most af-
fected by the self- imposed counter- sanctions were Rus sian consumers
With a significant drop in fish imports a devaluation of the ruble and inflationary pressures on
seafood prices yearly consumption of fish in Rus sia has declined precipitously In 2015 alone
fish prices increased 20 percent and consumption dropped to 14 kilograms per person24 from
22 kilograms in 201425 In 2016 food rose to 355 percent of house hold expenditure as a result of
increases in food prices26 This has pushed vertically integrated fishing monopolies to sell even
more of their catch abroad rather than deliver to the Rus sian Federation (Figure 517) Thus we
cannot exclude the possibility of further growth in US fish and shellfish imports from Rus sia on a
marginal scale
24 Александр Савельев ldquoПотребление рыбы в России упало до 14 кг на человекаrdquo [Fish consumption in Rus sia fell to
14 kg per person] Экономика Интерфакс January 28 2015 http wwwinterfax ru business 492038
25 Илья Шестаков ldquoПотебление рыбы в России снизилось на 10 процентов из- за роста ценrdquo [Fish consumption in
Rus sia dropped by 10 percent due to price increases] RNS March 8 2017 https rnsonline consumer - market
Potreblenie - ribi - v - Rossii - snizilos - na - 10 - iz - za - rosta - tsen - 2017 - 03 - 08
26 Zoya Sheftalovich and Christian Oliver ldquoRus siarsquos Boom (Farming) Economyrdquo Politico November 8 2016 http
wwwpolitico eu article russias - boom - farming - economy
Figure 517 US Imports from Rus sia Fish and Shellfish US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$50000000
$100000000
$150000000
$200000000
$250000000
$300000000
$350000000
$400000000
$450000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 39 102017 404 PM
US-Russia Economic Relations40
SPACE ODYSSEY
Among high- end products beyond the top five groups of goods imported from Rus sia cheap and
efficient Rus sian engines have been used to launch US rockets into space for about 16 years
(Figure 518) There was a serious po liti cal strug gle around a 2014 ban on the purchase of Rus sian
RD-180 rocket engines revealing the conflicting business interests of power ful high- tech companies
This restrictive mea sure was temporary and was quickly lifted because of significant cost impacts
and risks of disruption to launch schedules27 For the same reason the Sanctions Act does not autho-
rize ldquothe imposition of any sanction or other condition limitation restriction or prohibition that
directly or indirectly impedes the supply by any entity of the Rus sian Federation of any product or
ser vice or the procurement of such product or ser vice by any contractor or subcontractor of the
United States or any other entity relating to or in connection with any space launch conducted for
the National Aeronautics and Space Administration or any other nonndash Department of Defense
customerrdquo28
Nevertheless many experts believe that US domestic alternatives to replace Rus sian engines will
be viable in five to eight years
27 Ken Dilanian ldquoWhy Does the US Use Rus sian Rockets to Launch Its Satellitesrdquo NBC News updated November 15
2016 http wwwnbcnews com why - does - u - s - use - russian - rockets - launch - its - satellites - n588526
28 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364
Figure 518 Spacecraft Excluding Military US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 40 102017 404 PM
41
Diversity and technological complexity are the most vis i ble advantages supporting US exports to
Rus sia Three major groups of export goods include civilian aircraft engines and parts (Figure 61)
drilling and oil field equipment (Figure 62) and industrial machines and engines (Figure 63)
Despite sanctions against the transfer of advanced oil producing and pro cessing technologies the
realization of US drilling and oil field equipment in Rus sia is sustainable although some bilateral
proj ects have been frozen
Another category of goods that has demonstrated resilience is the phar ma ceu ti cal industry (Fig-
ure 64) because most drugs in Rus sia are imported (about 70 percent of the Rus sian phar ma ceu-
ti cal market in value) Import substitution policies have had only modest results in this industry
As confirmed by American Chamber of Commerce surveys US exports to Rus sia are closely
connected to US FDI 30 percent of total imports of US companies working in the Rus sian
market come from the United States (more than $2 billion in 2016) In other words about
40 percent of all US exports to Rus sia are related to a US corporate- sector business pro cess in
the country The major sectors of activity of these companies are energy and natu ral resources
(52 percent) manufacturing (17 percent) information and communications technology or ICT
(13 percent) retail (7 percent) automotive industry (6 percent) phar ma ceu ti cal production
(1 percent) professional ser vices (05 percent) and other (2 percent)1
Some obvious constraints on US exports to Rus sia have resulted from a reduction in demand A
deterioration of bilateral relations and implementation of sanctions and counter- sanctions have
directly or indirectly afected all businesses Figures 65 and 66 provide data regarding a dramatic
drop in the sale of US agricultural production in Rus sia with all other categories of exports in
goods showing big cuts as well (see Figures 67ndash69)
Exports of civilian aircraft engines and parts put the state of Washington in first place among
other states as a leading exporter to the Rus sian market (Figure 610)
1 American Chamber of Commerce in Rus sia ldquoInvestment and Import to Rus sia 2nd Surveyrdquo 13
Diversity and Constraints
06
594-71613_ch01_4Pindd 41 102017 404 PM
Figure 61 US Exports of Civilian Aircraft Engines Equipment and Parts to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
$2500000000
$2000000000
$1500000000
$1000000000
$500000000
$-
Figure 62 US Exports of Drilling and Oil Field Equipment US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
$40000000
$45000000
$50000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 42 102017 404 PM
Figure 63 US Exports of Industrial Engines to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Figure 64 US Exports of Phar ma ceu ti cal Preparations to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 43 102017 404 PM
Figure 65 US Exports of Meat and Poultry to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Meat poultry etc
$1000000000
$800000000
$600000000
$400000000
$200000000
$-
$1200000000
$1400000000
$1600000000
Figure 66 US Exports of Soybeans to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
$200000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 44 102017 404 PM
Figure 67 US Exports of Vehicles Engines and Parts to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Other parts and accessories of vehicles
Automotive tires and tubes
Bodies and chassis for passenger cars
Engines and engine parts (carburetors pistonsrings and valves)
Trucks buses and special purpose vehicles
Passenger cars new and used
$2500000000
$2000000000
$1500000000
$500000000
$-
$1000000000
Figure 68 US Exports of Medicinal Equipment to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 45 102017 404 PM
Figure 610 US Exports to Rus sia by States (2016 US$ Value) Million US$ 2013ndash2016
Source US Census Bureau ldquoState and Metropolitan Area Trade Datardquo
Iowa Kentucky
North Dakota
Oklahoma
South Carolina
Washington
0
$500
$1000
$1500
$2000
2013 2014 2015 2016
District of Columbia
Iowa
Kentucky
North Dakota
Oklahoma
South Carolina
Washington
Figure 69 US Exports of Excavating Machinery to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
$40000000
$45000000
$50000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 46 102017 404 PM
47
Upon reviewing the current trend in US- Russia economic relations we must acknowledge that
the existing trade model is obsolete and exhausted Imports are resource- oriented and reflect
constraints of the Rus sian economic structure while five groups of goodsmdash oil metals nuclear
fuels fertilizers and fishmdash make up more than 90 percent of total imports from Rus sia (Figure 71)
Each of these industries has a limited capacity for growth in the foreseeable future
Rus siarsquos core export to the United Statesmdash oilmdash will inevitably decrease in the mid- term under any
scenario The value and volume of Rus sian exports to the United States are open to global market
volatility and po liti cal pressures with limited hedging mechanisms
Overall US exports to Rus sia are unsustainable due to bilateral po liti cal tensions the whims of
commodity markets and changing domestic policies Sanctions and counter- sanctions have
created additional barriers particularly in finance banking high- tech energy and agro- business
According to the American Chamber of Commerce 69 percent of US companies working in the
country consider the impact of US sanctions against Rus sia on their business as negative At the
same time 60 percent of companies do not expect big changes in business relations between
Rus sia and the United States under Trump1 as the new law codifies existing sanctions fortifies
them and extends them to new sectors
Current US investments are low due to the weak rule of law in Rus sia a lack of property right
protections and proper contract enforcement high levels of statization and monopolization in the
economy a poor business climate outdated capital stock dependence on natural- resource
sectors and of course sanction and counter- sanction mea sures Bloated administrative compo-
nents created as risk mitigation instruments have also served as impediments The countryrsquos
institutional weakness low level of productivity bud get constraints and a declining inflexible
workforce will restrain future economic growth even if commodity prices recover Rus sian eco-
nomic policy will likely continue to be statist and protectionist relying mostly on import
substitutions
1 Ibid 11
Existing Trends and Future Scenarios
07
594-71613_ch01_4Pindd 47 102017 404 PM
US-Russia Economic Relations48
What scenarios can be expected in such a challenging environment
One probability (no peace no war) is based on the assumption that matters will not deteriorate
further and implementation of the Sanctions Act will be cursory This will cause relatively slow
degradation in the economic field with occasional flashes of activity in selected areas (eg closer
cooperation against Islamist terrorist groups in Syria)
A second worse case or critical scenario is the intensive and full- scale execution of current sanc-
tion legislation and even the imposition of new economic punitive and restrictive mea sures which
could incite asymmetric retaliatory actions and lead to the introduction of additional protectionist
policies This in turn could trigger a further escalation of mutual confrontation and could eventu-
ally destroy the fundamentals of the current bilateral trade system Rus sian leadership has charac-
terized the Sanctions Act as a declaration of a trade war that ends all hope for improving bilateral
relations2
2 Дмитрий Медведев ldquoПодписание президентом США нового санкционного закона против России создает несколько
последствийrdquo [The US Presidentrsquos signing of the package of new sanctions against Rus sia will have a few conse-
quences] Facebook August 2 2017 https wwwfacebook com Dmitry Medvedev posts 10154587161801851
Figure 71 US Imports from Rus sia Share of Oil Metals Nuclear Fuel Fertilizers and Fish Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
93
94
93
94
95
96
93
92
87
89
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals Nuclear FuelFertilizers and Fish
594-71613_ch01_4Pindd 48 102017 404 PM
Vadim Grishin 49
The best case and most favorable scenario looks less probable now It assumes the realization of
structural reforms in Rus sia in such a way that would adapt Rus siarsquos foreign policy to national
economic needs reduce confrontations with the West and make a concerted efort to integrate
Rus sian businesses into global supply and value chains A revitalization of the structural reform
agendamdash including eforts to diversify economic activities through de- monopolization and support
for SMEs a restructuring of the banking sector the creation of a vibrant business climate to foster
entrepreneurships and innovation the implementation of administrative and judicial reforms to
tackle red tape and endemic corruption and the reduction of state control over key sectors of the
economy via wide- spread privatization could kick- start the development of a nonoil economy and
improve long- term growth prospects Despite ongoing discussion of reform strategies deep
economic and po liti cal changes are extremely complicated over the next po liti calelectoral cycle
(2018ndash2024) particularly because of re sis tance of vested interests and growing commodity prices
The urgency to tackle structural shortcomings in natu ral resource- dependent economies usually
correlates with the price of those resources and the degree to which resource rents drive eco-
nomic activity However there may be marginal improvements in the efficiency of the current
economic system
Future US- Russia relations can be thought of through three pillars one pillar focuses on areas
where both countries maintain a competitive rivalry another looks at potential areas of interaction
under pres ent conditions a third pillar and one that has evaporated from the current bilateral
agenda concentrates on future cooperation Stronger economic ties could not only be a kind of
po liti cal shock absorber but contribute to the building of this future (particularly business contacts
aim to support future structural reforms) although po liti cal factors are depressing the prospects
for cooperation To escape deadlock it will be impor tant to establish the right balance between
politics and economics and create a model of collaboration within the framework of contention
594-71613_ch01_4Pindd 49 102017 404 PM
About the Author
Vadim Grishin PhD MBA has been involved in the reform pro cess in Rus sia as adviser to the
deputy prime minister of Rus sia in 1992ndash1993 and 2006ndash2010 He has extensive experience
working with the Bretton Woods Institutions He was the board member of the World Bank Group
and served as se nior adviser at the International Monetary Fund Currently he is a con sul tant to the
chief economistrsquos office of the International Finance Corporation and teaches the economics of
transition at Georgetown University in Washington DC
50
594-71613_ch99_4Pindd 50 102017 403 PM
Blank
COVER PHOTO ADOBE STOCK
1616 Rhode Island Avenue NW
Washington DC 20036
202 887 0200 | wwwcsisorg
v++ISBN 978-1-4422-8035-9
Lanham bull Boulder bull New York bull London
4501 Forbes Boulevard
Lanham MD 20706
301 459 3366 | wwwrowmancom
A U T H O R
Vadim Grishin
Myths and Realities
A Report of the
CSIS RUSSIA AND EURASIA PROGRAM
US-RussiaEconomicRelations
O C T O B E R 2 0 1 7
Euml|xHSLEOCy280359z
The Man Pupu Nyor Rock Formations at the Northern Urals also known as Seven
Strong Man or Little Mountain of the God in the local tribe (Mansi) language
US-Russia Economic Relations24
the Organ ization of the Petroleum Exporting Countries (OPEC) crude oil exports from Rus sia and
the Caspian region to the United States will dis appear by 20255
So why does the Rus sian Urals blend continue to be attractive for oil traders and US refineries
which could pro cess greater volumes of domestically produced lighter crude There are two main
reasons One is related to the preference of US high conversion refineries (the most sophisticated
in the world) to work with heavy oil blends produced by Canada Mexico Iraq Venezuela and
Rus sia Pro cessing heavy crude now is as profitable as pro cessing lighter crude The so- called
crack spreadmdash the diference between the cost of relatively cheap heavy crude oil and the final
price of value- added consumer products (diesel gasoline jet fuel and heating oil)mdash has become
the same as the refinery margins of light sweet crude6 This has primarily afected light oil produc-
ing countries such as Angola Algeria and Nigeria
5 OPEC World Oil Outlook 2016 306ndash309
6 ldquoHow Much for That Heavy Oilrdquo Oil Sands Magazine December 26 2015 https wwwoilsandsmagazine com
news 2015 12 26 how - much - for - that - heavy - oil
Figure 53 US Imports from Rus sia Oil and Petroleum Products US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$-
$25000000000
$20000000000
$15000000000
$10000000000
$5000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Liquefied petroleum gases
Petroleum products other
Fuel oil
Crude oil
594-71613_ch01_4Pindd 24 102017 404 PM
Vadim Grishin 25
Another factor afecting purchase of Rus sian oil is a new trend among oil companies for further
consolidation of scale and for integrating operations of upstream and downstream business7
There have been several waves of separation and unification of production transportation and
pro cessing in the last 50 years The current business cycle can be seen as an adaptation to a
period of low prices and oversupply Companies that buy andor produce oil in Rus sia most likely
prefer to transport and pro cess this oil in their own modern refineries in the United States At the
same time some of the newest refinery designs specifically for pro cessing heavy oils have been
built in Asia thus extending the choices of heavy oil producing countries
We should also consider that leading US and international oil traders along with oil producing
companies working with or owning US refineries frequently buy Rus sian oil on the open market
and have long- term contracts on Rus sian crude oil delivery Many Rus sian oil companies prefer to
pay for purchases or ser vices with their future production instead of cash creating situations of
ldquostickyrdquo oil imports that are difficult to replace The best- known example is an interaction between
7 ldquoEnergy and Utilities Sectorrdquo Roundtable Financier Worldwide December 2015 https wwwfinancierworldwide
com roundtable - energy - utilities - sector - dec15
Figure 54 US Imports of Oil and Petroleum Products from Rus sia vs Oil Prices Eu rope Brent Spot Price Free on Board (FOB) 1996ndash2017
Source US EIA ldquoUS Imports by Country of Origin Rus siardquo
0
20
40
60
80
100
120
140
0
5000
10000
15000
20000
25000
30000
Jan
-19
96
Jun
-19
96
No
v-19
96
Ap
r-19
97
Sep
-19
97
Feb
-19
98
Jul-
199
8D
ec-1
99
8M
ay-1
99
9O
ct-1
99
9M
ar-2
00
0A
ug
-20
00
Jan
-20
01
Jun
-20
01
No
v-2
00
1A
pr-
20
02
Sep
-20
02
Feb
-20
03
Jul-
20
03
Dec
-20
03
May
-20
04
Oct
-20
04
Mar
-20
05
Au
g-2
00
5Ja
n-2
00
6Ju
n-2
00
6N
ov-
20
06
Ap
r-2
00
7Se
p-2
00
7Fe
b-2
00
8Ju
l-2
00
8D
ec-2
00
8M
ay-2
00
9O
ct-2
00
9M
ar-2
010
Au
g-2
010
Jan
-20
11Ju
n-2
011
No
v-2
011
Ap
r-2
012
Sep
-20
12Fe
b-2
013
Jul-
20
13D
ec-2
013
May
-20
14O
ct-2
014
Mar
-20
15A
ug
-20
15Ja
n-2
016
Jun
-20
16N
ov-
20
16
USD
per
Bar
rel
Th
ou
san
d B
arr
els
US Imports from Russia of Crude Oil and Petroleum Products (Thousand Barrels)
Europe Brent Spot Price FOB (Dollars per Barrel)
594-71613_ch01_4Pindd 25 102017 404 PM
US-Russia Economic Relations26
Table 56 US Oil Imports All Countries vs Rus sia Thousand Barrels per Day 2011ndash2016
Years 2011 2012 2013 2014 2015 2016
All Countries 11436 10598 9859 9241 9449 10058
Rus sia 624 477 460 330 371 433
Share 546 450 467 357 393 431
Sources US EIA ldquoUS Imports by Country of Origin Total Crude Oil and Productsrdquo Petroleum amp Other
Liquids September 13 2017 wwweia gov dnav pet pet_move_impcus_a2_nus_ep00_im0_mbbl_m htm
authorrsquos computation
Figure 55 US Imports from Rus sia Share of Crude Oil and Petroleum Products Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
57
64
73
72
74
73
72
59
52 50
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
$40000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil and Petroleum Products
594-71613_ch01_4Pindd 26 102017 404 PM
Vadim Grishin 27
the Rus sian state mono poly Rosneft and commodity trading and mining giant Glencore which
along with energy and commodities com pany Vitol participated in a $10 billion prepayment
deal with Rosneft for crude supplies in 2013
There have been a number of ongoing transactions between the Rus sian oil industry and interna-
tional oil companies including several that top the list of importers of Rus sian oil to the United
States ( Table 57) In December 2016 Glencore participated in a controversial privatization opera-
tion purchasing in tandem with the Qatar sovereign wealth fund a 195 percent stake in Rosneft
which was on the US and EU list of sanctioned firms8 Glencore has also taken a blocking stake in
midsize oil producer RussNeft BP owns a 1975 percent stake in Rosneft Chevron holds a
15 percent interest in the 935- mile- long CPC9 pipeline which transports an average of 959000
barrels of crude oil per day including 76000 barrels daily from Rus sia10 ExxonMobil has formed
8 E Mazneva and I Arkhipov ldquoRus sia Sells $11 Billion Stake in Rosneft to Glencore Qatarrdquo Bloomberg December 7
2016
9 CPCthinsp=thinspCaspian Pipeline Consortium
10 ldquoRus sia Highlights of Operations and Business Portfoliordquo Chevron accessed October 3 2017 https wwwchevron
com worldwide russia
Figure 56 Share of Rus sian Oil in Total US Oil Imports Thousands of Barrels per Day 1972ndash2016
Source US EIA ldquoUS Imports by Country of Origin Total Crude Oil and Productsrdquo
2000
4000
6000
8000
10000
12000
14000
16000
US Imports of Crude Oil and Petroleum Products (Thousand Barrels per Day)
US Imports from Russia of Crude Oil and Petroleum Products (Thousand Barrels per Day)19
7319
7419
7519
7619
7719
7819
7919
80
198
119
82
198
319
84
198
519
86
198
719
88
198
919
90
199
119
92
199
319
94
199
519
96
199
719
98
199
92
00
02
00
12
00
22
00
32
00
42
00
52
00
62
00
72
00
82
00
92
010
20
112
012
20
132
014
20
152
016
594-71613_ch01_4Pindd 27 102017 404 PM
Table 57 Top Importers of Rus sian Oil to the United States Thousands of Barrels 2016
VALERO MARKETING amp SUPPLY CO 54590 3616
EXXONMOBIL OIL CORP 17087 1130
CHEVRON USA INC 15217 1008
BP WEST COAST PRODUCTS LLC 10130 671
GEORGE E WARREN CORP 7272 48
PAULSBORO REFINING CO LLC 6838 453
TESORO CORP 5097 338
VITOL INC 5084 337
PHILLIPS 66 CO 4726 313
TRAFIGURA AG 4360 289
PAR HAWAII REFINING LLC 3893 258
MOTIVA ENTERPRISES LLC 3041 205
SHELL US TRADING CO 2863 19
MARATHON PETROLEUM CO LLC 2475 16
ATLANTIC TRADING amp MARKETING 2099 14
FREEPOINT COMMODITIES LLC 1439 1
GLENCORE LTD 1284 85
BEST PETROLEUM CORP 967 64
ROLYMPUS US COMMODITIES GROUP LLC 822 6
HUNT CRUDE OIL SUPPLY CO 666 4
GULF OIL LP 658 4
Source US EIA ldquoUS Imports by Country of Origin Crude Oilrdquo Petroleum amp Other Liquids September 13
2017 httpswwweiagovdnavpetpet_move_impcus_a2_nus_epc0_im0_mbblpd_ahtm authorrsquos
computation
594-71613_ch01_4Pindd 28 102017 404 PM
Vadim Grishin 29
several joint ventures with Rosneft to undertake ofshore exploration in the Black Sea and the Kara
Sea in Siberia11
According to the Sanctions Act US persons are prohibited from exporting or reexporting goods
ser vices (except financial ser vices) and technology in support of exploration or production of new
deep- water Arctic ofshore or shale oil proj ects that involve designated Rus sian entities or other
entities in which such sanctioned persons have a controlling interest or a substantial noncontrol-
ling owner ship interest defined as not less than 33 percent (previously it was 50 percent) The new
law also authorizesmdash but does not requiremdash the imposition of so- called secondary sanctions
against non- US entities that engage in activities involving the construction maintenance or
expansion of Rus sian energy export pipelines with a fair market value of $1 million or more or an
aggregate fair market value during a 12- month period of $5 million12 This provision has raised the
concerns of some Eu ro pean countries particularly Germany As result the final language of the
law included wording about coordination of this issue with allies of the United States
Shipments of Rus sian oil to the United States could be afected by activity in the US refinery
industry In early 2017 Saudi Aramco bought the United Statesrsquo largest oil refinery in Port Arthur
(Texas) and it announced plans to send more of its own crude to that refinery13 Serious concerns
exist however regarding the future of three refineries and nine pipelines owned by Citgo a US
branch of the Venezuelan state com pany PdVSA which is balancing precariously on the edge of
default Under certain conditions in the event of PdVSA bankruptcy Rosneft could claim a stake of
up to 499 percent in Citgo Such a possibility has raised concerns among politicians and US
government officials with Trea sury Secretary Steven Mnuchin calling it a ldquonational security issuerdquo14
Tables 58 59 and 510 show allocations of Rus sian oil imports to major US refineries some of
which work exclusively on Rus sian crude a total of two to three months per year In total 150940
thousand barrels of Rus sian oil were refined in 2016
Figure 57 confirms a leading position of Texas and Louisiana among the US states receiving
Rus sian crude followed by New Jersey California Mississippi Washington Hawaii and Delaware
In a paradoxical way Texas has dis appeared from the list of states as a main destination of US
imports from Rus sia (Figure 58) because Rus sian crude is mostly delivered to Louisiana ports and
registered there by US Customs as an import from Rus sia After that it transports to refineries in
Louisiana and Texas
Overall the short- term business rationale behind the sustainability of US oil imports from Rus sia
cannot overcome strong headwinds in the US energy sector facing all oil importers which will
inevitably lead to a contraction of Rus sian oil exports to the United States in the foreseeable future
11 Exxon eforts to receive a special US Trea sury waiver to drill in sanctioned Rus sia failed in 2017
12 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364
13 Sarp Ozkan ldquoSaudi Aramcorsquos Port Arthur Refinery and the US Refinery Fleetrdquo Drilling Info May 11 2017
https infodrillinginfo com saudi - aramcos - port - arthur - refinery - us - refinery - fleet
14 Graham Kates ldquoTrea sury Secretary Rus siarsquos Citgo Deal a National Security Issuerdquo CBS News May 1 2017
http wwwcbsnews com news rosneft - citgo - steven - mnuchin - national - security
594-71613_ch01_4Pindd 29 102017 404 PM
US-Russia Economic Relations30
Table 58 Valerorsquos Refineries Pro cessing Rus sian Oil Thousands of Barrels 2016
Saint Charles Louisiana 29206 535
Corpus Christi Texas 20626 378
Wilmington California 4250 78
Total USA 54590 100
Source US EIA ldquoRefinery Capacity Reportrdquo January 1 2017
table 5 wwweia gov petroleum refinerycapacity table5 pdf
authorrsquos computation
Table 59 ExxonMobil Refineries Pro cessing Rus sian Oil Thousands of Barrels 2016
Baytown Texas 15037 88
Baton Rouge Louisiana 2046 12
Total USA 17083 100
Source US EIA ldquoRefinery Capacity Reportrdquo authorrsquos computation
Table 510 Chevronrsquos Refineries Pro cessing Rus sian Oil Thousands of Barrels 2016
Pascagoula Mississippi 12767 840
El Segundo California 2372 155
Saint Rose Louisiana 78 05
Total USA 15217 100
Source US EIA ldquoRefinery Capacity Reportrdquo authorrsquos computation
594-71613_ch01_4Pindd 30 102017 404 PM
Vadim Grishin 31
HEAVY METAL
Taken together US imports of metals and US imports of oil compose about 80 percent of US
total imports from Rus sia (Figure 59) Trade of metals like other commodities is strongly afected
by market price fluctuations Nevertheless metal imports from Rus sia have been fairly resilient to
market volatility and their average annual value has hovered at about $4 billion in the last five years
(Figure 510) This market resilience was forged at the end of the 1990searly 2000s when Rus sian
metal producers gradually modernized their plants adjusting quality of production to Western
standards and enhancing integration into global value and supply chains Some of them conquered
their share of the highly competitive US market struggling with peers from Canada and certain
BRICS countries (China India and Brazil) To attract additional resources all Rus sian large metal-
producing companies became public and were listed on stock exchanges chiefly the London Stock
Exchange (Severstalrsquo PAO Evraz MMK OAO Novolipetsk Steel Norilsk Nikel and TMK PAO) one
on the New York Stock Exchange (Mechel) and one on the Hong Kong Stock Exchange (Rusal)
Business logic pushed some of them to invest in the US metal- making industry which was hit
hard by crisis Later on some of those assets were sold (eg two US steel mills acquired by
Severstal in 2004 were purchased 10 years later by Steel Dynamics Inc and AK Steel Corp)
Figure 57 Share of US States Rus sian Oil Imports 2016
Source US EIA ldquoUS Imports from Rus sia of Crude Oil and Petroleum Productsrdquo Petroleum amp Other
Liquids September 29 2017 https www eia gov dnav pet hist LeafHandler ashx nshy=shyPETampsshy=shyMTTIM _ NUS
- NRS _ 1ampfshy=shyM authorrsquos computation
0
10
20
30
40
50
60
70
80
90
100
Maine
Massachusetts
Maryland
Connecticut
Georgia
Rhode Island
Virginia
Florida
New York
Alabama
Puerto Rico
Pennsylvania
Delaware
Hawaii
Washington
Mississippi
California
New Jersey
Louisiana
Texas
594-71613_ch01_4Pindd 31 102017 404 PM
Figure 58 US Imports from Rus sia by State Million US$ 2013ndash2016
Source US Census Bureau ldquoState and Metropolitan Area Trade Datardquo Foreign Trade last modified
October 2 2017 https wwwcensus gov foreign - trade statistics state
Alaska
Connecticut
Delaware
Hawaii
Louisiana
Maryland
North Dakota 0
$1000
$2000
$3000
$4000
$5000
$6000
2013 2014 2015 2016
Alabama
Alaska
Connecticut
Delaware
Hawaii
Louisiana
Maryland
Maine
Mississippi
Montana
North Dakota
Mississippi
Figure 59 US Imports from Rus sia Share of Oil and Metals Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
83
82
85
86
87
88
85
82
7375
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
$40000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil and Metals
594-71613_ch01_4Pindd 32 102017 404 PM
Vadim Grishin 33
Obviously the market dynamic of dif er ent metals varies (eg iron steel aluminum platinum and
nickel) Caps to increase their trade and production in a ldquored oceanrdquo global environment with
anemic demand is rather limited despite Figure 510 showing a spike of iron and steel imports
from Rus sia in 2014 and aluminum in 2016 Some opportunities may exist for Russian- owned steel
plants in the United States (such as NLMK) to participate in energy proj ects resumed under Presi-
dent Trump who has required that new pipelines use only American- made steel15
Rus sia occupies a special niche in the US market for titanium products a high- end metal indus-
try Twenty years ago a long- term contract was signed between Rus sian titanium producer
VSMPO- AVISMA and Boeing The Rus sian com pany entered the selective club of Boeing suppliers
for the manufacture of components and semi- finished products Since the signing of this contract
VSMPO has delivered more than 35 percent of all titanium placed on Boeing civil aircraft16 They
are hidden in the trade data in an import category for Civilian Aircrafts and Parts (Figure 511) At
the end of 2016 Boeing announced an extension of its framework agreement with AVISMA
15 E Scheyder C Ngai and T Sylvester ldquoAmerican Steel Unlikely to Get Keystone Boost Despite Trump Orderrdquo
Reuters January 27 2017 http wwwreuters com article usa - trump - pipeline - transcanada - idUSL1N1FH1ZD
16 A Kramer ldquoTitanium Fills Vital Role for Boeing and Rus siardquo New York Times July 5 2013 http wwwnytimes com
2013 07 06 business global titanium - fills - vital - role - for - boeing - and - russia html mcubzshy=shy3
Figure 510 US Imports from Rus sia Iron Steel Bauxite Aluminum Nickel Nonferrous Metals and Other Precious Metals and Materials US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
0
$6000000000
$5000000000
$4000000000
$3000000000
$2000000000
$1000000000
2007 2008 2009 2010 2011 20122013
20142015
2016
Finished metal shapes
Iron and steel advanced
Iron and steel products nec
Nonferrous metals other
Other precious metals
Nickel
Bauxite and aluminum
Iron and steel mill products
Steelmaking materials
594-71613_ch01_4Pindd 33 102017 404 PM
US-Russia Economic Relations34
through 2022 and additional investments in the construction of a new robotic plant in Titanium
Valley a special economic zone located in the Sverdlovsk region that will open in 2018 The pro-
cessing of titanium forgings in all Boeing civil aircraft will be performed there including 787s 737
MAXs and 777Xs17 The contract extension with AVISMA may add several hundred million dollars
in value to annual US imports from Rus sia
How can such heavy reliance on imports of Rus sian titanium exist during a period of rising geopo-
liti cal tensions The answer is straightforward VSMPO- AVISMA is a highly specialized natu ral
mono poly producing 45 percent of the worldrsquos aerospace titanium Only four other countries
smelt high- grade titanium in industrial quantities the United States Germany Japan and China
Overall global production capacity is limited while demand is growing The United States cur-
rently imports around 79 percent of all the titanium it consumes each year18
17 ldquoBoeing and VSMPO Avisma to Launch Second Joint Production Siterdquo Rus sian Aviation Insider December 22 2016
http wwwrusaviainsider com boeing - and - vsmpo - avisma - to - launch - second - joint - production - site
18 Jon Ostrower and Andy Pasztor ldquoBoeing United Technologies Stockpile Titanium Partsrdquo Wall Street Journal
August 7 2014 https wwwwsj com articles boeing - united - technologies - stockpiling - titanium - parts - 1407441886
Figure 511 US Imports from Rus sia Civilian Aircrafts and Parts US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
$200000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Parts-civilian aircraft
Civilian aircraft
594-71613_ch01_4Pindd 34 102017 404 PM
Vadim Grishin 35
The Sanctions Act authorizes the secretary of the trea sury (in a nonmandatory way) to impose
restrictions (without specifying them) against Rus sian state- owned entities operating in the railway
metals and mining sectors of the Rus sian economy Despite the commanding heights of Rus siarsquos
state sector owner ship in its economy (70 percent of GDP) the metal- producing companies have
remained mostly in private hands
NUCLEAR AFFAIRS
Historically owners and operators of the 104 commercial nuclear power reactors in the United
States have purchased more than 80 percent of their uranium from foreign countries Uranium
shipping from Rus sia accounted for about 13 percent of the 58 million pounds of uranium pur-
chased overseas in 201219 At the same time the Rus sian state- owned mono poly Rosatom ac-
counts for 20 percent of Kazakhstanrsquos uranium production (which in turn comprises 11 percent of
all US uranium imports) and 20 percent of US domestic uranium production capacity (with
owner ship of exploration tracts in Wyoming)20
Nuclear fuel and nuclear power continue to be po liti cally sensitive topics both in the United
States and Rus sia Bilateral cooperation in this sector (being surprisingly stable with imports of
nuclear fuel from Rus sia at a level of $1 billion annually in the last five years [Figure 512 and 513])
is under constant po liti cal and lobbying pressure and has been a source of several po liti cal scan-
dals21 Consequently upside risks in this area of interaction are minimal and downside risks are
much higher especially when we are seeing more decommissioning of nuclear plants in the
United States than new constructions The US EIArsquos 2017 Annual Energy Outlook assumes
that about 25 percent of the nuclear capacity now operating will be removed from ser vice
by 205022
WHY IS THE GRASS GREENER ON THE OTHER SIDE
The United States continues to significantly reduce imports of chemical fertilizers as domestic pro-
duction increases In 2016 the United States imported 13 percent less ammonia and 11 percent
less urea and UAN which is a liquid urea and ammonium nitrate fertilizer Rus sia accounts for
around 40 percent of UAN imported by the United States The United States canceled antidumping
duties on imports of ammonium nitrate and urea from Rus sia in 2016 but it did not prevent import
19 US EIA ldquoThe US Relies on Foreign Uranium Enrichment Ser vices to Fuel Its Nuclear Power Plantsrdquo Today in
Energy August 28 2013 https wwweia gov todayinenergy detail php idshy=shy1273
20 Colin Chilcoat ldquoDoes Rus sia Really Own 20 Percent of the USrsquo Uranium Reservesrdquo OilPricecom May 6 2015
http oilpricecom Alternative - Energy Nuclear - Power Does - Russia - Really - Own - 20 - Of - The - US - Uranium - Reserves
html
21 Michelle Ye Hee Lee ldquoThe Facts behind Trumprsquos Repeated Claim about Hillary Clintonrsquos Role in the Rus sian Ura-
nium Dealrdquo Washington Post October 26 2016
22 US EIA ldquoAnnual Energy Outlook 2017 with Projections to 2050rdquo 81ndash82
594-71613_ch01_4Pindd 35 102017 404 PM
Figure 512 US Imports from Rus sia Share of Oil Metals and Nuclear Fuel Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
87
86
90
90
90
91
88
86
7882
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals and Nuclear Fuel
Figure 513 US Imports from Rus sia Nuclear Fuel Materials US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$-
$200000000
$400000000
$600000000
$800000000
$1200000000
$1000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 36 102017 404 PM
Vadim Grishin 37
drops twice last year (Figures 514 and 515) According to forecasts UAN imports are expected to
decline further to 15 million tons this year down over 46 percent from 28 million tons imported
last year23 The downside trend in imports of fertilizers will likely continue because of oversupply
BIG FISH
US imports of fish and shellfish from Rus sia are best understood in comparison with US fish
exports to the Rus sian market which slipped to zero in August 2014 after Rus sia issued an order
banning certain agricultural imports from the United States (Figure 516) While the volume of US
supply was not very large it was impor tant because it broke up the monopolistic dominance of a
few vertically integrated Rus sian companies that have kept prices high by restricting the entry of
new producers Seeking to implement import substitution policies Rus sia has tried to reduce
exports as well as imports of fish and seafood products in the last couple of years This symmetri-
cal approach was intended to ldquocompensaterdquo for a decrease of fish products in the domestic
23 Deepika Thapliyal ldquoPotashCorp Forecasts Sharp Drop in US Nitrogen Imports in 2017rdquo ICIS News February 7
2017 https wwwicis com resources news 2017 02 07 10076734 potashcorp - forecasts - sharp - drop - in - us - nitrogen
- imports - in - 2017
Figure 514 US Imports from Rus sia Share of Oil Metals Nuclear Fuel and Fertilizers Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
90
93
92
93
94
95
92
91
85
86
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals Nuclear Fuel and Fertilizers
594-71613_ch01_4Pindd 37 102017 404 PM
Figure 515 US Imports from Rus sia Chemical- Fertilizers US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
S-
$200000000
$400000000
$600000000
$800000000
$1000000000
$1200000000
$1400000000
$1600000000
$1800000000
$2000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Figure 516 US Exports to Rus sia Fish and Shellfish US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$10000000
$20000000
$30000000
$40000000
$50000000
$60000000
$70000000
$80000000
$90000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Fish and shellfish
594-71613_ch01_4Pindd 38 102017 404 PM
Vadim Grishin 39
consumer market caused by Rus siarsquos import ban but it has failed As result the group most af-
fected by the self- imposed counter- sanctions were Rus sian consumers
With a significant drop in fish imports a devaluation of the ruble and inflationary pressures on
seafood prices yearly consumption of fish in Rus sia has declined precipitously In 2015 alone
fish prices increased 20 percent and consumption dropped to 14 kilograms per person24 from
22 kilograms in 201425 In 2016 food rose to 355 percent of house hold expenditure as a result of
increases in food prices26 This has pushed vertically integrated fishing monopolies to sell even
more of their catch abroad rather than deliver to the Rus sian Federation (Figure 517) Thus we
cannot exclude the possibility of further growth in US fish and shellfish imports from Rus sia on a
marginal scale
24 Александр Савельев ldquoПотребление рыбы в России упало до 14 кг на человекаrdquo [Fish consumption in Rus sia fell to
14 kg per person] Экономика Интерфакс January 28 2015 http wwwinterfax ru business 492038
25 Илья Шестаков ldquoПотебление рыбы в России снизилось на 10 процентов из- за роста ценrdquo [Fish consumption in
Rus sia dropped by 10 percent due to price increases] RNS March 8 2017 https rnsonline consumer - market
Potreblenie - ribi - v - Rossii - snizilos - na - 10 - iz - za - rosta - tsen - 2017 - 03 - 08
26 Zoya Sheftalovich and Christian Oliver ldquoRus siarsquos Boom (Farming) Economyrdquo Politico November 8 2016 http
wwwpolitico eu article russias - boom - farming - economy
Figure 517 US Imports from Rus sia Fish and Shellfish US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$50000000
$100000000
$150000000
$200000000
$250000000
$300000000
$350000000
$400000000
$450000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 39 102017 404 PM
US-Russia Economic Relations40
SPACE ODYSSEY
Among high- end products beyond the top five groups of goods imported from Rus sia cheap and
efficient Rus sian engines have been used to launch US rockets into space for about 16 years
(Figure 518) There was a serious po liti cal strug gle around a 2014 ban on the purchase of Rus sian
RD-180 rocket engines revealing the conflicting business interests of power ful high- tech companies
This restrictive mea sure was temporary and was quickly lifted because of significant cost impacts
and risks of disruption to launch schedules27 For the same reason the Sanctions Act does not autho-
rize ldquothe imposition of any sanction or other condition limitation restriction or prohibition that
directly or indirectly impedes the supply by any entity of the Rus sian Federation of any product or
ser vice or the procurement of such product or ser vice by any contractor or subcontractor of the
United States or any other entity relating to or in connection with any space launch conducted for
the National Aeronautics and Space Administration or any other nonndash Department of Defense
customerrdquo28
Nevertheless many experts believe that US domestic alternatives to replace Rus sian engines will
be viable in five to eight years
27 Ken Dilanian ldquoWhy Does the US Use Rus sian Rockets to Launch Its Satellitesrdquo NBC News updated November 15
2016 http wwwnbcnews com why - does - u - s - use - russian - rockets - launch - its - satellites - n588526
28 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364
Figure 518 Spacecraft Excluding Military US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 40 102017 404 PM
41
Diversity and technological complexity are the most vis i ble advantages supporting US exports to
Rus sia Three major groups of export goods include civilian aircraft engines and parts (Figure 61)
drilling and oil field equipment (Figure 62) and industrial machines and engines (Figure 63)
Despite sanctions against the transfer of advanced oil producing and pro cessing technologies the
realization of US drilling and oil field equipment in Rus sia is sustainable although some bilateral
proj ects have been frozen
Another category of goods that has demonstrated resilience is the phar ma ceu ti cal industry (Fig-
ure 64) because most drugs in Rus sia are imported (about 70 percent of the Rus sian phar ma ceu-
ti cal market in value) Import substitution policies have had only modest results in this industry
As confirmed by American Chamber of Commerce surveys US exports to Rus sia are closely
connected to US FDI 30 percent of total imports of US companies working in the Rus sian
market come from the United States (more than $2 billion in 2016) In other words about
40 percent of all US exports to Rus sia are related to a US corporate- sector business pro cess in
the country The major sectors of activity of these companies are energy and natu ral resources
(52 percent) manufacturing (17 percent) information and communications technology or ICT
(13 percent) retail (7 percent) automotive industry (6 percent) phar ma ceu ti cal production
(1 percent) professional ser vices (05 percent) and other (2 percent)1
Some obvious constraints on US exports to Rus sia have resulted from a reduction in demand A
deterioration of bilateral relations and implementation of sanctions and counter- sanctions have
directly or indirectly afected all businesses Figures 65 and 66 provide data regarding a dramatic
drop in the sale of US agricultural production in Rus sia with all other categories of exports in
goods showing big cuts as well (see Figures 67ndash69)
Exports of civilian aircraft engines and parts put the state of Washington in first place among
other states as a leading exporter to the Rus sian market (Figure 610)
1 American Chamber of Commerce in Rus sia ldquoInvestment and Import to Rus sia 2nd Surveyrdquo 13
Diversity and Constraints
06
594-71613_ch01_4Pindd 41 102017 404 PM
Figure 61 US Exports of Civilian Aircraft Engines Equipment and Parts to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
$2500000000
$2000000000
$1500000000
$1000000000
$500000000
$-
Figure 62 US Exports of Drilling and Oil Field Equipment US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
$40000000
$45000000
$50000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 42 102017 404 PM
Figure 63 US Exports of Industrial Engines to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Figure 64 US Exports of Phar ma ceu ti cal Preparations to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 43 102017 404 PM
Figure 65 US Exports of Meat and Poultry to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Meat poultry etc
$1000000000
$800000000
$600000000
$400000000
$200000000
$-
$1200000000
$1400000000
$1600000000
Figure 66 US Exports of Soybeans to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
$200000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 44 102017 404 PM
Figure 67 US Exports of Vehicles Engines and Parts to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Other parts and accessories of vehicles
Automotive tires and tubes
Bodies and chassis for passenger cars
Engines and engine parts (carburetors pistonsrings and valves)
Trucks buses and special purpose vehicles
Passenger cars new and used
$2500000000
$2000000000
$1500000000
$500000000
$-
$1000000000
Figure 68 US Exports of Medicinal Equipment to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 45 102017 404 PM
Figure 610 US Exports to Rus sia by States (2016 US$ Value) Million US$ 2013ndash2016
Source US Census Bureau ldquoState and Metropolitan Area Trade Datardquo
Iowa Kentucky
North Dakota
Oklahoma
South Carolina
Washington
0
$500
$1000
$1500
$2000
2013 2014 2015 2016
District of Columbia
Iowa
Kentucky
North Dakota
Oklahoma
South Carolina
Washington
Figure 69 US Exports of Excavating Machinery to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
$40000000
$45000000
$50000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 46 102017 404 PM
47
Upon reviewing the current trend in US- Russia economic relations we must acknowledge that
the existing trade model is obsolete and exhausted Imports are resource- oriented and reflect
constraints of the Rus sian economic structure while five groups of goodsmdash oil metals nuclear
fuels fertilizers and fishmdash make up more than 90 percent of total imports from Rus sia (Figure 71)
Each of these industries has a limited capacity for growth in the foreseeable future
Rus siarsquos core export to the United Statesmdash oilmdash will inevitably decrease in the mid- term under any
scenario The value and volume of Rus sian exports to the United States are open to global market
volatility and po liti cal pressures with limited hedging mechanisms
Overall US exports to Rus sia are unsustainable due to bilateral po liti cal tensions the whims of
commodity markets and changing domestic policies Sanctions and counter- sanctions have
created additional barriers particularly in finance banking high- tech energy and agro- business
According to the American Chamber of Commerce 69 percent of US companies working in the
country consider the impact of US sanctions against Rus sia on their business as negative At the
same time 60 percent of companies do not expect big changes in business relations between
Rus sia and the United States under Trump1 as the new law codifies existing sanctions fortifies
them and extends them to new sectors
Current US investments are low due to the weak rule of law in Rus sia a lack of property right
protections and proper contract enforcement high levels of statization and monopolization in the
economy a poor business climate outdated capital stock dependence on natural- resource
sectors and of course sanction and counter- sanction mea sures Bloated administrative compo-
nents created as risk mitigation instruments have also served as impediments The countryrsquos
institutional weakness low level of productivity bud get constraints and a declining inflexible
workforce will restrain future economic growth even if commodity prices recover Rus sian eco-
nomic policy will likely continue to be statist and protectionist relying mostly on import
substitutions
1 Ibid 11
Existing Trends and Future Scenarios
07
594-71613_ch01_4Pindd 47 102017 404 PM
US-Russia Economic Relations48
What scenarios can be expected in such a challenging environment
One probability (no peace no war) is based on the assumption that matters will not deteriorate
further and implementation of the Sanctions Act will be cursory This will cause relatively slow
degradation in the economic field with occasional flashes of activity in selected areas (eg closer
cooperation against Islamist terrorist groups in Syria)
A second worse case or critical scenario is the intensive and full- scale execution of current sanc-
tion legislation and even the imposition of new economic punitive and restrictive mea sures which
could incite asymmetric retaliatory actions and lead to the introduction of additional protectionist
policies This in turn could trigger a further escalation of mutual confrontation and could eventu-
ally destroy the fundamentals of the current bilateral trade system Rus sian leadership has charac-
terized the Sanctions Act as a declaration of a trade war that ends all hope for improving bilateral
relations2
2 Дмитрий Медведев ldquoПодписание президентом США нового санкционного закона против России создает несколько
последствийrdquo [The US Presidentrsquos signing of the package of new sanctions against Rus sia will have a few conse-
quences] Facebook August 2 2017 https wwwfacebook com Dmitry Medvedev posts 10154587161801851
Figure 71 US Imports from Rus sia Share of Oil Metals Nuclear Fuel Fertilizers and Fish Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
93
94
93
94
95
96
93
92
87
89
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals Nuclear FuelFertilizers and Fish
594-71613_ch01_4Pindd 48 102017 404 PM
Vadim Grishin 49
The best case and most favorable scenario looks less probable now It assumes the realization of
structural reforms in Rus sia in such a way that would adapt Rus siarsquos foreign policy to national
economic needs reduce confrontations with the West and make a concerted efort to integrate
Rus sian businesses into global supply and value chains A revitalization of the structural reform
agendamdash including eforts to diversify economic activities through de- monopolization and support
for SMEs a restructuring of the banking sector the creation of a vibrant business climate to foster
entrepreneurships and innovation the implementation of administrative and judicial reforms to
tackle red tape and endemic corruption and the reduction of state control over key sectors of the
economy via wide- spread privatization could kick- start the development of a nonoil economy and
improve long- term growth prospects Despite ongoing discussion of reform strategies deep
economic and po liti cal changes are extremely complicated over the next po liti calelectoral cycle
(2018ndash2024) particularly because of re sis tance of vested interests and growing commodity prices
The urgency to tackle structural shortcomings in natu ral resource- dependent economies usually
correlates with the price of those resources and the degree to which resource rents drive eco-
nomic activity However there may be marginal improvements in the efficiency of the current
economic system
Future US- Russia relations can be thought of through three pillars one pillar focuses on areas
where both countries maintain a competitive rivalry another looks at potential areas of interaction
under pres ent conditions a third pillar and one that has evaporated from the current bilateral
agenda concentrates on future cooperation Stronger economic ties could not only be a kind of
po liti cal shock absorber but contribute to the building of this future (particularly business contacts
aim to support future structural reforms) although po liti cal factors are depressing the prospects
for cooperation To escape deadlock it will be impor tant to establish the right balance between
politics and economics and create a model of collaboration within the framework of contention
594-71613_ch01_4Pindd 49 102017 404 PM
About the Author
Vadim Grishin PhD MBA has been involved in the reform pro cess in Rus sia as adviser to the
deputy prime minister of Rus sia in 1992ndash1993 and 2006ndash2010 He has extensive experience
working with the Bretton Woods Institutions He was the board member of the World Bank Group
and served as se nior adviser at the International Monetary Fund Currently he is a con sul tant to the
chief economistrsquos office of the International Finance Corporation and teaches the economics of
transition at Georgetown University in Washington DC
50
594-71613_ch99_4Pindd 50 102017 403 PM
Blank
COVER PHOTO ADOBE STOCK
1616 Rhode Island Avenue NW
Washington DC 20036
202 887 0200 | wwwcsisorg
v++ISBN 978-1-4422-8035-9
Lanham bull Boulder bull New York bull London
4501 Forbes Boulevard
Lanham MD 20706
301 459 3366 | wwwrowmancom
A U T H O R
Vadim Grishin
Myths and Realities
A Report of the
CSIS RUSSIA AND EURASIA PROGRAM
US-RussiaEconomicRelations
O C T O B E R 2 0 1 7
Euml|xHSLEOCy280359z
The Man Pupu Nyor Rock Formations at the Northern Urals also known as Seven
Strong Man or Little Mountain of the God in the local tribe (Mansi) language
Vadim Grishin 25
Another factor afecting purchase of Rus sian oil is a new trend among oil companies for further
consolidation of scale and for integrating operations of upstream and downstream business7
There have been several waves of separation and unification of production transportation and
pro cessing in the last 50 years The current business cycle can be seen as an adaptation to a
period of low prices and oversupply Companies that buy andor produce oil in Rus sia most likely
prefer to transport and pro cess this oil in their own modern refineries in the United States At the
same time some of the newest refinery designs specifically for pro cessing heavy oils have been
built in Asia thus extending the choices of heavy oil producing countries
We should also consider that leading US and international oil traders along with oil producing
companies working with or owning US refineries frequently buy Rus sian oil on the open market
and have long- term contracts on Rus sian crude oil delivery Many Rus sian oil companies prefer to
pay for purchases or ser vices with their future production instead of cash creating situations of
ldquostickyrdquo oil imports that are difficult to replace The best- known example is an interaction between
7 ldquoEnergy and Utilities Sectorrdquo Roundtable Financier Worldwide December 2015 https wwwfinancierworldwide
com roundtable - energy - utilities - sector - dec15
Figure 54 US Imports of Oil and Petroleum Products from Rus sia vs Oil Prices Eu rope Brent Spot Price Free on Board (FOB) 1996ndash2017
Source US EIA ldquoUS Imports by Country of Origin Rus siardquo
0
20
40
60
80
100
120
140
0
5000
10000
15000
20000
25000
30000
Jan
-19
96
Jun
-19
96
No
v-19
96
Ap
r-19
97
Sep
-19
97
Feb
-19
98
Jul-
199
8D
ec-1
99
8M
ay-1
99
9O
ct-1
99
9M
ar-2
00
0A
ug
-20
00
Jan
-20
01
Jun
-20
01
No
v-2
00
1A
pr-
20
02
Sep
-20
02
Feb
-20
03
Jul-
20
03
Dec
-20
03
May
-20
04
Oct
-20
04
Mar
-20
05
Au
g-2
00
5Ja
n-2
00
6Ju
n-2
00
6N
ov-
20
06
Ap
r-2
00
7Se
p-2
00
7Fe
b-2
00
8Ju
l-2
00
8D
ec-2
00
8M
ay-2
00
9O
ct-2
00
9M
ar-2
010
Au
g-2
010
Jan
-20
11Ju
n-2
011
No
v-2
011
Ap
r-2
012
Sep
-20
12Fe
b-2
013
Jul-
20
13D
ec-2
013
May
-20
14O
ct-2
014
Mar
-20
15A
ug
-20
15Ja
n-2
016
Jun
-20
16N
ov-
20
16
USD
per
Bar
rel
Th
ou
san
d B
arr
els
US Imports from Russia of Crude Oil and Petroleum Products (Thousand Barrels)
Europe Brent Spot Price FOB (Dollars per Barrel)
594-71613_ch01_4Pindd 25 102017 404 PM
US-Russia Economic Relations26
Table 56 US Oil Imports All Countries vs Rus sia Thousand Barrels per Day 2011ndash2016
Years 2011 2012 2013 2014 2015 2016
All Countries 11436 10598 9859 9241 9449 10058
Rus sia 624 477 460 330 371 433
Share 546 450 467 357 393 431
Sources US EIA ldquoUS Imports by Country of Origin Total Crude Oil and Productsrdquo Petroleum amp Other
Liquids September 13 2017 wwweia gov dnav pet pet_move_impcus_a2_nus_ep00_im0_mbbl_m htm
authorrsquos computation
Figure 55 US Imports from Rus sia Share of Crude Oil and Petroleum Products Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
57
64
73
72
74
73
72
59
52 50
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
$40000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil and Petroleum Products
594-71613_ch01_4Pindd 26 102017 404 PM
Vadim Grishin 27
the Rus sian state mono poly Rosneft and commodity trading and mining giant Glencore which
along with energy and commodities com pany Vitol participated in a $10 billion prepayment
deal with Rosneft for crude supplies in 2013
There have been a number of ongoing transactions between the Rus sian oil industry and interna-
tional oil companies including several that top the list of importers of Rus sian oil to the United
States ( Table 57) In December 2016 Glencore participated in a controversial privatization opera-
tion purchasing in tandem with the Qatar sovereign wealth fund a 195 percent stake in Rosneft
which was on the US and EU list of sanctioned firms8 Glencore has also taken a blocking stake in
midsize oil producer RussNeft BP owns a 1975 percent stake in Rosneft Chevron holds a
15 percent interest in the 935- mile- long CPC9 pipeline which transports an average of 959000
barrels of crude oil per day including 76000 barrels daily from Rus sia10 ExxonMobil has formed
8 E Mazneva and I Arkhipov ldquoRus sia Sells $11 Billion Stake in Rosneft to Glencore Qatarrdquo Bloomberg December 7
2016
9 CPCthinsp=thinspCaspian Pipeline Consortium
10 ldquoRus sia Highlights of Operations and Business Portfoliordquo Chevron accessed October 3 2017 https wwwchevron
com worldwide russia
Figure 56 Share of Rus sian Oil in Total US Oil Imports Thousands of Barrels per Day 1972ndash2016
Source US EIA ldquoUS Imports by Country of Origin Total Crude Oil and Productsrdquo
2000
4000
6000
8000
10000
12000
14000
16000
US Imports of Crude Oil and Petroleum Products (Thousand Barrels per Day)
US Imports from Russia of Crude Oil and Petroleum Products (Thousand Barrels per Day)19
7319
7419
7519
7619
7719
7819
7919
80
198
119
82
198
319
84
198
519
86
198
719
88
198
919
90
199
119
92
199
319
94
199
519
96
199
719
98
199
92
00
02
00
12
00
22
00
32
00
42
00
52
00
62
00
72
00
82
00
92
010
20
112
012
20
132
014
20
152
016
594-71613_ch01_4Pindd 27 102017 404 PM
Table 57 Top Importers of Rus sian Oil to the United States Thousands of Barrels 2016
VALERO MARKETING amp SUPPLY CO 54590 3616
EXXONMOBIL OIL CORP 17087 1130
CHEVRON USA INC 15217 1008
BP WEST COAST PRODUCTS LLC 10130 671
GEORGE E WARREN CORP 7272 48
PAULSBORO REFINING CO LLC 6838 453
TESORO CORP 5097 338
VITOL INC 5084 337
PHILLIPS 66 CO 4726 313
TRAFIGURA AG 4360 289
PAR HAWAII REFINING LLC 3893 258
MOTIVA ENTERPRISES LLC 3041 205
SHELL US TRADING CO 2863 19
MARATHON PETROLEUM CO LLC 2475 16
ATLANTIC TRADING amp MARKETING 2099 14
FREEPOINT COMMODITIES LLC 1439 1
GLENCORE LTD 1284 85
BEST PETROLEUM CORP 967 64
ROLYMPUS US COMMODITIES GROUP LLC 822 6
HUNT CRUDE OIL SUPPLY CO 666 4
GULF OIL LP 658 4
Source US EIA ldquoUS Imports by Country of Origin Crude Oilrdquo Petroleum amp Other Liquids September 13
2017 httpswwweiagovdnavpetpet_move_impcus_a2_nus_epc0_im0_mbblpd_ahtm authorrsquos
computation
594-71613_ch01_4Pindd 28 102017 404 PM
Vadim Grishin 29
several joint ventures with Rosneft to undertake ofshore exploration in the Black Sea and the Kara
Sea in Siberia11
According to the Sanctions Act US persons are prohibited from exporting or reexporting goods
ser vices (except financial ser vices) and technology in support of exploration or production of new
deep- water Arctic ofshore or shale oil proj ects that involve designated Rus sian entities or other
entities in which such sanctioned persons have a controlling interest or a substantial noncontrol-
ling owner ship interest defined as not less than 33 percent (previously it was 50 percent) The new
law also authorizesmdash but does not requiremdash the imposition of so- called secondary sanctions
against non- US entities that engage in activities involving the construction maintenance or
expansion of Rus sian energy export pipelines with a fair market value of $1 million or more or an
aggregate fair market value during a 12- month period of $5 million12 This provision has raised the
concerns of some Eu ro pean countries particularly Germany As result the final language of the
law included wording about coordination of this issue with allies of the United States
Shipments of Rus sian oil to the United States could be afected by activity in the US refinery
industry In early 2017 Saudi Aramco bought the United Statesrsquo largest oil refinery in Port Arthur
(Texas) and it announced plans to send more of its own crude to that refinery13 Serious concerns
exist however regarding the future of three refineries and nine pipelines owned by Citgo a US
branch of the Venezuelan state com pany PdVSA which is balancing precariously on the edge of
default Under certain conditions in the event of PdVSA bankruptcy Rosneft could claim a stake of
up to 499 percent in Citgo Such a possibility has raised concerns among politicians and US
government officials with Trea sury Secretary Steven Mnuchin calling it a ldquonational security issuerdquo14
Tables 58 59 and 510 show allocations of Rus sian oil imports to major US refineries some of
which work exclusively on Rus sian crude a total of two to three months per year In total 150940
thousand barrels of Rus sian oil were refined in 2016
Figure 57 confirms a leading position of Texas and Louisiana among the US states receiving
Rus sian crude followed by New Jersey California Mississippi Washington Hawaii and Delaware
In a paradoxical way Texas has dis appeared from the list of states as a main destination of US
imports from Rus sia (Figure 58) because Rus sian crude is mostly delivered to Louisiana ports and
registered there by US Customs as an import from Rus sia After that it transports to refineries in
Louisiana and Texas
Overall the short- term business rationale behind the sustainability of US oil imports from Rus sia
cannot overcome strong headwinds in the US energy sector facing all oil importers which will
inevitably lead to a contraction of Rus sian oil exports to the United States in the foreseeable future
11 Exxon eforts to receive a special US Trea sury waiver to drill in sanctioned Rus sia failed in 2017
12 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364
13 Sarp Ozkan ldquoSaudi Aramcorsquos Port Arthur Refinery and the US Refinery Fleetrdquo Drilling Info May 11 2017
https infodrillinginfo com saudi - aramcos - port - arthur - refinery - us - refinery - fleet
14 Graham Kates ldquoTrea sury Secretary Rus siarsquos Citgo Deal a National Security Issuerdquo CBS News May 1 2017
http wwwcbsnews com news rosneft - citgo - steven - mnuchin - national - security
594-71613_ch01_4Pindd 29 102017 404 PM
US-Russia Economic Relations30
Table 58 Valerorsquos Refineries Pro cessing Rus sian Oil Thousands of Barrels 2016
Saint Charles Louisiana 29206 535
Corpus Christi Texas 20626 378
Wilmington California 4250 78
Total USA 54590 100
Source US EIA ldquoRefinery Capacity Reportrdquo January 1 2017
table 5 wwweia gov petroleum refinerycapacity table5 pdf
authorrsquos computation
Table 59 ExxonMobil Refineries Pro cessing Rus sian Oil Thousands of Barrels 2016
Baytown Texas 15037 88
Baton Rouge Louisiana 2046 12
Total USA 17083 100
Source US EIA ldquoRefinery Capacity Reportrdquo authorrsquos computation
Table 510 Chevronrsquos Refineries Pro cessing Rus sian Oil Thousands of Barrels 2016
Pascagoula Mississippi 12767 840
El Segundo California 2372 155
Saint Rose Louisiana 78 05
Total USA 15217 100
Source US EIA ldquoRefinery Capacity Reportrdquo authorrsquos computation
594-71613_ch01_4Pindd 30 102017 404 PM
Vadim Grishin 31
HEAVY METAL
Taken together US imports of metals and US imports of oil compose about 80 percent of US
total imports from Rus sia (Figure 59) Trade of metals like other commodities is strongly afected
by market price fluctuations Nevertheless metal imports from Rus sia have been fairly resilient to
market volatility and their average annual value has hovered at about $4 billion in the last five years
(Figure 510) This market resilience was forged at the end of the 1990searly 2000s when Rus sian
metal producers gradually modernized their plants adjusting quality of production to Western
standards and enhancing integration into global value and supply chains Some of them conquered
their share of the highly competitive US market struggling with peers from Canada and certain
BRICS countries (China India and Brazil) To attract additional resources all Rus sian large metal-
producing companies became public and were listed on stock exchanges chiefly the London Stock
Exchange (Severstalrsquo PAO Evraz MMK OAO Novolipetsk Steel Norilsk Nikel and TMK PAO) one
on the New York Stock Exchange (Mechel) and one on the Hong Kong Stock Exchange (Rusal)
Business logic pushed some of them to invest in the US metal- making industry which was hit
hard by crisis Later on some of those assets were sold (eg two US steel mills acquired by
Severstal in 2004 were purchased 10 years later by Steel Dynamics Inc and AK Steel Corp)
Figure 57 Share of US States Rus sian Oil Imports 2016
Source US EIA ldquoUS Imports from Rus sia of Crude Oil and Petroleum Productsrdquo Petroleum amp Other
Liquids September 29 2017 https www eia gov dnav pet hist LeafHandler ashx nshy=shyPETampsshy=shyMTTIM _ NUS
- NRS _ 1ampfshy=shyM authorrsquos computation
0
10
20
30
40
50
60
70
80
90
100
Maine
Massachusetts
Maryland
Connecticut
Georgia
Rhode Island
Virginia
Florida
New York
Alabama
Puerto Rico
Pennsylvania
Delaware
Hawaii
Washington
Mississippi
California
New Jersey
Louisiana
Texas
594-71613_ch01_4Pindd 31 102017 404 PM
Figure 58 US Imports from Rus sia by State Million US$ 2013ndash2016
Source US Census Bureau ldquoState and Metropolitan Area Trade Datardquo Foreign Trade last modified
October 2 2017 https wwwcensus gov foreign - trade statistics state
Alaska
Connecticut
Delaware
Hawaii
Louisiana
Maryland
North Dakota 0
$1000
$2000
$3000
$4000
$5000
$6000
2013 2014 2015 2016
Alabama
Alaska
Connecticut
Delaware
Hawaii
Louisiana
Maryland
Maine
Mississippi
Montana
North Dakota
Mississippi
Figure 59 US Imports from Rus sia Share of Oil and Metals Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
83
82
85
86
87
88
85
82
7375
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
$40000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil and Metals
594-71613_ch01_4Pindd 32 102017 404 PM
Vadim Grishin 33
Obviously the market dynamic of dif er ent metals varies (eg iron steel aluminum platinum and
nickel) Caps to increase their trade and production in a ldquored oceanrdquo global environment with
anemic demand is rather limited despite Figure 510 showing a spike of iron and steel imports
from Rus sia in 2014 and aluminum in 2016 Some opportunities may exist for Russian- owned steel
plants in the United States (such as NLMK) to participate in energy proj ects resumed under Presi-
dent Trump who has required that new pipelines use only American- made steel15
Rus sia occupies a special niche in the US market for titanium products a high- end metal indus-
try Twenty years ago a long- term contract was signed between Rus sian titanium producer
VSMPO- AVISMA and Boeing The Rus sian com pany entered the selective club of Boeing suppliers
for the manufacture of components and semi- finished products Since the signing of this contract
VSMPO has delivered more than 35 percent of all titanium placed on Boeing civil aircraft16 They
are hidden in the trade data in an import category for Civilian Aircrafts and Parts (Figure 511) At
the end of 2016 Boeing announced an extension of its framework agreement with AVISMA
15 E Scheyder C Ngai and T Sylvester ldquoAmerican Steel Unlikely to Get Keystone Boost Despite Trump Orderrdquo
Reuters January 27 2017 http wwwreuters com article usa - trump - pipeline - transcanada - idUSL1N1FH1ZD
16 A Kramer ldquoTitanium Fills Vital Role for Boeing and Rus siardquo New York Times July 5 2013 http wwwnytimes com
2013 07 06 business global titanium - fills - vital - role - for - boeing - and - russia html mcubzshy=shy3
Figure 510 US Imports from Rus sia Iron Steel Bauxite Aluminum Nickel Nonferrous Metals and Other Precious Metals and Materials US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
0
$6000000000
$5000000000
$4000000000
$3000000000
$2000000000
$1000000000
2007 2008 2009 2010 2011 20122013
20142015
2016
Finished metal shapes
Iron and steel advanced
Iron and steel products nec
Nonferrous metals other
Other precious metals
Nickel
Bauxite and aluminum
Iron and steel mill products
Steelmaking materials
594-71613_ch01_4Pindd 33 102017 404 PM
US-Russia Economic Relations34
through 2022 and additional investments in the construction of a new robotic plant in Titanium
Valley a special economic zone located in the Sverdlovsk region that will open in 2018 The pro-
cessing of titanium forgings in all Boeing civil aircraft will be performed there including 787s 737
MAXs and 777Xs17 The contract extension with AVISMA may add several hundred million dollars
in value to annual US imports from Rus sia
How can such heavy reliance on imports of Rus sian titanium exist during a period of rising geopo-
liti cal tensions The answer is straightforward VSMPO- AVISMA is a highly specialized natu ral
mono poly producing 45 percent of the worldrsquos aerospace titanium Only four other countries
smelt high- grade titanium in industrial quantities the United States Germany Japan and China
Overall global production capacity is limited while demand is growing The United States cur-
rently imports around 79 percent of all the titanium it consumes each year18
17 ldquoBoeing and VSMPO Avisma to Launch Second Joint Production Siterdquo Rus sian Aviation Insider December 22 2016
http wwwrusaviainsider com boeing - and - vsmpo - avisma - to - launch - second - joint - production - site
18 Jon Ostrower and Andy Pasztor ldquoBoeing United Technologies Stockpile Titanium Partsrdquo Wall Street Journal
August 7 2014 https wwwwsj com articles boeing - united - technologies - stockpiling - titanium - parts - 1407441886
Figure 511 US Imports from Rus sia Civilian Aircrafts and Parts US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
$200000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Parts-civilian aircraft
Civilian aircraft
594-71613_ch01_4Pindd 34 102017 404 PM
Vadim Grishin 35
The Sanctions Act authorizes the secretary of the trea sury (in a nonmandatory way) to impose
restrictions (without specifying them) against Rus sian state- owned entities operating in the railway
metals and mining sectors of the Rus sian economy Despite the commanding heights of Rus siarsquos
state sector owner ship in its economy (70 percent of GDP) the metal- producing companies have
remained mostly in private hands
NUCLEAR AFFAIRS
Historically owners and operators of the 104 commercial nuclear power reactors in the United
States have purchased more than 80 percent of their uranium from foreign countries Uranium
shipping from Rus sia accounted for about 13 percent of the 58 million pounds of uranium pur-
chased overseas in 201219 At the same time the Rus sian state- owned mono poly Rosatom ac-
counts for 20 percent of Kazakhstanrsquos uranium production (which in turn comprises 11 percent of
all US uranium imports) and 20 percent of US domestic uranium production capacity (with
owner ship of exploration tracts in Wyoming)20
Nuclear fuel and nuclear power continue to be po liti cally sensitive topics both in the United
States and Rus sia Bilateral cooperation in this sector (being surprisingly stable with imports of
nuclear fuel from Rus sia at a level of $1 billion annually in the last five years [Figure 512 and 513])
is under constant po liti cal and lobbying pressure and has been a source of several po liti cal scan-
dals21 Consequently upside risks in this area of interaction are minimal and downside risks are
much higher especially when we are seeing more decommissioning of nuclear plants in the
United States than new constructions The US EIArsquos 2017 Annual Energy Outlook assumes
that about 25 percent of the nuclear capacity now operating will be removed from ser vice
by 205022
WHY IS THE GRASS GREENER ON THE OTHER SIDE
The United States continues to significantly reduce imports of chemical fertilizers as domestic pro-
duction increases In 2016 the United States imported 13 percent less ammonia and 11 percent
less urea and UAN which is a liquid urea and ammonium nitrate fertilizer Rus sia accounts for
around 40 percent of UAN imported by the United States The United States canceled antidumping
duties on imports of ammonium nitrate and urea from Rus sia in 2016 but it did not prevent import
19 US EIA ldquoThe US Relies on Foreign Uranium Enrichment Ser vices to Fuel Its Nuclear Power Plantsrdquo Today in
Energy August 28 2013 https wwweia gov todayinenergy detail php idshy=shy1273
20 Colin Chilcoat ldquoDoes Rus sia Really Own 20 Percent of the USrsquo Uranium Reservesrdquo OilPricecom May 6 2015
http oilpricecom Alternative - Energy Nuclear - Power Does - Russia - Really - Own - 20 - Of - The - US - Uranium - Reserves
html
21 Michelle Ye Hee Lee ldquoThe Facts behind Trumprsquos Repeated Claim about Hillary Clintonrsquos Role in the Rus sian Ura-
nium Dealrdquo Washington Post October 26 2016
22 US EIA ldquoAnnual Energy Outlook 2017 with Projections to 2050rdquo 81ndash82
594-71613_ch01_4Pindd 35 102017 404 PM
Figure 512 US Imports from Rus sia Share of Oil Metals and Nuclear Fuel Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
87
86
90
90
90
91
88
86
7882
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals and Nuclear Fuel
Figure 513 US Imports from Rus sia Nuclear Fuel Materials US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$-
$200000000
$400000000
$600000000
$800000000
$1200000000
$1000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 36 102017 404 PM
Vadim Grishin 37
drops twice last year (Figures 514 and 515) According to forecasts UAN imports are expected to
decline further to 15 million tons this year down over 46 percent from 28 million tons imported
last year23 The downside trend in imports of fertilizers will likely continue because of oversupply
BIG FISH
US imports of fish and shellfish from Rus sia are best understood in comparison with US fish
exports to the Rus sian market which slipped to zero in August 2014 after Rus sia issued an order
banning certain agricultural imports from the United States (Figure 516) While the volume of US
supply was not very large it was impor tant because it broke up the monopolistic dominance of a
few vertically integrated Rus sian companies that have kept prices high by restricting the entry of
new producers Seeking to implement import substitution policies Rus sia has tried to reduce
exports as well as imports of fish and seafood products in the last couple of years This symmetri-
cal approach was intended to ldquocompensaterdquo for a decrease of fish products in the domestic
23 Deepika Thapliyal ldquoPotashCorp Forecasts Sharp Drop in US Nitrogen Imports in 2017rdquo ICIS News February 7
2017 https wwwicis com resources news 2017 02 07 10076734 potashcorp - forecasts - sharp - drop - in - us - nitrogen
- imports - in - 2017
Figure 514 US Imports from Rus sia Share of Oil Metals Nuclear Fuel and Fertilizers Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
90
93
92
93
94
95
92
91
85
86
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals Nuclear Fuel and Fertilizers
594-71613_ch01_4Pindd 37 102017 404 PM
Figure 515 US Imports from Rus sia Chemical- Fertilizers US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
S-
$200000000
$400000000
$600000000
$800000000
$1000000000
$1200000000
$1400000000
$1600000000
$1800000000
$2000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Figure 516 US Exports to Rus sia Fish and Shellfish US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$10000000
$20000000
$30000000
$40000000
$50000000
$60000000
$70000000
$80000000
$90000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Fish and shellfish
594-71613_ch01_4Pindd 38 102017 404 PM
Vadim Grishin 39
consumer market caused by Rus siarsquos import ban but it has failed As result the group most af-
fected by the self- imposed counter- sanctions were Rus sian consumers
With a significant drop in fish imports a devaluation of the ruble and inflationary pressures on
seafood prices yearly consumption of fish in Rus sia has declined precipitously In 2015 alone
fish prices increased 20 percent and consumption dropped to 14 kilograms per person24 from
22 kilograms in 201425 In 2016 food rose to 355 percent of house hold expenditure as a result of
increases in food prices26 This has pushed vertically integrated fishing monopolies to sell even
more of their catch abroad rather than deliver to the Rus sian Federation (Figure 517) Thus we
cannot exclude the possibility of further growth in US fish and shellfish imports from Rus sia on a
marginal scale
24 Александр Савельев ldquoПотребление рыбы в России упало до 14 кг на человекаrdquo [Fish consumption in Rus sia fell to
14 kg per person] Экономика Интерфакс January 28 2015 http wwwinterfax ru business 492038
25 Илья Шестаков ldquoПотебление рыбы в России снизилось на 10 процентов из- за роста ценrdquo [Fish consumption in
Rus sia dropped by 10 percent due to price increases] RNS March 8 2017 https rnsonline consumer - market
Potreblenie - ribi - v - Rossii - snizilos - na - 10 - iz - za - rosta - tsen - 2017 - 03 - 08
26 Zoya Sheftalovich and Christian Oliver ldquoRus siarsquos Boom (Farming) Economyrdquo Politico November 8 2016 http
wwwpolitico eu article russias - boom - farming - economy
Figure 517 US Imports from Rus sia Fish and Shellfish US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$50000000
$100000000
$150000000
$200000000
$250000000
$300000000
$350000000
$400000000
$450000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 39 102017 404 PM
US-Russia Economic Relations40
SPACE ODYSSEY
Among high- end products beyond the top five groups of goods imported from Rus sia cheap and
efficient Rus sian engines have been used to launch US rockets into space for about 16 years
(Figure 518) There was a serious po liti cal strug gle around a 2014 ban on the purchase of Rus sian
RD-180 rocket engines revealing the conflicting business interests of power ful high- tech companies
This restrictive mea sure was temporary and was quickly lifted because of significant cost impacts
and risks of disruption to launch schedules27 For the same reason the Sanctions Act does not autho-
rize ldquothe imposition of any sanction or other condition limitation restriction or prohibition that
directly or indirectly impedes the supply by any entity of the Rus sian Federation of any product or
ser vice or the procurement of such product or ser vice by any contractor or subcontractor of the
United States or any other entity relating to or in connection with any space launch conducted for
the National Aeronautics and Space Administration or any other nonndash Department of Defense
customerrdquo28
Nevertheless many experts believe that US domestic alternatives to replace Rus sian engines will
be viable in five to eight years
27 Ken Dilanian ldquoWhy Does the US Use Rus sian Rockets to Launch Its Satellitesrdquo NBC News updated November 15
2016 http wwwnbcnews com why - does - u - s - use - russian - rockets - launch - its - satellites - n588526
28 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364
Figure 518 Spacecraft Excluding Military US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 40 102017 404 PM
41
Diversity and technological complexity are the most vis i ble advantages supporting US exports to
Rus sia Three major groups of export goods include civilian aircraft engines and parts (Figure 61)
drilling and oil field equipment (Figure 62) and industrial machines and engines (Figure 63)
Despite sanctions against the transfer of advanced oil producing and pro cessing technologies the
realization of US drilling and oil field equipment in Rus sia is sustainable although some bilateral
proj ects have been frozen
Another category of goods that has demonstrated resilience is the phar ma ceu ti cal industry (Fig-
ure 64) because most drugs in Rus sia are imported (about 70 percent of the Rus sian phar ma ceu-
ti cal market in value) Import substitution policies have had only modest results in this industry
As confirmed by American Chamber of Commerce surveys US exports to Rus sia are closely
connected to US FDI 30 percent of total imports of US companies working in the Rus sian
market come from the United States (more than $2 billion in 2016) In other words about
40 percent of all US exports to Rus sia are related to a US corporate- sector business pro cess in
the country The major sectors of activity of these companies are energy and natu ral resources
(52 percent) manufacturing (17 percent) information and communications technology or ICT
(13 percent) retail (7 percent) automotive industry (6 percent) phar ma ceu ti cal production
(1 percent) professional ser vices (05 percent) and other (2 percent)1
Some obvious constraints on US exports to Rus sia have resulted from a reduction in demand A
deterioration of bilateral relations and implementation of sanctions and counter- sanctions have
directly or indirectly afected all businesses Figures 65 and 66 provide data regarding a dramatic
drop in the sale of US agricultural production in Rus sia with all other categories of exports in
goods showing big cuts as well (see Figures 67ndash69)
Exports of civilian aircraft engines and parts put the state of Washington in first place among
other states as a leading exporter to the Rus sian market (Figure 610)
1 American Chamber of Commerce in Rus sia ldquoInvestment and Import to Rus sia 2nd Surveyrdquo 13
Diversity and Constraints
06
594-71613_ch01_4Pindd 41 102017 404 PM
Figure 61 US Exports of Civilian Aircraft Engines Equipment and Parts to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
$2500000000
$2000000000
$1500000000
$1000000000
$500000000
$-
Figure 62 US Exports of Drilling and Oil Field Equipment US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
$40000000
$45000000
$50000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 42 102017 404 PM
Figure 63 US Exports of Industrial Engines to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Figure 64 US Exports of Phar ma ceu ti cal Preparations to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 43 102017 404 PM
Figure 65 US Exports of Meat and Poultry to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Meat poultry etc
$1000000000
$800000000
$600000000
$400000000
$200000000
$-
$1200000000
$1400000000
$1600000000
Figure 66 US Exports of Soybeans to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
$200000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 44 102017 404 PM
Figure 67 US Exports of Vehicles Engines and Parts to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Other parts and accessories of vehicles
Automotive tires and tubes
Bodies and chassis for passenger cars
Engines and engine parts (carburetors pistonsrings and valves)
Trucks buses and special purpose vehicles
Passenger cars new and used
$2500000000
$2000000000
$1500000000
$500000000
$-
$1000000000
Figure 68 US Exports of Medicinal Equipment to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 45 102017 404 PM
Figure 610 US Exports to Rus sia by States (2016 US$ Value) Million US$ 2013ndash2016
Source US Census Bureau ldquoState and Metropolitan Area Trade Datardquo
Iowa Kentucky
North Dakota
Oklahoma
South Carolina
Washington
0
$500
$1000
$1500
$2000
2013 2014 2015 2016
District of Columbia
Iowa
Kentucky
North Dakota
Oklahoma
South Carolina
Washington
Figure 69 US Exports of Excavating Machinery to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
$40000000
$45000000
$50000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 46 102017 404 PM
47
Upon reviewing the current trend in US- Russia economic relations we must acknowledge that
the existing trade model is obsolete and exhausted Imports are resource- oriented and reflect
constraints of the Rus sian economic structure while five groups of goodsmdash oil metals nuclear
fuels fertilizers and fishmdash make up more than 90 percent of total imports from Rus sia (Figure 71)
Each of these industries has a limited capacity for growth in the foreseeable future
Rus siarsquos core export to the United Statesmdash oilmdash will inevitably decrease in the mid- term under any
scenario The value and volume of Rus sian exports to the United States are open to global market
volatility and po liti cal pressures with limited hedging mechanisms
Overall US exports to Rus sia are unsustainable due to bilateral po liti cal tensions the whims of
commodity markets and changing domestic policies Sanctions and counter- sanctions have
created additional barriers particularly in finance banking high- tech energy and agro- business
According to the American Chamber of Commerce 69 percent of US companies working in the
country consider the impact of US sanctions against Rus sia on their business as negative At the
same time 60 percent of companies do not expect big changes in business relations between
Rus sia and the United States under Trump1 as the new law codifies existing sanctions fortifies
them and extends them to new sectors
Current US investments are low due to the weak rule of law in Rus sia a lack of property right
protections and proper contract enforcement high levels of statization and monopolization in the
economy a poor business climate outdated capital stock dependence on natural- resource
sectors and of course sanction and counter- sanction mea sures Bloated administrative compo-
nents created as risk mitigation instruments have also served as impediments The countryrsquos
institutional weakness low level of productivity bud get constraints and a declining inflexible
workforce will restrain future economic growth even if commodity prices recover Rus sian eco-
nomic policy will likely continue to be statist and protectionist relying mostly on import
substitutions
1 Ibid 11
Existing Trends and Future Scenarios
07
594-71613_ch01_4Pindd 47 102017 404 PM
US-Russia Economic Relations48
What scenarios can be expected in such a challenging environment
One probability (no peace no war) is based on the assumption that matters will not deteriorate
further and implementation of the Sanctions Act will be cursory This will cause relatively slow
degradation in the economic field with occasional flashes of activity in selected areas (eg closer
cooperation against Islamist terrorist groups in Syria)
A second worse case or critical scenario is the intensive and full- scale execution of current sanc-
tion legislation and even the imposition of new economic punitive and restrictive mea sures which
could incite asymmetric retaliatory actions and lead to the introduction of additional protectionist
policies This in turn could trigger a further escalation of mutual confrontation and could eventu-
ally destroy the fundamentals of the current bilateral trade system Rus sian leadership has charac-
terized the Sanctions Act as a declaration of a trade war that ends all hope for improving bilateral
relations2
2 Дмитрий Медведев ldquoПодписание президентом США нового санкционного закона против России создает несколько
последствийrdquo [The US Presidentrsquos signing of the package of new sanctions against Rus sia will have a few conse-
quences] Facebook August 2 2017 https wwwfacebook com Dmitry Medvedev posts 10154587161801851
Figure 71 US Imports from Rus sia Share of Oil Metals Nuclear Fuel Fertilizers and Fish Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
93
94
93
94
95
96
93
92
87
89
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals Nuclear FuelFertilizers and Fish
594-71613_ch01_4Pindd 48 102017 404 PM
Vadim Grishin 49
The best case and most favorable scenario looks less probable now It assumes the realization of
structural reforms in Rus sia in such a way that would adapt Rus siarsquos foreign policy to national
economic needs reduce confrontations with the West and make a concerted efort to integrate
Rus sian businesses into global supply and value chains A revitalization of the structural reform
agendamdash including eforts to diversify economic activities through de- monopolization and support
for SMEs a restructuring of the banking sector the creation of a vibrant business climate to foster
entrepreneurships and innovation the implementation of administrative and judicial reforms to
tackle red tape and endemic corruption and the reduction of state control over key sectors of the
economy via wide- spread privatization could kick- start the development of a nonoil economy and
improve long- term growth prospects Despite ongoing discussion of reform strategies deep
economic and po liti cal changes are extremely complicated over the next po liti calelectoral cycle
(2018ndash2024) particularly because of re sis tance of vested interests and growing commodity prices
The urgency to tackle structural shortcomings in natu ral resource- dependent economies usually
correlates with the price of those resources and the degree to which resource rents drive eco-
nomic activity However there may be marginal improvements in the efficiency of the current
economic system
Future US- Russia relations can be thought of through three pillars one pillar focuses on areas
where both countries maintain a competitive rivalry another looks at potential areas of interaction
under pres ent conditions a third pillar and one that has evaporated from the current bilateral
agenda concentrates on future cooperation Stronger economic ties could not only be a kind of
po liti cal shock absorber but contribute to the building of this future (particularly business contacts
aim to support future structural reforms) although po liti cal factors are depressing the prospects
for cooperation To escape deadlock it will be impor tant to establish the right balance between
politics and economics and create a model of collaboration within the framework of contention
594-71613_ch01_4Pindd 49 102017 404 PM
About the Author
Vadim Grishin PhD MBA has been involved in the reform pro cess in Rus sia as adviser to the
deputy prime minister of Rus sia in 1992ndash1993 and 2006ndash2010 He has extensive experience
working with the Bretton Woods Institutions He was the board member of the World Bank Group
and served as se nior adviser at the International Monetary Fund Currently he is a con sul tant to the
chief economistrsquos office of the International Finance Corporation and teaches the economics of
transition at Georgetown University in Washington DC
50
594-71613_ch99_4Pindd 50 102017 403 PM
Blank
COVER PHOTO ADOBE STOCK
1616 Rhode Island Avenue NW
Washington DC 20036
202 887 0200 | wwwcsisorg
v++ISBN 978-1-4422-8035-9
Lanham bull Boulder bull New York bull London
4501 Forbes Boulevard
Lanham MD 20706
301 459 3366 | wwwrowmancom
A U T H O R
Vadim Grishin
Myths and Realities
A Report of the
CSIS RUSSIA AND EURASIA PROGRAM
US-RussiaEconomicRelations
O C T O B E R 2 0 1 7
Euml|xHSLEOCy280359z
The Man Pupu Nyor Rock Formations at the Northern Urals also known as Seven
Strong Man or Little Mountain of the God in the local tribe (Mansi) language
US-Russia Economic Relations26
Table 56 US Oil Imports All Countries vs Rus sia Thousand Barrels per Day 2011ndash2016
Years 2011 2012 2013 2014 2015 2016
All Countries 11436 10598 9859 9241 9449 10058
Rus sia 624 477 460 330 371 433
Share 546 450 467 357 393 431
Sources US EIA ldquoUS Imports by Country of Origin Total Crude Oil and Productsrdquo Petroleum amp Other
Liquids September 13 2017 wwweia gov dnav pet pet_move_impcus_a2_nus_ep00_im0_mbbl_m htm
authorrsquos computation
Figure 55 US Imports from Rus sia Share of Crude Oil and Petroleum Products Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
57
64
73
72
74
73
72
59
52 50
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
$40000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil and Petroleum Products
594-71613_ch01_4Pindd 26 102017 404 PM
Vadim Grishin 27
the Rus sian state mono poly Rosneft and commodity trading and mining giant Glencore which
along with energy and commodities com pany Vitol participated in a $10 billion prepayment
deal with Rosneft for crude supplies in 2013
There have been a number of ongoing transactions between the Rus sian oil industry and interna-
tional oil companies including several that top the list of importers of Rus sian oil to the United
States ( Table 57) In December 2016 Glencore participated in a controversial privatization opera-
tion purchasing in tandem with the Qatar sovereign wealth fund a 195 percent stake in Rosneft
which was on the US and EU list of sanctioned firms8 Glencore has also taken a blocking stake in
midsize oil producer RussNeft BP owns a 1975 percent stake in Rosneft Chevron holds a
15 percent interest in the 935- mile- long CPC9 pipeline which transports an average of 959000
barrels of crude oil per day including 76000 barrels daily from Rus sia10 ExxonMobil has formed
8 E Mazneva and I Arkhipov ldquoRus sia Sells $11 Billion Stake in Rosneft to Glencore Qatarrdquo Bloomberg December 7
2016
9 CPCthinsp=thinspCaspian Pipeline Consortium
10 ldquoRus sia Highlights of Operations and Business Portfoliordquo Chevron accessed October 3 2017 https wwwchevron
com worldwide russia
Figure 56 Share of Rus sian Oil in Total US Oil Imports Thousands of Barrels per Day 1972ndash2016
Source US EIA ldquoUS Imports by Country of Origin Total Crude Oil and Productsrdquo
2000
4000
6000
8000
10000
12000
14000
16000
US Imports of Crude Oil and Petroleum Products (Thousand Barrels per Day)
US Imports from Russia of Crude Oil and Petroleum Products (Thousand Barrels per Day)19
7319
7419
7519
7619
7719
7819
7919
80
198
119
82
198
319
84
198
519
86
198
719
88
198
919
90
199
119
92
199
319
94
199
519
96
199
719
98
199
92
00
02
00
12
00
22
00
32
00
42
00
52
00
62
00
72
00
82
00
92
010
20
112
012
20
132
014
20
152
016
594-71613_ch01_4Pindd 27 102017 404 PM
Table 57 Top Importers of Rus sian Oil to the United States Thousands of Barrels 2016
VALERO MARKETING amp SUPPLY CO 54590 3616
EXXONMOBIL OIL CORP 17087 1130
CHEVRON USA INC 15217 1008
BP WEST COAST PRODUCTS LLC 10130 671
GEORGE E WARREN CORP 7272 48
PAULSBORO REFINING CO LLC 6838 453
TESORO CORP 5097 338
VITOL INC 5084 337
PHILLIPS 66 CO 4726 313
TRAFIGURA AG 4360 289
PAR HAWAII REFINING LLC 3893 258
MOTIVA ENTERPRISES LLC 3041 205
SHELL US TRADING CO 2863 19
MARATHON PETROLEUM CO LLC 2475 16
ATLANTIC TRADING amp MARKETING 2099 14
FREEPOINT COMMODITIES LLC 1439 1
GLENCORE LTD 1284 85
BEST PETROLEUM CORP 967 64
ROLYMPUS US COMMODITIES GROUP LLC 822 6
HUNT CRUDE OIL SUPPLY CO 666 4
GULF OIL LP 658 4
Source US EIA ldquoUS Imports by Country of Origin Crude Oilrdquo Petroleum amp Other Liquids September 13
2017 httpswwweiagovdnavpetpet_move_impcus_a2_nus_epc0_im0_mbblpd_ahtm authorrsquos
computation
594-71613_ch01_4Pindd 28 102017 404 PM
Vadim Grishin 29
several joint ventures with Rosneft to undertake ofshore exploration in the Black Sea and the Kara
Sea in Siberia11
According to the Sanctions Act US persons are prohibited from exporting or reexporting goods
ser vices (except financial ser vices) and technology in support of exploration or production of new
deep- water Arctic ofshore or shale oil proj ects that involve designated Rus sian entities or other
entities in which such sanctioned persons have a controlling interest or a substantial noncontrol-
ling owner ship interest defined as not less than 33 percent (previously it was 50 percent) The new
law also authorizesmdash but does not requiremdash the imposition of so- called secondary sanctions
against non- US entities that engage in activities involving the construction maintenance or
expansion of Rus sian energy export pipelines with a fair market value of $1 million or more or an
aggregate fair market value during a 12- month period of $5 million12 This provision has raised the
concerns of some Eu ro pean countries particularly Germany As result the final language of the
law included wording about coordination of this issue with allies of the United States
Shipments of Rus sian oil to the United States could be afected by activity in the US refinery
industry In early 2017 Saudi Aramco bought the United Statesrsquo largest oil refinery in Port Arthur
(Texas) and it announced plans to send more of its own crude to that refinery13 Serious concerns
exist however regarding the future of three refineries and nine pipelines owned by Citgo a US
branch of the Venezuelan state com pany PdVSA which is balancing precariously on the edge of
default Under certain conditions in the event of PdVSA bankruptcy Rosneft could claim a stake of
up to 499 percent in Citgo Such a possibility has raised concerns among politicians and US
government officials with Trea sury Secretary Steven Mnuchin calling it a ldquonational security issuerdquo14
Tables 58 59 and 510 show allocations of Rus sian oil imports to major US refineries some of
which work exclusively on Rus sian crude a total of two to three months per year In total 150940
thousand barrels of Rus sian oil were refined in 2016
Figure 57 confirms a leading position of Texas and Louisiana among the US states receiving
Rus sian crude followed by New Jersey California Mississippi Washington Hawaii and Delaware
In a paradoxical way Texas has dis appeared from the list of states as a main destination of US
imports from Rus sia (Figure 58) because Rus sian crude is mostly delivered to Louisiana ports and
registered there by US Customs as an import from Rus sia After that it transports to refineries in
Louisiana and Texas
Overall the short- term business rationale behind the sustainability of US oil imports from Rus sia
cannot overcome strong headwinds in the US energy sector facing all oil importers which will
inevitably lead to a contraction of Rus sian oil exports to the United States in the foreseeable future
11 Exxon eforts to receive a special US Trea sury waiver to drill in sanctioned Rus sia failed in 2017
12 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364
13 Sarp Ozkan ldquoSaudi Aramcorsquos Port Arthur Refinery and the US Refinery Fleetrdquo Drilling Info May 11 2017
https infodrillinginfo com saudi - aramcos - port - arthur - refinery - us - refinery - fleet
14 Graham Kates ldquoTrea sury Secretary Rus siarsquos Citgo Deal a National Security Issuerdquo CBS News May 1 2017
http wwwcbsnews com news rosneft - citgo - steven - mnuchin - national - security
594-71613_ch01_4Pindd 29 102017 404 PM
US-Russia Economic Relations30
Table 58 Valerorsquos Refineries Pro cessing Rus sian Oil Thousands of Barrels 2016
Saint Charles Louisiana 29206 535
Corpus Christi Texas 20626 378
Wilmington California 4250 78
Total USA 54590 100
Source US EIA ldquoRefinery Capacity Reportrdquo January 1 2017
table 5 wwweia gov petroleum refinerycapacity table5 pdf
authorrsquos computation
Table 59 ExxonMobil Refineries Pro cessing Rus sian Oil Thousands of Barrels 2016
Baytown Texas 15037 88
Baton Rouge Louisiana 2046 12
Total USA 17083 100
Source US EIA ldquoRefinery Capacity Reportrdquo authorrsquos computation
Table 510 Chevronrsquos Refineries Pro cessing Rus sian Oil Thousands of Barrels 2016
Pascagoula Mississippi 12767 840
El Segundo California 2372 155
Saint Rose Louisiana 78 05
Total USA 15217 100
Source US EIA ldquoRefinery Capacity Reportrdquo authorrsquos computation
594-71613_ch01_4Pindd 30 102017 404 PM
Vadim Grishin 31
HEAVY METAL
Taken together US imports of metals and US imports of oil compose about 80 percent of US
total imports from Rus sia (Figure 59) Trade of metals like other commodities is strongly afected
by market price fluctuations Nevertheless metal imports from Rus sia have been fairly resilient to
market volatility and their average annual value has hovered at about $4 billion in the last five years
(Figure 510) This market resilience was forged at the end of the 1990searly 2000s when Rus sian
metal producers gradually modernized their plants adjusting quality of production to Western
standards and enhancing integration into global value and supply chains Some of them conquered
their share of the highly competitive US market struggling with peers from Canada and certain
BRICS countries (China India and Brazil) To attract additional resources all Rus sian large metal-
producing companies became public and were listed on stock exchanges chiefly the London Stock
Exchange (Severstalrsquo PAO Evraz MMK OAO Novolipetsk Steel Norilsk Nikel and TMK PAO) one
on the New York Stock Exchange (Mechel) and one on the Hong Kong Stock Exchange (Rusal)
Business logic pushed some of them to invest in the US metal- making industry which was hit
hard by crisis Later on some of those assets were sold (eg two US steel mills acquired by
Severstal in 2004 were purchased 10 years later by Steel Dynamics Inc and AK Steel Corp)
Figure 57 Share of US States Rus sian Oil Imports 2016
Source US EIA ldquoUS Imports from Rus sia of Crude Oil and Petroleum Productsrdquo Petroleum amp Other
Liquids September 29 2017 https www eia gov dnav pet hist LeafHandler ashx nshy=shyPETampsshy=shyMTTIM _ NUS
- NRS _ 1ampfshy=shyM authorrsquos computation
0
10
20
30
40
50
60
70
80
90
100
Maine
Massachusetts
Maryland
Connecticut
Georgia
Rhode Island
Virginia
Florida
New York
Alabama
Puerto Rico
Pennsylvania
Delaware
Hawaii
Washington
Mississippi
California
New Jersey
Louisiana
Texas
594-71613_ch01_4Pindd 31 102017 404 PM
Figure 58 US Imports from Rus sia by State Million US$ 2013ndash2016
Source US Census Bureau ldquoState and Metropolitan Area Trade Datardquo Foreign Trade last modified
October 2 2017 https wwwcensus gov foreign - trade statistics state
Alaska
Connecticut
Delaware
Hawaii
Louisiana
Maryland
North Dakota 0
$1000
$2000
$3000
$4000
$5000
$6000
2013 2014 2015 2016
Alabama
Alaska
Connecticut
Delaware
Hawaii
Louisiana
Maryland
Maine
Mississippi
Montana
North Dakota
Mississippi
Figure 59 US Imports from Rus sia Share of Oil and Metals Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
83
82
85
86
87
88
85
82
7375
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
$40000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil and Metals
594-71613_ch01_4Pindd 32 102017 404 PM
Vadim Grishin 33
Obviously the market dynamic of dif er ent metals varies (eg iron steel aluminum platinum and
nickel) Caps to increase their trade and production in a ldquored oceanrdquo global environment with
anemic demand is rather limited despite Figure 510 showing a spike of iron and steel imports
from Rus sia in 2014 and aluminum in 2016 Some opportunities may exist for Russian- owned steel
plants in the United States (such as NLMK) to participate in energy proj ects resumed under Presi-
dent Trump who has required that new pipelines use only American- made steel15
Rus sia occupies a special niche in the US market for titanium products a high- end metal indus-
try Twenty years ago a long- term contract was signed between Rus sian titanium producer
VSMPO- AVISMA and Boeing The Rus sian com pany entered the selective club of Boeing suppliers
for the manufacture of components and semi- finished products Since the signing of this contract
VSMPO has delivered more than 35 percent of all titanium placed on Boeing civil aircraft16 They
are hidden in the trade data in an import category for Civilian Aircrafts and Parts (Figure 511) At
the end of 2016 Boeing announced an extension of its framework agreement with AVISMA
15 E Scheyder C Ngai and T Sylvester ldquoAmerican Steel Unlikely to Get Keystone Boost Despite Trump Orderrdquo
Reuters January 27 2017 http wwwreuters com article usa - trump - pipeline - transcanada - idUSL1N1FH1ZD
16 A Kramer ldquoTitanium Fills Vital Role for Boeing and Rus siardquo New York Times July 5 2013 http wwwnytimes com
2013 07 06 business global titanium - fills - vital - role - for - boeing - and - russia html mcubzshy=shy3
Figure 510 US Imports from Rus sia Iron Steel Bauxite Aluminum Nickel Nonferrous Metals and Other Precious Metals and Materials US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
0
$6000000000
$5000000000
$4000000000
$3000000000
$2000000000
$1000000000
2007 2008 2009 2010 2011 20122013
20142015
2016
Finished metal shapes
Iron and steel advanced
Iron and steel products nec
Nonferrous metals other
Other precious metals
Nickel
Bauxite and aluminum
Iron and steel mill products
Steelmaking materials
594-71613_ch01_4Pindd 33 102017 404 PM
US-Russia Economic Relations34
through 2022 and additional investments in the construction of a new robotic plant in Titanium
Valley a special economic zone located in the Sverdlovsk region that will open in 2018 The pro-
cessing of titanium forgings in all Boeing civil aircraft will be performed there including 787s 737
MAXs and 777Xs17 The contract extension with AVISMA may add several hundred million dollars
in value to annual US imports from Rus sia
How can such heavy reliance on imports of Rus sian titanium exist during a period of rising geopo-
liti cal tensions The answer is straightforward VSMPO- AVISMA is a highly specialized natu ral
mono poly producing 45 percent of the worldrsquos aerospace titanium Only four other countries
smelt high- grade titanium in industrial quantities the United States Germany Japan and China
Overall global production capacity is limited while demand is growing The United States cur-
rently imports around 79 percent of all the titanium it consumes each year18
17 ldquoBoeing and VSMPO Avisma to Launch Second Joint Production Siterdquo Rus sian Aviation Insider December 22 2016
http wwwrusaviainsider com boeing - and - vsmpo - avisma - to - launch - second - joint - production - site
18 Jon Ostrower and Andy Pasztor ldquoBoeing United Technologies Stockpile Titanium Partsrdquo Wall Street Journal
August 7 2014 https wwwwsj com articles boeing - united - technologies - stockpiling - titanium - parts - 1407441886
Figure 511 US Imports from Rus sia Civilian Aircrafts and Parts US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
$200000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Parts-civilian aircraft
Civilian aircraft
594-71613_ch01_4Pindd 34 102017 404 PM
Vadim Grishin 35
The Sanctions Act authorizes the secretary of the trea sury (in a nonmandatory way) to impose
restrictions (without specifying them) against Rus sian state- owned entities operating in the railway
metals and mining sectors of the Rus sian economy Despite the commanding heights of Rus siarsquos
state sector owner ship in its economy (70 percent of GDP) the metal- producing companies have
remained mostly in private hands
NUCLEAR AFFAIRS
Historically owners and operators of the 104 commercial nuclear power reactors in the United
States have purchased more than 80 percent of their uranium from foreign countries Uranium
shipping from Rus sia accounted for about 13 percent of the 58 million pounds of uranium pur-
chased overseas in 201219 At the same time the Rus sian state- owned mono poly Rosatom ac-
counts for 20 percent of Kazakhstanrsquos uranium production (which in turn comprises 11 percent of
all US uranium imports) and 20 percent of US domestic uranium production capacity (with
owner ship of exploration tracts in Wyoming)20
Nuclear fuel and nuclear power continue to be po liti cally sensitive topics both in the United
States and Rus sia Bilateral cooperation in this sector (being surprisingly stable with imports of
nuclear fuel from Rus sia at a level of $1 billion annually in the last five years [Figure 512 and 513])
is under constant po liti cal and lobbying pressure and has been a source of several po liti cal scan-
dals21 Consequently upside risks in this area of interaction are minimal and downside risks are
much higher especially when we are seeing more decommissioning of nuclear plants in the
United States than new constructions The US EIArsquos 2017 Annual Energy Outlook assumes
that about 25 percent of the nuclear capacity now operating will be removed from ser vice
by 205022
WHY IS THE GRASS GREENER ON THE OTHER SIDE
The United States continues to significantly reduce imports of chemical fertilizers as domestic pro-
duction increases In 2016 the United States imported 13 percent less ammonia and 11 percent
less urea and UAN which is a liquid urea and ammonium nitrate fertilizer Rus sia accounts for
around 40 percent of UAN imported by the United States The United States canceled antidumping
duties on imports of ammonium nitrate and urea from Rus sia in 2016 but it did not prevent import
19 US EIA ldquoThe US Relies on Foreign Uranium Enrichment Ser vices to Fuel Its Nuclear Power Plantsrdquo Today in
Energy August 28 2013 https wwweia gov todayinenergy detail php idshy=shy1273
20 Colin Chilcoat ldquoDoes Rus sia Really Own 20 Percent of the USrsquo Uranium Reservesrdquo OilPricecom May 6 2015
http oilpricecom Alternative - Energy Nuclear - Power Does - Russia - Really - Own - 20 - Of - The - US - Uranium - Reserves
html
21 Michelle Ye Hee Lee ldquoThe Facts behind Trumprsquos Repeated Claim about Hillary Clintonrsquos Role in the Rus sian Ura-
nium Dealrdquo Washington Post October 26 2016
22 US EIA ldquoAnnual Energy Outlook 2017 with Projections to 2050rdquo 81ndash82
594-71613_ch01_4Pindd 35 102017 404 PM
Figure 512 US Imports from Rus sia Share of Oil Metals and Nuclear Fuel Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
87
86
90
90
90
91
88
86
7882
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals and Nuclear Fuel
Figure 513 US Imports from Rus sia Nuclear Fuel Materials US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$-
$200000000
$400000000
$600000000
$800000000
$1200000000
$1000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 36 102017 404 PM
Vadim Grishin 37
drops twice last year (Figures 514 and 515) According to forecasts UAN imports are expected to
decline further to 15 million tons this year down over 46 percent from 28 million tons imported
last year23 The downside trend in imports of fertilizers will likely continue because of oversupply
BIG FISH
US imports of fish and shellfish from Rus sia are best understood in comparison with US fish
exports to the Rus sian market which slipped to zero in August 2014 after Rus sia issued an order
banning certain agricultural imports from the United States (Figure 516) While the volume of US
supply was not very large it was impor tant because it broke up the monopolistic dominance of a
few vertically integrated Rus sian companies that have kept prices high by restricting the entry of
new producers Seeking to implement import substitution policies Rus sia has tried to reduce
exports as well as imports of fish and seafood products in the last couple of years This symmetri-
cal approach was intended to ldquocompensaterdquo for a decrease of fish products in the domestic
23 Deepika Thapliyal ldquoPotashCorp Forecasts Sharp Drop in US Nitrogen Imports in 2017rdquo ICIS News February 7
2017 https wwwicis com resources news 2017 02 07 10076734 potashcorp - forecasts - sharp - drop - in - us - nitrogen
- imports - in - 2017
Figure 514 US Imports from Rus sia Share of Oil Metals Nuclear Fuel and Fertilizers Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
90
93
92
93
94
95
92
91
85
86
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals Nuclear Fuel and Fertilizers
594-71613_ch01_4Pindd 37 102017 404 PM
Figure 515 US Imports from Rus sia Chemical- Fertilizers US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
S-
$200000000
$400000000
$600000000
$800000000
$1000000000
$1200000000
$1400000000
$1600000000
$1800000000
$2000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Figure 516 US Exports to Rus sia Fish and Shellfish US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$10000000
$20000000
$30000000
$40000000
$50000000
$60000000
$70000000
$80000000
$90000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Fish and shellfish
594-71613_ch01_4Pindd 38 102017 404 PM
Vadim Grishin 39
consumer market caused by Rus siarsquos import ban but it has failed As result the group most af-
fected by the self- imposed counter- sanctions were Rus sian consumers
With a significant drop in fish imports a devaluation of the ruble and inflationary pressures on
seafood prices yearly consumption of fish in Rus sia has declined precipitously In 2015 alone
fish prices increased 20 percent and consumption dropped to 14 kilograms per person24 from
22 kilograms in 201425 In 2016 food rose to 355 percent of house hold expenditure as a result of
increases in food prices26 This has pushed vertically integrated fishing monopolies to sell even
more of their catch abroad rather than deliver to the Rus sian Federation (Figure 517) Thus we
cannot exclude the possibility of further growth in US fish and shellfish imports from Rus sia on a
marginal scale
24 Александр Савельев ldquoПотребление рыбы в России упало до 14 кг на человекаrdquo [Fish consumption in Rus sia fell to
14 kg per person] Экономика Интерфакс January 28 2015 http wwwinterfax ru business 492038
25 Илья Шестаков ldquoПотебление рыбы в России снизилось на 10 процентов из- за роста ценrdquo [Fish consumption in
Rus sia dropped by 10 percent due to price increases] RNS March 8 2017 https rnsonline consumer - market
Potreblenie - ribi - v - Rossii - snizilos - na - 10 - iz - za - rosta - tsen - 2017 - 03 - 08
26 Zoya Sheftalovich and Christian Oliver ldquoRus siarsquos Boom (Farming) Economyrdquo Politico November 8 2016 http
wwwpolitico eu article russias - boom - farming - economy
Figure 517 US Imports from Rus sia Fish and Shellfish US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$50000000
$100000000
$150000000
$200000000
$250000000
$300000000
$350000000
$400000000
$450000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 39 102017 404 PM
US-Russia Economic Relations40
SPACE ODYSSEY
Among high- end products beyond the top five groups of goods imported from Rus sia cheap and
efficient Rus sian engines have been used to launch US rockets into space for about 16 years
(Figure 518) There was a serious po liti cal strug gle around a 2014 ban on the purchase of Rus sian
RD-180 rocket engines revealing the conflicting business interests of power ful high- tech companies
This restrictive mea sure was temporary and was quickly lifted because of significant cost impacts
and risks of disruption to launch schedules27 For the same reason the Sanctions Act does not autho-
rize ldquothe imposition of any sanction or other condition limitation restriction or prohibition that
directly or indirectly impedes the supply by any entity of the Rus sian Federation of any product or
ser vice or the procurement of such product or ser vice by any contractor or subcontractor of the
United States or any other entity relating to or in connection with any space launch conducted for
the National Aeronautics and Space Administration or any other nonndash Department of Defense
customerrdquo28
Nevertheless many experts believe that US domestic alternatives to replace Rus sian engines will
be viable in five to eight years
27 Ken Dilanian ldquoWhy Does the US Use Rus sian Rockets to Launch Its Satellitesrdquo NBC News updated November 15
2016 http wwwnbcnews com why - does - u - s - use - russian - rockets - launch - its - satellites - n588526
28 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364
Figure 518 Spacecraft Excluding Military US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 40 102017 404 PM
41
Diversity and technological complexity are the most vis i ble advantages supporting US exports to
Rus sia Three major groups of export goods include civilian aircraft engines and parts (Figure 61)
drilling and oil field equipment (Figure 62) and industrial machines and engines (Figure 63)
Despite sanctions against the transfer of advanced oil producing and pro cessing technologies the
realization of US drilling and oil field equipment in Rus sia is sustainable although some bilateral
proj ects have been frozen
Another category of goods that has demonstrated resilience is the phar ma ceu ti cal industry (Fig-
ure 64) because most drugs in Rus sia are imported (about 70 percent of the Rus sian phar ma ceu-
ti cal market in value) Import substitution policies have had only modest results in this industry
As confirmed by American Chamber of Commerce surveys US exports to Rus sia are closely
connected to US FDI 30 percent of total imports of US companies working in the Rus sian
market come from the United States (more than $2 billion in 2016) In other words about
40 percent of all US exports to Rus sia are related to a US corporate- sector business pro cess in
the country The major sectors of activity of these companies are energy and natu ral resources
(52 percent) manufacturing (17 percent) information and communications technology or ICT
(13 percent) retail (7 percent) automotive industry (6 percent) phar ma ceu ti cal production
(1 percent) professional ser vices (05 percent) and other (2 percent)1
Some obvious constraints on US exports to Rus sia have resulted from a reduction in demand A
deterioration of bilateral relations and implementation of sanctions and counter- sanctions have
directly or indirectly afected all businesses Figures 65 and 66 provide data regarding a dramatic
drop in the sale of US agricultural production in Rus sia with all other categories of exports in
goods showing big cuts as well (see Figures 67ndash69)
Exports of civilian aircraft engines and parts put the state of Washington in first place among
other states as a leading exporter to the Rus sian market (Figure 610)
1 American Chamber of Commerce in Rus sia ldquoInvestment and Import to Rus sia 2nd Surveyrdquo 13
Diversity and Constraints
06
594-71613_ch01_4Pindd 41 102017 404 PM
Figure 61 US Exports of Civilian Aircraft Engines Equipment and Parts to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
$2500000000
$2000000000
$1500000000
$1000000000
$500000000
$-
Figure 62 US Exports of Drilling and Oil Field Equipment US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
$40000000
$45000000
$50000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 42 102017 404 PM
Figure 63 US Exports of Industrial Engines to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Figure 64 US Exports of Phar ma ceu ti cal Preparations to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 43 102017 404 PM
Figure 65 US Exports of Meat and Poultry to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Meat poultry etc
$1000000000
$800000000
$600000000
$400000000
$200000000
$-
$1200000000
$1400000000
$1600000000
Figure 66 US Exports of Soybeans to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
$200000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 44 102017 404 PM
Figure 67 US Exports of Vehicles Engines and Parts to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Other parts and accessories of vehicles
Automotive tires and tubes
Bodies and chassis for passenger cars
Engines and engine parts (carburetors pistonsrings and valves)
Trucks buses and special purpose vehicles
Passenger cars new and used
$2500000000
$2000000000
$1500000000
$500000000
$-
$1000000000
Figure 68 US Exports of Medicinal Equipment to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 45 102017 404 PM
Figure 610 US Exports to Rus sia by States (2016 US$ Value) Million US$ 2013ndash2016
Source US Census Bureau ldquoState and Metropolitan Area Trade Datardquo
Iowa Kentucky
North Dakota
Oklahoma
South Carolina
Washington
0
$500
$1000
$1500
$2000
2013 2014 2015 2016
District of Columbia
Iowa
Kentucky
North Dakota
Oklahoma
South Carolina
Washington
Figure 69 US Exports of Excavating Machinery to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
$40000000
$45000000
$50000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 46 102017 404 PM
47
Upon reviewing the current trend in US- Russia economic relations we must acknowledge that
the existing trade model is obsolete and exhausted Imports are resource- oriented and reflect
constraints of the Rus sian economic structure while five groups of goodsmdash oil metals nuclear
fuels fertilizers and fishmdash make up more than 90 percent of total imports from Rus sia (Figure 71)
Each of these industries has a limited capacity for growth in the foreseeable future
Rus siarsquos core export to the United Statesmdash oilmdash will inevitably decrease in the mid- term under any
scenario The value and volume of Rus sian exports to the United States are open to global market
volatility and po liti cal pressures with limited hedging mechanisms
Overall US exports to Rus sia are unsustainable due to bilateral po liti cal tensions the whims of
commodity markets and changing domestic policies Sanctions and counter- sanctions have
created additional barriers particularly in finance banking high- tech energy and agro- business
According to the American Chamber of Commerce 69 percent of US companies working in the
country consider the impact of US sanctions against Rus sia on their business as negative At the
same time 60 percent of companies do not expect big changes in business relations between
Rus sia and the United States under Trump1 as the new law codifies existing sanctions fortifies
them and extends them to new sectors
Current US investments are low due to the weak rule of law in Rus sia a lack of property right
protections and proper contract enforcement high levels of statization and monopolization in the
economy a poor business climate outdated capital stock dependence on natural- resource
sectors and of course sanction and counter- sanction mea sures Bloated administrative compo-
nents created as risk mitigation instruments have also served as impediments The countryrsquos
institutional weakness low level of productivity bud get constraints and a declining inflexible
workforce will restrain future economic growth even if commodity prices recover Rus sian eco-
nomic policy will likely continue to be statist and protectionist relying mostly on import
substitutions
1 Ibid 11
Existing Trends and Future Scenarios
07
594-71613_ch01_4Pindd 47 102017 404 PM
US-Russia Economic Relations48
What scenarios can be expected in such a challenging environment
One probability (no peace no war) is based on the assumption that matters will not deteriorate
further and implementation of the Sanctions Act will be cursory This will cause relatively slow
degradation in the economic field with occasional flashes of activity in selected areas (eg closer
cooperation against Islamist terrorist groups in Syria)
A second worse case or critical scenario is the intensive and full- scale execution of current sanc-
tion legislation and even the imposition of new economic punitive and restrictive mea sures which
could incite asymmetric retaliatory actions and lead to the introduction of additional protectionist
policies This in turn could trigger a further escalation of mutual confrontation and could eventu-
ally destroy the fundamentals of the current bilateral trade system Rus sian leadership has charac-
terized the Sanctions Act as a declaration of a trade war that ends all hope for improving bilateral
relations2
2 Дмитрий Медведев ldquoПодписание президентом США нового санкционного закона против России создает несколько
последствийrdquo [The US Presidentrsquos signing of the package of new sanctions against Rus sia will have a few conse-
quences] Facebook August 2 2017 https wwwfacebook com Dmitry Medvedev posts 10154587161801851
Figure 71 US Imports from Rus sia Share of Oil Metals Nuclear Fuel Fertilizers and Fish Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
93
94
93
94
95
96
93
92
87
89
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals Nuclear FuelFertilizers and Fish
594-71613_ch01_4Pindd 48 102017 404 PM
Vadim Grishin 49
The best case and most favorable scenario looks less probable now It assumes the realization of
structural reforms in Rus sia in such a way that would adapt Rus siarsquos foreign policy to national
economic needs reduce confrontations with the West and make a concerted efort to integrate
Rus sian businesses into global supply and value chains A revitalization of the structural reform
agendamdash including eforts to diversify economic activities through de- monopolization and support
for SMEs a restructuring of the banking sector the creation of a vibrant business climate to foster
entrepreneurships and innovation the implementation of administrative and judicial reforms to
tackle red tape and endemic corruption and the reduction of state control over key sectors of the
economy via wide- spread privatization could kick- start the development of a nonoil economy and
improve long- term growth prospects Despite ongoing discussion of reform strategies deep
economic and po liti cal changes are extremely complicated over the next po liti calelectoral cycle
(2018ndash2024) particularly because of re sis tance of vested interests and growing commodity prices
The urgency to tackle structural shortcomings in natu ral resource- dependent economies usually
correlates with the price of those resources and the degree to which resource rents drive eco-
nomic activity However there may be marginal improvements in the efficiency of the current
economic system
Future US- Russia relations can be thought of through three pillars one pillar focuses on areas
where both countries maintain a competitive rivalry another looks at potential areas of interaction
under pres ent conditions a third pillar and one that has evaporated from the current bilateral
agenda concentrates on future cooperation Stronger economic ties could not only be a kind of
po liti cal shock absorber but contribute to the building of this future (particularly business contacts
aim to support future structural reforms) although po liti cal factors are depressing the prospects
for cooperation To escape deadlock it will be impor tant to establish the right balance between
politics and economics and create a model of collaboration within the framework of contention
594-71613_ch01_4Pindd 49 102017 404 PM
About the Author
Vadim Grishin PhD MBA has been involved in the reform pro cess in Rus sia as adviser to the
deputy prime minister of Rus sia in 1992ndash1993 and 2006ndash2010 He has extensive experience
working with the Bretton Woods Institutions He was the board member of the World Bank Group
and served as se nior adviser at the International Monetary Fund Currently he is a con sul tant to the
chief economistrsquos office of the International Finance Corporation and teaches the economics of
transition at Georgetown University in Washington DC
50
594-71613_ch99_4Pindd 50 102017 403 PM
Blank
COVER PHOTO ADOBE STOCK
1616 Rhode Island Avenue NW
Washington DC 20036
202 887 0200 | wwwcsisorg
v++ISBN 978-1-4422-8035-9
Lanham bull Boulder bull New York bull London
4501 Forbes Boulevard
Lanham MD 20706
301 459 3366 | wwwrowmancom
A U T H O R
Vadim Grishin
Myths and Realities
A Report of the
CSIS RUSSIA AND EURASIA PROGRAM
US-RussiaEconomicRelations
O C T O B E R 2 0 1 7
Euml|xHSLEOCy280359z
The Man Pupu Nyor Rock Formations at the Northern Urals also known as Seven
Strong Man or Little Mountain of the God in the local tribe (Mansi) language
Vadim Grishin 27
the Rus sian state mono poly Rosneft and commodity trading and mining giant Glencore which
along with energy and commodities com pany Vitol participated in a $10 billion prepayment
deal with Rosneft for crude supplies in 2013
There have been a number of ongoing transactions between the Rus sian oil industry and interna-
tional oil companies including several that top the list of importers of Rus sian oil to the United
States ( Table 57) In December 2016 Glencore participated in a controversial privatization opera-
tion purchasing in tandem with the Qatar sovereign wealth fund a 195 percent stake in Rosneft
which was on the US and EU list of sanctioned firms8 Glencore has also taken a blocking stake in
midsize oil producer RussNeft BP owns a 1975 percent stake in Rosneft Chevron holds a
15 percent interest in the 935- mile- long CPC9 pipeline which transports an average of 959000
barrels of crude oil per day including 76000 barrels daily from Rus sia10 ExxonMobil has formed
8 E Mazneva and I Arkhipov ldquoRus sia Sells $11 Billion Stake in Rosneft to Glencore Qatarrdquo Bloomberg December 7
2016
9 CPCthinsp=thinspCaspian Pipeline Consortium
10 ldquoRus sia Highlights of Operations and Business Portfoliordquo Chevron accessed October 3 2017 https wwwchevron
com worldwide russia
Figure 56 Share of Rus sian Oil in Total US Oil Imports Thousands of Barrels per Day 1972ndash2016
Source US EIA ldquoUS Imports by Country of Origin Total Crude Oil and Productsrdquo
2000
4000
6000
8000
10000
12000
14000
16000
US Imports of Crude Oil and Petroleum Products (Thousand Barrels per Day)
US Imports from Russia of Crude Oil and Petroleum Products (Thousand Barrels per Day)19
7319
7419
7519
7619
7719
7819
7919
80
198
119
82
198
319
84
198
519
86
198
719
88
198
919
90
199
119
92
199
319
94
199
519
96
199
719
98
199
92
00
02
00
12
00
22
00
32
00
42
00
52
00
62
00
72
00
82
00
92
010
20
112
012
20
132
014
20
152
016
594-71613_ch01_4Pindd 27 102017 404 PM
Table 57 Top Importers of Rus sian Oil to the United States Thousands of Barrels 2016
VALERO MARKETING amp SUPPLY CO 54590 3616
EXXONMOBIL OIL CORP 17087 1130
CHEVRON USA INC 15217 1008
BP WEST COAST PRODUCTS LLC 10130 671
GEORGE E WARREN CORP 7272 48
PAULSBORO REFINING CO LLC 6838 453
TESORO CORP 5097 338
VITOL INC 5084 337
PHILLIPS 66 CO 4726 313
TRAFIGURA AG 4360 289
PAR HAWAII REFINING LLC 3893 258
MOTIVA ENTERPRISES LLC 3041 205
SHELL US TRADING CO 2863 19
MARATHON PETROLEUM CO LLC 2475 16
ATLANTIC TRADING amp MARKETING 2099 14
FREEPOINT COMMODITIES LLC 1439 1
GLENCORE LTD 1284 85
BEST PETROLEUM CORP 967 64
ROLYMPUS US COMMODITIES GROUP LLC 822 6
HUNT CRUDE OIL SUPPLY CO 666 4
GULF OIL LP 658 4
Source US EIA ldquoUS Imports by Country of Origin Crude Oilrdquo Petroleum amp Other Liquids September 13
2017 httpswwweiagovdnavpetpet_move_impcus_a2_nus_epc0_im0_mbblpd_ahtm authorrsquos
computation
594-71613_ch01_4Pindd 28 102017 404 PM
Vadim Grishin 29
several joint ventures with Rosneft to undertake ofshore exploration in the Black Sea and the Kara
Sea in Siberia11
According to the Sanctions Act US persons are prohibited from exporting or reexporting goods
ser vices (except financial ser vices) and technology in support of exploration or production of new
deep- water Arctic ofshore or shale oil proj ects that involve designated Rus sian entities or other
entities in which such sanctioned persons have a controlling interest or a substantial noncontrol-
ling owner ship interest defined as not less than 33 percent (previously it was 50 percent) The new
law also authorizesmdash but does not requiremdash the imposition of so- called secondary sanctions
against non- US entities that engage in activities involving the construction maintenance or
expansion of Rus sian energy export pipelines with a fair market value of $1 million or more or an
aggregate fair market value during a 12- month period of $5 million12 This provision has raised the
concerns of some Eu ro pean countries particularly Germany As result the final language of the
law included wording about coordination of this issue with allies of the United States
Shipments of Rus sian oil to the United States could be afected by activity in the US refinery
industry In early 2017 Saudi Aramco bought the United Statesrsquo largest oil refinery in Port Arthur
(Texas) and it announced plans to send more of its own crude to that refinery13 Serious concerns
exist however regarding the future of three refineries and nine pipelines owned by Citgo a US
branch of the Venezuelan state com pany PdVSA which is balancing precariously on the edge of
default Under certain conditions in the event of PdVSA bankruptcy Rosneft could claim a stake of
up to 499 percent in Citgo Such a possibility has raised concerns among politicians and US
government officials with Trea sury Secretary Steven Mnuchin calling it a ldquonational security issuerdquo14
Tables 58 59 and 510 show allocations of Rus sian oil imports to major US refineries some of
which work exclusively on Rus sian crude a total of two to three months per year In total 150940
thousand barrels of Rus sian oil were refined in 2016
Figure 57 confirms a leading position of Texas and Louisiana among the US states receiving
Rus sian crude followed by New Jersey California Mississippi Washington Hawaii and Delaware
In a paradoxical way Texas has dis appeared from the list of states as a main destination of US
imports from Rus sia (Figure 58) because Rus sian crude is mostly delivered to Louisiana ports and
registered there by US Customs as an import from Rus sia After that it transports to refineries in
Louisiana and Texas
Overall the short- term business rationale behind the sustainability of US oil imports from Rus sia
cannot overcome strong headwinds in the US energy sector facing all oil importers which will
inevitably lead to a contraction of Rus sian oil exports to the United States in the foreseeable future
11 Exxon eforts to receive a special US Trea sury waiver to drill in sanctioned Rus sia failed in 2017
12 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364
13 Sarp Ozkan ldquoSaudi Aramcorsquos Port Arthur Refinery and the US Refinery Fleetrdquo Drilling Info May 11 2017
https infodrillinginfo com saudi - aramcos - port - arthur - refinery - us - refinery - fleet
14 Graham Kates ldquoTrea sury Secretary Rus siarsquos Citgo Deal a National Security Issuerdquo CBS News May 1 2017
http wwwcbsnews com news rosneft - citgo - steven - mnuchin - national - security
594-71613_ch01_4Pindd 29 102017 404 PM
US-Russia Economic Relations30
Table 58 Valerorsquos Refineries Pro cessing Rus sian Oil Thousands of Barrels 2016
Saint Charles Louisiana 29206 535
Corpus Christi Texas 20626 378
Wilmington California 4250 78
Total USA 54590 100
Source US EIA ldquoRefinery Capacity Reportrdquo January 1 2017
table 5 wwweia gov petroleum refinerycapacity table5 pdf
authorrsquos computation
Table 59 ExxonMobil Refineries Pro cessing Rus sian Oil Thousands of Barrels 2016
Baytown Texas 15037 88
Baton Rouge Louisiana 2046 12
Total USA 17083 100
Source US EIA ldquoRefinery Capacity Reportrdquo authorrsquos computation
Table 510 Chevronrsquos Refineries Pro cessing Rus sian Oil Thousands of Barrels 2016
Pascagoula Mississippi 12767 840
El Segundo California 2372 155
Saint Rose Louisiana 78 05
Total USA 15217 100
Source US EIA ldquoRefinery Capacity Reportrdquo authorrsquos computation
594-71613_ch01_4Pindd 30 102017 404 PM
Vadim Grishin 31
HEAVY METAL
Taken together US imports of metals and US imports of oil compose about 80 percent of US
total imports from Rus sia (Figure 59) Trade of metals like other commodities is strongly afected
by market price fluctuations Nevertheless metal imports from Rus sia have been fairly resilient to
market volatility and their average annual value has hovered at about $4 billion in the last five years
(Figure 510) This market resilience was forged at the end of the 1990searly 2000s when Rus sian
metal producers gradually modernized their plants adjusting quality of production to Western
standards and enhancing integration into global value and supply chains Some of them conquered
their share of the highly competitive US market struggling with peers from Canada and certain
BRICS countries (China India and Brazil) To attract additional resources all Rus sian large metal-
producing companies became public and were listed on stock exchanges chiefly the London Stock
Exchange (Severstalrsquo PAO Evraz MMK OAO Novolipetsk Steel Norilsk Nikel and TMK PAO) one
on the New York Stock Exchange (Mechel) and one on the Hong Kong Stock Exchange (Rusal)
Business logic pushed some of them to invest in the US metal- making industry which was hit
hard by crisis Later on some of those assets were sold (eg two US steel mills acquired by
Severstal in 2004 were purchased 10 years later by Steel Dynamics Inc and AK Steel Corp)
Figure 57 Share of US States Rus sian Oil Imports 2016
Source US EIA ldquoUS Imports from Rus sia of Crude Oil and Petroleum Productsrdquo Petroleum amp Other
Liquids September 29 2017 https www eia gov dnav pet hist LeafHandler ashx nshy=shyPETampsshy=shyMTTIM _ NUS
- NRS _ 1ampfshy=shyM authorrsquos computation
0
10
20
30
40
50
60
70
80
90
100
Maine
Massachusetts
Maryland
Connecticut
Georgia
Rhode Island
Virginia
Florida
New York
Alabama
Puerto Rico
Pennsylvania
Delaware
Hawaii
Washington
Mississippi
California
New Jersey
Louisiana
Texas
594-71613_ch01_4Pindd 31 102017 404 PM
Figure 58 US Imports from Rus sia by State Million US$ 2013ndash2016
Source US Census Bureau ldquoState and Metropolitan Area Trade Datardquo Foreign Trade last modified
October 2 2017 https wwwcensus gov foreign - trade statistics state
Alaska
Connecticut
Delaware
Hawaii
Louisiana
Maryland
North Dakota 0
$1000
$2000
$3000
$4000
$5000
$6000
2013 2014 2015 2016
Alabama
Alaska
Connecticut
Delaware
Hawaii
Louisiana
Maryland
Maine
Mississippi
Montana
North Dakota
Mississippi
Figure 59 US Imports from Rus sia Share of Oil and Metals Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
83
82
85
86
87
88
85
82
7375
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
$40000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil and Metals
594-71613_ch01_4Pindd 32 102017 404 PM
Vadim Grishin 33
Obviously the market dynamic of dif er ent metals varies (eg iron steel aluminum platinum and
nickel) Caps to increase their trade and production in a ldquored oceanrdquo global environment with
anemic demand is rather limited despite Figure 510 showing a spike of iron and steel imports
from Rus sia in 2014 and aluminum in 2016 Some opportunities may exist for Russian- owned steel
plants in the United States (such as NLMK) to participate in energy proj ects resumed under Presi-
dent Trump who has required that new pipelines use only American- made steel15
Rus sia occupies a special niche in the US market for titanium products a high- end metal indus-
try Twenty years ago a long- term contract was signed between Rus sian titanium producer
VSMPO- AVISMA and Boeing The Rus sian com pany entered the selective club of Boeing suppliers
for the manufacture of components and semi- finished products Since the signing of this contract
VSMPO has delivered more than 35 percent of all titanium placed on Boeing civil aircraft16 They
are hidden in the trade data in an import category for Civilian Aircrafts and Parts (Figure 511) At
the end of 2016 Boeing announced an extension of its framework agreement with AVISMA
15 E Scheyder C Ngai and T Sylvester ldquoAmerican Steel Unlikely to Get Keystone Boost Despite Trump Orderrdquo
Reuters January 27 2017 http wwwreuters com article usa - trump - pipeline - transcanada - idUSL1N1FH1ZD
16 A Kramer ldquoTitanium Fills Vital Role for Boeing and Rus siardquo New York Times July 5 2013 http wwwnytimes com
2013 07 06 business global titanium - fills - vital - role - for - boeing - and - russia html mcubzshy=shy3
Figure 510 US Imports from Rus sia Iron Steel Bauxite Aluminum Nickel Nonferrous Metals and Other Precious Metals and Materials US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
0
$6000000000
$5000000000
$4000000000
$3000000000
$2000000000
$1000000000
2007 2008 2009 2010 2011 20122013
20142015
2016
Finished metal shapes
Iron and steel advanced
Iron and steel products nec
Nonferrous metals other
Other precious metals
Nickel
Bauxite and aluminum
Iron and steel mill products
Steelmaking materials
594-71613_ch01_4Pindd 33 102017 404 PM
US-Russia Economic Relations34
through 2022 and additional investments in the construction of a new robotic plant in Titanium
Valley a special economic zone located in the Sverdlovsk region that will open in 2018 The pro-
cessing of titanium forgings in all Boeing civil aircraft will be performed there including 787s 737
MAXs and 777Xs17 The contract extension with AVISMA may add several hundred million dollars
in value to annual US imports from Rus sia
How can such heavy reliance on imports of Rus sian titanium exist during a period of rising geopo-
liti cal tensions The answer is straightforward VSMPO- AVISMA is a highly specialized natu ral
mono poly producing 45 percent of the worldrsquos aerospace titanium Only four other countries
smelt high- grade titanium in industrial quantities the United States Germany Japan and China
Overall global production capacity is limited while demand is growing The United States cur-
rently imports around 79 percent of all the titanium it consumes each year18
17 ldquoBoeing and VSMPO Avisma to Launch Second Joint Production Siterdquo Rus sian Aviation Insider December 22 2016
http wwwrusaviainsider com boeing - and - vsmpo - avisma - to - launch - second - joint - production - site
18 Jon Ostrower and Andy Pasztor ldquoBoeing United Technologies Stockpile Titanium Partsrdquo Wall Street Journal
August 7 2014 https wwwwsj com articles boeing - united - technologies - stockpiling - titanium - parts - 1407441886
Figure 511 US Imports from Rus sia Civilian Aircrafts and Parts US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
$200000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Parts-civilian aircraft
Civilian aircraft
594-71613_ch01_4Pindd 34 102017 404 PM
Vadim Grishin 35
The Sanctions Act authorizes the secretary of the trea sury (in a nonmandatory way) to impose
restrictions (without specifying them) against Rus sian state- owned entities operating in the railway
metals and mining sectors of the Rus sian economy Despite the commanding heights of Rus siarsquos
state sector owner ship in its economy (70 percent of GDP) the metal- producing companies have
remained mostly in private hands
NUCLEAR AFFAIRS
Historically owners and operators of the 104 commercial nuclear power reactors in the United
States have purchased more than 80 percent of their uranium from foreign countries Uranium
shipping from Rus sia accounted for about 13 percent of the 58 million pounds of uranium pur-
chased overseas in 201219 At the same time the Rus sian state- owned mono poly Rosatom ac-
counts for 20 percent of Kazakhstanrsquos uranium production (which in turn comprises 11 percent of
all US uranium imports) and 20 percent of US domestic uranium production capacity (with
owner ship of exploration tracts in Wyoming)20
Nuclear fuel and nuclear power continue to be po liti cally sensitive topics both in the United
States and Rus sia Bilateral cooperation in this sector (being surprisingly stable with imports of
nuclear fuel from Rus sia at a level of $1 billion annually in the last five years [Figure 512 and 513])
is under constant po liti cal and lobbying pressure and has been a source of several po liti cal scan-
dals21 Consequently upside risks in this area of interaction are minimal and downside risks are
much higher especially when we are seeing more decommissioning of nuclear plants in the
United States than new constructions The US EIArsquos 2017 Annual Energy Outlook assumes
that about 25 percent of the nuclear capacity now operating will be removed from ser vice
by 205022
WHY IS THE GRASS GREENER ON THE OTHER SIDE
The United States continues to significantly reduce imports of chemical fertilizers as domestic pro-
duction increases In 2016 the United States imported 13 percent less ammonia and 11 percent
less urea and UAN which is a liquid urea and ammonium nitrate fertilizer Rus sia accounts for
around 40 percent of UAN imported by the United States The United States canceled antidumping
duties on imports of ammonium nitrate and urea from Rus sia in 2016 but it did not prevent import
19 US EIA ldquoThe US Relies on Foreign Uranium Enrichment Ser vices to Fuel Its Nuclear Power Plantsrdquo Today in
Energy August 28 2013 https wwweia gov todayinenergy detail php idshy=shy1273
20 Colin Chilcoat ldquoDoes Rus sia Really Own 20 Percent of the USrsquo Uranium Reservesrdquo OilPricecom May 6 2015
http oilpricecom Alternative - Energy Nuclear - Power Does - Russia - Really - Own - 20 - Of - The - US - Uranium - Reserves
html
21 Michelle Ye Hee Lee ldquoThe Facts behind Trumprsquos Repeated Claim about Hillary Clintonrsquos Role in the Rus sian Ura-
nium Dealrdquo Washington Post October 26 2016
22 US EIA ldquoAnnual Energy Outlook 2017 with Projections to 2050rdquo 81ndash82
594-71613_ch01_4Pindd 35 102017 404 PM
Figure 512 US Imports from Rus sia Share of Oil Metals and Nuclear Fuel Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
87
86
90
90
90
91
88
86
7882
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals and Nuclear Fuel
Figure 513 US Imports from Rus sia Nuclear Fuel Materials US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$-
$200000000
$400000000
$600000000
$800000000
$1200000000
$1000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 36 102017 404 PM
Vadim Grishin 37
drops twice last year (Figures 514 and 515) According to forecasts UAN imports are expected to
decline further to 15 million tons this year down over 46 percent from 28 million tons imported
last year23 The downside trend in imports of fertilizers will likely continue because of oversupply
BIG FISH
US imports of fish and shellfish from Rus sia are best understood in comparison with US fish
exports to the Rus sian market which slipped to zero in August 2014 after Rus sia issued an order
banning certain agricultural imports from the United States (Figure 516) While the volume of US
supply was not very large it was impor tant because it broke up the monopolistic dominance of a
few vertically integrated Rus sian companies that have kept prices high by restricting the entry of
new producers Seeking to implement import substitution policies Rus sia has tried to reduce
exports as well as imports of fish and seafood products in the last couple of years This symmetri-
cal approach was intended to ldquocompensaterdquo for a decrease of fish products in the domestic
23 Deepika Thapliyal ldquoPotashCorp Forecasts Sharp Drop in US Nitrogen Imports in 2017rdquo ICIS News February 7
2017 https wwwicis com resources news 2017 02 07 10076734 potashcorp - forecasts - sharp - drop - in - us - nitrogen
- imports - in - 2017
Figure 514 US Imports from Rus sia Share of Oil Metals Nuclear Fuel and Fertilizers Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
90
93
92
93
94
95
92
91
85
86
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals Nuclear Fuel and Fertilizers
594-71613_ch01_4Pindd 37 102017 404 PM
Figure 515 US Imports from Rus sia Chemical- Fertilizers US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
S-
$200000000
$400000000
$600000000
$800000000
$1000000000
$1200000000
$1400000000
$1600000000
$1800000000
$2000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Figure 516 US Exports to Rus sia Fish and Shellfish US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$10000000
$20000000
$30000000
$40000000
$50000000
$60000000
$70000000
$80000000
$90000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Fish and shellfish
594-71613_ch01_4Pindd 38 102017 404 PM
Vadim Grishin 39
consumer market caused by Rus siarsquos import ban but it has failed As result the group most af-
fected by the self- imposed counter- sanctions were Rus sian consumers
With a significant drop in fish imports a devaluation of the ruble and inflationary pressures on
seafood prices yearly consumption of fish in Rus sia has declined precipitously In 2015 alone
fish prices increased 20 percent and consumption dropped to 14 kilograms per person24 from
22 kilograms in 201425 In 2016 food rose to 355 percent of house hold expenditure as a result of
increases in food prices26 This has pushed vertically integrated fishing monopolies to sell even
more of their catch abroad rather than deliver to the Rus sian Federation (Figure 517) Thus we
cannot exclude the possibility of further growth in US fish and shellfish imports from Rus sia on a
marginal scale
24 Александр Савельев ldquoПотребление рыбы в России упало до 14 кг на человекаrdquo [Fish consumption in Rus sia fell to
14 kg per person] Экономика Интерфакс January 28 2015 http wwwinterfax ru business 492038
25 Илья Шестаков ldquoПотебление рыбы в России снизилось на 10 процентов из- за роста ценrdquo [Fish consumption in
Rus sia dropped by 10 percent due to price increases] RNS March 8 2017 https rnsonline consumer - market
Potreblenie - ribi - v - Rossii - snizilos - na - 10 - iz - za - rosta - tsen - 2017 - 03 - 08
26 Zoya Sheftalovich and Christian Oliver ldquoRus siarsquos Boom (Farming) Economyrdquo Politico November 8 2016 http
wwwpolitico eu article russias - boom - farming - economy
Figure 517 US Imports from Rus sia Fish and Shellfish US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$50000000
$100000000
$150000000
$200000000
$250000000
$300000000
$350000000
$400000000
$450000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 39 102017 404 PM
US-Russia Economic Relations40
SPACE ODYSSEY
Among high- end products beyond the top five groups of goods imported from Rus sia cheap and
efficient Rus sian engines have been used to launch US rockets into space for about 16 years
(Figure 518) There was a serious po liti cal strug gle around a 2014 ban on the purchase of Rus sian
RD-180 rocket engines revealing the conflicting business interests of power ful high- tech companies
This restrictive mea sure was temporary and was quickly lifted because of significant cost impacts
and risks of disruption to launch schedules27 For the same reason the Sanctions Act does not autho-
rize ldquothe imposition of any sanction or other condition limitation restriction or prohibition that
directly or indirectly impedes the supply by any entity of the Rus sian Federation of any product or
ser vice or the procurement of such product or ser vice by any contractor or subcontractor of the
United States or any other entity relating to or in connection with any space launch conducted for
the National Aeronautics and Space Administration or any other nonndash Department of Defense
customerrdquo28
Nevertheless many experts believe that US domestic alternatives to replace Rus sian engines will
be viable in five to eight years
27 Ken Dilanian ldquoWhy Does the US Use Rus sian Rockets to Launch Its Satellitesrdquo NBC News updated November 15
2016 http wwwnbcnews com why - does - u - s - use - russian - rockets - launch - its - satellites - n588526
28 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364
Figure 518 Spacecraft Excluding Military US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 40 102017 404 PM
41
Diversity and technological complexity are the most vis i ble advantages supporting US exports to
Rus sia Three major groups of export goods include civilian aircraft engines and parts (Figure 61)
drilling and oil field equipment (Figure 62) and industrial machines and engines (Figure 63)
Despite sanctions against the transfer of advanced oil producing and pro cessing technologies the
realization of US drilling and oil field equipment in Rus sia is sustainable although some bilateral
proj ects have been frozen
Another category of goods that has demonstrated resilience is the phar ma ceu ti cal industry (Fig-
ure 64) because most drugs in Rus sia are imported (about 70 percent of the Rus sian phar ma ceu-
ti cal market in value) Import substitution policies have had only modest results in this industry
As confirmed by American Chamber of Commerce surveys US exports to Rus sia are closely
connected to US FDI 30 percent of total imports of US companies working in the Rus sian
market come from the United States (more than $2 billion in 2016) In other words about
40 percent of all US exports to Rus sia are related to a US corporate- sector business pro cess in
the country The major sectors of activity of these companies are energy and natu ral resources
(52 percent) manufacturing (17 percent) information and communications technology or ICT
(13 percent) retail (7 percent) automotive industry (6 percent) phar ma ceu ti cal production
(1 percent) professional ser vices (05 percent) and other (2 percent)1
Some obvious constraints on US exports to Rus sia have resulted from a reduction in demand A
deterioration of bilateral relations and implementation of sanctions and counter- sanctions have
directly or indirectly afected all businesses Figures 65 and 66 provide data regarding a dramatic
drop in the sale of US agricultural production in Rus sia with all other categories of exports in
goods showing big cuts as well (see Figures 67ndash69)
Exports of civilian aircraft engines and parts put the state of Washington in first place among
other states as a leading exporter to the Rus sian market (Figure 610)
1 American Chamber of Commerce in Rus sia ldquoInvestment and Import to Rus sia 2nd Surveyrdquo 13
Diversity and Constraints
06
594-71613_ch01_4Pindd 41 102017 404 PM
Figure 61 US Exports of Civilian Aircraft Engines Equipment and Parts to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
$2500000000
$2000000000
$1500000000
$1000000000
$500000000
$-
Figure 62 US Exports of Drilling and Oil Field Equipment US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
$40000000
$45000000
$50000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 42 102017 404 PM
Figure 63 US Exports of Industrial Engines to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Figure 64 US Exports of Phar ma ceu ti cal Preparations to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 43 102017 404 PM
Figure 65 US Exports of Meat and Poultry to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Meat poultry etc
$1000000000
$800000000
$600000000
$400000000
$200000000
$-
$1200000000
$1400000000
$1600000000
Figure 66 US Exports of Soybeans to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
$200000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 44 102017 404 PM
Figure 67 US Exports of Vehicles Engines and Parts to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Other parts and accessories of vehicles
Automotive tires and tubes
Bodies and chassis for passenger cars
Engines and engine parts (carburetors pistonsrings and valves)
Trucks buses and special purpose vehicles
Passenger cars new and used
$2500000000
$2000000000
$1500000000
$500000000
$-
$1000000000
Figure 68 US Exports of Medicinal Equipment to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 45 102017 404 PM
Figure 610 US Exports to Rus sia by States (2016 US$ Value) Million US$ 2013ndash2016
Source US Census Bureau ldquoState and Metropolitan Area Trade Datardquo
Iowa Kentucky
North Dakota
Oklahoma
South Carolina
Washington
0
$500
$1000
$1500
$2000
2013 2014 2015 2016
District of Columbia
Iowa
Kentucky
North Dakota
Oklahoma
South Carolina
Washington
Figure 69 US Exports of Excavating Machinery to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
$40000000
$45000000
$50000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 46 102017 404 PM
47
Upon reviewing the current trend in US- Russia economic relations we must acknowledge that
the existing trade model is obsolete and exhausted Imports are resource- oriented and reflect
constraints of the Rus sian economic structure while five groups of goodsmdash oil metals nuclear
fuels fertilizers and fishmdash make up more than 90 percent of total imports from Rus sia (Figure 71)
Each of these industries has a limited capacity for growth in the foreseeable future
Rus siarsquos core export to the United Statesmdash oilmdash will inevitably decrease in the mid- term under any
scenario The value and volume of Rus sian exports to the United States are open to global market
volatility and po liti cal pressures with limited hedging mechanisms
Overall US exports to Rus sia are unsustainable due to bilateral po liti cal tensions the whims of
commodity markets and changing domestic policies Sanctions and counter- sanctions have
created additional barriers particularly in finance banking high- tech energy and agro- business
According to the American Chamber of Commerce 69 percent of US companies working in the
country consider the impact of US sanctions against Rus sia on their business as negative At the
same time 60 percent of companies do not expect big changes in business relations between
Rus sia and the United States under Trump1 as the new law codifies existing sanctions fortifies
them and extends them to new sectors
Current US investments are low due to the weak rule of law in Rus sia a lack of property right
protections and proper contract enforcement high levels of statization and monopolization in the
economy a poor business climate outdated capital stock dependence on natural- resource
sectors and of course sanction and counter- sanction mea sures Bloated administrative compo-
nents created as risk mitigation instruments have also served as impediments The countryrsquos
institutional weakness low level of productivity bud get constraints and a declining inflexible
workforce will restrain future economic growth even if commodity prices recover Rus sian eco-
nomic policy will likely continue to be statist and protectionist relying mostly on import
substitutions
1 Ibid 11
Existing Trends and Future Scenarios
07
594-71613_ch01_4Pindd 47 102017 404 PM
US-Russia Economic Relations48
What scenarios can be expected in such a challenging environment
One probability (no peace no war) is based on the assumption that matters will not deteriorate
further and implementation of the Sanctions Act will be cursory This will cause relatively slow
degradation in the economic field with occasional flashes of activity in selected areas (eg closer
cooperation against Islamist terrorist groups in Syria)
A second worse case or critical scenario is the intensive and full- scale execution of current sanc-
tion legislation and even the imposition of new economic punitive and restrictive mea sures which
could incite asymmetric retaliatory actions and lead to the introduction of additional protectionist
policies This in turn could trigger a further escalation of mutual confrontation and could eventu-
ally destroy the fundamentals of the current bilateral trade system Rus sian leadership has charac-
terized the Sanctions Act as a declaration of a trade war that ends all hope for improving bilateral
relations2
2 Дмитрий Медведев ldquoПодписание президентом США нового санкционного закона против России создает несколько
последствийrdquo [The US Presidentrsquos signing of the package of new sanctions against Rus sia will have a few conse-
quences] Facebook August 2 2017 https wwwfacebook com Dmitry Medvedev posts 10154587161801851
Figure 71 US Imports from Rus sia Share of Oil Metals Nuclear Fuel Fertilizers and Fish Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
93
94
93
94
95
96
93
92
87
89
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals Nuclear FuelFertilizers and Fish
594-71613_ch01_4Pindd 48 102017 404 PM
Vadim Grishin 49
The best case and most favorable scenario looks less probable now It assumes the realization of
structural reforms in Rus sia in such a way that would adapt Rus siarsquos foreign policy to national
economic needs reduce confrontations with the West and make a concerted efort to integrate
Rus sian businesses into global supply and value chains A revitalization of the structural reform
agendamdash including eforts to diversify economic activities through de- monopolization and support
for SMEs a restructuring of the banking sector the creation of a vibrant business climate to foster
entrepreneurships and innovation the implementation of administrative and judicial reforms to
tackle red tape and endemic corruption and the reduction of state control over key sectors of the
economy via wide- spread privatization could kick- start the development of a nonoil economy and
improve long- term growth prospects Despite ongoing discussion of reform strategies deep
economic and po liti cal changes are extremely complicated over the next po liti calelectoral cycle
(2018ndash2024) particularly because of re sis tance of vested interests and growing commodity prices
The urgency to tackle structural shortcomings in natu ral resource- dependent economies usually
correlates with the price of those resources and the degree to which resource rents drive eco-
nomic activity However there may be marginal improvements in the efficiency of the current
economic system
Future US- Russia relations can be thought of through three pillars one pillar focuses on areas
where both countries maintain a competitive rivalry another looks at potential areas of interaction
under pres ent conditions a third pillar and one that has evaporated from the current bilateral
agenda concentrates on future cooperation Stronger economic ties could not only be a kind of
po liti cal shock absorber but contribute to the building of this future (particularly business contacts
aim to support future structural reforms) although po liti cal factors are depressing the prospects
for cooperation To escape deadlock it will be impor tant to establish the right balance between
politics and economics and create a model of collaboration within the framework of contention
594-71613_ch01_4Pindd 49 102017 404 PM
About the Author
Vadim Grishin PhD MBA has been involved in the reform pro cess in Rus sia as adviser to the
deputy prime minister of Rus sia in 1992ndash1993 and 2006ndash2010 He has extensive experience
working with the Bretton Woods Institutions He was the board member of the World Bank Group
and served as se nior adviser at the International Monetary Fund Currently he is a con sul tant to the
chief economistrsquos office of the International Finance Corporation and teaches the economics of
transition at Georgetown University in Washington DC
50
594-71613_ch99_4Pindd 50 102017 403 PM
Blank
COVER PHOTO ADOBE STOCK
1616 Rhode Island Avenue NW
Washington DC 20036
202 887 0200 | wwwcsisorg
v++ISBN 978-1-4422-8035-9
Lanham bull Boulder bull New York bull London
4501 Forbes Boulevard
Lanham MD 20706
301 459 3366 | wwwrowmancom
A U T H O R
Vadim Grishin
Myths and Realities
A Report of the
CSIS RUSSIA AND EURASIA PROGRAM
US-RussiaEconomicRelations
O C T O B E R 2 0 1 7
Euml|xHSLEOCy280359z
The Man Pupu Nyor Rock Formations at the Northern Urals also known as Seven
Strong Man or Little Mountain of the God in the local tribe (Mansi) language
Table 57 Top Importers of Rus sian Oil to the United States Thousands of Barrels 2016
VALERO MARKETING amp SUPPLY CO 54590 3616
EXXONMOBIL OIL CORP 17087 1130
CHEVRON USA INC 15217 1008
BP WEST COAST PRODUCTS LLC 10130 671
GEORGE E WARREN CORP 7272 48
PAULSBORO REFINING CO LLC 6838 453
TESORO CORP 5097 338
VITOL INC 5084 337
PHILLIPS 66 CO 4726 313
TRAFIGURA AG 4360 289
PAR HAWAII REFINING LLC 3893 258
MOTIVA ENTERPRISES LLC 3041 205
SHELL US TRADING CO 2863 19
MARATHON PETROLEUM CO LLC 2475 16
ATLANTIC TRADING amp MARKETING 2099 14
FREEPOINT COMMODITIES LLC 1439 1
GLENCORE LTD 1284 85
BEST PETROLEUM CORP 967 64
ROLYMPUS US COMMODITIES GROUP LLC 822 6
HUNT CRUDE OIL SUPPLY CO 666 4
GULF OIL LP 658 4
Source US EIA ldquoUS Imports by Country of Origin Crude Oilrdquo Petroleum amp Other Liquids September 13
2017 httpswwweiagovdnavpetpet_move_impcus_a2_nus_epc0_im0_mbblpd_ahtm authorrsquos
computation
594-71613_ch01_4Pindd 28 102017 404 PM
Vadim Grishin 29
several joint ventures with Rosneft to undertake ofshore exploration in the Black Sea and the Kara
Sea in Siberia11
According to the Sanctions Act US persons are prohibited from exporting or reexporting goods
ser vices (except financial ser vices) and technology in support of exploration or production of new
deep- water Arctic ofshore or shale oil proj ects that involve designated Rus sian entities or other
entities in which such sanctioned persons have a controlling interest or a substantial noncontrol-
ling owner ship interest defined as not less than 33 percent (previously it was 50 percent) The new
law also authorizesmdash but does not requiremdash the imposition of so- called secondary sanctions
against non- US entities that engage in activities involving the construction maintenance or
expansion of Rus sian energy export pipelines with a fair market value of $1 million or more or an
aggregate fair market value during a 12- month period of $5 million12 This provision has raised the
concerns of some Eu ro pean countries particularly Germany As result the final language of the
law included wording about coordination of this issue with allies of the United States
Shipments of Rus sian oil to the United States could be afected by activity in the US refinery
industry In early 2017 Saudi Aramco bought the United Statesrsquo largest oil refinery in Port Arthur
(Texas) and it announced plans to send more of its own crude to that refinery13 Serious concerns
exist however regarding the future of three refineries and nine pipelines owned by Citgo a US
branch of the Venezuelan state com pany PdVSA which is balancing precariously on the edge of
default Under certain conditions in the event of PdVSA bankruptcy Rosneft could claim a stake of
up to 499 percent in Citgo Such a possibility has raised concerns among politicians and US
government officials with Trea sury Secretary Steven Mnuchin calling it a ldquonational security issuerdquo14
Tables 58 59 and 510 show allocations of Rus sian oil imports to major US refineries some of
which work exclusively on Rus sian crude a total of two to three months per year In total 150940
thousand barrels of Rus sian oil were refined in 2016
Figure 57 confirms a leading position of Texas and Louisiana among the US states receiving
Rus sian crude followed by New Jersey California Mississippi Washington Hawaii and Delaware
In a paradoxical way Texas has dis appeared from the list of states as a main destination of US
imports from Rus sia (Figure 58) because Rus sian crude is mostly delivered to Louisiana ports and
registered there by US Customs as an import from Rus sia After that it transports to refineries in
Louisiana and Texas
Overall the short- term business rationale behind the sustainability of US oil imports from Rus sia
cannot overcome strong headwinds in the US energy sector facing all oil importers which will
inevitably lead to a contraction of Rus sian oil exports to the United States in the foreseeable future
11 Exxon eforts to receive a special US Trea sury waiver to drill in sanctioned Rus sia failed in 2017
12 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364
13 Sarp Ozkan ldquoSaudi Aramcorsquos Port Arthur Refinery and the US Refinery Fleetrdquo Drilling Info May 11 2017
https infodrillinginfo com saudi - aramcos - port - arthur - refinery - us - refinery - fleet
14 Graham Kates ldquoTrea sury Secretary Rus siarsquos Citgo Deal a National Security Issuerdquo CBS News May 1 2017
http wwwcbsnews com news rosneft - citgo - steven - mnuchin - national - security
594-71613_ch01_4Pindd 29 102017 404 PM
US-Russia Economic Relations30
Table 58 Valerorsquos Refineries Pro cessing Rus sian Oil Thousands of Barrels 2016
Saint Charles Louisiana 29206 535
Corpus Christi Texas 20626 378
Wilmington California 4250 78
Total USA 54590 100
Source US EIA ldquoRefinery Capacity Reportrdquo January 1 2017
table 5 wwweia gov petroleum refinerycapacity table5 pdf
authorrsquos computation
Table 59 ExxonMobil Refineries Pro cessing Rus sian Oil Thousands of Barrels 2016
Baytown Texas 15037 88
Baton Rouge Louisiana 2046 12
Total USA 17083 100
Source US EIA ldquoRefinery Capacity Reportrdquo authorrsquos computation
Table 510 Chevronrsquos Refineries Pro cessing Rus sian Oil Thousands of Barrels 2016
Pascagoula Mississippi 12767 840
El Segundo California 2372 155
Saint Rose Louisiana 78 05
Total USA 15217 100
Source US EIA ldquoRefinery Capacity Reportrdquo authorrsquos computation
594-71613_ch01_4Pindd 30 102017 404 PM
Vadim Grishin 31
HEAVY METAL
Taken together US imports of metals and US imports of oil compose about 80 percent of US
total imports from Rus sia (Figure 59) Trade of metals like other commodities is strongly afected
by market price fluctuations Nevertheless metal imports from Rus sia have been fairly resilient to
market volatility and their average annual value has hovered at about $4 billion in the last five years
(Figure 510) This market resilience was forged at the end of the 1990searly 2000s when Rus sian
metal producers gradually modernized their plants adjusting quality of production to Western
standards and enhancing integration into global value and supply chains Some of them conquered
their share of the highly competitive US market struggling with peers from Canada and certain
BRICS countries (China India and Brazil) To attract additional resources all Rus sian large metal-
producing companies became public and were listed on stock exchanges chiefly the London Stock
Exchange (Severstalrsquo PAO Evraz MMK OAO Novolipetsk Steel Norilsk Nikel and TMK PAO) one
on the New York Stock Exchange (Mechel) and one on the Hong Kong Stock Exchange (Rusal)
Business logic pushed some of them to invest in the US metal- making industry which was hit
hard by crisis Later on some of those assets were sold (eg two US steel mills acquired by
Severstal in 2004 were purchased 10 years later by Steel Dynamics Inc and AK Steel Corp)
Figure 57 Share of US States Rus sian Oil Imports 2016
Source US EIA ldquoUS Imports from Rus sia of Crude Oil and Petroleum Productsrdquo Petroleum amp Other
Liquids September 29 2017 https www eia gov dnav pet hist LeafHandler ashx nshy=shyPETampsshy=shyMTTIM _ NUS
- NRS _ 1ampfshy=shyM authorrsquos computation
0
10
20
30
40
50
60
70
80
90
100
Maine
Massachusetts
Maryland
Connecticut
Georgia
Rhode Island
Virginia
Florida
New York
Alabama
Puerto Rico
Pennsylvania
Delaware
Hawaii
Washington
Mississippi
California
New Jersey
Louisiana
Texas
594-71613_ch01_4Pindd 31 102017 404 PM
Figure 58 US Imports from Rus sia by State Million US$ 2013ndash2016
Source US Census Bureau ldquoState and Metropolitan Area Trade Datardquo Foreign Trade last modified
October 2 2017 https wwwcensus gov foreign - trade statistics state
Alaska
Connecticut
Delaware
Hawaii
Louisiana
Maryland
North Dakota 0
$1000
$2000
$3000
$4000
$5000
$6000
2013 2014 2015 2016
Alabama
Alaska
Connecticut
Delaware
Hawaii
Louisiana
Maryland
Maine
Mississippi
Montana
North Dakota
Mississippi
Figure 59 US Imports from Rus sia Share of Oil and Metals Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
83
82
85
86
87
88
85
82
7375
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
$40000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil and Metals
594-71613_ch01_4Pindd 32 102017 404 PM
Vadim Grishin 33
Obviously the market dynamic of dif er ent metals varies (eg iron steel aluminum platinum and
nickel) Caps to increase their trade and production in a ldquored oceanrdquo global environment with
anemic demand is rather limited despite Figure 510 showing a spike of iron and steel imports
from Rus sia in 2014 and aluminum in 2016 Some opportunities may exist for Russian- owned steel
plants in the United States (such as NLMK) to participate in energy proj ects resumed under Presi-
dent Trump who has required that new pipelines use only American- made steel15
Rus sia occupies a special niche in the US market for titanium products a high- end metal indus-
try Twenty years ago a long- term contract was signed between Rus sian titanium producer
VSMPO- AVISMA and Boeing The Rus sian com pany entered the selective club of Boeing suppliers
for the manufacture of components and semi- finished products Since the signing of this contract
VSMPO has delivered more than 35 percent of all titanium placed on Boeing civil aircraft16 They
are hidden in the trade data in an import category for Civilian Aircrafts and Parts (Figure 511) At
the end of 2016 Boeing announced an extension of its framework agreement with AVISMA
15 E Scheyder C Ngai and T Sylvester ldquoAmerican Steel Unlikely to Get Keystone Boost Despite Trump Orderrdquo
Reuters January 27 2017 http wwwreuters com article usa - trump - pipeline - transcanada - idUSL1N1FH1ZD
16 A Kramer ldquoTitanium Fills Vital Role for Boeing and Rus siardquo New York Times July 5 2013 http wwwnytimes com
2013 07 06 business global titanium - fills - vital - role - for - boeing - and - russia html mcubzshy=shy3
Figure 510 US Imports from Rus sia Iron Steel Bauxite Aluminum Nickel Nonferrous Metals and Other Precious Metals and Materials US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
0
$6000000000
$5000000000
$4000000000
$3000000000
$2000000000
$1000000000
2007 2008 2009 2010 2011 20122013
20142015
2016
Finished metal shapes
Iron and steel advanced
Iron and steel products nec
Nonferrous metals other
Other precious metals
Nickel
Bauxite and aluminum
Iron and steel mill products
Steelmaking materials
594-71613_ch01_4Pindd 33 102017 404 PM
US-Russia Economic Relations34
through 2022 and additional investments in the construction of a new robotic plant in Titanium
Valley a special economic zone located in the Sverdlovsk region that will open in 2018 The pro-
cessing of titanium forgings in all Boeing civil aircraft will be performed there including 787s 737
MAXs and 777Xs17 The contract extension with AVISMA may add several hundred million dollars
in value to annual US imports from Rus sia
How can such heavy reliance on imports of Rus sian titanium exist during a period of rising geopo-
liti cal tensions The answer is straightforward VSMPO- AVISMA is a highly specialized natu ral
mono poly producing 45 percent of the worldrsquos aerospace titanium Only four other countries
smelt high- grade titanium in industrial quantities the United States Germany Japan and China
Overall global production capacity is limited while demand is growing The United States cur-
rently imports around 79 percent of all the titanium it consumes each year18
17 ldquoBoeing and VSMPO Avisma to Launch Second Joint Production Siterdquo Rus sian Aviation Insider December 22 2016
http wwwrusaviainsider com boeing - and - vsmpo - avisma - to - launch - second - joint - production - site
18 Jon Ostrower and Andy Pasztor ldquoBoeing United Technologies Stockpile Titanium Partsrdquo Wall Street Journal
August 7 2014 https wwwwsj com articles boeing - united - technologies - stockpiling - titanium - parts - 1407441886
Figure 511 US Imports from Rus sia Civilian Aircrafts and Parts US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
$200000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Parts-civilian aircraft
Civilian aircraft
594-71613_ch01_4Pindd 34 102017 404 PM
Vadim Grishin 35
The Sanctions Act authorizes the secretary of the trea sury (in a nonmandatory way) to impose
restrictions (without specifying them) against Rus sian state- owned entities operating in the railway
metals and mining sectors of the Rus sian economy Despite the commanding heights of Rus siarsquos
state sector owner ship in its economy (70 percent of GDP) the metal- producing companies have
remained mostly in private hands
NUCLEAR AFFAIRS
Historically owners and operators of the 104 commercial nuclear power reactors in the United
States have purchased more than 80 percent of their uranium from foreign countries Uranium
shipping from Rus sia accounted for about 13 percent of the 58 million pounds of uranium pur-
chased overseas in 201219 At the same time the Rus sian state- owned mono poly Rosatom ac-
counts for 20 percent of Kazakhstanrsquos uranium production (which in turn comprises 11 percent of
all US uranium imports) and 20 percent of US domestic uranium production capacity (with
owner ship of exploration tracts in Wyoming)20
Nuclear fuel and nuclear power continue to be po liti cally sensitive topics both in the United
States and Rus sia Bilateral cooperation in this sector (being surprisingly stable with imports of
nuclear fuel from Rus sia at a level of $1 billion annually in the last five years [Figure 512 and 513])
is under constant po liti cal and lobbying pressure and has been a source of several po liti cal scan-
dals21 Consequently upside risks in this area of interaction are minimal and downside risks are
much higher especially when we are seeing more decommissioning of nuclear plants in the
United States than new constructions The US EIArsquos 2017 Annual Energy Outlook assumes
that about 25 percent of the nuclear capacity now operating will be removed from ser vice
by 205022
WHY IS THE GRASS GREENER ON THE OTHER SIDE
The United States continues to significantly reduce imports of chemical fertilizers as domestic pro-
duction increases In 2016 the United States imported 13 percent less ammonia and 11 percent
less urea and UAN which is a liquid urea and ammonium nitrate fertilizer Rus sia accounts for
around 40 percent of UAN imported by the United States The United States canceled antidumping
duties on imports of ammonium nitrate and urea from Rus sia in 2016 but it did not prevent import
19 US EIA ldquoThe US Relies on Foreign Uranium Enrichment Ser vices to Fuel Its Nuclear Power Plantsrdquo Today in
Energy August 28 2013 https wwweia gov todayinenergy detail php idshy=shy1273
20 Colin Chilcoat ldquoDoes Rus sia Really Own 20 Percent of the USrsquo Uranium Reservesrdquo OilPricecom May 6 2015
http oilpricecom Alternative - Energy Nuclear - Power Does - Russia - Really - Own - 20 - Of - The - US - Uranium - Reserves
html
21 Michelle Ye Hee Lee ldquoThe Facts behind Trumprsquos Repeated Claim about Hillary Clintonrsquos Role in the Rus sian Ura-
nium Dealrdquo Washington Post October 26 2016
22 US EIA ldquoAnnual Energy Outlook 2017 with Projections to 2050rdquo 81ndash82
594-71613_ch01_4Pindd 35 102017 404 PM
Figure 512 US Imports from Rus sia Share of Oil Metals and Nuclear Fuel Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
87
86
90
90
90
91
88
86
7882
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals and Nuclear Fuel
Figure 513 US Imports from Rus sia Nuclear Fuel Materials US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$-
$200000000
$400000000
$600000000
$800000000
$1200000000
$1000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 36 102017 404 PM
Vadim Grishin 37
drops twice last year (Figures 514 and 515) According to forecasts UAN imports are expected to
decline further to 15 million tons this year down over 46 percent from 28 million tons imported
last year23 The downside trend in imports of fertilizers will likely continue because of oversupply
BIG FISH
US imports of fish and shellfish from Rus sia are best understood in comparison with US fish
exports to the Rus sian market which slipped to zero in August 2014 after Rus sia issued an order
banning certain agricultural imports from the United States (Figure 516) While the volume of US
supply was not very large it was impor tant because it broke up the monopolistic dominance of a
few vertically integrated Rus sian companies that have kept prices high by restricting the entry of
new producers Seeking to implement import substitution policies Rus sia has tried to reduce
exports as well as imports of fish and seafood products in the last couple of years This symmetri-
cal approach was intended to ldquocompensaterdquo for a decrease of fish products in the domestic
23 Deepika Thapliyal ldquoPotashCorp Forecasts Sharp Drop in US Nitrogen Imports in 2017rdquo ICIS News February 7
2017 https wwwicis com resources news 2017 02 07 10076734 potashcorp - forecasts - sharp - drop - in - us - nitrogen
- imports - in - 2017
Figure 514 US Imports from Rus sia Share of Oil Metals Nuclear Fuel and Fertilizers Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
90
93
92
93
94
95
92
91
85
86
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals Nuclear Fuel and Fertilizers
594-71613_ch01_4Pindd 37 102017 404 PM
Figure 515 US Imports from Rus sia Chemical- Fertilizers US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
S-
$200000000
$400000000
$600000000
$800000000
$1000000000
$1200000000
$1400000000
$1600000000
$1800000000
$2000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Figure 516 US Exports to Rus sia Fish and Shellfish US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$10000000
$20000000
$30000000
$40000000
$50000000
$60000000
$70000000
$80000000
$90000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Fish and shellfish
594-71613_ch01_4Pindd 38 102017 404 PM
Vadim Grishin 39
consumer market caused by Rus siarsquos import ban but it has failed As result the group most af-
fected by the self- imposed counter- sanctions were Rus sian consumers
With a significant drop in fish imports a devaluation of the ruble and inflationary pressures on
seafood prices yearly consumption of fish in Rus sia has declined precipitously In 2015 alone
fish prices increased 20 percent and consumption dropped to 14 kilograms per person24 from
22 kilograms in 201425 In 2016 food rose to 355 percent of house hold expenditure as a result of
increases in food prices26 This has pushed vertically integrated fishing monopolies to sell even
more of their catch abroad rather than deliver to the Rus sian Federation (Figure 517) Thus we
cannot exclude the possibility of further growth in US fish and shellfish imports from Rus sia on a
marginal scale
24 Александр Савельев ldquoПотребление рыбы в России упало до 14 кг на человекаrdquo [Fish consumption in Rus sia fell to
14 kg per person] Экономика Интерфакс January 28 2015 http wwwinterfax ru business 492038
25 Илья Шестаков ldquoПотебление рыбы в России снизилось на 10 процентов из- за роста ценrdquo [Fish consumption in
Rus sia dropped by 10 percent due to price increases] RNS March 8 2017 https rnsonline consumer - market
Potreblenie - ribi - v - Rossii - snizilos - na - 10 - iz - za - rosta - tsen - 2017 - 03 - 08
26 Zoya Sheftalovich and Christian Oliver ldquoRus siarsquos Boom (Farming) Economyrdquo Politico November 8 2016 http
wwwpolitico eu article russias - boom - farming - economy
Figure 517 US Imports from Rus sia Fish and Shellfish US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$50000000
$100000000
$150000000
$200000000
$250000000
$300000000
$350000000
$400000000
$450000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 39 102017 404 PM
US-Russia Economic Relations40
SPACE ODYSSEY
Among high- end products beyond the top five groups of goods imported from Rus sia cheap and
efficient Rus sian engines have been used to launch US rockets into space for about 16 years
(Figure 518) There was a serious po liti cal strug gle around a 2014 ban on the purchase of Rus sian
RD-180 rocket engines revealing the conflicting business interests of power ful high- tech companies
This restrictive mea sure was temporary and was quickly lifted because of significant cost impacts
and risks of disruption to launch schedules27 For the same reason the Sanctions Act does not autho-
rize ldquothe imposition of any sanction or other condition limitation restriction or prohibition that
directly or indirectly impedes the supply by any entity of the Rus sian Federation of any product or
ser vice or the procurement of such product or ser vice by any contractor or subcontractor of the
United States or any other entity relating to or in connection with any space launch conducted for
the National Aeronautics and Space Administration or any other nonndash Department of Defense
customerrdquo28
Nevertheless many experts believe that US domestic alternatives to replace Rus sian engines will
be viable in five to eight years
27 Ken Dilanian ldquoWhy Does the US Use Rus sian Rockets to Launch Its Satellitesrdquo NBC News updated November 15
2016 http wwwnbcnews com why - does - u - s - use - russian - rockets - launch - its - satellites - n588526
28 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364
Figure 518 Spacecraft Excluding Military US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 40 102017 404 PM
41
Diversity and technological complexity are the most vis i ble advantages supporting US exports to
Rus sia Three major groups of export goods include civilian aircraft engines and parts (Figure 61)
drilling and oil field equipment (Figure 62) and industrial machines and engines (Figure 63)
Despite sanctions against the transfer of advanced oil producing and pro cessing technologies the
realization of US drilling and oil field equipment in Rus sia is sustainable although some bilateral
proj ects have been frozen
Another category of goods that has demonstrated resilience is the phar ma ceu ti cal industry (Fig-
ure 64) because most drugs in Rus sia are imported (about 70 percent of the Rus sian phar ma ceu-
ti cal market in value) Import substitution policies have had only modest results in this industry
As confirmed by American Chamber of Commerce surveys US exports to Rus sia are closely
connected to US FDI 30 percent of total imports of US companies working in the Rus sian
market come from the United States (more than $2 billion in 2016) In other words about
40 percent of all US exports to Rus sia are related to a US corporate- sector business pro cess in
the country The major sectors of activity of these companies are energy and natu ral resources
(52 percent) manufacturing (17 percent) information and communications technology or ICT
(13 percent) retail (7 percent) automotive industry (6 percent) phar ma ceu ti cal production
(1 percent) professional ser vices (05 percent) and other (2 percent)1
Some obvious constraints on US exports to Rus sia have resulted from a reduction in demand A
deterioration of bilateral relations and implementation of sanctions and counter- sanctions have
directly or indirectly afected all businesses Figures 65 and 66 provide data regarding a dramatic
drop in the sale of US agricultural production in Rus sia with all other categories of exports in
goods showing big cuts as well (see Figures 67ndash69)
Exports of civilian aircraft engines and parts put the state of Washington in first place among
other states as a leading exporter to the Rus sian market (Figure 610)
1 American Chamber of Commerce in Rus sia ldquoInvestment and Import to Rus sia 2nd Surveyrdquo 13
Diversity and Constraints
06
594-71613_ch01_4Pindd 41 102017 404 PM
Figure 61 US Exports of Civilian Aircraft Engines Equipment and Parts to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
$2500000000
$2000000000
$1500000000
$1000000000
$500000000
$-
Figure 62 US Exports of Drilling and Oil Field Equipment US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
$40000000
$45000000
$50000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 42 102017 404 PM
Figure 63 US Exports of Industrial Engines to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Figure 64 US Exports of Phar ma ceu ti cal Preparations to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 43 102017 404 PM
Figure 65 US Exports of Meat and Poultry to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Meat poultry etc
$1000000000
$800000000
$600000000
$400000000
$200000000
$-
$1200000000
$1400000000
$1600000000
Figure 66 US Exports of Soybeans to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
$200000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 44 102017 404 PM
Figure 67 US Exports of Vehicles Engines and Parts to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Other parts and accessories of vehicles
Automotive tires and tubes
Bodies and chassis for passenger cars
Engines and engine parts (carburetors pistonsrings and valves)
Trucks buses and special purpose vehicles
Passenger cars new and used
$2500000000
$2000000000
$1500000000
$500000000
$-
$1000000000
Figure 68 US Exports of Medicinal Equipment to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 45 102017 404 PM
Figure 610 US Exports to Rus sia by States (2016 US$ Value) Million US$ 2013ndash2016
Source US Census Bureau ldquoState and Metropolitan Area Trade Datardquo
Iowa Kentucky
North Dakota
Oklahoma
South Carolina
Washington
0
$500
$1000
$1500
$2000
2013 2014 2015 2016
District of Columbia
Iowa
Kentucky
North Dakota
Oklahoma
South Carolina
Washington
Figure 69 US Exports of Excavating Machinery to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
$40000000
$45000000
$50000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 46 102017 404 PM
47
Upon reviewing the current trend in US- Russia economic relations we must acknowledge that
the existing trade model is obsolete and exhausted Imports are resource- oriented and reflect
constraints of the Rus sian economic structure while five groups of goodsmdash oil metals nuclear
fuels fertilizers and fishmdash make up more than 90 percent of total imports from Rus sia (Figure 71)
Each of these industries has a limited capacity for growth in the foreseeable future
Rus siarsquos core export to the United Statesmdash oilmdash will inevitably decrease in the mid- term under any
scenario The value and volume of Rus sian exports to the United States are open to global market
volatility and po liti cal pressures with limited hedging mechanisms
Overall US exports to Rus sia are unsustainable due to bilateral po liti cal tensions the whims of
commodity markets and changing domestic policies Sanctions and counter- sanctions have
created additional barriers particularly in finance banking high- tech energy and agro- business
According to the American Chamber of Commerce 69 percent of US companies working in the
country consider the impact of US sanctions against Rus sia on their business as negative At the
same time 60 percent of companies do not expect big changes in business relations between
Rus sia and the United States under Trump1 as the new law codifies existing sanctions fortifies
them and extends them to new sectors
Current US investments are low due to the weak rule of law in Rus sia a lack of property right
protections and proper contract enforcement high levels of statization and monopolization in the
economy a poor business climate outdated capital stock dependence on natural- resource
sectors and of course sanction and counter- sanction mea sures Bloated administrative compo-
nents created as risk mitigation instruments have also served as impediments The countryrsquos
institutional weakness low level of productivity bud get constraints and a declining inflexible
workforce will restrain future economic growth even if commodity prices recover Rus sian eco-
nomic policy will likely continue to be statist and protectionist relying mostly on import
substitutions
1 Ibid 11
Existing Trends and Future Scenarios
07
594-71613_ch01_4Pindd 47 102017 404 PM
US-Russia Economic Relations48
What scenarios can be expected in such a challenging environment
One probability (no peace no war) is based on the assumption that matters will not deteriorate
further and implementation of the Sanctions Act will be cursory This will cause relatively slow
degradation in the economic field with occasional flashes of activity in selected areas (eg closer
cooperation against Islamist terrorist groups in Syria)
A second worse case or critical scenario is the intensive and full- scale execution of current sanc-
tion legislation and even the imposition of new economic punitive and restrictive mea sures which
could incite asymmetric retaliatory actions and lead to the introduction of additional protectionist
policies This in turn could trigger a further escalation of mutual confrontation and could eventu-
ally destroy the fundamentals of the current bilateral trade system Rus sian leadership has charac-
terized the Sanctions Act as a declaration of a trade war that ends all hope for improving bilateral
relations2
2 Дмитрий Медведев ldquoПодписание президентом США нового санкционного закона против России создает несколько
последствийrdquo [The US Presidentrsquos signing of the package of new sanctions against Rus sia will have a few conse-
quences] Facebook August 2 2017 https wwwfacebook com Dmitry Medvedev posts 10154587161801851
Figure 71 US Imports from Rus sia Share of Oil Metals Nuclear Fuel Fertilizers and Fish Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
93
94
93
94
95
96
93
92
87
89
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals Nuclear FuelFertilizers and Fish
594-71613_ch01_4Pindd 48 102017 404 PM
Vadim Grishin 49
The best case and most favorable scenario looks less probable now It assumes the realization of
structural reforms in Rus sia in such a way that would adapt Rus siarsquos foreign policy to national
economic needs reduce confrontations with the West and make a concerted efort to integrate
Rus sian businesses into global supply and value chains A revitalization of the structural reform
agendamdash including eforts to diversify economic activities through de- monopolization and support
for SMEs a restructuring of the banking sector the creation of a vibrant business climate to foster
entrepreneurships and innovation the implementation of administrative and judicial reforms to
tackle red tape and endemic corruption and the reduction of state control over key sectors of the
economy via wide- spread privatization could kick- start the development of a nonoil economy and
improve long- term growth prospects Despite ongoing discussion of reform strategies deep
economic and po liti cal changes are extremely complicated over the next po liti calelectoral cycle
(2018ndash2024) particularly because of re sis tance of vested interests and growing commodity prices
The urgency to tackle structural shortcomings in natu ral resource- dependent economies usually
correlates with the price of those resources and the degree to which resource rents drive eco-
nomic activity However there may be marginal improvements in the efficiency of the current
economic system
Future US- Russia relations can be thought of through three pillars one pillar focuses on areas
where both countries maintain a competitive rivalry another looks at potential areas of interaction
under pres ent conditions a third pillar and one that has evaporated from the current bilateral
agenda concentrates on future cooperation Stronger economic ties could not only be a kind of
po liti cal shock absorber but contribute to the building of this future (particularly business contacts
aim to support future structural reforms) although po liti cal factors are depressing the prospects
for cooperation To escape deadlock it will be impor tant to establish the right balance between
politics and economics and create a model of collaboration within the framework of contention
594-71613_ch01_4Pindd 49 102017 404 PM
About the Author
Vadim Grishin PhD MBA has been involved in the reform pro cess in Rus sia as adviser to the
deputy prime minister of Rus sia in 1992ndash1993 and 2006ndash2010 He has extensive experience
working with the Bretton Woods Institutions He was the board member of the World Bank Group
and served as se nior adviser at the International Monetary Fund Currently he is a con sul tant to the
chief economistrsquos office of the International Finance Corporation and teaches the economics of
transition at Georgetown University in Washington DC
50
594-71613_ch99_4Pindd 50 102017 403 PM
Blank
COVER PHOTO ADOBE STOCK
1616 Rhode Island Avenue NW
Washington DC 20036
202 887 0200 | wwwcsisorg
v++ISBN 978-1-4422-8035-9
Lanham bull Boulder bull New York bull London
4501 Forbes Boulevard
Lanham MD 20706
301 459 3366 | wwwrowmancom
A U T H O R
Vadim Grishin
Myths and Realities
A Report of the
CSIS RUSSIA AND EURASIA PROGRAM
US-RussiaEconomicRelations
O C T O B E R 2 0 1 7
Euml|xHSLEOCy280359z
The Man Pupu Nyor Rock Formations at the Northern Urals also known as Seven
Strong Man or Little Mountain of the God in the local tribe (Mansi) language
Vadim Grishin 29
several joint ventures with Rosneft to undertake ofshore exploration in the Black Sea and the Kara
Sea in Siberia11
According to the Sanctions Act US persons are prohibited from exporting or reexporting goods
ser vices (except financial ser vices) and technology in support of exploration or production of new
deep- water Arctic ofshore or shale oil proj ects that involve designated Rus sian entities or other
entities in which such sanctioned persons have a controlling interest or a substantial noncontrol-
ling owner ship interest defined as not less than 33 percent (previously it was 50 percent) The new
law also authorizesmdash but does not requiremdash the imposition of so- called secondary sanctions
against non- US entities that engage in activities involving the construction maintenance or
expansion of Rus sian energy export pipelines with a fair market value of $1 million or more or an
aggregate fair market value during a 12- month period of $5 million12 This provision has raised the
concerns of some Eu ro pean countries particularly Germany As result the final language of the
law included wording about coordination of this issue with allies of the United States
Shipments of Rus sian oil to the United States could be afected by activity in the US refinery
industry In early 2017 Saudi Aramco bought the United Statesrsquo largest oil refinery in Port Arthur
(Texas) and it announced plans to send more of its own crude to that refinery13 Serious concerns
exist however regarding the future of three refineries and nine pipelines owned by Citgo a US
branch of the Venezuelan state com pany PdVSA which is balancing precariously on the edge of
default Under certain conditions in the event of PdVSA bankruptcy Rosneft could claim a stake of
up to 499 percent in Citgo Such a possibility has raised concerns among politicians and US
government officials with Trea sury Secretary Steven Mnuchin calling it a ldquonational security issuerdquo14
Tables 58 59 and 510 show allocations of Rus sian oil imports to major US refineries some of
which work exclusively on Rus sian crude a total of two to three months per year In total 150940
thousand barrels of Rus sian oil were refined in 2016
Figure 57 confirms a leading position of Texas and Louisiana among the US states receiving
Rus sian crude followed by New Jersey California Mississippi Washington Hawaii and Delaware
In a paradoxical way Texas has dis appeared from the list of states as a main destination of US
imports from Rus sia (Figure 58) because Rus sian crude is mostly delivered to Louisiana ports and
registered there by US Customs as an import from Rus sia After that it transports to refineries in
Louisiana and Texas
Overall the short- term business rationale behind the sustainability of US oil imports from Rus sia
cannot overcome strong headwinds in the US energy sector facing all oil importers which will
inevitably lead to a contraction of Rus sian oil exports to the United States in the foreseeable future
11 Exxon eforts to receive a special US Trea sury waiver to drill in sanctioned Rus sia failed in 2017
12 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364
13 Sarp Ozkan ldquoSaudi Aramcorsquos Port Arthur Refinery and the US Refinery Fleetrdquo Drilling Info May 11 2017
https infodrillinginfo com saudi - aramcos - port - arthur - refinery - us - refinery - fleet
14 Graham Kates ldquoTrea sury Secretary Rus siarsquos Citgo Deal a National Security Issuerdquo CBS News May 1 2017
http wwwcbsnews com news rosneft - citgo - steven - mnuchin - national - security
594-71613_ch01_4Pindd 29 102017 404 PM
US-Russia Economic Relations30
Table 58 Valerorsquos Refineries Pro cessing Rus sian Oil Thousands of Barrels 2016
Saint Charles Louisiana 29206 535
Corpus Christi Texas 20626 378
Wilmington California 4250 78
Total USA 54590 100
Source US EIA ldquoRefinery Capacity Reportrdquo January 1 2017
table 5 wwweia gov petroleum refinerycapacity table5 pdf
authorrsquos computation
Table 59 ExxonMobil Refineries Pro cessing Rus sian Oil Thousands of Barrels 2016
Baytown Texas 15037 88
Baton Rouge Louisiana 2046 12
Total USA 17083 100
Source US EIA ldquoRefinery Capacity Reportrdquo authorrsquos computation
Table 510 Chevronrsquos Refineries Pro cessing Rus sian Oil Thousands of Barrels 2016
Pascagoula Mississippi 12767 840
El Segundo California 2372 155
Saint Rose Louisiana 78 05
Total USA 15217 100
Source US EIA ldquoRefinery Capacity Reportrdquo authorrsquos computation
594-71613_ch01_4Pindd 30 102017 404 PM
Vadim Grishin 31
HEAVY METAL
Taken together US imports of metals and US imports of oil compose about 80 percent of US
total imports from Rus sia (Figure 59) Trade of metals like other commodities is strongly afected
by market price fluctuations Nevertheless metal imports from Rus sia have been fairly resilient to
market volatility and their average annual value has hovered at about $4 billion in the last five years
(Figure 510) This market resilience was forged at the end of the 1990searly 2000s when Rus sian
metal producers gradually modernized their plants adjusting quality of production to Western
standards and enhancing integration into global value and supply chains Some of them conquered
their share of the highly competitive US market struggling with peers from Canada and certain
BRICS countries (China India and Brazil) To attract additional resources all Rus sian large metal-
producing companies became public and were listed on stock exchanges chiefly the London Stock
Exchange (Severstalrsquo PAO Evraz MMK OAO Novolipetsk Steel Norilsk Nikel and TMK PAO) one
on the New York Stock Exchange (Mechel) and one on the Hong Kong Stock Exchange (Rusal)
Business logic pushed some of them to invest in the US metal- making industry which was hit
hard by crisis Later on some of those assets were sold (eg two US steel mills acquired by
Severstal in 2004 were purchased 10 years later by Steel Dynamics Inc and AK Steel Corp)
Figure 57 Share of US States Rus sian Oil Imports 2016
Source US EIA ldquoUS Imports from Rus sia of Crude Oil and Petroleum Productsrdquo Petroleum amp Other
Liquids September 29 2017 https www eia gov dnav pet hist LeafHandler ashx nshy=shyPETampsshy=shyMTTIM _ NUS
- NRS _ 1ampfshy=shyM authorrsquos computation
0
10
20
30
40
50
60
70
80
90
100
Maine
Massachusetts
Maryland
Connecticut
Georgia
Rhode Island
Virginia
Florida
New York
Alabama
Puerto Rico
Pennsylvania
Delaware
Hawaii
Washington
Mississippi
California
New Jersey
Louisiana
Texas
594-71613_ch01_4Pindd 31 102017 404 PM
Figure 58 US Imports from Rus sia by State Million US$ 2013ndash2016
Source US Census Bureau ldquoState and Metropolitan Area Trade Datardquo Foreign Trade last modified
October 2 2017 https wwwcensus gov foreign - trade statistics state
Alaska
Connecticut
Delaware
Hawaii
Louisiana
Maryland
North Dakota 0
$1000
$2000
$3000
$4000
$5000
$6000
2013 2014 2015 2016
Alabama
Alaska
Connecticut
Delaware
Hawaii
Louisiana
Maryland
Maine
Mississippi
Montana
North Dakota
Mississippi
Figure 59 US Imports from Rus sia Share of Oil and Metals Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
83
82
85
86
87
88
85
82
7375
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
$40000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil and Metals
594-71613_ch01_4Pindd 32 102017 404 PM
Vadim Grishin 33
Obviously the market dynamic of dif er ent metals varies (eg iron steel aluminum platinum and
nickel) Caps to increase their trade and production in a ldquored oceanrdquo global environment with
anemic demand is rather limited despite Figure 510 showing a spike of iron and steel imports
from Rus sia in 2014 and aluminum in 2016 Some opportunities may exist for Russian- owned steel
plants in the United States (such as NLMK) to participate in energy proj ects resumed under Presi-
dent Trump who has required that new pipelines use only American- made steel15
Rus sia occupies a special niche in the US market for titanium products a high- end metal indus-
try Twenty years ago a long- term contract was signed between Rus sian titanium producer
VSMPO- AVISMA and Boeing The Rus sian com pany entered the selective club of Boeing suppliers
for the manufacture of components and semi- finished products Since the signing of this contract
VSMPO has delivered more than 35 percent of all titanium placed on Boeing civil aircraft16 They
are hidden in the trade data in an import category for Civilian Aircrafts and Parts (Figure 511) At
the end of 2016 Boeing announced an extension of its framework agreement with AVISMA
15 E Scheyder C Ngai and T Sylvester ldquoAmerican Steel Unlikely to Get Keystone Boost Despite Trump Orderrdquo
Reuters January 27 2017 http wwwreuters com article usa - trump - pipeline - transcanada - idUSL1N1FH1ZD
16 A Kramer ldquoTitanium Fills Vital Role for Boeing and Rus siardquo New York Times July 5 2013 http wwwnytimes com
2013 07 06 business global titanium - fills - vital - role - for - boeing - and - russia html mcubzshy=shy3
Figure 510 US Imports from Rus sia Iron Steel Bauxite Aluminum Nickel Nonferrous Metals and Other Precious Metals and Materials US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
0
$6000000000
$5000000000
$4000000000
$3000000000
$2000000000
$1000000000
2007 2008 2009 2010 2011 20122013
20142015
2016
Finished metal shapes
Iron and steel advanced
Iron and steel products nec
Nonferrous metals other
Other precious metals
Nickel
Bauxite and aluminum
Iron and steel mill products
Steelmaking materials
594-71613_ch01_4Pindd 33 102017 404 PM
US-Russia Economic Relations34
through 2022 and additional investments in the construction of a new robotic plant in Titanium
Valley a special economic zone located in the Sverdlovsk region that will open in 2018 The pro-
cessing of titanium forgings in all Boeing civil aircraft will be performed there including 787s 737
MAXs and 777Xs17 The contract extension with AVISMA may add several hundred million dollars
in value to annual US imports from Rus sia
How can such heavy reliance on imports of Rus sian titanium exist during a period of rising geopo-
liti cal tensions The answer is straightforward VSMPO- AVISMA is a highly specialized natu ral
mono poly producing 45 percent of the worldrsquos aerospace titanium Only four other countries
smelt high- grade titanium in industrial quantities the United States Germany Japan and China
Overall global production capacity is limited while demand is growing The United States cur-
rently imports around 79 percent of all the titanium it consumes each year18
17 ldquoBoeing and VSMPO Avisma to Launch Second Joint Production Siterdquo Rus sian Aviation Insider December 22 2016
http wwwrusaviainsider com boeing - and - vsmpo - avisma - to - launch - second - joint - production - site
18 Jon Ostrower and Andy Pasztor ldquoBoeing United Technologies Stockpile Titanium Partsrdquo Wall Street Journal
August 7 2014 https wwwwsj com articles boeing - united - technologies - stockpiling - titanium - parts - 1407441886
Figure 511 US Imports from Rus sia Civilian Aircrafts and Parts US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
$200000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Parts-civilian aircraft
Civilian aircraft
594-71613_ch01_4Pindd 34 102017 404 PM
Vadim Grishin 35
The Sanctions Act authorizes the secretary of the trea sury (in a nonmandatory way) to impose
restrictions (without specifying them) against Rus sian state- owned entities operating in the railway
metals and mining sectors of the Rus sian economy Despite the commanding heights of Rus siarsquos
state sector owner ship in its economy (70 percent of GDP) the metal- producing companies have
remained mostly in private hands
NUCLEAR AFFAIRS
Historically owners and operators of the 104 commercial nuclear power reactors in the United
States have purchased more than 80 percent of their uranium from foreign countries Uranium
shipping from Rus sia accounted for about 13 percent of the 58 million pounds of uranium pur-
chased overseas in 201219 At the same time the Rus sian state- owned mono poly Rosatom ac-
counts for 20 percent of Kazakhstanrsquos uranium production (which in turn comprises 11 percent of
all US uranium imports) and 20 percent of US domestic uranium production capacity (with
owner ship of exploration tracts in Wyoming)20
Nuclear fuel and nuclear power continue to be po liti cally sensitive topics both in the United
States and Rus sia Bilateral cooperation in this sector (being surprisingly stable with imports of
nuclear fuel from Rus sia at a level of $1 billion annually in the last five years [Figure 512 and 513])
is under constant po liti cal and lobbying pressure and has been a source of several po liti cal scan-
dals21 Consequently upside risks in this area of interaction are minimal and downside risks are
much higher especially when we are seeing more decommissioning of nuclear plants in the
United States than new constructions The US EIArsquos 2017 Annual Energy Outlook assumes
that about 25 percent of the nuclear capacity now operating will be removed from ser vice
by 205022
WHY IS THE GRASS GREENER ON THE OTHER SIDE
The United States continues to significantly reduce imports of chemical fertilizers as domestic pro-
duction increases In 2016 the United States imported 13 percent less ammonia and 11 percent
less urea and UAN which is a liquid urea and ammonium nitrate fertilizer Rus sia accounts for
around 40 percent of UAN imported by the United States The United States canceled antidumping
duties on imports of ammonium nitrate and urea from Rus sia in 2016 but it did not prevent import
19 US EIA ldquoThe US Relies on Foreign Uranium Enrichment Ser vices to Fuel Its Nuclear Power Plantsrdquo Today in
Energy August 28 2013 https wwweia gov todayinenergy detail php idshy=shy1273
20 Colin Chilcoat ldquoDoes Rus sia Really Own 20 Percent of the USrsquo Uranium Reservesrdquo OilPricecom May 6 2015
http oilpricecom Alternative - Energy Nuclear - Power Does - Russia - Really - Own - 20 - Of - The - US - Uranium - Reserves
html
21 Michelle Ye Hee Lee ldquoThe Facts behind Trumprsquos Repeated Claim about Hillary Clintonrsquos Role in the Rus sian Ura-
nium Dealrdquo Washington Post October 26 2016
22 US EIA ldquoAnnual Energy Outlook 2017 with Projections to 2050rdquo 81ndash82
594-71613_ch01_4Pindd 35 102017 404 PM
Figure 512 US Imports from Rus sia Share of Oil Metals and Nuclear Fuel Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
87
86
90
90
90
91
88
86
7882
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals and Nuclear Fuel
Figure 513 US Imports from Rus sia Nuclear Fuel Materials US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$-
$200000000
$400000000
$600000000
$800000000
$1200000000
$1000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 36 102017 404 PM
Vadim Grishin 37
drops twice last year (Figures 514 and 515) According to forecasts UAN imports are expected to
decline further to 15 million tons this year down over 46 percent from 28 million tons imported
last year23 The downside trend in imports of fertilizers will likely continue because of oversupply
BIG FISH
US imports of fish and shellfish from Rus sia are best understood in comparison with US fish
exports to the Rus sian market which slipped to zero in August 2014 after Rus sia issued an order
banning certain agricultural imports from the United States (Figure 516) While the volume of US
supply was not very large it was impor tant because it broke up the monopolistic dominance of a
few vertically integrated Rus sian companies that have kept prices high by restricting the entry of
new producers Seeking to implement import substitution policies Rus sia has tried to reduce
exports as well as imports of fish and seafood products in the last couple of years This symmetri-
cal approach was intended to ldquocompensaterdquo for a decrease of fish products in the domestic
23 Deepika Thapliyal ldquoPotashCorp Forecasts Sharp Drop in US Nitrogen Imports in 2017rdquo ICIS News February 7
2017 https wwwicis com resources news 2017 02 07 10076734 potashcorp - forecasts - sharp - drop - in - us - nitrogen
- imports - in - 2017
Figure 514 US Imports from Rus sia Share of Oil Metals Nuclear Fuel and Fertilizers Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
90
93
92
93
94
95
92
91
85
86
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals Nuclear Fuel and Fertilizers
594-71613_ch01_4Pindd 37 102017 404 PM
Figure 515 US Imports from Rus sia Chemical- Fertilizers US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
S-
$200000000
$400000000
$600000000
$800000000
$1000000000
$1200000000
$1400000000
$1600000000
$1800000000
$2000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Figure 516 US Exports to Rus sia Fish and Shellfish US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$10000000
$20000000
$30000000
$40000000
$50000000
$60000000
$70000000
$80000000
$90000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Fish and shellfish
594-71613_ch01_4Pindd 38 102017 404 PM
Vadim Grishin 39
consumer market caused by Rus siarsquos import ban but it has failed As result the group most af-
fected by the self- imposed counter- sanctions were Rus sian consumers
With a significant drop in fish imports a devaluation of the ruble and inflationary pressures on
seafood prices yearly consumption of fish in Rus sia has declined precipitously In 2015 alone
fish prices increased 20 percent and consumption dropped to 14 kilograms per person24 from
22 kilograms in 201425 In 2016 food rose to 355 percent of house hold expenditure as a result of
increases in food prices26 This has pushed vertically integrated fishing monopolies to sell even
more of their catch abroad rather than deliver to the Rus sian Federation (Figure 517) Thus we
cannot exclude the possibility of further growth in US fish and shellfish imports from Rus sia on a
marginal scale
24 Александр Савельев ldquoПотребление рыбы в России упало до 14 кг на человекаrdquo [Fish consumption in Rus sia fell to
14 kg per person] Экономика Интерфакс January 28 2015 http wwwinterfax ru business 492038
25 Илья Шестаков ldquoПотебление рыбы в России снизилось на 10 процентов из- за роста ценrdquo [Fish consumption in
Rus sia dropped by 10 percent due to price increases] RNS March 8 2017 https rnsonline consumer - market
Potreblenie - ribi - v - Rossii - snizilos - na - 10 - iz - za - rosta - tsen - 2017 - 03 - 08
26 Zoya Sheftalovich and Christian Oliver ldquoRus siarsquos Boom (Farming) Economyrdquo Politico November 8 2016 http
wwwpolitico eu article russias - boom - farming - economy
Figure 517 US Imports from Rus sia Fish and Shellfish US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$50000000
$100000000
$150000000
$200000000
$250000000
$300000000
$350000000
$400000000
$450000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 39 102017 404 PM
US-Russia Economic Relations40
SPACE ODYSSEY
Among high- end products beyond the top five groups of goods imported from Rus sia cheap and
efficient Rus sian engines have been used to launch US rockets into space for about 16 years
(Figure 518) There was a serious po liti cal strug gle around a 2014 ban on the purchase of Rus sian
RD-180 rocket engines revealing the conflicting business interests of power ful high- tech companies
This restrictive mea sure was temporary and was quickly lifted because of significant cost impacts
and risks of disruption to launch schedules27 For the same reason the Sanctions Act does not autho-
rize ldquothe imposition of any sanction or other condition limitation restriction or prohibition that
directly or indirectly impedes the supply by any entity of the Rus sian Federation of any product or
ser vice or the procurement of such product or ser vice by any contractor or subcontractor of the
United States or any other entity relating to or in connection with any space launch conducted for
the National Aeronautics and Space Administration or any other nonndash Department of Defense
customerrdquo28
Nevertheless many experts believe that US domestic alternatives to replace Rus sian engines will
be viable in five to eight years
27 Ken Dilanian ldquoWhy Does the US Use Rus sian Rockets to Launch Its Satellitesrdquo NBC News updated November 15
2016 http wwwnbcnews com why - does - u - s - use - russian - rockets - launch - its - satellites - n588526
28 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364
Figure 518 Spacecraft Excluding Military US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 40 102017 404 PM
41
Diversity and technological complexity are the most vis i ble advantages supporting US exports to
Rus sia Three major groups of export goods include civilian aircraft engines and parts (Figure 61)
drilling and oil field equipment (Figure 62) and industrial machines and engines (Figure 63)
Despite sanctions against the transfer of advanced oil producing and pro cessing technologies the
realization of US drilling and oil field equipment in Rus sia is sustainable although some bilateral
proj ects have been frozen
Another category of goods that has demonstrated resilience is the phar ma ceu ti cal industry (Fig-
ure 64) because most drugs in Rus sia are imported (about 70 percent of the Rus sian phar ma ceu-
ti cal market in value) Import substitution policies have had only modest results in this industry
As confirmed by American Chamber of Commerce surveys US exports to Rus sia are closely
connected to US FDI 30 percent of total imports of US companies working in the Rus sian
market come from the United States (more than $2 billion in 2016) In other words about
40 percent of all US exports to Rus sia are related to a US corporate- sector business pro cess in
the country The major sectors of activity of these companies are energy and natu ral resources
(52 percent) manufacturing (17 percent) information and communications technology or ICT
(13 percent) retail (7 percent) automotive industry (6 percent) phar ma ceu ti cal production
(1 percent) professional ser vices (05 percent) and other (2 percent)1
Some obvious constraints on US exports to Rus sia have resulted from a reduction in demand A
deterioration of bilateral relations and implementation of sanctions and counter- sanctions have
directly or indirectly afected all businesses Figures 65 and 66 provide data regarding a dramatic
drop in the sale of US agricultural production in Rus sia with all other categories of exports in
goods showing big cuts as well (see Figures 67ndash69)
Exports of civilian aircraft engines and parts put the state of Washington in first place among
other states as a leading exporter to the Rus sian market (Figure 610)
1 American Chamber of Commerce in Rus sia ldquoInvestment and Import to Rus sia 2nd Surveyrdquo 13
Diversity and Constraints
06
594-71613_ch01_4Pindd 41 102017 404 PM
Figure 61 US Exports of Civilian Aircraft Engines Equipment and Parts to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
$2500000000
$2000000000
$1500000000
$1000000000
$500000000
$-
Figure 62 US Exports of Drilling and Oil Field Equipment US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
$40000000
$45000000
$50000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 42 102017 404 PM
Figure 63 US Exports of Industrial Engines to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Figure 64 US Exports of Phar ma ceu ti cal Preparations to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 43 102017 404 PM
Figure 65 US Exports of Meat and Poultry to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Meat poultry etc
$1000000000
$800000000
$600000000
$400000000
$200000000
$-
$1200000000
$1400000000
$1600000000
Figure 66 US Exports of Soybeans to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
$200000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 44 102017 404 PM
Figure 67 US Exports of Vehicles Engines and Parts to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Other parts and accessories of vehicles
Automotive tires and tubes
Bodies and chassis for passenger cars
Engines and engine parts (carburetors pistonsrings and valves)
Trucks buses and special purpose vehicles
Passenger cars new and used
$2500000000
$2000000000
$1500000000
$500000000
$-
$1000000000
Figure 68 US Exports of Medicinal Equipment to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 45 102017 404 PM
Figure 610 US Exports to Rus sia by States (2016 US$ Value) Million US$ 2013ndash2016
Source US Census Bureau ldquoState and Metropolitan Area Trade Datardquo
Iowa Kentucky
North Dakota
Oklahoma
South Carolina
Washington
0
$500
$1000
$1500
$2000
2013 2014 2015 2016
District of Columbia
Iowa
Kentucky
North Dakota
Oklahoma
South Carolina
Washington
Figure 69 US Exports of Excavating Machinery to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
$40000000
$45000000
$50000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 46 102017 404 PM
47
Upon reviewing the current trend in US- Russia economic relations we must acknowledge that
the existing trade model is obsolete and exhausted Imports are resource- oriented and reflect
constraints of the Rus sian economic structure while five groups of goodsmdash oil metals nuclear
fuels fertilizers and fishmdash make up more than 90 percent of total imports from Rus sia (Figure 71)
Each of these industries has a limited capacity for growth in the foreseeable future
Rus siarsquos core export to the United Statesmdash oilmdash will inevitably decrease in the mid- term under any
scenario The value and volume of Rus sian exports to the United States are open to global market
volatility and po liti cal pressures with limited hedging mechanisms
Overall US exports to Rus sia are unsustainable due to bilateral po liti cal tensions the whims of
commodity markets and changing domestic policies Sanctions and counter- sanctions have
created additional barriers particularly in finance banking high- tech energy and agro- business
According to the American Chamber of Commerce 69 percent of US companies working in the
country consider the impact of US sanctions against Rus sia on their business as negative At the
same time 60 percent of companies do not expect big changes in business relations between
Rus sia and the United States under Trump1 as the new law codifies existing sanctions fortifies
them and extends them to new sectors
Current US investments are low due to the weak rule of law in Rus sia a lack of property right
protections and proper contract enforcement high levels of statization and monopolization in the
economy a poor business climate outdated capital stock dependence on natural- resource
sectors and of course sanction and counter- sanction mea sures Bloated administrative compo-
nents created as risk mitigation instruments have also served as impediments The countryrsquos
institutional weakness low level of productivity bud get constraints and a declining inflexible
workforce will restrain future economic growth even if commodity prices recover Rus sian eco-
nomic policy will likely continue to be statist and protectionist relying mostly on import
substitutions
1 Ibid 11
Existing Trends and Future Scenarios
07
594-71613_ch01_4Pindd 47 102017 404 PM
US-Russia Economic Relations48
What scenarios can be expected in such a challenging environment
One probability (no peace no war) is based on the assumption that matters will not deteriorate
further and implementation of the Sanctions Act will be cursory This will cause relatively slow
degradation in the economic field with occasional flashes of activity in selected areas (eg closer
cooperation against Islamist terrorist groups in Syria)
A second worse case or critical scenario is the intensive and full- scale execution of current sanc-
tion legislation and even the imposition of new economic punitive and restrictive mea sures which
could incite asymmetric retaliatory actions and lead to the introduction of additional protectionist
policies This in turn could trigger a further escalation of mutual confrontation and could eventu-
ally destroy the fundamentals of the current bilateral trade system Rus sian leadership has charac-
terized the Sanctions Act as a declaration of a trade war that ends all hope for improving bilateral
relations2
2 Дмитрий Медведев ldquoПодписание президентом США нового санкционного закона против России создает несколько
последствийrdquo [The US Presidentrsquos signing of the package of new sanctions against Rus sia will have a few conse-
quences] Facebook August 2 2017 https wwwfacebook com Dmitry Medvedev posts 10154587161801851
Figure 71 US Imports from Rus sia Share of Oil Metals Nuclear Fuel Fertilizers and Fish Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
93
94
93
94
95
96
93
92
87
89
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals Nuclear FuelFertilizers and Fish
594-71613_ch01_4Pindd 48 102017 404 PM
Vadim Grishin 49
The best case and most favorable scenario looks less probable now It assumes the realization of
structural reforms in Rus sia in such a way that would adapt Rus siarsquos foreign policy to national
economic needs reduce confrontations with the West and make a concerted efort to integrate
Rus sian businesses into global supply and value chains A revitalization of the structural reform
agendamdash including eforts to diversify economic activities through de- monopolization and support
for SMEs a restructuring of the banking sector the creation of a vibrant business climate to foster
entrepreneurships and innovation the implementation of administrative and judicial reforms to
tackle red tape and endemic corruption and the reduction of state control over key sectors of the
economy via wide- spread privatization could kick- start the development of a nonoil economy and
improve long- term growth prospects Despite ongoing discussion of reform strategies deep
economic and po liti cal changes are extremely complicated over the next po liti calelectoral cycle
(2018ndash2024) particularly because of re sis tance of vested interests and growing commodity prices
The urgency to tackle structural shortcomings in natu ral resource- dependent economies usually
correlates with the price of those resources and the degree to which resource rents drive eco-
nomic activity However there may be marginal improvements in the efficiency of the current
economic system
Future US- Russia relations can be thought of through three pillars one pillar focuses on areas
where both countries maintain a competitive rivalry another looks at potential areas of interaction
under pres ent conditions a third pillar and one that has evaporated from the current bilateral
agenda concentrates on future cooperation Stronger economic ties could not only be a kind of
po liti cal shock absorber but contribute to the building of this future (particularly business contacts
aim to support future structural reforms) although po liti cal factors are depressing the prospects
for cooperation To escape deadlock it will be impor tant to establish the right balance between
politics and economics and create a model of collaboration within the framework of contention
594-71613_ch01_4Pindd 49 102017 404 PM
About the Author
Vadim Grishin PhD MBA has been involved in the reform pro cess in Rus sia as adviser to the
deputy prime minister of Rus sia in 1992ndash1993 and 2006ndash2010 He has extensive experience
working with the Bretton Woods Institutions He was the board member of the World Bank Group
and served as se nior adviser at the International Monetary Fund Currently he is a con sul tant to the
chief economistrsquos office of the International Finance Corporation and teaches the economics of
transition at Georgetown University in Washington DC
50
594-71613_ch99_4Pindd 50 102017 403 PM
Blank
COVER PHOTO ADOBE STOCK
1616 Rhode Island Avenue NW
Washington DC 20036
202 887 0200 | wwwcsisorg
v++ISBN 978-1-4422-8035-9
Lanham bull Boulder bull New York bull London
4501 Forbes Boulevard
Lanham MD 20706
301 459 3366 | wwwrowmancom
A U T H O R
Vadim Grishin
Myths and Realities
A Report of the
CSIS RUSSIA AND EURASIA PROGRAM
US-RussiaEconomicRelations
O C T O B E R 2 0 1 7
Euml|xHSLEOCy280359z
The Man Pupu Nyor Rock Formations at the Northern Urals also known as Seven
Strong Man or Little Mountain of the God in the local tribe (Mansi) language
US-Russia Economic Relations30
Table 58 Valerorsquos Refineries Pro cessing Rus sian Oil Thousands of Barrels 2016
Saint Charles Louisiana 29206 535
Corpus Christi Texas 20626 378
Wilmington California 4250 78
Total USA 54590 100
Source US EIA ldquoRefinery Capacity Reportrdquo January 1 2017
table 5 wwweia gov petroleum refinerycapacity table5 pdf
authorrsquos computation
Table 59 ExxonMobil Refineries Pro cessing Rus sian Oil Thousands of Barrels 2016
Baytown Texas 15037 88
Baton Rouge Louisiana 2046 12
Total USA 17083 100
Source US EIA ldquoRefinery Capacity Reportrdquo authorrsquos computation
Table 510 Chevronrsquos Refineries Pro cessing Rus sian Oil Thousands of Barrels 2016
Pascagoula Mississippi 12767 840
El Segundo California 2372 155
Saint Rose Louisiana 78 05
Total USA 15217 100
Source US EIA ldquoRefinery Capacity Reportrdquo authorrsquos computation
594-71613_ch01_4Pindd 30 102017 404 PM
Vadim Grishin 31
HEAVY METAL
Taken together US imports of metals and US imports of oil compose about 80 percent of US
total imports from Rus sia (Figure 59) Trade of metals like other commodities is strongly afected
by market price fluctuations Nevertheless metal imports from Rus sia have been fairly resilient to
market volatility and their average annual value has hovered at about $4 billion in the last five years
(Figure 510) This market resilience was forged at the end of the 1990searly 2000s when Rus sian
metal producers gradually modernized their plants adjusting quality of production to Western
standards and enhancing integration into global value and supply chains Some of them conquered
their share of the highly competitive US market struggling with peers from Canada and certain
BRICS countries (China India and Brazil) To attract additional resources all Rus sian large metal-
producing companies became public and were listed on stock exchanges chiefly the London Stock
Exchange (Severstalrsquo PAO Evraz MMK OAO Novolipetsk Steel Norilsk Nikel and TMK PAO) one
on the New York Stock Exchange (Mechel) and one on the Hong Kong Stock Exchange (Rusal)
Business logic pushed some of them to invest in the US metal- making industry which was hit
hard by crisis Later on some of those assets were sold (eg two US steel mills acquired by
Severstal in 2004 were purchased 10 years later by Steel Dynamics Inc and AK Steel Corp)
Figure 57 Share of US States Rus sian Oil Imports 2016
Source US EIA ldquoUS Imports from Rus sia of Crude Oil and Petroleum Productsrdquo Petroleum amp Other
Liquids September 29 2017 https www eia gov dnav pet hist LeafHandler ashx nshy=shyPETampsshy=shyMTTIM _ NUS
- NRS _ 1ampfshy=shyM authorrsquos computation
0
10
20
30
40
50
60
70
80
90
100
Maine
Massachusetts
Maryland
Connecticut
Georgia
Rhode Island
Virginia
Florida
New York
Alabama
Puerto Rico
Pennsylvania
Delaware
Hawaii
Washington
Mississippi
California
New Jersey
Louisiana
Texas
594-71613_ch01_4Pindd 31 102017 404 PM
Figure 58 US Imports from Rus sia by State Million US$ 2013ndash2016
Source US Census Bureau ldquoState and Metropolitan Area Trade Datardquo Foreign Trade last modified
October 2 2017 https wwwcensus gov foreign - trade statistics state
Alaska
Connecticut
Delaware
Hawaii
Louisiana
Maryland
North Dakota 0
$1000
$2000
$3000
$4000
$5000
$6000
2013 2014 2015 2016
Alabama
Alaska
Connecticut
Delaware
Hawaii
Louisiana
Maryland
Maine
Mississippi
Montana
North Dakota
Mississippi
Figure 59 US Imports from Rus sia Share of Oil and Metals Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
83
82
85
86
87
88
85
82
7375
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
$40000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil and Metals
594-71613_ch01_4Pindd 32 102017 404 PM
Vadim Grishin 33
Obviously the market dynamic of dif er ent metals varies (eg iron steel aluminum platinum and
nickel) Caps to increase their trade and production in a ldquored oceanrdquo global environment with
anemic demand is rather limited despite Figure 510 showing a spike of iron and steel imports
from Rus sia in 2014 and aluminum in 2016 Some opportunities may exist for Russian- owned steel
plants in the United States (such as NLMK) to participate in energy proj ects resumed under Presi-
dent Trump who has required that new pipelines use only American- made steel15
Rus sia occupies a special niche in the US market for titanium products a high- end metal indus-
try Twenty years ago a long- term contract was signed between Rus sian titanium producer
VSMPO- AVISMA and Boeing The Rus sian com pany entered the selective club of Boeing suppliers
for the manufacture of components and semi- finished products Since the signing of this contract
VSMPO has delivered more than 35 percent of all titanium placed on Boeing civil aircraft16 They
are hidden in the trade data in an import category for Civilian Aircrafts and Parts (Figure 511) At
the end of 2016 Boeing announced an extension of its framework agreement with AVISMA
15 E Scheyder C Ngai and T Sylvester ldquoAmerican Steel Unlikely to Get Keystone Boost Despite Trump Orderrdquo
Reuters January 27 2017 http wwwreuters com article usa - trump - pipeline - transcanada - idUSL1N1FH1ZD
16 A Kramer ldquoTitanium Fills Vital Role for Boeing and Rus siardquo New York Times July 5 2013 http wwwnytimes com
2013 07 06 business global titanium - fills - vital - role - for - boeing - and - russia html mcubzshy=shy3
Figure 510 US Imports from Rus sia Iron Steel Bauxite Aluminum Nickel Nonferrous Metals and Other Precious Metals and Materials US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
0
$6000000000
$5000000000
$4000000000
$3000000000
$2000000000
$1000000000
2007 2008 2009 2010 2011 20122013
20142015
2016
Finished metal shapes
Iron and steel advanced
Iron and steel products nec
Nonferrous metals other
Other precious metals
Nickel
Bauxite and aluminum
Iron and steel mill products
Steelmaking materials
594-71613_ch01_4Pindd 33 102017 404 PM
US-Russia Economic Relations34
through 2022 and additional investments in the construction of a new robotic plant in Titanium
Valley a special economic zone located in the Sverdlovsk region that will open in 2018 The pro-
cessing of titanium forgings in all Boeing civil aircraft will be performed there including 787s 737
MAXs and 777Xs17 The contract extension with AVISMA may add several hundred million dollars
in value to annual US imports from Rus sia
How can such heavy reliance on imports of Rus sian titanium exist during a period of rising geopo-
liti cal tensions The answer is straightforward VSMPO- AVISMA is a highly specialized natu ral
mono poly producing 45 percent of the worldrsquos aerospace titanium Only four other countries
smelt high- grade titanium in industrial quantities the United States Germany Japan and China
Overall global production capacity is limited while demand is growing The United States cur-
rently imports around 79 percent of all the titanium it consumes each year18
17 ldquoBoeing and VSMPO Avisma to Launch Second Joint Production Siterdquo Rus sian Aviation Insider December 22 2016
http wwwrusaviainsider com boeing - and - vsmpo - avisma - to - launch - second - joint - production - site
18 Jon Ostrower and Andy Pasztor ldquoBoeing United Technologies Stockpile Titanium Partsrdquo Wall Street Journal
August 7 2014 https wwwwsj com articles boeing - united - technologies - stockpiling - titanium - parts - 1407441886
Figure 511 US Imports from Rus sia Civilian Aircrafts and Parts US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
$200000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Parts-civilian aircraft
Civilian aircraft
594-71613_ch01_4Pindd 34 102017 404 PM
Vadim Grishin 35
The Sanctions Act authorizes the secretary of the trea sury (in a nonmandatory way) to impose
restrictions (without specifying them) against Rus sian state- owned entities operating in the railway
metals and mining sectors of the Rus sian economy Despite the commanding heights of Rus siarsquos
state sector owner ship in its economy (70 percent of GDP) the metal- producing companies have
remained mostly in private hands
NUCLEAR AFFAIRS
Historically owners and operators of the 104 commercial nuclear power reactors in the United
States have purchased more than 80 percent of their uranium from foreign countries Uranium
shipping from Rus sia accounted for about 13 percent of the 58 million pounds of uranium pur-
chased overseas in 201219 At the same time the Rus sian state- owned mono poly Rosatom ac-
counts for 20 percent of Kazakhstanrsquos uranium production (which in turn comprises 11 percent of
all US uranium imports) and 20 percent of US domestic uranium production capacity (with
owner ship of exploration tracts in Wyoming)20
Nuclear fuel and nuclear power continue to be po liti cally sensitive topics both in the United
States and Rus sia Bilateral cooperation in this sector (being surprisingly stable with imports of
nuclear fuel from Rus sia at a level of $1 billion annually in the last five years [Figure 512 and 513])
is under constant po liti cal and lobbying pressure and has been a source of several po liti cal scan-
dals21 Consequently upside risks in this area of interaction are minimal and downside risks are
much higher especially when we are seeing more decommissioning of nuclear plants in the
United States than new constructions The US EIArsquos 2017 Annual Energy Outlook assumes
that about 25 percent of the nuclear capacity now operating will be removed from ser vice
by 205022
WHY IS THE GRASS GREENER ON THE OTHER SIDE
The United States continues to significantly reduce imports of chemical fertilizers as domestic pro-
duction increases In 2016 the United States imported 13 percent less ammonia and 11 percent
less urea and UAN which is a liquid urea and ammonium nitrate fertilizer Rus sia accounts for
around 40 percent of UAN imported by the United States The United States canceled antidumping
duties on imports of ammonium nitrate and urea from Rus sia in 2016 but it did not prevent import
19 US EIA ldquoThe US Relies on Foreign Uranium Enrichment Ser vices to Fuel Its Nuclear Power Plantsrdquo Today in
Energy August 28 2013 https wwweia gov todayinenergy detail php idshy=shy1273
20 Colin Chilcoat ldquoDoes Rus sia Really Own 20 Percent of the USrsquo Uranium Reservesrdquo OilPricecom May 6 2015
http oilpricecom Alternative - Energy Nuclear - Power Does - Russia - Really - Own - 20 - Of - The - US - Uranium - Reserves
html
21 Michelle Ye Hee Lee ldquoThe Facts behind Trumprsquos Repeated Claim about Hillary Clintonrsquos Role in the Rus sian Ura-
nium Dealrdquo Washington Post October 26 2016
22 US EIA ldquoAnnual Energy Outlook 2017 with Projections to 2050rdquo 81ndash82
594-71613_ch01_4Pindd 35 102017 404 PM
Figure 512 US Imports from Rus sia Share of Oil Metals and Nuclear Fuel Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
87
86
90
90
90
91
88
86
7882
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals and Nuclear Fuel
Figure 513 US Imports from Rus sia Nuclear Fuel Materials US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$-
$200000000
$400000000
$600000000
$800000000
$1200000000
$1000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 36 102017 404 PM
Vadim Grishin 37
drops twice last year (Figures 514 and 515) According to forecasts UAN imports are expected to
decline further to 15 million tons this year down over 46 percent from 28 million tons imported
last year23 The downside trend in imports of fertilizers will likely continue because of oversupply
BIG FISH
US imports of fish and shellfish from Rus sia are best understood in comparison with US fish
exports to the Rus sian market which slipped to zero in August 2014 after Rus sia issued an order
banning certain agricultural imports from the United States (Figure 516) While the volume of US
supply was not very large it was impor tant because it broke up the monopolistic dominance of a
few vertically integrated Rus sian companies that have kept prices high by restricting the entry of
new producers Seeking to implement import substitution policies Rus sia has tried to reduce
exports as well as imports of fish and seafood products in the last couple of years This symmetri-
cal approach was intended to ldquocompensaterdquo for a decrease of fish products in the domestic
23 Deepika Thapliyal ldquoPotashCorp Forecasts Sharp Drop in US Nitrogen Imports in 2017rdquo ICIS News February 7
2017 https wwwicis com resources news 2017 02 07 10076734 potashcorp - forecasts - sharp - drop - in - us - nitrogen
- imports - in - 2017
Figure 514 US Imports from Rus sia Share of Oil Metals Nuclear Fuel and Fertilizers Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
90
93
92
93
94
95
92
91
85
86
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals Nuclear Fuel and Fertilizers
594-71613_ch01_4Pindd 37 102017 404 PM
Figure 515 US Imports from Rus sia Chemical- Fertilizers US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
S-
$200000000
$400000000
$600000000
$800000000
$1000000000
$1200000000
$1400000000
$1600000000
$1800000000
$2000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Figure 516 US Exports to Rus sia Fish and Shellfish US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$10000000
$20000000
$30000000
$40000000
$50000000
$60000000
$70000000
$80000000
$90000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Fish and shellfish
594-71613_ch01_4Pindd 38 102017 404 PM
Vadim Grishin 39
consumer market caused by Rus siarsquos import ban but it has failed As result the group most af-
fected by the self- imposed counter- sanctions were Rus sian consumers
With a significant drop in fish imports a devaluation of the ruble and inflationary pressures on
seafood prices yearly consumption of fish in Rus sia has declined precipitously In 2015 alone
fish prices increased 20 percent and consumption dropped to 14 kilograms per person24 from
22 kilograms in 201425 In 2016 food rose to 355 percent of house hold expenditure as a result of
increases in food prices26 This has pushed vertically integrated fishing monopolies to sell even
more of their catch abroad rather than deliver to the Rus sian Federation (Figure 517) Thus we
cannot exclude the possibility of further growth in US fish and shellfish imports from Rus sia on a
marginal scale
24 Александр Савельев ldquoПотребление рыбы в России упало до 14 кг на человекаrdquo [Fish consumption in Rus sia fell to
14 kg per person] Экономика Интерфакс January 28 2015 http wwwinterfax ru business 492038
25 Илья Шестаков ldquoПотебление рыбы в России снизилось на 10 процентов из- за роста ценrdquo [Fish consumption in
Rus sia dropped by 10 percent due to price increases] RNS March 8 2017 https rnsonline consumer - market
Potreblenie - ribi - v - Rossii - snizilos - na - 10 - iz - za - rosta - tsen - 2017 - 03 - 08
26 Zoya Sheftalovich and Christian Oliver ldquoRus siarsquos Boom (Farming) Economyrdquo Politico November 8 2016 http
wwwpolitico eu article russias - boom - farming - economy
Figure 517 US Imports from Rus sia Fish and Shellfish US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$50000000
$100000000
$150000000
$200000000
$250000000
$300000000
$350000000
$400000000
$450000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 39 102017 404 PM
US-Russia Economic Relations40
SPACE ODYSSEY
Among high- end products beyond the top five groups of goods imported from Rus sia cheap and
efficient Rus sian engines have been used to launch US rockets into space for about 16 years
(Figure 518) There was a serious po liti cal strug gle around a 2014 ban on the purchase of Rus sian
RD-180 rocket engines revealing the conflicting business interests of power ful high- tech companies
This restrictive mea sure was temporary and was quickly lifted because of significant cost impacts
and risks of disruption to launch schedules27 For the same reason the Sanctions Act does not autho-
rize ldquothe imposition of any sanction or other condition limitation restriction or prohibition that
directly or indirectly impedes the supply by any entity of the Rus sian Federation of any product or
ser vice or the procurement of such product or ser vice by any contractor or subcontractor of the
United States or any other entity relating to or in connection with any space launch conducted for
the National Aeronautics and Space Administration or any other nonndash Department of Defense
customerrdquo28
Nevertheless many experts believe that US domestic alternatives to replace Rus sian engines will
be viable in five to eight years
27 Ken Dilanian ldquoWhy Does the US Use Rus sian Rockets to Launch Its Satellitesrdquo NBC News updated November 15
2016 http wwwnbcnews com why - does - u - s - use - russian - rockets - launch - its - satellites - n588526
28 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364
Figure 518 Spacecraft Excluding Military US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 40 102017 404 PM
41
Diversity and technological complexity are the most vis i ble advantages supporting US exports to
Rus sia Three major groups of export goods include civilian aircraft engines and parts (Figure 61)
drilling and oil field equipment (Figure 62) and industrial machines and engines (Figure 63)
Despite sanctions against the transfer of advanced oil producing and pro cessing technologies the
realization of US drilling and oil field equipment in Rus sia is sustainable although some bilateral
proj ects have been frozen
Another category of goods that has demonstrated resilience is the phar ma ceu ti cal industry (Fig-
ure 64) because most drugs in Rus sia are imported (about 70 percent of the Rus sian phar ma ceu-
ti cal market in value) Import substitution policies have had only modest results in this industry
As confirmed by American Chamber of Commerce surveys US exports to Rus sia are closely
connected to US FDI 30 percent of total imports of US companies working in the Rus sian
market come from the United States (more than $2 billion in 2016) In other words about
40 percent of all US exports to Rus sia are related to a US corporate- sector business pro cess in
the country The major sectors of activity of these companies are energy and natu ral resources
(52 percent) manufacturing (17 percent) information and communications technology or ICT
(13 percent) retail (7 percent) automotive industry (6 percent) phar ma ceu ti cal production
(1 percent) professional ser vices (05 percent) and other (2 percent)1
Some obvious constraints on US exports to Rus sia have resulted from a reduction in demand A
deterioration of bilateral relations and implementation of sanctions and counter- sanctions have
directly or indirectly afected all businesses Figures 65 and 66 provide data regarding a dramatic
drop in the sale of US agricultural production in Rus sia with all other categories of exports in
goods showing big cuts as well (see Figures 67ndash69)
Exports of civilian aircraft engines and parts put the state of Washington in first place among
other states as a leading exporter to the Rus sian market (Figure 610)
1 American Chamber of Commerce in Rus sia ldquoInvestment and Import to Rus sia 2nd Surveyrdquo 13
Diversity and Constraints
06
594-71613_ch01_4Pindd 41 102017 404 PM
Figure 61 US Exports of Civilian Aircraft Engines Equipment and Parts to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
$2500000000
$2000000000
$1500000000
$1000000000
$500000000
$-
Figure 62 US Exports of Drilling and Oil Field Equipment US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
$40000000
$45000000
$50000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 42 102017 404 PM
Figure 63 US Exports of Industrial Engines to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Figure 64 US Exports of Phar ma ceu ti cal Preparations to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 43 102017 404 PM
Figure 65 US Exports of Meat and Poultry to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Meat poultry etc
$1000000000
$800000000
$600000000
$400000000
$200000000
$-
$1200000000
$1400000000
$1600000000
Figure 66 US Exports of Soybeans to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
$200000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 44 102017 404 PM
Figure 67 US Exports of Vehicles Engines and Parts to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Other parts and accessories of vehicles
Automotive tires and tubes
Bodies and chassis for passenger cars
Engines and engine parts (carburetors pistonsrings and valves)
Trucks buses and special purpose vehicles
Passenger cars new and used
$2500000000
$2000000000
$1500000000
$500000000
$-
$1000000000
Figure 68 US Exports of Medicinal Equipment to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 45 102017 404 PM
Figure 610 US Exports to Rus sia by States (2016 US$ Value) Million US$ 2013ndash2016
Source US Census Bureau ldquoState and Metropolitan Area Trade Datardquo
Iowa Kentucky
North Dakota
Oklahoma
South Carolina
Washington
0
$500
$1000
$1500
$2000
2013 2014 2015 2016
District of Columbia
Iowa
Kentucky
North Dakota
Oklahoma
South Carolina
Washington
Figure 69 US Exports of Excavating Machinery to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
$40000000
$45000000
$50000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 46 102017 404 PM
47
Upon reviewing the current trend in US- Russia economic relations we must acknowledge that
the existing trade model is obsolete and exhausted Imports are resource- oriented and reflect
constraints of the Rus sian economic structure while five groups of goodsmdash oil metals nuclear
fuels fertilizers and fishmdash make up more than 90 percent of total imports from Rus sia (Figure 71)
Each of these industries has a limited capacity for growth in the foreseeable future
Rus siarsquos core export to the United Statesmdash oilmdash will inevitably decrease in the mid- term under any
scenario The value and volume of Rus sian exports to the United States are open to global market
volatility and po liti cal pressures with limited hedging mechanisms
Overall US exports to Rus sia are unsustainable due to bilateral po liti cal tensions the whims of
commodity markets and changing domestic policies Sanctions and counter- sanctions have
created additional barriers particularly in finance banking high- tech energy and agro- business
According to the American Chamber of Commerce 69 percent of US companies working in the
country consider the impact of US sanctions against Rus sia on their business as negative At the
same time 60 percent of companies do not expect big changes in business relations between
Rus sia and the United States under Trump1 as the new law codifies existing sanctions fortifies
them and extends them to new sectors
Current US investments are low due to the weak rule of law in Rus sia a lack of property right
protections and proper contract enforcement high levels of statization and monopolization in the
economy a poor business climate outdated capital stock dependence on natural- resource
sectors and of course sanction and counter- sanction mea sures Bloated administrative compo-
nents created as risk mitigation instruments have also served as impediments The countryrsquos
institutional weakness low level of productivity bud get constraints and a declining inflexible
workforce will restrain future economic growth even if commodity prices recover Rus sian eco-
nomic policy will likely continue to be statist and protectionist relying mostly on import
substitutions
1 Ibid 11
Existing Trends and Future Scenarios
07
594-71613_ch01_4Pindd 47 102017 404 PM
US-Russia Economic Relations48
What scenarios can be expected in such a challenging environment
One probability (no peace no war) is based on the assumption that matters will not deteriorate
further and implementation of the Sanctions Act will be cursory This will cause relatively slow
degradation in the economic field with occasional flashes of activity in selected areas (eg closer
cooperation against Islamist terrorist groups in Syria)
A second worse case or critical scenario is the intensive and full- scale execution of current sanc-
tion legislation and even the imposition of new economic punitive and restrictive mea sures which
could incite asymmetric retaliatory actions and lead to the introduction of additional protectionist
policies This in turn could trigger a further escalation of mutual confrontation and could eventu-
ally destroy the fundamentals of the current bilateral trade system Rus sian leadership has charac-
terized the Sanctions Act as a declaration of a trade war that ends all hope for improving bilateral
relations2
2 Дмитрий Медведев ldquoПодписание президентом США нового санкционного закона против России создает несколько
последствийrdquo [The US Presidentrsquos signing of the package of new sanctions against Rus sia will have a few conse-
quences] Facebook August 2 2017 https wwwfacebook com Dmitry Medvedev posts 10154587161801851
Figure 71 US Imports from Rus sia Share of Oil Metals Nuclear Fuel Fertilizers and Fish Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
93
94
93
94
95
96
93
92
87
89
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals Nuclear FuelFertilizers and Fish
594-71613_ch01_4Pindd 48 102017 404 PM
Vadim Grishin 49
The best case and most favorable scenario looks less probable now It assumes the realization of
structural reforms in Rus sia in such a way that would adapt Rus siarsquos foreign policy to national
economic needs reduce confrontations with the West and make a concerted efort to integrate
Rus sian businesses into global supply and value chains A revitalization of the structural reform
agendamdash including eforts to diversify economic activities through de- monopolization and support
for SMEs a restructuring of the banking sector the creation of a vibrant business climate to foster
entrepreneurships and innovation the implementation of administrative and judicial reforms to
tackle red tape and endemic corruption and the reduction of state control over key sectors of the
economy via wide- spread privatization could kick- start the development of a nonoil economy and
improve long- term growth prospects Despite ongoing discussion of reform strategies deep
economic and po liti cal changes are extremely complicated over the next po liti calelectoral cycle
(2018ndash2024) particularly because of re sis tance of vested interests and growing commodity prices
The urgency to tackle structural shortcomings in natu ral resource- dependent economies usually
correlates with the price of those resources and the degree to which resource rents drive eco-
nomic activity However there may be marginal improvements in the efficiency of the current
economic system
Future US- Russia relations can be thought of through three pillars one pillar focuses on areas
where both countries maintain a competitive rivalry another looks at potential areas of interaction
under pres ent conditions a third pillar and one that has evaporated from the current bilateral
agenda concentrates on future cooperation Stronger economic ties could not only be a kind of
po liti cal shock absorber but contribute to the building of this future (particularly business contacts
aim to support future structural reforms) although po liti cal factors are depressing the prospects
for cooperation To escape deadlock it will be impor tant to establish the right balance between
politics and economics and create a model of collaboration within the framework of contention
594-71613_ch01_4Pindd 49 102017 404 PM
About the Author
Vadim Grishin PhD MBA has been involved in the reform pro cess in Rus sia as adviser to the
deputy prime minister of Rus sia in 1992ndash1993 and 2006ndash2010 He has extensive experience
working with the Bretton Woods Institutions He was the board member of the World Bank Group
and served as se nior adviser at the International Monetary Fund Currently he is a con sul tant to the
chief economistrsquos office of the International Finance Corporation and teaches the economics of
transition at Georgetown University in Washington DC
50
594-71613_ch99_4Pindd 50 102017 403 PM
Blank
COVER PHOTO ADOBE STOCK
1616 Rhode Island Avenue NW
Washington DC 20036
202 887 0200 | wwwcsisorg
v++ISBN 978-1-4422-8035-9
Lanham bull Boulder bull New York bull London
4501 Forbes Boulevard
Lanham MD 20706
301 459 3366 | wwwrowmancom
A U T H O R
Vadim Grishin
Myths and Realities
A Report of the
CSIS RUSSIA AND EURASIA PROGRAM
US-RussiaEconomicRelations
O C T O B E R 2 0 1 7
Euml|xHSLEOCy280359z
The Man Pupu Nyor Rock Formations at the Northern Urals also known as Seven
Strong Man or Little Mountain of the God in the local tribe (Mansi) language
Vadim Grishin 31
HEAVY METAL
Taken together US imports of metals and US imports of oil compose about 80 percent of US
total imports from Rus sia (Figure 59) Trade of metals like other commodities is strongly afected
by market price fluctuations Nevertheless metal imports from Rus sia have been fairly resilient to
market volatility and their average annual value has hovered at about $4 billion in the last five years
(Figure 510) This market resilience was forged at the end of the 1990searly 2000s when Rus sian
metal producers gradually modernized their plants adjusting quality of production to Western
standards and enhancing integration into global value and supply chains Some of them conquered
their share of the highly competitive US market struggling with peers from Canada and certain
BRICS countries (China India and Brazil) To attract additional resources all Rus sian large metal-
producing companies became public and were listed on stock exchanges chiefly the London Stock
Exchange (Severstalrsquo PAO Evraz MMK OAO Novolipetsk Steel Norilsk Nikel and TMK PAO) one
on the New York Stock Exchange (Mechel) and one on the Hong Kong Stock Exchange (Rusal)
Business logic pushed some of them to invest in the US metal- making industry which was hit
hard by crisis Later on some of those assets were sold (eg two US steel mills acquired by
Severstal in 2004 were purchased 10 years later by Steel Dynamics Inc and AK Steel Corp)
Figure 57 Share of US States Rus sian Oil Imports 2016
Source US EIA ldquoUS Imports from Rus sia of Crude Oil and Petroleum Productsrdquo Petroleum amp Other
Liquids September 29 2017 https www eia gov dnav pet hist LeafHandler ashx nshy=shyPETampsshy=shyMTTIM _ NUS
- NRS _ 1ampfshy=shyM authorrsquos computation
0
10
20
30
40
50
60
70
80
90
100
Maine
Massachusetts
Maryland
Connecticut
Georgia
Rhode Island
Virginia
Florida
New York
Alabama
Puerto Rico
Pennsylvania
Delaware
Hawaii
Washington
Mississippi
California
New Jersey
Louisiana
Texas
594-71613_ch01_4Pindd 31 102017 404 PM
Figure 58 US Imports from Rus sia by State Million US$ 2013ndash2016
Source US Census Bureau ldquoState and Metropolitan Area Trade Datardquo Foreign Trade last modified
October 2 2017 https wwwcensus gov foreign - trade statistics state
Alaska
Connecticut
Delaware
Hawaii
Louisiana
Maryland
North Dakota 0
$1000
$2000
$3000
$4000
$5000
$6000
2013 2014 2015 2016
Alabama
Alaska
Connecticut
Delaware
Hawaii
Louisiana
Maryland
Maine
Mississippi
Montana
North Dakota
Mississippi
Figure 59 US Imports from Rus sia Share of Oil and Metals Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
83
82
85
86
87
88
85
82
7375
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
$40000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil and Metals
594-71613_ch01_4Pindd 32 102017 404 PM
Vadim Grishin 33
Obviously the market dynamic of dif er ent metals varies (eg iron steel aluminum platinum and
nickel) Caps to increase their trade and production in a ldquored oceanrdquo global environment with
anemic demand is rather limited despite Figure 510 showing a spike of iron and steel imports
from Rus sia in 2014 and aluminum in 2016 Some opportunities may exist for Russian- owned steel
plants in the United States (such as NLMK) to participate in energy proj ects resumed under Presi-
dent Trump who has required that new pipelines use only American- made steel15
Rus sia occupies a special niche in the US market for titanium products a high- end metal indus-
try Twenty years ago a long- term contract was signed between Rus sian titanium producer
VSMPO- AVISMA and Boeing The Rus sian com pany entered the selective club of Boeing suppliers
for the manufacture of components and semi- finished products Since the signing of this contract
VSMPO has delivered more than 35 percent of all titanium placed on Boeing civil aircraft16 They
are hidden in the trade data in an import category for Civilian Aircrafts and Parts (Figure 511) At
the end of 2016 Boeing announced an extension of its framework agreement with AVISMA
15 E Scheyder C Ngai and T Sylvester ldquoAmerican Steel Unlikely to Get Keystone Boost Despite Trump Orderrdquo
Reuters January 27 2017 http wwwreuters com article usa - trump - pipeline - transcanada - idUSL1N1FH1ZD
16 A Kramer ldquoTitanium Fills Vital Role for Boeing and Rus siardquo New York Times July 5 2013 http wwwnytimes com
2013 07 06 business global titanium - fills - vital - role - for - boeing - and - russia html mcubzshy=shy3
Figure 510 US Imports from Rus sia Iron Steel Bauxite Aluminum Nickel Nonferrous Metals and Other Precious Metals and Materials US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
0
$6000000000
$5000000000
$4000000000
$3000000000
$2000000000
$1000000000
2007 2008 2009 2010 2011 20122013
20142015
2016
Finished metal shapes
Iron and steel advanced
Iron and steel products nec
Nonferrous metals other
Other precious metals
Nickel
Bauxite and aluminum
Iron and steel mill products
Steelmaking materials
594-71613_ch01_4Pindd 33 102017 404 PM
US-Russia Economic Relations34
through 2022 and additional investments in the construction of a new robotic plant in Titanium
Valley a special economic zone located in the Sverdlovsk region that will open in 2018 The pro-
cessing of titanium forgings in all Boeing civil aircraft will be performed there including 787s 737
MAXs and 777Xs17 The contract extension with AVISMA may add several hundred million dollars
in value to annual US imports from Rus sia
How can such heavy reliance on imports of Rus sian titanium exist during a period of rising geopo-
liti cal tensions The answer is straightforward VSMPO- AVISMA is a highly specialized natu ral
mono poly producing 45 percent of the worldrsquos aerospace titanium Only four other countries
smelt high- grade titanium in industrial quantities the United States Germany Japan and China
Overall global production capacity is limited while demand is growing The United States cur-
rently imports around 79 percent of all the titanium it consumes each year18
17 ldquoBoeing and VSMPO Avisma to Launch Second Joint Production Siterdquo Rus sian Aviation Insider December 22 2016
http wwwrusaviainsider com boeing - and - vsmpo - avisma - to - launch - second - joint - production - site
18 Jon Ostrower and Andy Pasztor ldquoBoeing United Technologies Stockpile Titanium Partsrdquo Wall Street Journal
August 7 2014 https wwwwsj com articles boeing - united - technologies - stockpiling - titanium - parts - 1407441886
Figure 511 US Imports from Rus sia Civilian Aircrafts and Parts US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
$200000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Parts-civilian aircraft
Civilian aircraft
594-71613_ch01_4Pindd 34 102017 404 PM
Vadim Grishin 35
The Sanctions Act authorizes the secretary of the trea sury (in a nonmandatory way) to impose
restrictions (without specifying them) against Rus sian state- owned entities operating in the railway
metals and mining sectors of the Rus sian economy Despite the commanding heights of Rus siarsquos
state sector owner ship in its economy (70 percent of GDP) the metal- producing companies have
remained mostly in private hands
NUCLEAR AFFAIRS
Historically owners and operators of the 104 commercial nuclear power reactors in the United
States have purchased more than 80 percent of their uranium from foreign countries Uranium
shipping from Rus sia accounted for about 13 percent of the 58 million pounds of uranium pur-
chased overseas in 201219 At the same time the Rus sian state- owned mono poly Rosatom ac-
counts for 20 percent of Kazakhstanrsquos uranium production (which in turn comprises 11 percent of
all US uranium imports) and 20 percent of US domestic uranium production capacity (with
owner ship of exploration tracts in Wyoming)20
Nuclear fuel and nuclear power continue to be po liti cally sensitive topics both in the United
States and Rus sia Bilateral cooperation in this sector (being surprisingly stable with imports of
nuclear fuel from Rus sia at a level of $1 billion annually in the last five years [Figure 512 and 513])
is under constant po liti cal and lobbying pressure and has been a source of several po liti cal scan-
dals21 Consequently upside risks in this area of interaction are minimal and downside risks are
much higher especially when we are seeing more decommissioning of nuclear plants in the
United States than new constructions The US EIArsquos 2017 Annual Energy Outlook assumes
that about 25 percent of the nuclear capacity now operating will be removed from ser vice
by 205022
WHY IS THE GRASS GREENER ON THE OTHER SIDE
The United States continues to significantly reduce imports of chemical fertilizers as domestic pro-
duction increases In 2016 the United States imported 13 percent less ammonia and 11 percent
less urea and UAN which is a liquid urea and ammonium nitrate fertilizer Rus sia accounts for
around 40 percent of UAN imported by the United States The United States canceled antidumping
duties on imports of ammonium nitrate and urea from Rus sia in 2016 but it did not prevent import
19 US EIA ldquoThe US Relies on Foreign Uranium Enrichment Ser vices to Fuel Its Nuclear Power Plantsrdquo Today in
Energy August 28 2013 https wwweia gov todayinenergy detail php idshy=shy1273
20 Colin Chilcoat ldquoDoes Rus sia Really Own 20 Percent of the USrsquo Uranium Reservesrdquo OilPricecom May 6 2015
http oilpricecom Alternative - Energy Nuclear - Power Does - Russia - Really - Own - 20 - Of - The - US - Uranium - Reserves
html
21 Michelle Ye Hee Lee ldquoThe Facts behind Trumprsquos Repeated Claim about Hillary Clintonrsquos Role in the Rus sian Ura-
nium Dealrdquo Washington Post October 26 2016
22 US EIA ldquoAnnual Energy Outlook 2017 with Projections to 2050rdquo 81ndash82
594-71613_ch01_4Pindd 35 102017 404 PM
Figure 512 US Imports from Rus sia Share of Oil Metals and Nuclear Fuel Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
87
86
90
90
90
91
88
86
7882
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals and Nuclear Fuel
Figure 513 US Imports from Rus sia Nuclear Fuel Materials US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$-
$200000000
$400000000
$600000000
$800000000
$1200000000
$1000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 36 102017 404 PM
Vadim Grishin 37
drops twice last year (Figures 514 and 515) According to forecasts UAN imports are expected to
decline further to 15 million tons this year down over 46 percent from 28 million tons imported
last year23 The downside trend in imports of fertilizers will likely continue because of oversupply
BIG FISH
US imports of fish and shellfish from Rus sia are best understood in comparison with US fish
exports to the Rus sian market which slipped to zero in August 2014 after Rus sia issued an order
banning certain agricultural imports from the United States (Figure 516) While the volume of US
supply was not very large it was impor tant because it broke up the monopolistic dominance of a
few vertically integrated Rus sian companies that have kept prices high by restricting the entry of
new producers Seeking to implement import substitution policies Rus sia has tried to reduce
exports as well as imports of fish and seafood products in the last couple of years This symmetri-
cal approach was intended to ldquocompensaterdquo for a decrease of fish products in the domestic
23 Deepika Thapliyal ldquoPotashCorp Forecasts Sharp Drop in US Nitrogen Imports in 2017rdquo ICIS News February 7
2017 https wwwicis com resources news 2017 02 07 10076734 potashcorp - forecasts - sharp - drop - in - us - nitrogen
- imports - in - 2017
Figure 514 US Imports from Rus sia Share of Oil Metals Nuclear Fuel and Fertilizers Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
90
93
92
93
94
95
92
91
85
86
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals Nuclear Fuel and Fertilizers
594-71613_ch01_4Pindd 37 102017 404 PM
Figure 515 US Imports from Rus sia Chemical- Fertilizers US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
S-
$200000000
$400000000
$600000000
$800000000
$1000000000
$1200000000
$1400000000
$1600000000
$1800000000
$2000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Figure 516 US Exports to Rus sia Fish and Shellfish US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$10000000
$20000000
$30000000
$40000000
$50000000
$60000000
$70000000
$80000000
$90000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Fish and shellfish
594-71613_ch01_4Pindd 38 102017 404 PM
Vadim Grishin 39
consumer market caused by Rus siarsquos import ban but it has failed As result the group most af-
fected by the self- imposed counter- sanctions were Rus sian consumers
With a significant drop in fish imports a devaluation of the ruble and inflationary pressures on
seafood prices yearly consumption of fish in Rus sia has declined precipitously In 2015 alone
fish prices increased 20 percent and consumption dropped to 14 kilograms per person24 from
22 kilograms in 201425 In 2016 food rose to 355 percent of house hold expenditure as a result of
increases in food prices26 This has pushed vertically integrated fishing monopolies to sell even
more of their catch abroad rather than deliver to the Rus sian Federation (Figure 517) Thus we
cannot exclude the possibility of further growth in US fish and shellfish imports from Rus sia on a
marginal scale
24 Александр Савельев ldquoПотребление рыбы в России упало до 14 кг на человекаrdquo [Fish consumption in Rus sia fell to
14 kg per person] Экономика Интерфакс January 28 2015 http wwwinterfax ru business 492038
25 Илья Шестаков ldquoПотебление рыбы в России снизилось на 10 процентов из- за роста ценrdquo [Fish consumption in
Rus sia dropped by 10 percent due to price increases] RNS March 8 2017 https rnsonline consumer - market
Potreblenie - ribi - v - Rossii - snizilos - na - 10 - iz - za - rosta - tsen - 2017 - 03 - 08
26 Zoya Sheftalovich and Christian Oliver ldquoRus siarsquos Boom (Farming) Economyrdquo Politico November 8 2016 http
wwwpolitico eu article russias - boom - farming - economy
Figure 517 US Imports from Rus sia Fish and Shellfish US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$50000000
$100000000
$150000000
$200000000
$250000000
$300000000
$350000000
$400000000
$450000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 39 102017 404 PM
US-Russia Economic Relations40
SPACE ODYSSEY
Among high- end products beyond the top five groups of goods imported from Rus sia cheap and
efficient Rus sian engines have been used to launch US rockets into space for about 16 years
(Figure 518) There was a serious po liti cal strug gle around a 2014 ban on the purchase of Rus sian
RD-180 rocket engines revealing the conflicting business interests of power ful high- tech companies
This restrictive mea sure was temporary and was quickly lifted because of significant cost impacts
and risks of disruption to launch schedules27 For the same reason the Sanctions Act does not autho-
rize ldquothe imposition of any sanction or other condition limitation restriction or prohibition that
directly or indirectly impedes the supply by any entity of the Rus sian Federation of any product or
ser vice or the procurement of such product or ser vice by any contractor or subcontractor of the
United States or any other entity relating to or in connection with any space launch conducted for
the National Aeronautics and Space Administration or any other nonndash Department of Defense
customerrdquo28
Nevertheless many experts believe that US domestic alternatives to replace Rus sian engines will
be viable in five to eight years
27 Ken Dilanian ldquoWhy Does the US Use Rus sian Rockets to Launch Its Satellitesrdquo NBC News updated November 15
2016 http wwwnbcnews com why - does - u - s - use - russian - rockets - launch - its - satellites - n588526
28 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364
Figure 518 Spacecraft Excluding Military US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 40 102017 404 PM
41
Diversity and technological complexity are the most vis i ble advantages supporting US exports to
Rus sia Three major groups of export goods include civilian aircraft engines and parts (Figure 61)
drilling and oil field equipment (Figure 62) and industrial machines and engines (Figure 63)
Despite sanctions against the transfer of advanced oil producing and pro cessing technologies the
realization of US drilling and oil field equipment in Rus sia is sustainable although some bilateral
proj ects have been frozen
Another category of goods that has demonstrated resilience is the phar ma ceu ti cal industry (Fig-
ure 64) because most drugs in Rus sia are imported (about 70 percent of the Rus sian phar ma ceu-
ti cal market in value) Import substitution policies have had only modest results in this industry
As confirmed by American Chamber of Commerce surveys US exports to Rus sia are closely
connected to US FDI 30 percent of total imports of US companies working in the Rus sian
market come from the United States (more than $2 billion in 2016) In other words about
40 percent of all US exports to Rus sia are related to a US corporate- sector business pro cess in
the country The major sectors of activity of these companies are energy and natu ral resources
(52 percent) manufacturing (17 percent) information and communications technology or ICT
(13 percent) retail (7 percent) automotive industry (6 percent) phar ma ceu ti cal production
(1 percent) professional ser vices (05 percent) and other (2 percent)1
Some obvious constraints on US exports to Rus sia have resulted from a reduction in demand A
deterioration of bilateral relations and implementation of sanctions and counter- sanctions have
directly or indirectly afected all businesses Figures 65 and 66 provide data regarding a dramatic
drop in the sale of US agricultural production in Rus sia with all other categories of exports in
goods showing big cuts as well (see Figures 67ndash69)
Exports of civilian aircraft engines and parts put the state of Washington in first place among
other states as a leading exporter to the Rus sian market (Figure 610)
1 American Chamber of Commerce in Rus sia ldquoInvestment and Import to Rus sia 2nd Surveyrdquo 13
Diversity and Constraints
06
594-71613_ch01_4Pindd 41 102017 404 PM
Figure 61 US Exports of Civilian Aircraft Engines Equipment and Parts to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
$2500000000
$2000000000
$1500000000
$1000000000
$500000000
$-
Figure 62 US Exports of Drilling and Oil Field Equipment US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
$40000000
$45000000
$50000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 42 102017 404 PM
Figure 63 US Exports of Industrial Engines to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Figure 64 US Exports of Phar ma ceu ti cal Preparations to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 43 102017 404 PM
Figure 65 US Exports of Meat and Poultry to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Meat poultry etc
$1000000000
$800000000
$600000000
$400000000
$200000000
$-
$1200000000
$1400000000
$1600000000
Figure 66 US Exports of Soybeans to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
$200000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 44 102017 404 PM
Figure 67 US Exports of Vehicles Engines and Parts to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Other parts and accessories of vehicles
Automotive tires and tubes
Bodies and chassis for passenger cars
Engines and engine parts (carburetors pistonsrings and valves)
Trucks buses and special purpose vehicles
Passenger cars new and used
$2500000000
$2000000000
$1500000000
$500000000
$-
$1000000000
Figure 68 US Exports of Medicinal Equipment to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 45 102017 404 PM
Figure 610 US Exports to Rus sia by States (2016 US$ Value) Million US$ 2013ndash2016
Source US Census Bureau ldquoState and Metropolitan Area Trade Datardquo
Iowa Kentucky
North Dakota
Oklahoma
South Carolina
Washington
0
$500
$1000
$1500
$2000
2013 2014 2015 2016
District of Columbia
Iowa
Kentucky
North Dakota
Oklahoma
South Carolina
Washington
Figure 69 US Exports of Excavating Machinery to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
$40000000
$45000000
$50000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 46 102017 404 PM
47
Upon reviewing the current trend in US- Russia economic relations we must acknowledge that
the existing trade model is obsolete and exhausted Imports are resource- oriented and reflect
constraints of the Rus sian economic structure while five groups of goodsmdash oil metals nuclear
fuels fertilizers and fishmdash make up more than 90 percent of total imports from Rus sia (Figure 71)
Each of these industries has a limited capacity for growth in the foreseeable future
Rus siarsquos core export to the United Statesmdash oilmdash will inevitably decrease in the mid- term under any
scenario The value and volume of Rus sian exports to the United States are open to global market
volatility and po liti cal pressures with limited hedging mechanisms
Overall US exports to Rus sia are unsustainable due to bilateral po liti cal tensions the whims of
commodity markets and changing domestic policies Sanctions and counter- sanctions have
created additional barriers particularly in finance banking high- tech energy and agro- business
According to the American Chamber of Commerce 69 percent of US companies working in the
country consider the impact of US sanctions against Rus sia on their business as negative At the
same time 60 percent of companies do not expect big changes in business relations between
Rus sia and the United States under Trump1 as the new law codifies existing sanctions fortifies
them and extends them to new sectors
Current US investments are low due to the weak rule of law in Rus sia a lack of property right
protections and proper contract enforcement high levels of statization and monopolization in the
economy a poor business climate outdated capital stock dependence on natural- resource
sectors and of course sanction and counter- sanction mea sures Bloated administrative compo-
nents created as risk mitigation instruments have also served as impediments The countryrsquos
institutional weakness low level of productivity bud get constraints and a declining inflexible
workforce will restrain future economic growth even if commodity prices recover Rus sian eco-
nomic policy will likely continue to be statist and protectionist relying mostly on import
substitutions
1 Ibid 11
Existing Trends and Future Scenarios
07
594-71613_ch01_4Pindd 47 102017 404 PM
US-Russia Economic Relations48
What scenarios can be expected in such a challenging environment
One probability (no peace no war) is based on the assumption that matters will not deteriorate
further and implementation of the Sanctions Act will be cursory This will cause relatively slow
degradation in the economic field with occasional flashes of activity in selected areas (eg closer
cooperation against Islamist terrorist groups in Syria)
A second worse case or critical scenario is the intensive and full- scale execution of current sanc-
tion legislation and even the imposition of new economic punitive and restrictive mea sures which
could incite asymmetric retaliatory actions and lead to the introduction of additional protectionist
policies This in turn could trigger a further escalation of mutual confrontation and could eventu-
ally destroy the fundamentals of the current bilateral trade system Rus sian leadership has charac-
terized the Sanctions Act as a declaration of a trade war that ends all hope for improving bilateral
relations2
2 Дмитрий Медведев ldquoПодписание президентом США нового санкционного закона против России создает несколько
последствийrdquo [The US Presidentrsquos signing of the package of new sanctions against Rus sia will have a few conse-
quences] Facebook August 2 2017 https wwwfacebook com Dmitry Medvedev posts 10154587161801851
Figure 71 US Imports from Rus sia Share of Oil Metals Nuclear Fuel Fertilizers and Fish Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
93
94
93
94
95
96
93
92
87
89
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals Nuclear FuelFertilizers and Fish
594-71613_ch01_4Pindd 48 102017 404 PM
Vadim Grishin 49
The best case and most favorable scenario looks less probable now It assumes the realization of
structural reforms in Rus sia in such a way that would adapt Rus siarsquos foreign policy to national
economic needs reduce confrontations with the West and make a concerted efort to integrate
Rus sian businesses into global supply and value chains A revitalization of the structural reform
agendamdash including eforts to diversify economic activities through de- monopolization and support
for SMEs a restructuring of the banking sector the creation of a vibrant business climate to foster
entrepreneurships and innovation the implementation of administrative and judicial reforms to
tackle red tape and endemic corruption and the reduction of state control over key sectors of the
economy via wide- spread privatization could kick- start the development of a nonoil economy and
improve long- term growth prospects Despite ongoing discussion of reform strategies deep
economic and po liti cal changes are extremely complicated over the next po liti calelectoral cycle
(2018ndash2024) particularly because of re sis tance of vested interests and growing commodity prices
The urgency to tackle structural shortcomings in natu ral resource- dependent economies usually
correlates with the price of those resources and the degree to which resource rents drive eco-
nomic activity However there may be marginal improvements in the efficiency of the current
economic system
Future US- Russia relations can be thought of through three pillars one pillar focuses on areas
where both countries maintain a competitive rivalry another looks at potential areas of interaction
under pres ent conditions a third pillar and one that has evaporated from the current bilateral
agenda concentrates on future cooperation Stronger economic ties could not only be a kind of
po liti cal shock absorber but contribute to the building of this future (particularly business contacts
aim to support future structural reforms) although po liti cal factors are depressing the prospects
for cooperation To escape deadlock it will be impor tant to establish the right balance between
politics and economics and create a model of collaboration within the framework of contention
594-71613_ch01_4Pindd 49 102017 404 PM
About the Author
Vadim Grishin PhD MBA has been involved in the reform pro cess in Rus sia as adviser to the
deputy prime minister of Rus sia in 1992ndash1993 and 2006ndash2010 He has extensive experience
working with the Bretton Woods Institutions He was the board member of the World Bank Group
and served as se nior adviser at the International Monetary Fund Currently he is a con sul tant to the
chief economistrsquos office of the International Finance Corporation and teaches the economics of
transition at Georgetown University in Washington DC
50
594-71613_ch99_4Pindd 50 102017 403 PM
Blank
COVER PHOTO ADOBE STOCK
1616 Rhode Island Avenue NW
Washington DC 20036
202 887 0200 | wwwcsisorg
v++ISBN 978-1-4422-8035-9
Lanham bull Boulder bull New York bull London
4501 Forbes Boulevard
Lanham MD 20706
301 459 3366 | wwwrowmancom
A U T H O R
Vadim Grishin
Myths and Realities
A Report of the
CSIS RUSSIA AND EURASIA PROGRAM
US-RussiaEconomicRelations
O C T O B E R 2 0 1 7
Euml|xHSLEOCy280359z
The Man Pupu Nyor Rock Formations at the Northern Urals also known as Seven
Strong Man or Little Mountain of the God in the local tribe (Mansi) language
Figure 58 US Imports from Rus sia by State Million US$ 2013ndash2016
Source US Census Bureau ldquoState and Metropolitan Area Trade Datardquo Foreign Trade last modified
October 2 2017 https wwwcensus gov foreign - trade statistics state
Alaska
Connecticut
Delaware
Hawaii
Louisiana
Maryland
North Dakota 0
$1000
$2000
$3000
$4000
$5000
$6000
2013 2014 2015 2016
Alabama
Alaska
Connecticut
Delaware
Hawaii
Louisiana
Maryland
Maine
Mississippi
Montana
North Dakota
Mississippi
Figure 59 US Imports from Rus sia Share of Oil and Metals Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
83
82
85
86
87
88
85
82
7375
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
$40000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil and Metals
594-71613_ch01_4Pindd 32 102017 404 PM
Vadim Grishin 33
Obviously the market dynamic of dif er ent metals varies (eg iron steel aluminum platinum and
nickel) Caps to increase their trade and production in a ldquored oceanrdquo global environment with
anemic demand is rather limited despite Figure 510 showing a spike of iron and steel imports
from Rus sia in 2014 and aluminum in 2016 Some opportunities may exist for Russian- owned steel
plants in the United States (such as NLMK) to participate in energy proj ects resumed under Presi-
dent Trump who has required that new pipelines use only American- made steel15
Rus sia occupies a special niche in the US market for titanium products a high- end metal indus-
try Twenty years ago a long- term contract was signed between Rus sian titanium producer
VSMPO- AVISMA and Boeing The Rus sian com pany entered the selective club of Boeing suppliers
for the manufacture of components and semi- finished products Since the signing of this contract
VSMPO has delivered more than 35 percent of all titanium placed on Boeing civil aircraft16 They
are hidden in the trade data in an import category for Civilian Aircrafts and Parts (Figure 511) At
the end of 2016 Boeing announced an extension of its framework agreement with AVISMA
15 E Scheyder C Ngai and T Sylvester ldquoAmerican Steel Unlikely to Get Keystone Boost Despite Trump Orderrdquo
Reuters January 27 2017 http wwwreuters com article usa - trump - pipeline - transcanada - idUSL1N1FH1ZD
16 A Kramer ldquoTitanium Fills Vital Role for Boeing and Rus siardquo New York Times July 5 2013 http wwwnytimes com
2013 07 06 business global titanium - fills - vital - role - for - boeing - and - russia html mcubzshy=shy3
Figure 510 US Imports from Rus sia Iron Steel Bauxite Aluminum Nickel Nonferrous Metals and Other Precious Metals and Materials US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
0
$6000000000
$5000000000
$4000000000
$3000000000
$2000000000
$1000000000
2007 2008 2009 2010 2011 20122013
20142015
2016
Finished metal shapes
Iron and steel advanced
Iron and steel products nec
Nonferrous metals other
Other precious metals
Nickel
Bauxite and aluminum
Iron and steel mill products
Steelmaking materials
594-71613_ch01_4Pindd 33 102017 404 PM
US-Russia Economic Relations34
through 2022 and additional investments in the construction of a new robotic plant in Titanium
Valley a special economic zone located in the Sverdlovsk region that will open in 2018 The pro-
cessing of titanium forgings in all Boeing civil aircraft will be performed there including 787s 737
MAXs and 777Xs17 The contract extension with AVISMA may add several hundred million dollars
in value to annual US imports from Rus sia
How can such heavy reliance on imports of Rus sian titanium exist during a period of rising geopo-
liti cal tensions The answer is straightforward VSMPO- AVISMA is a highly specialized natu ral
mono poly producing 45 percent of the worldrsquos aerospace titanium Only four other countries
smelt high- grade titanium in industrial quantities the United States Germany Japan and China
Overall global production capacity is limited while demand is growing The United States cur-
rently imports around 79 percent of all the titanium it consumes each year18
17 ldquoBoeing and VSMPO Avisma to Launch Second Joint Production Siterdquo Rus sian Aviation Insider December 22 2016
http wwwrusaviainsider com boeing - and - vsmpo - avisma - to - launch - second - joint - production - site
18 Jon Ostrower and Andy Pasztor ldquoBoeing United Technologies Stockpile Titanium Partsrdquo Wall Street Journal
August 7 2014 https wwwwsj com articles boeing - united - technologies - stockpiling - titanium - parts - 1407441886
Figure 511 US Imports from Rus sia Civilian Aircrafts and Parts US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
$200000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Parts-civilian aircraft
Civilian aircraft
594-71613_ch01_4Pindd 34 102017 404 PM
Vadim Grishin 35
The Sanctions Act authorizes the secretary of the trea sury (in a nonmandatory way) to impose
restrictions (without specifying them) against Rus sian state- owned entities operating in the railway
metals and mining sectors of the Rus sian economy Despite the commanding heights of Rus siarsquos
state sector owner ship in its economy (70 percent of GDP) the metal- producing companies have
remained mostly in private hands
NUCLEAR AFFAIRS
Historically owners and operators of the 104 commercial nuclear power reactors in the United
States have purchased more than 80 percent of their uranium from foreign countries Uranium
shipping from Rus sia accounted for about 13 percent of the 58 million pounds of uranium pur-
chased overseas in 201219 At the same time the Rus sian state- owned mono poly Rosatom ac-
counts for 20 percent of Kazakhstanrsquos uranium production (which in turn comprises 11 percent of
all US uranium imports) and 20 percent of US domestic uranium production capacity (with
owner ship of exploration tracts in Wyoming)20
Nuclear fuel and nuclear power continue to be po liti cally sensitive topics both in the United
States and Rus sia Bilateral cooperation in this sector (being surprisingly stable with imports of
nuclear fuel from Rus sia at a level of $1 billion annually in the last five years [Figure 512 and 513])
is under constant po liti cal and lobbying pressure and has been a source of several po liti cal scan-
dals21 Consequently upside risks in this area of interaction are minimal and downside risks are
much higher especially when we are seeing more decommissioning of nuclear plants in the
United States than new constructions The US EIArsquos 2017 Annual Energy Outlook assumes
that about 25 percent of the nuclear capacity now operating will be removed from ser vice
by 205022
WHY IS THE GRASS GREENER ON THE OTHER SIDE
The United States continues to significantly reduce imports of chemical fertilizers as domestic pro-
duction increases In 2016 the United States imported 13 percent less ammonia and 11 percent
less urea and UAN which is a liquid urea and ammonium nitrate fertilizer Rus sia accounts for
around 40 percent of UAN imported by the United States The United States canceled antidumping
duties on imports of ammonium nitrate and urea from Rus sia in 2016 but it did not prevent import
19 US EIA ldquoThe US Relies on Foreign Uranium Enrichment Ser vices to Fuel Its Nuclear Power Plantsrdquo Today in
Energy August 28 2013 https wwweia gov todayinenergy detail php idshy=shy1273
20 Colin Chilcoat ldquoDoes Rus sia Really Own 20 Percent of the USrsquo Uranium Reservesrdquo OilPricecom May 6 2015
http oilpricecom Alternative - Energy Nuclear - Power Does - Russia - Really - Own - 20 - Of - The - US - Uranium - Reserves
html
21 Michelle Ye Hee Lee ldquoThe Facts behind Trumprsquos Repeated Claim about Hillary Clintonrsquos Role in the Rus sian Ura-
nium Dealrdquo Washington Post October 26 2016
22 US EIA ldquoAnnual Energy Outlook 2017 with Projections to 2050rdquo 81ndash82
594-71613_ch01_4Pindd 35 102017 404 PM
Figure 512 US Imports from Rus sia Share of Oil Metals and Nuclear Fuel Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
87
86
90
90
90
91
88
86
7882
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals and Nuclear Fuel
Figure 513 US Imports from Rus sia Nuclear Fuel Materials US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$-
$200000000
$400000000
$600000000
$800000000
$1200000000
$1000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 36 102017 404 PM
Vadim Grishin 37
drops twice last year (Figures 514 and 515) According to forecasts UAN imports are expected to
decline further to 15 million tons this year down over 46 percent from 28 million tons imported
last year23 The downside trend in imports of fertilizers will likely continue because of oversupply
BIG FISH
US imports of fish and shellfish from Rus sia are best understood in comparison with US fish
exports to the Rus sian market which slipped to zero in August 2014 after Rus sia issued an order
banning certain agricultural imports from the United States (Figure 516) While the volume of US
supply was not very large it was impor tant because it broke up the monopolistic dominance of a
few vertically integrated Rus sian companies that have kept prices high by restricting the entry of
new producers Seeking to implement import substitution policies Rus sia has tried to reduce
exports as well as imports of fish and seafood products in the last couple of years This symmetri-
cal approach was intended to ldquocompensaterdquo for a decrease of fish products in the domestic
23 Deepika Thapliyal ldquoPotashCorp Forecasts Sharp Drop in US Nitrogen Imports in 2017rdquo ICIS News February 7
2017 https wwwicis com resources news 2017 02 07 10076734 potashcorp - forecasts - sharp - drop - in - us - nitrogen
- imports - in - 2017
Figure 514 US Imports from Rus sia Share of Oil Metals Nuclear Fuel and Fertilizers Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
90
93
92
93
94
95
92
91
85
86
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals Nuclear Fuel and Fertilizers
594-71613_ch01_4Pindd 37 102017 404 PM
Figure 515 US Imports from Rus sia Chemical- Fertilizers US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
S-
$200000000
$400000000
$600000000
$800000000
$1000000000
$1200000000
$1400000000
$1600000000
$1800000000
$2000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Figure 516 US Exports to Rus sia Fish and Shellfish US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$10000000
$20000000
$30000000
$40000000
$50000000
$60000000
$70000000
$80000000
$90000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Fish and shellfish
594-71613_ch01_4Pindd 38 102017 404 PM
Vadim Grishin 39
consumer market caused by Rus siarsquos import ban but it has failed As result the group most af-
fected by the self- imposed counter- sanctions were Rus sian consumers
With a significant drop in fish imports a devaluation of the ruble and inflationary pressures on
seafood prices yearly consumption of fish in Rus sia has declined precipitously In 2015 alone
fish prices increased 20 percent and consumption dropped to 14 kilograms per person24 from
22 kilograms in 201425 In 2016 food rose to 355 percent of house hold expenditure as a result of
increases in food prices26 This has pushed vertically integrated fishing monopolies to sell even
more of their catch abroad rather than deliver to the Rus sian Federation (Figure 517) Thus we
cannot exclude the possibility of further growth in US fish and shellfish imports from Rus sia on a
marginal scale
24 Александр Савельев ldquoПотребление рыбы в России упало до 14 кг на человекаrdquo [Fish consumption in Rus sia fell to
14 kg per person] Экономика Интерфакс January 28 2015 http wwwinterfax ru business 492038
25 Илья Шестаков ldquoПотебление рыбы в России снизилось на 10 процентов из- за роста ценrdquo [Fish consumption in
Rus sia dropped by 10 percent due to price increases] RNS March 8 2017 https rnsonline consumer - market
Potreblenie - ribi - v - Rossii - snizilos - na - 10 - iz - za - rosta - tsen - 2017 - 03 - 08
26 Zoya Sheftalovich and Christian Oliver ldquoRus siarsquos Boom (Farming) Economyrdquo Politico November 8 2016 http
wwwpolitico eu article russias - boom - farming - economy
Figure 517 US Imports from Rus sia Fish and Shellfish US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$50000000
$100000000
$150000000
$200000000
$250000000
$300000000
$350000000
$400000000
$450000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 39 102017 404 PM
US-Russia Economic Relations40
SPACE ODYSSEY
Among high- end products beyond the top five groups of goods imported from Rus sia cheap and
efficient Rus sian engines have been used to launch US rockets into space for about 16 years
(Figure 518) There was a serious po liti cal strug gle around a 2014 ban on the purchase of Rus sian
RD-180 rocket engines revealing the conflicting business interests of power ful high- tech companies
This restrictive mea sure was temporary and was quickly lifted because of significant cost impacts
and risks of disruption to launch schedules27 For the same reason the Sanctions Act does not autho-
rize ldquothe imposition of any sanction or other condition limitation restriction or prohibition that
directly or indirectly impedes the supply by any entity of the Rus sian Federation of any product or
ser vice or the procurement of such product or ser vice by any contractor or subcontractor of the
United States or any other entity relating to or in connection with any space launch conducted for
the National Aeronautics and Space Administration or any other nonndash Department of Defense
customerrdquo28
Nevertheless many experts believe that US domestic alternatives to replace Rus sian engines will
be viable in five to eight years
27 Ken Dilanian ldquoWhy Does the US Use Rus sian Rockets to Launch Its Satellitesrdquo NBC News updated November 15
2016 http wwwnbcnews com why - does - u - s - use - russian - rockets - launch - its - satellites - n588526
28 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364
Figure 518 Spacecraft Excluding Military US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 40 102017 404 PM
41
Diversity and technological complexity are the most vis i ble advantages supporting US exports to
Rus sia Three major groups of export goods include civilian aircraft engines and parts (Figure 61)
drilling and oil field equipment (Figure 62) and industrial machines and engines (Figure 63)
Despite sanctions against the transfer of advanced oil producing and pro cessing technologies the
realization of US drilling and oil field equipment in Rus sia is sustainable although some bilateral
proj ects have been frozen
Another category of goods that has demonstrated resilience is the phar ma ceu ti cal industry (Fig-
ure 64) because most drugs in Rus sia are imported (about 70 percent of the Rus sian phar ma ceu-
ti cal market in value) Import substitution policies have had only modest results in this industry
As confirmed by American Chamber of Commerce surveys US exports to Rus sia are closely
connected to US FDI 30 percent of total imports of US companies working in the Rus sian
market come from the United States (more than $2 billion in 2016) In other words about
40 percent of all US exports to Rus sia are related to a US corporate- sector business pro cess in
the country The major sectors of activity of these companies are energy and natu ral resources
(52 percent) manufacturing (17 percent) information and communications technology or ICT
(13 percent) retail (7 percent) automotive industry (6 percent) phar ma ceu ti cal production
(1 percent) professional ser vices (05 percent) and other (2 percent)1
Some obvious constraints on US exports to Rus sia have resulted from a reduction in demand A
deterioration of bilateral relations and implementation of sanctions and counter- sanctions have
directly or indirectly afected all businesses Figures 65 and 66 provide data regarding a dramatic
drop in the sale of US agricultural production in Rus sia with all other categories of exports in
goods showing big cuts as well (see Figures 67ndash69)
Exports of civilian aircraft engines and parts put the state of Washington in first place among
other states as a leading exporter to the Rus sian market (Figure 610)
1 American Chamber of Commerce in Rus sia ldquoInvestment and Import to Rus sia 2nd Surveyrdquo 13
Diversity and Constraints
06
594-71613_ch01_4Pindd 41 102017 404 PM
Figure 61 US Exports of Civilian Aircraft Engines Equipment and Parts to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
$2500000000
$2000000000
$1500000000
$1000000000
$500000000
$-
Figure 62 US Exports of Drilling and Oil Field Equipment US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
$40000000
$45000000
$50000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 42 102017 404 PM
Figure 63 US Exports of Industrial Engines to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Figure 64 US Exports of Phar ma ceu ti cal Preparations to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 43 102017 404 PM
Figure 65 US Exports of Meat and Poultry to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Meat poultry etc
$1000000000
$800000000
$600000000
$400000000
$200000000
$-
$1200000000
$1400000000
$1600000000
Figure 66 US Exports of Soybeans to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
$200000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 44 102017 404 PM
Figure 67 US Exports of Vehicles Engines and Parts to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Other parts and accessories of vehicles
Automotive tires and tubes
Bodies and chassis for passenger cars
Engines and engine parts (carburetors pistonsrings and valves)
Trucks buses and special purpose vehicles
Passenger cars new and used
$2500000000
$2000000000
$1500000000
$500000000
$-
$1000000000
Figure 68 US Exports of Medicinal Equipment to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 45 102017 404 PM
Figure 610 US Exports to Rus sia by States (2016 US$ Value) Million US$ 2013ndash2016
Source US Census Bureau ldquoState and Metropolitan Area Trade Datardquo
Iowa Kentucky
North Dakota
Oklahoma
South Carolina
Washington
0
$500
$1000
$1500
$2000
2013 2014 2015 2016
District of Columbia
Iowa
Kentucky
North Dakota
Oklahoma
South Carolina
Washington
Figure 69 US Exports of Excavating Machinery to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
$40000000
$45000000
$50000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 46 102017 404 PM
47
Upon reviewing the current trend in US- Russia economic relations we must acknowledge that
the existing trade model is obsolete and exhausted Imports are resource- oriented and reflect
constraints of the Rus sian economic structure while five groups of goodsmdash oil metals nuclear
fuels fertilizers and fishmdash make up more than 90 percent of total imports from Rus sia (Figure 71)
Each of these industries has a limited capacity for growth in the foreseeable future
Rus siarsquos core export to the United Statesmdash oilmdash will inevitably decrease in the mid- term under any
scenario The value and volume of Rus sian exports to the United States are open to global market
volatility and po liti cal pressures with limited hedging mechanisms
Overall US exports to Rus sia are unsustainable due to bilateral po liti cal tensions the whims of
commodity markets and changing domestic policies Sanctions and counter- sanctions have
created additional barriers particularly in finance banking high- tech energy and agro- business
According to the American Chamber of Commerce 69 percent of US companies working in the
country consider the impact of US sanctions against Rus sia on their business as negative At the
same time 60 percent of companies do not expect big changes in business relations between
Rus sia and the United States under Trump1 as the new law codifies existing sanctions fortifies
them and extends them to new sectors
Current US investments are low due to the weak rule of law in Rus sia a lack of property right
protections and proper contract enforcement high levels of statization and monopolization in the
economy a poor business climate outdated capital stock dependence on natural- resource
sectors and of course sanction and counter- sanction mea sures Bloated administrative compo-
nents created as risk mitigation instruments have also served as impediments The countryrsquos
institutional weakness low level of productivity bud get constraints and a declining inflexible
workforce will restrain future economic growth even if commodity prices recover Rus sian eco-
nomic policy will likely continue to be statist and protectionist relying mostly on import
substitutions
1 Ibid 11
Existing Trends and Future Scenarios
07
594-71613_ch01_4Pindd 47 102017 404 PM
US-Russia Economic Relations48
What scenarios can be expected in such a challenging environment
One probability (no peace no war) is based on the assumption that matters will not deteriorate
further and implementation of the Sanctions Act will be cursory This will cause relatively slow
degradation in the economic field with occasional flashes of activity in selected areas (eg closer
cooperation against Islamist terrorist groups in Syria)
A second worse case or critical scenario is the intensive and full- scale execution of current sanc-
tion legislation and even the imposition of new economic punitive and restrictive mea sures which
could incite asymmetric retaliatory actions and lead to the introduction of additional protectionist
policies This in turn could trigger a further escalation of mutual confrontation and could eventu-
ally destroy the fundamentals of the current bilateral trade system Rus sian leadership has charac-
terized the Sanctions Act as a declaration of a trade war that ends all hope for improving bilateral
relations2
2 Дмитрий Медведев ldquoПодписание президентом США нового санкционного закона против России создает несколько
последствийrdquo [The US Presidentrsquos signing of the package of new sanctions against Rus sia will have a few conse-
quences] Facebook August 2 2017 https wwwfacebook com Dmitry Medvedev posts 10154587161801851
Figure 71 US Imports from Rus sia Share of Oil Metals Nuclear Fuel Fertilizers and Fish Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
93
94
93
94
95
96
93
92
87
89
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals Nuclear FuelFertilizers and Fish
594-71613_ch01_4Pindd 48 102017 404 PM
Vadim Grishin 49
The best case and most favorable scenario looks less probable now It assumes the realization of
structural reforms in Rus sia in such a way that would adapt Rus siarsquos foreign policy to national
economic needs reduce confrontations with the West and make a concerted efort to integrate
Rus sian businesses into global supply and value chains A revitalization of the structural reform
agendamdash including eforts to diversify economic activities through de- monopolization and support
for SMEs a restructuring of the banking sector the creation of a vibrant business climate to foster
entrepreneurships and innovation the implementation of administrative and judicial reforms to
tackle red tape and endemic corruption and the reduction of state control over key sectors of the
economy via wide- spread privatization could kick- start the development of a nonoil economy and
improve long- term growth prospects Despite ongoing discussion of reform strategies deep
economic and po liti cal changes are extremely complicated over the next po liti calelectoral cycle
(2018ndash2024) particularly because of re sis tance of vested interests and growing commodity prices
The urgency to tackle structural shortcomings in natu ral resource- dependent economies usually
correlates with the price of those resources and the degree to which resource rents drive eco-
nomic activity However there may be marginal improvements in the efficiency of the current
economic system
Future US- Russia relations can be thought of through three pillars one pillar focuses on areas
where both countries maintain a competitive rivalry another looks at potential areas of interaction
under pres ent conditions a third pillar and one that has evaporated from the current bilateral
agenda concentrates on future cooperation Stronger economic ties could not only be a kind of
po liti cal shock absorber but contribute to the building of this future (particularly business contacts
aim to support future structural reforms) although po liti cal factors are depressing the prospects
for cooperation To escape deadlock it will be impor tant to establish the right balance between
politics and economics and create a model of collaboration within the framework of contention
594-71613_ch01_4Pindd 49 102017 404 PM
About the Author
Vadim Grishin PhD MBA has been involved in the reform pro cess in Rus sia as adviser to the
deputy prime minister of Rus sia in 1992ndash1993 and 2006ndash2010 He has extensive experience
working with the Bretton Woods Institutions He was the board member of the World Bank Group
and served as se nior adviser at the International Monetary Fund Currently he is a con sul tant to the
chief economistrsquos office of the International Finance Corporation and teaches the economics of
transition at Georgetown University in Washington DC
50
594-71613_ch99_4Pindd 50 102017 403 PM
Blank
COVER PHOTO ADOBE STOCK
1616 Rhode Island Avenue NW
Washington DC 20036
202 887 0200 | wwwcsisorg
v++ISBN 978-1-4422-8035-9
Lanham bull Boulder bull New York bull London
4501 Forbes Boulevard
Lanham MD 20706
301 459 3366 | wwwrowmancom
A U T H O R
Vadim Grishin
Myths and Realities
A Report of the
CSIS RUSSIA AND EURASIA PROGRAM
US-RussiaEconomicRelations
O C T O B E R 2 0 1 7
Euml|xHSLEOCy280359z
The Man Pupu Nyor Rock Formations at the Northern Urals also known as Seven
Strong Man or Little Mountain of the God in the local tribe (Mansi) language
Vadim Grishin 33
Obviously the market dynamic of dif er ent metals varies (eg iron steel aluminum platinum and
nickel) Caps to increase their trade and production in a ldquored oceanrdquo global environment with
anemic demand is rather limited despite Figure 510 showing a spike of iron and steel imports
from Rus sia in 2014 and aluminum in 2016 Some opportunities may exist for Russian- owned steel
plants in the United States (such as NLMK) to participate in energy proj ects resumed under Presi-
dent Trump who has required that new pipelines use only American- made steel15
Rus sia occupies a special niche in the US market for titanium products a high- end metal indus-
try Twenty years ago a long- term contract was signed between Rus sian titanium producer
VSMPO- AVISMA and Boeing The Rus sian com pany entered the selective club of Boeing suppliers
for the manufacture of components and semi- finished products Since the signing of this contract
VSMPO has delivered more than 35 percent of all titanium placed on Boeing civil aircraft16 They
are hidden in the trade data in an import category for Civilian Aircrafts and Parts (Figure 511) At
the end of 2016 Boeing announced an extension of its framework agreement with AVISMA
15 E Scheyder C Ngai and T Sylvester ldquoAmerican Steel Unlikely to Get Keystone Boost Despite Trump Orderrdquo
Reuters January 27 2017 http wwwreuters com article usa - trump - pipeline - transcanada - idUSL1N1FH1ZD
16 A Kramer ldquoTitanium Fills Vital Role for Boeing and Rus siardquo New York Times July 5 2013 http wwwnytimes com
2013 07 06 business global titanium - fills - vital - role - for - boeing - and - russia html mcubzshy=shy3
Figure 510 US Imports from Rus sia Iron Steel Bauxite Aluminum Nickel Nonferrous Metals and Other Precious Metals and Materials US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
0
$6000000000
$5000000000
$4000000000
$3000000000
$2000000000
$1000000000
2007 2008 2009 2010 2011 20122013
20142015
2016
Finished metal shapes
Iron and steel advanced
Iron and steel products nec
Nonferrous metals other
Other precious metals
Nickel
Bauxite and aluminum
Iron and steel mill products
Steelmaking materials
594-71613_ch01_4Pindd 33 102017 404 PM
US-Russia Economic Relations34
through 2022 and additional investments in the construction of a new robotic plant in Titanium
Valley a special economic zone located in the Sverdlovsk region that will open in 2018 The pro-
cessing of titanium forgings in all Boeing civil aircraft will be performed there including 787s 737
MAXs and 777Xs17 The contract extension with AVISMA may add several hundred million dollars
in value to annual US imports from Rus sia
How can such heavy reliance on imports of Rus sian titanium exist during a period of rising geopo-
liti cal tensions The answer is straightforward VSMPO- AVISMA is a highly specialized natu ral
mono poly producing 45 percent of the worldrsquos aerospace titanium Only four other countries
smelt high- grade titanium in industrial quantities the United States Germany Japan and China
Overall global production capacity is limited while demand is growing The United States cur-
rently imports around 79 percent of all the titanium it consumes each year18
17 ldquoBoeing and VSMPO Avisma to Launch Second Joint Production Siterdquo Rus sian Aviation Insider December 22 2016
http wwwrusaviainsider com boeing - and - vsmpo - avisma - to - launch - second - joint - production - site
18 Jon Ostrower and Andy Pasztor ldquoBoeing United Technologies Stockpile Titanium Partsrdquo Wall Street Journal
August 7 2014 https wwwwsj com articles boeing - united - technologies - stockpiling - titanium - parts - 1407441886
Figure 511 US Imports from Rus sia Civilian Aircrafts and Parts US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
$200000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Parts-civilian aircraft
Civilian aircraft
594-71613_ch01_4Pindd 34 102017 404 PM
Vadim Grishin 35
The Sanctions Act authorizes the secretary of the trea sury (in a nonmandatory way) to impose
restrictions (without specifying them) against Rus sian state- owned entities operating in the railway
metals and mining sectors of the Rus sian economy Despite the commanding heights of Rus siarsquos
state sector owner ship in its economy (70 percent of GDP) the metal- producing companies have
remained mostly in private hands
NUCLEAR AFFAIRS
Historically owners and operators of the 104 commercial nuclear power reactors in the United
States have purchased more than 80 percent of their uranium from foreign countries Uranium
shipping from Rus sia accounted for about 13 percent of the 58 million pounds of uranium pur-
chased overseas in 201219 At the same time the Rus sian state- owned mono poly Rosatom ac-
counts for 20 percent of Kazakhstanrsquos uranium production (which in turn comprises 11 percent of
all US uranium imports) and 20 percent of US domestic uranium production capacity (with
owner ship of exploration tracts in Wyoming)20
Nuclear fuel and nuclear power continue to be po liti cally sensitive topics both in the United
States and Rus sia Bilateral cooperation in this sector (being surprisingly stable with imports of
nuclear fuel from Rus sia at a level of $1 billion annually in the last five years [Figure 512 and 513])
is under constant po liti cal and lobbying pressure and has been a source of several po liti cal scan-
dals21 Consequently upside risks in this area of interaction are minimal and downside risks are
much higher especially when we are seeing more decommissioning of nuclear plants in the
United States than new constructions The US EIArsquos 2017 Annual Energy Outlook assumes
that about 25 percent of the nuclear capacity now operating will be removed from ser vice
by 205022
WHY IS THE GRASS GREENER ON THE OTHER SIDE
The United States continues to significantly reduce imports of chemical fertilizers as domestic pro-
duction increases In 2016 the United States imported 13 percent less ammonia and 11 percent
less urea and UAN which is a liquid urea and ammonium nitrate fertilizer Rus sia accounts for
around 40 percent of UAN imported by the United States The United States canceled antidumping
duties on imports of ammonium nitrate and urea from Rus sia in 2016 but it did not prevent import
19 US EIA ldquoThe US Relies on Foreign Uranium Enrichment Ser vices to Fuel Its Nuclear Power Plantsrdquo Today in
Energy August 28 2013 https wwweia gov todayinenergy detail php idshy=shy1273
20 Colin Chilcoat ldquoDoes Rus sia Really Own 20 Percent of the USrsquo Uranium Reservesrdquo OilPricecom May 6 2015
http oilpricecom Alternative - Energy Nuclear - Power Does - Russia - Really - Own - 20 - Of - The - US - Uranium - Reserves
html
21 Michelle Ye Hee Lee ldquoThe Facts behind Trumprsquos Repeated Claim about Hillary Clintonrsquos Role in the Rus sian Ura-
nium Dealrdquo Washington Post October 26 2016
22 US EIA ldquoAnnual Energy Outlook 2017 with Projections to 2050rdquo 81ndash82
594-71613_ch01_4Pindd 35 102017 404 PM
Figure 512 US Imports from Rus sia Share of Oil Metals and Nuclear Fuel Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
87
86
90
90
90
91
88
86
7882
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals and Nuclear Fuel
Figure 513 US Imports from Rus sia Nuclear Fuel Materials US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$-
$200000000
$400000000
$600000000
$800000000
$1200000000
$1000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 36 102017 404 PM
Vadim Grishin 37
drops twice last year (Figures 514 and 515) According to forecasts UAN imports are expected to
decline further to 15 million tons this year down over 46 percent from 28 million tons imported
last year23 The downside trend in imports of fertilizers will likely continue because of oversupply
BIG FISH
US imports of fish and shellfish from Rus sia are best understood in comparison with US fish
exports to the Rus sian market which slipped to zero in August 2014 after Rus sia issued an order
banning certain agricultural imports from the United States (Figure 516) While the volume of US
supply was not very large it was impor tant because it broke up the monopolistic dominance of a
few vertically integrated Rus sian companies that have kept prices high by restricting the entry of
new producers Seeking to implement import substitution policies Rus sia has tried to reduce
exports as well as imports of fish and seafood products in the last couple of years This symmetri-
cal approach was intended to ldquocompensaterdquo for a decrease of fish products in the domestic
23 Deepika Thapliyal ldquoPotashCorp Forecasts Sharp Drop in US Nitrogen Imports in 2017rdquo ICIS News February 7
2017 https wwwicis com resources news 2017 02 07 10076734 potashcorp - forecasts - sharp - drop - in - us - nitrogen
- imports - in - 2017
Figure 514 US Imports from Rus sia Share of Oil Metals Nuclear Fuel and Fertilizers Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
90
93
92
93
94
95
92
91
85
86
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals Nuclear Fuel and Fertilizers
594-71613_ch01_4Pindd 37 102017 404 PM
Figure 515 US Imports from Rus sia Chemical- Fertilizers US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
S-
$200000000
$400000000
$600000000
$800000000
$1000000000
$1200000000
$1400000000
$1600000000
$1800000000
$2000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Figure 516 US Exports to Rus sia Fish and Shellfish US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$10000000
$20000000
$30000000
$40000000
$50000000
$60000000
$70000000
$80000000
$90000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Fish and shellfish
594-71613_ch01_4Pindd 38 102017 404 PM
Vadim Grishin 39
consumer market caused by Rus siarsquos import ban but it has failed As result the group most af-
fected by the self- imposed counter- sanctions were Rus sian consumers
With a significant drop in fish imports a devaluation of the ruble and inflationary pressures on
seafood prices yearly consumption of fish in Rus sia has declined precipitously In 2015 alone
fish prices increased 20 percent and consumption dropped to 14 kilograms per person24 from
22 kilograms in 201425 In 2016 food rose to 355 percent of house hold expenditure as a result of
increases in food prices26 This has pushed vertically integrated fishing monopolies to sell even
more of their catch abroad rather than deliver to the Rus sian Federation (Figure 517) Thus we
cannot exclude the possibility of further growth in US fish and shellfish imports from Rus sia on a
marginal scale
24 Александр Савельев ldquoПотребление рыбы в России упало до 14 кг на человекаrdquo [Fish consumption in Rus sia fell to
14 kg per person] Экономика Интерфакс January 28 2015 http wwwinterfax ru business 492038
25 Илья Шестаков ldquoПотебление рыбы в России снизилось на 10 процентов из- за роста ценrdquo [Fish consumption in
Rus sia dropped by 10 percent due to price increases] RNS March 8 2017 https rnsonline consumer - market
Potreblenie - ribi - v - Rossii - snizilos - na - 10 - iz - za - rosta - tsen - 2017 - 03 - 08
26 Zoya Sheftalovich and Christian Oliver ldquoRus siarsquos Boom (Farming) Economyrdquo Politico November 8 2016 http
wwwpolitico eu article russias - boom - farming - economy
Figure 517 US Imports from Rus sia Fish and Shellfish US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$50000000
$100000000
$150000000
$200000000
$250000000
$300000000
$350000000
$400000000
$450000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 39 102017 404 PM
US-Russia Economic Relations40
SPACE ODYSSEY
Among high- end products beyond the top five groups of goods imported from Rus sia cheap and
efficient Rus sian engines have been used to launch US rockets into space for about 16 years
(Figure 518) There was a serious po liti cal strug gle around a 2014 ban on the purchase of Rus sian
RD-180 rocket engines revealing the conflicting business interests of power ful high- tech companies
This restrictive mea sure was temporary and was quickly lifted because of significant cost impacts
and risks of disruption to launch schedules27 For the same reason the Sanctions Act does not autho-
rize ldquothe imposition of any sanction or other condition limitation restriction or prohibition that
directly or indirectly impedes the supply by any entity of the Rus sian Federation of any product or
ser vice or the procurement of such product or ser vice by any contractor or subcontractor of the
United States or any other entity relating to or in connection with any space launch conducted for
the National Aeronautics and Space Administration or any other nonndash Department of Defense
customerrdquo28
Nevertheless many experts believe that US domestic alternatives to replace Rus sian engines will
be viable in five to eight years
27 Ken Dilanian ldquoWhy Does the US Use Rus sian Rockets to Launch Its Satellitesrdquo NBC News updated November 15
2016 http wwwnbcnews com why - does - u - s - use - russian - rockets - launch - its - satellites - n588526
28 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364
Figure 518 Spacecraft Excluding Military US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 40 102017 404 PM
41
Diversity and technological complexity are the most vis i ble advantages supporting US exports to
Rus sia Three major groups of export goods include civilian aircraft engines and parts (Figure 61)
drilling and oil field equipment (Figure 62) and industrial machines and engines (Figure 63)
Despite sanctions against the transfer of advanced oil producing and pro cessing technologies the
realization of US drilling and oil field equipment in Rus sia is sustainable although some bilateral
proj ects have been frozen
Another category of goods that has demonstrated resilience is the phar ma ceu ti cal industry (Fig-
ure 64) because most drugs in Rus sia are imported (about 70 percent of the Rus sian phar ma ceu-
ti cal market in value) Import substitution policies have had only modest results in this industry
As confirmed by American Chamber of Commerce surveys US exports to Rus sia are closely
connected to US FDI 30 percent of total imports of US companies working in the Rus sian
market come from the United States (more than $2 billion in 2016) In other words about
40 percent of all US exports to Rus sia are related to a US corporate- sector business pro cess in
the country The major sectors of activity of these companies are energy and natu ral resources
(52 percent) manufacturing (17 percent) information and communications technology or ICT
(13 percent) retail (7 percent) automotive industry (6 percent) phar ma ceu ti cal production
(1 percent) professional ser vices (05 percent) and other (2 percent)1
Some obvious constraints on US exports to Rus sia have resulted from a reduction in demand A
deterioration of bilateral relations and implementation of sanctions and counter- sanctions have
directly or indirectly afected all businesses Figures 65 and 66 provide data regarding a dramatic
drop in the sale of US agricultural production in Rus sia with all other categories of exports in
goods showing big cuts as well (see Figures 67ndash69)
Exports of civilian aircraft engines and parts put the state of Washington in first place among
other states as a leading exporter to the Rus sian market (Figure 610)
1 American Chamber of Commerce in Rus sia ldquoInvestment and Import to Rus sia 2nd Surveyrdquo 13
Diversity and Constraints
06
594-71613_ch01_4Pindd 41 102017 404 PM
Figure 61 US Exports of Civilian Aircraft Engines Equipment and Parts to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
$2500000000
$2000000000
$1500000000
$1000000000
$500000000
$-
Figure 62 US Exports of Drilling and Oil Field Equipment US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
$40000000
$45000000
$50000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 42 102017 404 PM
Figure 63 US Exports of Industrial Engines to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Figure 64 US Exports of Phar ma ceu ti cal Preparations to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 43 102017 404 PM
Figure 65 US Exports of Meat and Poultry to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Meat poultry etc
$1000000000
$800000000
$600000000
$400000000
$200000000
$-
$1200000000
$1400000000
$1600000000
Figure 66 US Exports of Soybeans to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
$200000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 44 102017 404 PM
Figure 67 US Exports of Vehicles Engines and Parts to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Other parts and accessories of vehicles
Automotive tires and tubes
Bodies and chassis for passenger cars
Engines and engine parts (carburetors pistonsrings and valves)
Trucks buses and special purpose vehicles
Passenger cars new and used
$2500000000
$2000000000
$1500000000
$500000000
$-
$1000000000
Figure 68 US Exports of Medicinal Equipment to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 45 102017 404 PM
Figure 610 US Exports to Rus sia by States (2016 US$ Value) Million US$ 2013ndash2016
Source US Census Bureau ldquoState and Metropolitan Area Trade Datardquo
Iowa Kentucky
North Dakota
Oklahoma
South Carolina
Washington
0
$500
$1000
$1500
$2000
2013 2014 2015 2016
District of Columbia
Iowa
Kentucky
North Dakota
Oklahoma
South Carolina
Washington
Figure 69 US Exports of Excavating Machinery to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
$40000000
$45000000
$50000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 46 102017 404 PM
47
Upon reviewing the current trend in US- Russia economic relations we must acknowledge that
the existing trade model is obsolete and exhausted Imports are resource- oriented and reflect
constraints of the Rus sian economic structure while five groups of goodsmdash oil metals nuclear
fuels fertilizers and fishmdash make up more than 90 percent of total imports from Rus sia (Figure 71)
Each of these industries has a limited capacity for growth in the foreseeable future
Rus siarsquos core export to the United Statesmdash oilmdash will inevitably decrease in the mid- term under any
scenario The value and volume of Rus sian exports to the United States are open to global market
volatility and po liti cal pressures with limited hedging mechanisms
Overall US exports to Rus sia are unsustainable due to bilateral po liti cal tensions the whims of
commodity markets and changing domestic policies Sanctions and counter- sanctions have
created additional barriers particularly in finance banking high- tech energy and agro- business
According to the American Chamber of Commerce 69 percent of US companies working in the
country consider the impact of US sanctions against Rus sia on their business as negative At the
same time 60 percent of companies do not expect big changes in business relations between
Rus sia and the United States under Trump1 as the new law codifies existing sanctions fortifies
them and extends them to new sectors
Current US investments are low due to the weak rule of law in Rus sia a lack of property right
protections and proper contract enforcement high levels of statization and monopolization in the
economy a poor business climate outdated capital stock dependence on natural- resource
sectors and of course sanction and counter- sanction mea sures Bloated administrative compo-
nents created as risk mitigation instruments have also served as impediments The countryrsquos
institutional weakness low level of productivity bud get constraints and a declining inflexible
workforce will restrain future economic growth even if commodity prices recover Rus sian eco-
nomic policy will likely continue to be statist and protectionist relying mostly on import
substitutions
1 Ibid 11
Existing Trends and Future Scenarios
07
594-71613_ch01_4Pindd 47 102017 404 PM
US-Russia Economic Relations48
What scenarios can be expected in such a challenging environment
One probability (no peace no war) is based on the assumption that matters will not deteriorate
further and implementation of the Sanctions Act will be cursory This will cause relatively slow
degradation in the economic field with occasional flashes of activity in selected areas (eg closer
cooperation against Islamist terrorist groups in Syria)
A second worse case or critical scenario is the intensive and full- scale execution of current sanc-
tion legislation and even the imposition of new economic punitive and restrictive mea sures which
could incite asymmetric retaliatory actions and lead to the introduction of additional protectionist
policies This in turn could trigger a further escalation of mutual confrontation and could eventu-
ally destroy the fundamentals of the current bilateral trade system Rus sian leadership has charac-
terized the Sanctions Act as a declaration of a trade war that ends all hope for improving bilateral
relations2
2 Дмитрий Медведев ldquoПодписание президентом США нового санкционного закона против России создает несколько
последствийrdquo [The US Presidentrsquos signing of the package of new sanctions against Rus sia will have a few conse-
quences] Facebook August 2 2017 https wwwfacebook com Dmitry Medvedev posts 10154587161801851
Figure 71 US Imports from Rus sia Share of Oil Metals Nuclear Fuel Fertilizers and Fish Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
93
94
93
94
95
96
93
92
87
89
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals Nuclear FuelFertilizers and Fish
594-71613_ch01_4Pindd 48 102017 404 PM
Vadim Grishin 49
The best case and most favorable scenario looks less probable now It assumes the realization of
structural reforms in Rus sia in such a way that would adapt Rus siarsquos foreign policy to national
economic needs reduce confrontations with the West and make a concerted efort to integrate
Rus sian businesses into global supply and value chains A revitalization of the structural reform
agendamdash including eforts to diversify economic activities through de- monopolization and support
for SMEs a restructuring of the banking sector the creation of a vibrant business climate to foster
entrepreneurships and innovation the implementation of administrative and judicial reforms to
tackle red tape and endemic corruption and the reduction of state control over key sectors of the
economy via wide- spread privatization could kick- start the development of a nonoil economy and
improve long- term growth prospects Despite ongoing discussion of reform strategies deep
economic and po liti cal changes are extremely complicated over the next po liti calelectoral cycle
(2018ndash2024) particularly because of re sis tance of vested interests and growing commodity prices
The urgency to tackle structural shortcomings in natu ral resource- dependent economies usually
correlates with the price of those resources and the degree to which resource rents drive eco-
nomic activity However there may be marginal improvements in the efficiency of the current
economic system
Future US- Russia relations can be thought of through three pillars one pillar focuses on areas
where both countries maintain a competitive rivalry another looks at potential areas of interaction
under pres ent conditions a third pillar and one that has evaporated from the current bilateral
agenda concentrates on future cooperation Stronger economic ties could not only be a kind of
po liti cal shock absorber but contribute to the building of this future (particularly business contacts
aim to support future structural reforms) although po liti cal factors are depressing the prospects
for cooperation To escape deadlock it will be impor tant to establish the right balance between
politics and economics and create a model of collaboration within the framework of contention
594-71613_ch01_4Pindd 49 102017 404 PM
About the Author
Vadim Grishin PhD MBA has been involved in the reform pro cess in Rus sia as adviser to the
deputy prime minister of Rus sia in 1992ndash1993 and 2006ndash2010 He has extensive experience
working with the Bretton Woods Institutions He was the board member of the World Bank Group
and served as se nior adviser at the International Monetary Fund Currently he is a con sul tant to the
chief economistrsquos office of the International Finance Corporation and teaches the economics of
transition at Georgetown University in Washington DC
50
594-71613_ch99_4Pindd 50 102017 403 PM
Blank
COVER PHOTO ADOBE STOCK
1616 Rhode Island Avenue NW
Washington DC 20036
202 887 0200 | wwwcsisorg
v++ISBN 978-1-4422-8035-9
Lanham bull Boulder bull New York bull London
4501 Forbes Boulevard
Lanham MD 20706
301 459 3366 | wwwrowmancom
A U T H O R
Vadim Grishin
Myths and Realities
A Report of the
CSIS RUSSIA AND EURASIA PROGRAM
US-RussiaEconomicRelations
O C T O B E R 2 0 1 7
Euml|xHSLEOCy280359z
The Man Pupu Nyor Rock Formations at the Northern Urals also known as Seven
Strong Man or Little Mountain of the God in the local tribe (Mansi) language
US-Russia Economic Relations34
through 2022 and additional investments in the construction of a new robotic plant in Titanium
Valley a special economic zone located in the Sverdlovsk region that will open in 2018 The pro-
cessing of titanium forgings in all Boeing civil aircraft will be performed there including 787s 737
MAXs and 777Xs17 The contract extension with AVISMA may add several hundred million dollars
in value to annual US imports from Rus sia
How can such heavy reliance on imports of Rus sian titanium exist during a period of rising geopo-
liti cal tensions The answer is straightforward VSMPO- AVISMA is a highly specialized natu ral
mono poly producing 45 percent of the worldrsquos aerospace titanium Only four other countries
smelt high- grade titanium in industrial quantities the United States Germany Japan and China
Overall global production capacity is limited while demand is growing The United States cur-
rently imports around 79 percent of all the titanium it consumes each year18
17 ldquoBoeing and VSMPO Avisma to Launch Second Joint Production Siterdquo Rus sian Aviation Insider December 22 2016
http wwwrusaviainsider com boeing - and - vsmpo - avisma - to - launch - second - joint - production - site
18 Jon Ostrower and Andy Pasztor ldquoBoeing United Technologies Stockpile Titanium Partsrdquo Wall Street Journal
August 7 2014 https wwwwsj com articles boeing - united - technologies - stockpiling - titanium - parts - 1407441886
Figure 511 US Imports from Rus sia Civilian Aircrafts and Parts US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
$200000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Parts-civilian aircraft
Civilian aircraft
594-71613_ch01_4Pindd 34 102017 404 PM
Vadim Grishin 35
The Sanctions Act authorizes the secretary of the trea sury (in a nonmandatory way) to impose
restrictions (without specifying them) against Rus sian state- owned entities operating in the railway
metals and mining sectors of the Rus sian economy Despite the commanding heights of Rus siarsquos
state sector owner ship in its economy (70 percent of GDP) the metal- producing companies have
remained mostly in private hands
NUCLEAR AFFAIRS
Historically owners and operators of the 104 commercial nuclear power reactors in the United
States have purchased more than 80 percent of their uranium from foreign countries Uranium
shipping from Rus sia accounted for about 13 percent of the 58 million pounds of uranium pur-
chased overseas in 201219 At the same time the Rus sian state- owned mono poly Rosatom ac-
counts for 20 percent of Kazakhstanrsquos uranium production (which in turn comprises 11 percent of
all US uranium imports) and 20 percent of US domestic uranium production capacity (with
owner ship of exploration tracts in Wyoming)20
Nuclear fuel and nuclear power continue to be po liti cally sensitive topics both in the United
States and Rus sia Bilateral cooperation in this sector (being surprisingly stable with imports of
nuclear fuel from Rus sia at a level of $1 billion annually in the last five years [Figure 512 and 513])
is under constant po liti cal and lobbying pressure and has been a source of several po liti cal scan-
dals21 Consequently upside risks in this area of interaction are minimal and downside risks are
much higher especially when we are seeing more decommissioning of nuclear plants in the
United States than new constructions The US EIArsquos 2017 Annual Energy Outlook assumes
that about 25 percent of the nuclear capacity now operating will be removed from ser vice
by 205022
WHY IS THE GRASS GREENER ON THE OTHER SIDE
The United States continues to significantly reduce imports of chemical fertilizers as domestic pro-
duction increases In 2016 the United States imported 13 percent less ammonia and 11 percent
less urea and UAN which is a liquid urea and ammonium nitrate fertilizer Rus sia accounts for
around 40 percent of UAN imported by the United States The United States canceled antidumping
duties on imports of ammonium nitrate and urea from Rus sia in 2016 but it did not prevent import
19 US EIA ldquoThe US Relies on Foreign Uranium Enrichment Ser vices to Fuel Its Nuclear Power Plantsrdquo Today in
Energy August 28 2013 https wwweia gov todayinenergy detail php idshy=shy1273
20 Colin Chilcoat ldquoDoes Rus sia Really Own 20 Percent of the USrsquo Uranium Reservesrdquo OilPricecom May 6 2015
http oilpricecom Alternative - Energy Nuclear - Power Does - Russia - Really - Own - 20 - Of - The - US - Uranium - Reserves
html
21 Michelle Ye Hee Lee ldquoThe Facts behind Trumprsquos Repeated Claim about Hillary Clintonrsquos Role in the Rus sian Ura-
nium Dealrdquo Washington Post October 26 2016
22 US EIA ldquoAnnual Energy Outlook 2017 with Projections to 2050rdquo 81ndash82
594-71613_ch01_4Pindd 35 102017 404 PM
Figure 512 US Imports from Rus sia Share of Oil Metals and Nuclear Fuel Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
87
86
90
90
90
91
88
86
7882
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals and Nuclear Fuel
Figure 513 US Imports from Rus sia Nuclear Fuel Materials US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$-
$200000000
$400000000
$600000000
$800000000
$1200000000
$1000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 36 102017 404 PM
Vadim Grishin 37
drops twice last year (Figures 514 and 515) According to forecasts UAN imports are expected to
decline further to 15 million tons this year down over 46 percent from 28 million tons imported
last year23 The downside trend in imports of fertilizers will likely continue because of oversupply
BIG FISH
US imports of fish and shellfish from Rus sia are best understood in comparison with US fish
exports to the Rus sian market which slipped to zero in August 2014 after Rus sia issued an order
banning certain agricultural imports from the United States (Figure 516) While the volume of US
supply was not very large it was impor tant because it broke up the monopolistic dominance of a
few vertically integrated Rus sian companies that have kept prices high by restricting the entry of
new producers Seeking to implement import substitution policies Rus sia has tried to reduce
exports as well as imports of fish and seafood products in the last couple of years This symmetri-
cal approach was intended to ldquocompensaterdquo for a decrease of fish products in the domestic
23 Deepika Thapliyal ldquoPotashCorp Forecasts Sharp Drop in US Nitrogen Imports in 2017rdquo ICIS News February 7
2017 https wwwicis com resources news 2017 02 07 10076734 potashcorp - forecasts - sharp - drop - in - us - nitrogen
- imports - in - 2017
Figure 514 US Imports from Rus sia Share of Oil Metals Nuclear Fuel and Fertilizers Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
90
93
92
93
94
95
92
91
85
86
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals Nuclear Fuel and Fertilizers
594-71613_ch01_4Pindd 37 102017 404 PM
Figure 515 US Imports from Rus sia Chemical- Fertilizers US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
S-
$200000000
$400000000
$600000000
$800000000
$1000000000
$1200000000
$1400000000
$1600000000
$1800000000
$2000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Figure 516 US Exports to Rus sia Fish and Shellfish US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$10000000
$20000000
$30000000
$40000000
$50000000
$60000000
$70000000
$80000000
$90000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Fish and shellfish
594-71613_ch01_4Pindd 38 102017 404 PM
Vadim Grishin 39
consumer market caused by Rus siarsquos import ban but it has failed As result the group most af-
fected by the self- imposed counter- sanctions were Rus sian consumers
With a significant drop in fish imports a devaluation of the ruble and inflationary pressures on
seafood prices yearly consumption of fish in Rus sia has declined precipitously In 2015 alone
fish prices increased 20 percent and consumption dropped to 14 kilograms per person24 from
22 kilograms in 201425 In 2016 food rose to 355 percent of house hold expenditure as a result of
increases in food prices26 This has pushed vertically integrated fishing monopolies to sell even
more of their catch abroad rather than deliver to the Rus sian Federation (Figure 517) Thus we
cannot exclude the possibility of further growth in US fish and shellfish imports from Rus sia on a
marginal scale
24 Александр Савельев ldquoПотребление рыбы в России упало до 14 кг на человекаrdquo [Fish consumption in Rus sia fell to
14 kg per person] Экономика Интерфакс January 28 2015 http wwwinterfax ru business 492038
25 Илья Шестаков ldquoПотебление рыбы в России снизилось на 10 процентов из- за роста ценrdquo [Fish consumption in
Rus sia dropped by 10 percent due to price increases] RNS March 8 2017 https rnsonline consumer - market
Potreblenie - ribi - v - Rossii - snizilos - na - 10 - iz - za - rosta - tsen - 2017 - 03 - 08
26 Zoya Sheftalovich and Christian Oliver ldquoRus siarsquos Boom (Farming) Economyrdquo Politico November 8 2016 http
wwwpolitico eu article russias - boom - farming - economy
Figure 517 US Imports from Rus sia Fish and Shellfish US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$50000000
$100000000
$150000000
$200000000
$250000000
$300000000
$350000000
$400000000
$450000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 39 102017 404 PM
US-Russia Economic Relations40
SPACE ODYSSEY
Among high- end products beyond the top five groups of goods imported from Rus sia cheap and
efficient Rus sian engines have been used to launch US rockets into space for about 16 years
(Figure 518) There was a serious po liti cal strug gle around a 2014 ban on the purchase of Rus sian
RD-180 rocket engines revealing the conflicting business interests of power ful high- tech companies
This restrictive mea sure was temporary and was quickly lifted because of significant cost impacts
and risks of disruption to launch schedules27 For the same reason the Sanctions Act does not autho-
rize ldquothe imposition of any sanction or other condition limitation restriction or prohibition that
directly or indirectly impedes the supply by any entity of the Rus sian Federation of any product or
ser vice or the procurement of such product or ser vice by any contractor or subcontractor of the
United States or any other entity relating to or in connection with any space launch conducted for
the National Aeronautics and Space Administration or any other nonndash Department of Defense
customerrdquo28
Nevertheless many experts believe that US domestic alternatives to replace Rus sian engines will
be viable in five to eight years
27 Ken Dilanian ldquoWhy Does the US Use Rus sian Rockets to Launch Its Satellitesrdquo NBC News updated November 15
2016 http wwwnbcnews com why - does - u - s - use - russian - rockets - launch - its - satellites - n588526
28 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364
Figure 518 Spacecraft Excluding Military US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 40 102017 404 PM
41
Diversity and technological complexity are the most vis i ble advantages supporting US exports to
Rus sia Three major groups of export goods include civilian aircraft engines and parts (Figure 61)
drilling and oil field equipment (Figure 62) and industrial machines and engines (Figure 63)
Despite sanctions against the transfer of advanced oil producing and pro cessing technologies the
realization of US drilling and oil field equipment in Rus sia is sustainable although some bilateral
proj ects have been frozen
Another category of goods that has demonstrated resilience is the phar ma ceu ti cal industry (Fig-
ure 64) because most drugs in Rus sia are imported (about 70 percent of the Rus sian phar ma ceu-
ti cal market in value) Import substitution policies have had only modest results in this industry
As confirmed by American Chamber of Commerce surveys US exports to Rus sia are closely
connected to US FDI 30 percent of total imports of US companies working in the Rus sian
market come from the United States (more than $2 billion in 2016) In other words about
40 percent of all US exports to Rus sia are related to a US corporate- sector business pro cess in
the country The major sectors of activity of these companies are energy and natu ral resources
(52 percent) manufacturing (17 percent) information and communications technology or ICT
(13 percent) retail (7 percent) automotive industry (6 percent) phar ma ceu ti cal production
(1 percent) professional ser vices (05 percent) and other (2 percent)1
Some obvious constraints on US exports to Rus sia have resulted from a reduction in demand A
deterioration of bilateral relations and implementation of sanctions and counter- sanctions have
directly or indirectly afected all businesses Figures 65 and 66 provide data regarding a dramatic
drop in the sale of US agricultural production in Rus sia with all other categories of exports in
goods showing big cuts as well (see Figures 67ndash69)
Exports of civilian aircraft engines and parts put the state of Washington in first place among
other states as a leading exporter to the Rus sian market (Figure 610)
1 American Chamber of Commerce in Rus sia ldquoInvestment and Import to Rus sia 2nd Surveyrdquo 13
Diversity and Constraints
06
594-71613_ch01_4Pindd 41 102017 404 PM
Figure 61 US Exports of Civilian Aircraft Engines Equipment and Parts to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
$2500000000
$2000000000
$1500000000
$1000000000
$500000000
$-
Figure 62 US Exports of Drilling and Oil Field Equipment US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
$40000000
$45000000
$50000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 42 102017 404 PM
Figure 63 US Exports of Industrial Engines to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Figure 64 US Exports of Phar ma ceu ti cal Preparations to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 43 102017 404 PM
Figure 65 US Exports of Meat and Poultry to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Meat poultry etc
$1000000000
$800000000
$600000000
$400000000
$200000000
$-
$1200000000
$1400000000
$1600000000
Figure 66 US Exports of Soybeans to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
$200000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 44 102017 404 PM
Figure 67 US Exports of Vehicles Engines and Parts to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Other parts and accessories of vehicles
Automotive tires and tubes
Bodies and chassis for passenger cars
Engines and engine parts (carburetors pistonsrings and valves)
Trucks buses and special purpose vehicles
Passenger cars new and used
$2500000000
$2000000000
$1500000000
$500000000
$-
$1000000000
Figure 68 US Exports of Medicinal Equipment to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 45 102017 404 PM
Figure 610 US Exports to Rus sia by States (2016 US$ Value) Million US$ 2013ndash2016
Source US Census Bureau ldquoState and Metropolitan Area Trade Datardquo
Iowa Kentucky
North Dakota
Oklahoma
South Carolina
Washington
0
$500
$1000
$1500
$2000
2013 2014 2015 2016
District of Columbia
Iowa
Kentucky
North Dakota
Oklahoma
South Carolina
Washington
Figure 69 US Exports of Excavating Machinery to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
$40000000
$45000000
$50000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 46 102017 404 PM
47
Upon reviewing the current trend in US- Russia economic relations we must acknowledge that
the existing trade model is obsolete and exhausted Imports are resource- oriented and reflect
constraints of the Rus sian economic structure while five groups of goodsmdash oil metals nuclear
fuels fertilizers and fishmdash make up more than 90 percent of total imports from Rus sia (Figure 71)
Each of these industries has a limited capacity for growth in the foreseeable future
Rus siarsquos core export to the United Statesmdash oilmdash will inevitably decrease in the mid- term under any
scenario The value and volume of Rus sian exports to the United States are open to global market
volatility and po liti cal pressures with limited hedging mechanisms
Overall US exports to Rus sia are unsustainable due to bilateral po liti cal tensions the whims of
commodity markets and changing domestic policies Sanctions and counter- sanctions have
created additional barriers particularly in finance banking high- tech energy and agro- business
According to the American Chamber of Commerce 69 percent of US companies working in the
country consider the impact of US sanctions against Rus sia on their business as negative At the
same time 60 percent of companies do not expect big changes in business relations between
Rus sia and the United States under Trump1 as the new law codifies existing sanctions fortifies
them and extends them to new sectors
Current US investments are low due to the weak rule of law in Rus sia a lack of property right
protections and proper contract enforcement high levels of statization and monopolization in the
economy a poor business climate outdated capital stock dependence on natural- resource
sectors and of course sanction and counter- sanction mea sures Bloated administrative compo-
nents created as risk mitigation instruments have also served as impediments The countryrsquos
institutional weakness low level of productivity bud get constraints and a declining inflexible
workforce will restrain future economic growth even if commodity prices recover Rus sian eco-
nomic policy will likely continue to be statist and protectionist relying mostly on import
substitutions
1 Ibid 11
Existing Trends and Future Scenarios
07
594-71613_ch01_4Pindd 47 102017 404 PM
US-Russia Economic Relations48
What scenarios can be expected in such a challenging environment
One probability (no peace no war) is based on the assumption that matters will not deteriorate
further and implementation of the Sanctions Act will be cursory This will cause relatively slow
degradation in the economic field with occasional flashes of activity in selected areas (eg closer
cooperation against Islamist terrorist groups in Syria)
A second worse case or critical scenario is the intensive and full- scale execution of current sanc-
tion legislation and even the imposition of new economic punitive and restrictive mea sures which
could incite asymmetric retaliatory actions and lead to the introduction of additional protectionist
policies This in turn could trigger a further escalation of mutual confrontation and could eventu-
ally destroy the fundamentals of the current bilateral trade system Rus sian leadership has charac-
terized the Sanctions Act as a declaration of a trade war that ends all hope for improving bilateral
relations2
2 Дмитрий Медведев ldquoПодписание президентом США нового санкционного закона против России создает несколько
последствийrdquo [The US Presidentrsquos signing of the package of new sanctions against Rus sia will have a few conse-
quences] Facebook August 2 2017 https wwwfacebook com Dmitry Medvedev posts 10154587161801851
Figure 71 US Imports from Rus sia Share of Oil Metals Nuclear Fuel Fertilizers and Fish Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
93
94
93
94
95
96
93
92
87
89
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals Nuclear FuelFertilizers and Fish
594-71613_ch01_4Pindd 48 102017 404 PM
Vadim Grishin 49
The best case and most favorable scenario looks less probable now It assumes the realization of
structural reforms in Rus sia in such a way that would adapt Rus siarsquos foreign policy to national
economic needs reduce confrontations with the West and make a concerted efort to integrate
Rus sian businesses into global supply and value chains A revitalization of the structural reform
agendamdash including eforts to diversify economic activities through de- monopolization and support
for SMEs a restructuring of the banking sector the creation of a vibrant business climate to foster
entrepreneurships and innovation the implementation of administrative and judicial reforms to
tackle red tape and endemic corruption and the reduction of state control over key sectors of the
economy via wide- spread privatization could kick- start the development of a nonoil economy and
improve long- term growth prospects Despite ongoing discussion of reform strategies deep
economic and po liti cal changes are extremely complicated over the next po liti calelectoral cycle
(2018ndash2024) particularly because of re sis tance of vested interests and growing commodity prices
The urgency to tackle structural shortcomings in natu ral resource- dependent economies usually
correlates with the price of those resources and the degree to which resource rents drive eco-
nomic activity However there may be marginal improvements in the efficiency of the current
economic system
Future US- Russia relations can be thought of through three pillars one pillar focuses on areas
where both countries maintain a competitive rivalry another looks at potential areas of interaction
under pres ent conditions a third pillar and one that has evaporated from the current bilateral
agenda concentrates on future cooperation Stronger economic ties could not only be a kind of
po liti cal shock absorber but contribute to the building of this future (particularly business contacts
aim to support future structural reforms) although po liti cal factors are depressing the prospects
for cooperation To escape deadlock it will be impor tant to establish the right balance between
politics and economics and create a model of collaboration within the framework of contention
594-71613_ch01_4Pindd 49 102017 404 PM
About the Author
Vadim Grishin PhD MBA has been involved in the reform pro cess in Rus sia as adviser to the
deputy prime minister of Rus sia in 1992ndash1993 and 2006ndash2010 He has extensive experience
working with the Bretton Woods Institutions He was the board member of the World Bank Group
and served as se nior adviser at the International Monetary Fund Currently he is a con sul tant to the
chief economistrsquos office of the International Finance Corporation and teaches the economics of
transition at Georgetown University in Washington DC
50
594-71613_ch99_4Pindd 50 102017 403 PM
Blank
COVER PHOTO ADOBE STOCK
1616 Rhode Island Avenue NW
Washington DC 20036
202 887 0200 | wwwcsisorg
v++ISBN 978-1-4422-8035-9
Lanham bull Boulder bull New York bull London
4501 Forbes Boulevard
Lanham MD 20706
301 459 3366 | wwwrowmancom
A U T H O R
Vadim Grishin
Myths and Realities
A Report of the
CSIS RUSSIA AND EURASIA PROGRAM
US-RussiaEconomicRelations
O C T O B E R 2 0 1 7
Euml|xHSLEOCy280359z
The Man Pupu Nyor Rock Formations at the Northern Urals also known as Seven
Strong Man or Little Mountain of the God in the local tribe (Mansi) language
Vadim Grishin 35
The Sanctions Act authorizes the secretary of the trea sury (in a nonmandatory way) to impose
restrictions (without specifying them) against Rus sian state- owned entities operating in the railway
metals and mining sectors of the Rus sian economy Despite the commanding heights of Rus siarsquos
state sector owner ship in its economy (70 percent of GDP) the metal- producing companies have
remained mostly in private hands
NUCLEAR AFFAIRS
Historically owners and operators of the 104 commercial nuclear power reactors in the United
States have purchased more than 80 percent of their uranium from foreign countries Uranium
shipping from Rus sia accounted for about 13 percent of the 58 million pounds of uranium pur-
chased overseas in 201219 At the same time the Rus sian state- owned mono poly Rosatom ac-
counts for 20 percent of Kazakhstanrsquos uranium production (which in turn comprises 11 percent of
all US uranium imports) and 20 percent of US domestic uranium production capacity (with
owner ship of exploration tracts in Wyoming)20
Nuclear fuel and nuclear power continue to be po liti cally sensitive topics both in the United
States and Rus sia Bilateral cooperation in this sector (being surprisingly stable with imports of
nuclear fuel from Rus sia at a level of $1 billion annually in the last five years [Figure 512 and 513])
is under constant po liti cal and lobbying pressure and has been a source of several po liti cal scan-
dals21 Consequently upside risks in this area of interaction are minimal and downside risks are
much higher especially when we are seeing more decommissioning of nuclear plants in the
United States than new constructions The US EIArsquos 2017 Annual Energy Outlook assumes
that about 25 percent of the nuclear capacity now operating will be removed from ser vice
by 205022
WHY IS THE GRASS GREENER ON THE OTHER SIDE
The United States continues to significantly reduce imports of chemical fertilizers as domestic pro-
duction increases In 2016 the United States imported 13 percent less ammonia and 11 percent
less urea and UAN which is a liquid urea and ammonium nitrate fertilizer Rus sia accounts for
around 40 percent of UAN imported by the United States The United States canceled antidumping
duties on imports of ammonium nitrate and urea from Rus sia in 2016 but it did not prevent import
19 US EIA ldquoThe US Relies on Foreign Uranium Enrichment Ser vices to Fuel Its Nuclear Power Plantsrdquo Today in
Energy August 28 2013 https wwweia gov todayinenergy detail php idshy=shy1273
20 Colin Chilcoat ldquoDoes Rus sia Really Own 20 Percent of the USrsquo Uranium Reservesrdquo OilPricecom May 6 2015
http oilpricecom Alternative - Energy Nuclear - Power Does - Russia - Really - Own - 20 - Of - The - US - Uranium - Reserves
html
21 Michelle Ye Hee Lee ldquoThe Facts behind Trumprsquos Repeated Claim about Hillary Clintonrsquos Role in the Rus sian Ura-
nium Dealrdquo Washington Post October 26 2016
22 US EIA ldquoAnnual Energy Outlook 2017 with Projections to 2050rdquo 81ndash82
594-71613_ch01_4Pindd 35 102017 404 PM
Figure 512 US Imports from Rus sia Share of Oil Metals and Nuclear Fuel Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
87
86
90
90
90
91
88
86
7882
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals and Nuclear Fuel
Figure 513 US Imports from Rus sia Nuclear Fuel Materials US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$-
$200000000
$400000000
$600000000
$800000000
$1200000000
$1000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 36 102017 404 PM
Vadim Grishin 37
drops twice last year (Figures 514 and 515) According to forecasts UAN imports are expected to
decline further to 15 million tons this year down over 46 percent from 28 million tons imported
last year23 The downside trend in imports of fertilizers will likely continue because of oversupply
BIG FISH
US imports of fish and shellfish from Rus sia are best understood in comparison with US fish
exports to the Rus sian market which slipped to zero in August 2014 after Rus sia issued an order
banning certain agricultural imports from the United States (Figure 516) While the volume of US
supply was not very large it was impor tant because it broke up the monopolistic dominance of a
few vertically integrated Rus sian companies that have kept prices high by restricting the entry of
new producers Seeking to implement import substitution policies Rus sia has tried to reduce
exports as well as imports of fish and seafood products in the last couple of years This symmetri-
cal approach was intended to ldquocompensaterdquo for a decrease of fish products in the domestic
23 Deepika Thapliyal ldquoPotashCorp Forecasts Sharp Drop in US Nitrogen Imports in 2017rdquo ICIS News February 7
2017 https wwwicis com resources news 2017 02 07 10076734 potashcorp - forecasts - sharp - drop - in - us - nitrogen
- imports - in - 2017
Figure 514 US Imports from Rus sia Share of Oil Metals Nuclear Fuel and Fertilizers Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
90
93
92
93
94
95
92
91
85
86
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals Nuclear Fuel and Fertilizers
594-71613_ch01_4Pindd 37 102017 404 PM
Figure 515 US Imports from Rus sia Chemical- Fertilizers US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
S-
$200000000
$400000000
$600000000
$800000000
$1000000000
$1200000000
$1400000000
$1600000000
$1800000000
$2000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Figure 516 US Exports to Rus sia Fish and Shellfish US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$10000000
$20000000
$30000000
$40000000
$50000000
$60000000
$70000000
$80000000
$90000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Fish and shellfish
594-71613_ch01_4Pindd 38 102017 404 PM
Vadim Grishin 39
consumer market caused by Rus siarsquos import ban but it has failed As result the group most af-
fected by the self- imposed counter- sanctions were Rus sian consumers
With a significant drop in fish imports a devaluation of the ruble and inflationary pressures on
seafood prices yearly consumption of fish in Rus sia has declined precipitously In 2015 alone
fish prices increased 20 percent and consumption dropped to 14 kilograms per person24 from
22 kilograms in 201425 In 2016 food rose to 355 percent of house hold expenditure as a result of
increases in food prices26 This has pushed vertically integrated fishing monopolies to sell even
more of their catch abroad rather than deliver to the Rus sian Federation (Figure 517) Thus we
cannot exclude the possibility of further growth in US fish and shellfish imports from Rus sia on a
marginal scale
24 Александр Савельев ldquoПотребление рыбы в России упало до 14 кг на человекаrdquo [Fish consumption in Rus sia fell to
14 kg per person] Экономика Интерфакс January 28 2015 http wwwinterfax ru business 492038
25 Илья Шестаков ldquoПотебление рыбы в России снизилось на 10 процентов из- за роста ценrdquo [Fish consumption in
Rus sia dropped by 10 percent due to price increases] RNS March 8 2017 https rnsonline consumer - market
Potreblenie - ribi - v - Rossii - snizilos - na - 10 - iz - za - rosta - tsen - 2017 - 03 - 08
26 Zoya Sheftalovich and Christian Oliver ldquoRus siarsquos Boom (Farming) Economyrdquo Politico November 8 2016 http
wwwpolitico eu article russias - boom - farming - economy
Figure 517 US Imports from Rus sia Fish and Shellfish US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$50000000
$100000000
$150000000
$200000000
$250000000
$300000000
$350000000
$400000000
$450000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 39 102017 404 PM
US-Russia Economic Relations40
SPACE ODYSSEY
Among high- end products beyond the top five groups of goods imported from Rus sia cheap and
efficient Rus sian engines have been used to launch US rockets into space for about 16 years
(Figure 518) There was a serious po liti cal strug gle around a 2014 ban on the purchase of Rus sian
RD-180 rocket engines revealing the conflicting business interests of power ful high- tech companies
This restrictive mea sure was temporary and was quickly lifted because of significant cost impacts
and risks of disruption to launch schedules27 For the same reason the Sanctions Act does not autho-
rize ldquothe imposition of any sanction or other condition limitation restriction or prohibition that
directly or indirectly impedes the supply by any entity of the Rus sian Federation of any product or
ser vice or the procurement of such product or ser vice by any contractor or subcontractor of the
United States or any other entity relating to or in connection with any space launch conducted for
the National Aeronautics and Space Administration or any other nonndash Department of Defense
customerrdquo28
Nevertheless many experts believe that US domestic alternatives to replace Rus sian engines will
be viable in five to eight years
27 Ken Dilanian ldquoWhy Does the US Use Rus sian Rockets to Launch Its Satellitesrdquo NBC News updated November 15
2016 http wwwnbcnews com why - does - u - s - use - russian - rockets - launch - its - satellites - n588526
28 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364
Figure 518 Spacecraft Excluding Military US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 40 102017 404 PM
41
Diversity and technological complexity are the most vis i ble advantages supporting US exports to
Rus sia Three major groups of export goods include civilian aircraft engines and parts (Figure 61)
drilling and oil field equipment (Figure 62) and industrial machines and engines (Figure 63)
Despite sanctions against the transfer of advanced oil producing and pro cessing technologies the
realization of US drilling and oil field equipment in Rus sia is sustainable although some bilateral
proj ects have been frozen
Another category of goods that has demonstrated resilience is the phar ma ceu ti cal industry (Fig-
ure 64) because most drugs in Rus sia are imported (about 70 percent of the Rus sian phar ma ceu-
ti cal market in value) Import substitution policies have had only modest results in this industry
As confirmed by American Chamber of Commerce surveys US exports to Rus sia are closely
connected to US FDI 30 percent of total imports of US companies working in the Rus sian
market come from the United States (more than $2 billion in 2016) In other words about
40 percent of all US exports to Rus sia are related to a US corporate- sector business pro cess in
the country The major sectors of activity of these companies are energy and natu ral resources
(52 percent) manufacturing (17 percent) information and communications technology or ICT
(13 percent) retail (7 percent) automotive industry (6 percent) phar ma ceu ti cal production
(1 percent) professional ser vices (05 percent) and other (2 percent)1
Some obvious constraints on US exports to Rus sia have resulted from a reduction in demand A
deterioration of bilateral relations and implementation of sanctions and counter- sanctions have
directly or indirectly afected all businesses Figures 65 and 66 provide data regarding a dramatic
drop in the sale of US agricultural production in Rus sia with all other categories of exports in
goods showing big cuts as well (see Figures 67ndash69)
Exports of civilian aircraft engines and parts put the state of Washington in first place among
other states as a leading exporter to the Rus sian market (Figure 610)
1 American Chamber of Commerce in Rus sia ldquoInvestment and Import to Rus sia 2nd Surveyrdquo 13
Diversity and Constraints
06
594-71613_ch01_4Pindd 41 102017 404 PM
Figure 61 US Exports of Civilian Aircraft Engines Equipment and Parts to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
$2500000000
$2000000000
$1500000000
$1000000000
$500000000
$-
Figure 62 US Exports of Drilling and Oil Field Equipment US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
$40000000
$45000000
$50000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 42 102017 404 PM
Figure 63 US Exports of Industrial Engines to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Figure 64 US Exports of Phar ma ceu ti cal Preparations to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 43 102017 404 PM
Figure 65 US Exports of Meat and Poultry to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Meat poultry etc
$1000000000
$800000000
$600000000
$400000000
$200000000
$-
$1200000000
$1400000000
$1600000000
Figure 66 US Exports of Soybeans to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
$200000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 44 102017 404 PM
Figure 67 US Exports of Vehicles Engines and Parts to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Other parts and accessories of vehicles
Automotive tires and tubes
Bodies and chassis for passenger cars
Engines and engine parts (carburetors pistonsrings and valves)
Trucks buses and special purpose vehicles
Passenger cars new and used
$2500000000
$2000000000
$1500000000
$500000000
$-
$1000000000
Figure 68 US Exports of Medicinal Equipment to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 45 102017 404 PM
Figure 610 US Exports to Rus sia by States (2016 US$ Value) Million US$ 2013ndash2016
Source US Census Bureau ldquoState and Metropolitan Area Trade Datardquo
Iowa Kentucky
North Dakota
Oklahoma
South Carolina
Washington
0
$500
$1000
$1500
$2000
2013 2014 2015 2016
District of Columbia
Iowa
Kentucky
North Dakota
Oklahoma
South Carolina
Washington
Figure 69 US Exports of Excavating Machinery to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
$40000000
$45000000
$50000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 46 102017 404 PM
47
Upon reviewing the current trend in US- Russia economic relations we must acknowledge that
the existing trade model is obsolete and exhausted Imports are resource- oriented and reflect
constraints of the Rus sian economic structure while five groups of goodsmdash oil metals nuclear
fuels fertilizers and fishmdash make up more than 90 percent of total imports from Rus sia (Figure 71)
Each of these industries has a limited capacity for growth in the foreseeable future
Rus siarsquos core export to the United Statesmdash oilmdash will inevitably decrease in the mid- term under any
scenario The value and volume of Rus sian exports to the United States are open to global market
volatility and po liti cal pressures with limited hedging mechanisms
Overall US exports to Rus sia are unsustainable due to bilateral po liti cal tensions the whims of
commodity markets and changing domestic policies Sanctions and counter- sanctions have
created additional barriers particularly in finance banking high- tech energy and agro- business
According to the American Chamber of Commerce 69 percent of US companies working in the
country consider the impact of US sanctions against Rus sia on their business as negative At the
same time 60 percent of companies do not expect big changes in business relations between
Rus sia and the United States under Trump1 as the new law codifies existing sanctions fortifies
them and extends them to new sectors
Current US investments are low due to the weak rule of law in Rus sia a lack of property right
protections and proper contract enforcement high levels of statization and monopolization in the
economy a poor business climate outdated capital stock dependence on natural- resource
sectors and of course sanction and counter- sanction mea sures Bloated administrative compo-
nents created as risk mitigation instruments have also served as impediments The countryrsquos
institutional weakness low level of productivity bud get constraints and a declining inflexible
workforce will restrain future economic growth even if commodity prices recover Rus sian eco-
nomic policy will likely continue to be statist and protectionist relying mostly on import
substitutions
1 Ibid 11
Existing Trends and Future Scenarios
07
594-71613_ch01_4Pindd 47 102017 404 PM
US-Russia Economic Relations48
What scenarios can be expected in such a challenging environment
One probability (no peace no war) is based on the assumption that matters will not deteriorate
further and implementation of the Sanctions Act will be cursory This will cause relatively slow
degradation in the economic field with occasional flashes of activity in selected areas (eg closer
cooperation against Islamist terrorist groups in Syria)
A second worse case or critical scenario is the intensive and full- scale execution of current sanc-
tion legislation and even the imposition of new economic punitive and restrictive mea sures which
could incite asymmetric retaliatory actions and lead to the introduction of additional protectionist
policies This in turn could trigger a further escalation of mutual confrontation and could eventu-
ally destroy the fundamentals of the current bilateral trade system Rus sian leadership has charac-
terized the Sanctions Act as a declaration of a trade war that ends all hope for improving bilateral
relations2
2 Дмитрий Медведев ldquoПодписание президентом США нового санкционного закона против России создает несколько
последствийrdquo [The US Presidentrsquos signing of the package of new sanctions against Rus sia will have a few conse-
quences] Facebook August 2 2017 https wwwfacebook com Dmitry Medvedev posts 10154587161801851
Figure 71 US Imports from Rus sia Share of Oil Metals Nuclear Fuel Fertilizers and Fish Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
93
94
93
94
95
96
93
92
87
89
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals Nuclear FuelFertilizers and Fish
594-71613_ch01_4Pindd 48 102017 404 PM
Vadim Grishin 49
The best case and most favorable scenario looks less probable now It assumes the realization of
structural reforms in Rus sia in such a way that would adapt Rus siarsquos foreign policy to national
economic needs reduce confrontations with the West and make a concerted efort to integrate
Rus sian businesses into global supply and value chains A revitalization of the structural reform
agendamdash including eforts to diversify economic activities through de- monopolization and support
for SMEs a restructuring of the banking sector the creation of a vibrant business climate to foster
entrepreneurships and innovation the implementation of administrative and judicial reforms to
tackle red tape and endemic corruption and the reduction of state control over key sectors of the
economy via wide- spread privatization could kick- start the development of a nonoil economy and
improve long- term growth prospects Despite ongoing discussion of reform strategies deep
economic and po liti cal changes are extremely complicated over the next po liti calelectoral cycle
(2018ndash2024) particularly because of re sis tance of vested interests and growing commodity prices
The urgency to tackle structural shortcomings in natu ral resource- dependent economies usually
correlates with the price of those resources and the degree to which resource rents drive eco-
nomic activity However there may be marginal improvements in the efficiency of the current
economic system
Future US- Russia relations can be thought of through three pillars one pillar focuses on areas
where both countries maintain a competitive rivalry another looks at potential areas of interaction
under pres ent conditions a third pillar and one that has evaporated from the current bilateral
agenda concentrates on future cooperation Stronger economic ties could not only be a kind of
po liti cal shock absorber but contribute to the building of this future (particularly business contacts
aim to support future structural reforms) although po liti cal factors are depressing the prospects
for cooperation To escape deadlock it will be impor tant to establish the right balance between
politics and economics and create a model of collaboration within the framework of contention
594-71613_ch01_4Pindd 49 102017 404 PM
About the Author
Vadim Grishin PhD MBA has been involved in the reform pro cess in Rus sia as adviser to the
deputy prime minister of Rus sia in 1992ndash1993 and 2006ndash2010 He has extensive experience
working with the Bretton Woods Institutions He was the board member of the World Bank Group
and served as se nior adviser at the International Monetary Fund Currently he is a con sul tant to the
chief economistrsquos office of the International Finance Corporation and teaches the economics of
transition at Georgetown University in Washington DC
50
594-71613_ch99_4Pindd 50 102017 403 PM
Blank
COVER PHOTO ADOBE STOCK
1616 Rhode Island Avenue NW
Washington DC 20036
202 887 0200 | wwwcsisorg
v++ISBN 978-1-4422-8035-9
Lanham bull Boulder bull New York bull London
4501 Forbes Boulevard
Lanham MD 20706
301 459 3366 | wwwrowmancom
A U T H O R
Vadim Grishin
Myths and Realities
A Report of the
CSIS RUSSIA AND EURASIA PROGRAM
US-RussiaEconomicRelations
O C T O B E R 2 0 1 7
Euml|xHSLEOCy280359z
The Man Pupu Nyor Rock Formations at the Northern Urals also known as Seven
Strong Man or Little Mountain of the God in the local tribe (Mansi) language
Figure 512 US Imports from Rus sia Share of Oil Metals and Nuclear Fuel Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 1992ndash2016)
87
86
90
90
90
91
88
86
7882
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals and Nuclear Fuel
Figure 513 US Imports from Rus sia Nuclear Fuel Materials US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$-
$200000000
$400000000
$600000000
$800000000
$1200000000
$1000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 36 102017 404 PM
Vadim Grishin 37
drops twice last year (Figures 514 and 515) According to forecasts UAN imports are expected to
decline further to 15 million tons this year down over 46 percent from 28 million tons imported
last year23 The downside trend in imports of fertilizers will likely continue because of oversupply
BIG FISH
US imports of fish and shellfish from Rus sia are best understood in comparison with US fish
exports to the Rus sian market which slipped to zero in August 2014 after Rus sia issued an order
banning certain agricultural imports from the United States (Figure 516) While the volume of US
supply was not very large it was impor tant because it broke up the monopolistic dominance of a
few vertically integrated Rus sian companies that have kept prices high by restricting the entry of
new producers Seeking to implement import substitution policies Rus sia has tried to reduce
exports as well as imports of fish and seafood products in the last couple of years This symmetri-
cal approach was intended to ldquocompensaterdquo for a decrease of fish products in the domestic
23 Deepika Thapliyal ldquoPotashCorp Forecasts Sharp Drop in US Nitrogen Imports in 2017rdquo ICIS News February 7
2017 https wwwicis com resources news 2017 02 07 10076734 potashcorp - forecasts - sharp - drop - in - us - nitrogen
- imports - in - 2017
Figure 514 US Imports from Rus sia Share of Oil Metals Nuclear Fuel and Fertilizers Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
90
93
92
93
94
95
92
91
85
86
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals Nuclear Fuel and Fertilizers
594-71613_ch01_4Pindd 37 102017 404 PM
Figure 515 US Imports from Rus sia Chemical- Fertilizers US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
S-
$200000000
$400000000
$600000000
$800000000
$1000000000
$1200000000
$1400000000
$1600000000
$1800000000
$2000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Figure 516 US Exports to Rus sia Fish and Shellfish US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$10000000
$20000000
$30000000
$40000000
$50000000
$60000000
$70000000
$80000000
$90000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Fish and shellfish
594-71613_ch01_4Pindd 38 102017 404 PM
Vadim Grishin 39
consumer market caused by Rus siarsquos import ban but it has failed As result the group most af-
fected by the self- imposed counter- sanctions were Rus sian consumers
With a significant drop in fish imports a devaluation of the ruble and inflationary pressures on
seafood prices yearly consumption of fish in Rus sia has declined precipitously In 2015 alone
fish prices increased 20 percent and consumption dropped to 14 kilograms per person24 from
22 kilograms in 201425 In 2016 food rose to 355 percent of house hold expenditure as a result of
increases in food prices26 This has pushed vertically integrated fishing monopolies to sell even
more of their catch abroad rather than deliver to the Rus sian Federation (Figure 517) Thus we
cannot exclude the possibility of further growth in US fish and shellfish imports from Rus sia on a
marginal scale
24 Александр Савельев ldquoПотребление рыбы в России упало до 14 кг на человекаrdquo [Fish consumption in Rus sia fell to
14 kg per person] Экономика Интерфакс January 28 2015 http wwwinterfax ru business 492038
25 Илья Шестаков ldquoПотебление рыбы в России снизилось на 10 процентов из- за роста ценrdquo [Fish consumption in
Rus sia dropped by 10 percent due to price increases] RNS March 8 2017 https rnsonline consumer - market
Potreblenie - ribi - v - Rossii - snizilos - na - 10 - iz - za - rosta - tsen - 2017 - 03 - 08
26 Zoya Sheftalovich and Christian Oliver ldquoRus siarsquos Boom (Farming) Economyrdquo Politico November 8 2016 http
wwwpolitico eu article russias - boom - farming - economy
Figure 517 US Imports from Rus sia Fish and Shellfish US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$50000000
$100000000
$150000000
$200000000
$250000000
$300000000
$350000000
$400000000
$450000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 39 102017 404 PM
US-Russia Economic Relations40
SPACE ODYSSEY
Among high- end products beyond the top five groups of goods imported from Rus sia cheap and
efficient Rus sian engines have been used to launch US rockets into space for about 16 years
(Figure 518) There was a serious po liti cal strug gle around a 2014 ban on the purchase of Rus sian
RD-180 rocket engines revealing the conflicting business interests of power ful high- tech companies
This restrictive mea sure was temporary and was quickly lifted because of significant cost impacts
and risks of disruption to launch schedules27 For the same reason the Sanctions Act does not autho-
rize ldquothe imposition of any sanction or other condition limitation restriction or prohibition that
directly or indirectly impedes the supply by any entity of the Rus sian Federation of any product or
ser vice or the procurement of such product or ser vice by any contractor or subcontractor of the
United States or any other entity relating to or in connection with any space launch conducted for
the National Aeronautics and Space Administration or any other nonndash Department of Defense
customerrdquo28
Nevertheless many experts believe that US domestic alternatives to replace Rus sian engines will
be viable in five to eight years
27 Ken Dilanian ldquoWhy Does the US Use Rus sian Rockets to Launch Its Satellitesrdquo NBC News updated November 15
2016 http wwwnbcnews com why - does - u - s - use - russian - rockets - launch - its - satellites - n588526
28 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364
Figure 518 Spacecraft Excluding Military US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 40 102017 404 PM
41
Diversity and technological complexity are the most vis i ble advantages supporting US exports to
Rus sia Three major groups of export goods include civilian aircraft engines and parts (Figure 61)
drilling and oil field equipment (Figure 62) and industrial machines and engines (Figure 63)
Despite sanctions against the transfer of advanced oil producing and pro cessing technologies the
realization of US drilling and oil field equipment in Rus sia is sustainable although some bilateral
proj ects have been frozen
Another category of goods that has demonstrated resilience is the phar ma ceu ti cal industry (Fig-
ure 64) because most drugs in Rus sia are imported (about 70 percent of the Rus sian phar ma ceu-
ti cal market in value) Import substitution policies have had only modest results in this industry
As confirmed by American Chamber of Commerce surveys US exports to Rus sia are closely
connected to US FDI 30 percent of total imports of US companies working in the Rus sian
market come from the United States (more than $2 billion in 2016) In other words about
40 percent of all US exports to Rus sia are related to a US corporate- sector business pro cess in
the country The major sectors of activity of these companies are energy and natu ral resources
(52 percent) manufacturing (17 percent) information and communications technology or ICT
(13 percent) retail (7 percent) automotive industry (6 percent) phar ma ceu ti cal production
(1 percent) professional ser vices (05 percent) and other (2 percent)1
Some obvious constraints on US exports to Rus sia have resulted from a reduction in demand A
deterioration of bilateral relations and implementation of sanctions and counter- sanctions have
directly or indirectly afected all businesses Figures 65 and 66 provide data regarding a dramatic
drop in the sale of US agricultural production in Rus sia with all other categories of exports in
goods showing big cuts as well (see Figures 67ndash69)
Exports of civilian aircraft engines and parts put the state of Washington in first place among
other states as a leading exporter to the Rus sian market (Figure 610)
1 American Chamber of Commerce in Rus sia ldquoInvestment and Import to Rus sia 2nd Surveyrdquo 13
Diversity and Constraints
06
594-71613_ch01_4Pindd 41 102017 404 PM
Figure 61 US Exports of Civilian Aircraft Engines Equipment and Parts to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
$2500000000
$2000000000
$1500000000
$1000000000
$500000000
$-
Figure 62 US Exports of Drilling and Oil Field Equipment US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
$40000000
$45000000
$50000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 42 102017 404 PM
Figure 63 US Exports of Industrial Engines to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Figure 64 US Exports of Phar ma ceu ti cal Preparations to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 43 102017 404 PM
Figure 65 US Exports of Meat and Poultry to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Meat poultry etc
$1000000000
$800000000
$600000000
$400000000
$200000000
$-
$1200000000
$1400000000
$1600000000
Figure 66 US Exports of Soybeans to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
$200000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 44 102017 404 PM
Figure 67 US Exports of Vehicles Engines and Parts to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Other parts and accessories of vehicles
Automotive tires and tubes
Bodies and chassis for passenger cars
Engines and engine parts (carburetors pistonsrings and valves)
Trucks buses and special purpose vehicles
Passenger cars new and used
$2500000000
$2000000000
$1500000000
$500000000
$-
$1000000000
Figure 68 US Exports of Medicinal Equipment to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 45 102017 404 PM
Figure 610 US Exports to Rus sia by States (2016 US$ Value) Million US$ 2013ndash2016
Source US Census Bureau ldquoState and Metropolitan Area Trade Datardquo
Iowa Kentucky
North Dakota
Oklahoma
South Carolina
Washington
0
$500
$1000
$1500
$2000
2013 2014 2015 2016
District of Columbia
Iowa
Kentucky
North Dakota
Oklahoma
South Carolina
Washington
Figure 69 US Exports of Excavating Machinery to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
$40000000
$45000000
$50000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 46 102017 404 PM
47
Upon reviewing the current trend in US- Russia economic relations we must acknowledge that
the existing trade model is obsolete and exhausted Imports are resource- oriented and reflect
constraints of the Rus sian economic structure while five groups of goodsmdash oil metals nuclear
fuels fertilizers and fishmdash make up more than 90 percent of total imports from Rus sia (Figure 71)
Each of these industries has a limited capacity for growth in the foreseeable future
Rus siarsquos core export to the United Statesmdash oilmdash will inevitably decrease in the mid- term under any
scenario The value and volume of Rus sian exports to the United States are open to global market
volatility and po liti cal pressures with limited hedging mechanisms
Overall US exports to Rus sia are unsustainable due to bilateral po liti cal tensions the whims of
commodity markets and changing domestic policies Sanctions and counter- sanctions have
created additional barriers particularly in finance banking high- tech energy and agro- business
According to the American Chamber of Commerce 69 percent of US companies working in the
country consider the impact of US sanctions against Rus sia on their business as negative At the
same time 60 percent of companies do not expect big changes in business relations between
Rus sia and the United States under Trump1 as the new law codifies existing sanctions fortifies
them and extends them to new sectors
Current US investments are low due to the weak rule of law in Rus sia a lack of property right
protections and proper contract enforcement high levels of statization and monopolization in the
economy a poor business climate outdated capital stock dependence on natural- resource
sectors and of course sanction and counter- sanction mea sures Bloated administrative compo-
nents created as risk mitigation instruments have also served as impediments The countryrsquos
institutional weakness low level of productivity bud get constraints and a declining inflexible
workforce will restrain future economic growth even if commodity prices recover Rus sian eco-
nomic policy will likely continue to be statist and protectionist relying mostly on import
substitutions
1 Ibid 11
Existing Trends and Future Scenarios
07
594-71613_ch01_4Pindd 47 102017 404 PM
US-Russia Economic Relations48
What scenarios can be expected in such a challenging environment
One probability (no peace no war) is based on the assumption that matters will not deteriorate
further and implementation of the Sanctions Act will be cursory This will cause relatively slow
degradation in the economic field with occasional flashes of activity in selected areas (eg closer
cooperation against Islamist terrorist groups in Syria)
A second worse case or critical scenario is the intensive and full- scale execution of current sanc-
tion legislation and even the imposition of new economic punitive and restrictive mea sures which
could incite asymmetric retaliatory actions and lead to the introduction of additional protectionist
policies This in turn could trigger a further escalation of mutual confrontation and could eventu-
ally destroy the fundamentals of the current bilateral trade system Rus sian leadership has charac-
terized the Sanctions Act as a declaration of a trade war that ends all hope for improving bilateral
relations2
2 Дмитрий Медведев ldquoПодписание президентом США нового санкционного закона против России создает несколько
последствийrdquo [The US Presidentrsquos signing of the package of new sanctions against Rus sia will have a few conse-
quences] Facebook August 2 2017 https wwwfacebook com Dmitry Medvedev posts 10154587161801851
Figure 71 US Imports from Rus sia Share of Oil Metals Nuclear Fuel Fertilizers and Fish Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
93
94
93
94
95
96
93
92
87
89
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals Nuclear FuelFertilizers and Fish
594-71613_ch01_4Pindd 48 102017 404 PM
Vadim Grishin 49
The best case and most favorable scenario looks less probable now It assumes the realization of
structural reforms in Rus sia in such a way that would adapt Rus siarsquos foreign policy to national
economic needs reduce confrontations with the West and make a concerted efort to integrate
Rus sian businesses into global supply and value chains A revitalization of the structural reform
agendamdash including eforts to diversify economic activities through de- monopolization and support
for SMEs a restructuring of the banking sector the creation of a vibrant business climate to foster
entrepreneurships and innovation the implementation of administrative and judicial reforms to
tackle red tape and endemic corruption and the reduction of state control over key sectors of the
economy via wide- spread privatization could kick- start the development of a nonoil economy and
improve long- term growth prospects Despite ongoing discussion of reform strategies deep
economic and po liti cal changes are extremely complicated over the next po liti calelectoral cycle
(2018ndash2024) particularly because of re sis tance of vested interests and growing commodity prices
The urgency to tackle structural shortcomings in natu ral resource- dependent economies usually
correlates with the price of those resources and the degree to which resource rents drive eco-
nomic activity However there may be marginal improvements in the efficiency of the current
economic system
Future US- Russia relations can be thought of through three pillars one pillar focuses on areas
where both countries maintain a competitive rivalry another looks at potential areas of interaction
under pres ent conditions a third pillar and one that has evaporated from the current bilateral
agenda concentrates on future cooperation Stronger economic ties could not only be a kind of
po liti cal shock absorber but contribute to the building of this future (particularly business contacts
aim to support future structural reforms) although po liti cal factors are depressing the prospects
for cooperation To escape deadlock it will be impor tant to establish the right balance between
politics and economics and create a model of collaboration within the framework of contention
594-71613_ch01_4Pindd 49 102017 404 PM
About the Author
Vadim Grishin PhD MBA has been involved in the reform pro cess in Rus sia as adviser to the
deputy prime minister of Rus sia in 1992ndash1993 and 2006ndash2010 He has extensive experience
working with the Bretton Woods Institutions He was the board member of the World Bank Group
and served as se nior adviser at the International Monetary Fund Currently he is a con sul tant to the
chief economistrsquos office of the International Finance Corporation and teaches the economics of
transition at Georgetown University in Washington DC
50
594-71613_ch99_4Pindd 50 102017 403 PM
Blank
COVER PHOTO ADOBE STOCK
1616 Rhode Island Avenue NW
Washington DC 20036
202 887 0200 | wwwcsisorg
v++ISBN 978-1-4422-8035-9
Lanham bull Boulder bull New York bull London
4501 Forbes Boulevard
Lanham MD 20706
301 459 3366 | wwwrowmancom
A U T H O R
Vadim Grishin
Myths and Realities
A Report of the
CSIS RUSSIA AND EURASIA PROGRAM
US-RussiaEconomicRelations
O C T O B E R 2 0 1 7
Euml|xHSLEOCy280359z
The Man Pupu Nyor Rock Formations at the Northern Urals also known as Seven
Strong Man or Little Mountain of the God in the local tribe (Mansi) language
Vadim Grishin 37
drops twice last year (Figures 514 and 515) According to forecasts UAN imports are expected to
decline further to 15 million tons this year down over 46 percent from 28 million tons imported
last year23 The downside trend in imports of fertilizers will likely continue because of oversupply
BIG FISH
US imports of fish and shellfish from Rus sia are best understood in comparison with US fish
exports to the Rus sian market which slipped to zero in August 2014 after Rus sia issued an order
banning certain agricultural imports from the United States (Figure 516) While the volume of US
supply was not very large it was impor tant because it broke up the monopolistic dominance of a
few vertically integrated Rus sian companies that have kept prices high by restricting the entry of
new producers Seeking to implement import substitution policies Rus sia has tried to reduce
exports as well as imports of fish and seafood products in the last couple of years This symmetri-
cal approach was intended to ldquocompensaterdquo for a decrease of fish products in the domestic
23 Deepika Thapliyal ldquoPotashCorp Forecasts Sharp Drop in US Nitrogen Imports in 2017rdquo ICIS News February 7
2017 https wwwicis com resources news 2017 02 07 10076734 potashcorp - forecasts - sharp - drop - in - us - nitrogen
- imports - in - 2017
Figure 514 US Imports from Rus sia Share of Oil Metals Nuclear Fuel and Fertilizers Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
90
93
92
93
94
95
92
91
85
86
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals Nuclear Fuel and Fertilizers
594-71613_ch01_4Pindd 37 102017 404 PM
Figure 515 US Imports from Rus sia Chemical- Fertilizers US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
S-
$200000000
$400000000
$600000000
$800000000
$1000000000
$1200000000
$1400000000
$1600000000
$1800000000
$2000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Figure 516 US Exports to Rus sia Fish and Shellfish US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$10000000
$20000000
$30000000
$40000000
$50000000
$60000000
$70000000
$80000000
$90000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Fish and shellfish
594-71613_ch01_4Pindd 38 102017 404 PM
Vadim Grishin 39
consumer market caused by Rus siarsquos import ban but it has failed As result the group most af-
fected by the self- imposed counter- sanctions were Rus sian consumers
With a significant drop in fish imports a devaluation of the ruble and inflationary pressures on
seafood prices yearly consumption of fish in Rus sia has declined precipitously In 2015 alone
fish prices increased 20 percent and consumption dropped to 14 kilograms per person24 from
22 kilograms in 201425 In 2016 food rose to 355 percent of house hold expenditure as a result of
increases in food prices26 This has pushed vertically integrated fishing monopolies to sell even
more of their catch abroad rather than deliver to the Rus sian Federation (Figure 517) Thus we
cannot exclude the possibility of further growth in US fish and shellfish imports from Rus sia on a
marginal scale
24 Александр Савельев ldquoПотребление рыбы в России упало до 14 кг на человекаrdquo [Fish consumption in Rus sia fell to
14 kg per person] Экономика Интерфакс January 28 2015 http wwwinterfax ru business 492038
25 Илья Шестаков ldquoПотебление рыбы в России снизилось на 10 процентов из- за роста ценrdquo [Fish consumption in
Rus sia dropped by 10 percent due to price increases] RNS March 8 2017 https rnsonline consumer - market
Potreblenie - ribi - v - Rossii - snizilos - na - 10 - iz - za - rosta - tsen - 2017 - 03 - 08
26 Zoya Sheftalovich and Christian Oliver ldquoRus siarsquos Boom (Farming) Economyrdquo Politico November 8 2016 http
wwwpolitico eu article russias - boom - farming - economy
Figure 517 US Imports from Rus sia Fish and Shellfish US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$50000000
$100000000
$150000000
$200000000
$250000000
$300000000
$350000000
$400000000
$450000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 39 102017 404 PM
US-Russia Economic Relations40
SPACE ODYSSEY
Among high- end products beyond the top five groups of goods imported from Rus sia cheap and
efficient Rus sian engines have been used to launch US rockets into space for about 16 years
(Figure 518) There was a serious po liti cal strug gle around a 2014 ban on the purchase of Rus sian
RD-180 rocket engines revealing the conflicting business interests of power ful high- tech companies
This restrictive mea sure was temporary and was quickly lifted because of significant cost impacts
and risks of disruption to launch schedules27 For the same reason the Sanctions Act does not autho-
rize ldquothe imposition of any sanction or other condition limitation restriction or prohibition that
directly or indirectly impedes the supply by any entity of the Rus sian Federation of any product or
ser vice or the procurement of such product or ser vice by any contractor or subcontractor of the
United States or any other entity relating to or in connection with any space launch conducted for
the National Aeronautics and Space Administration or any other nonndash Department of Defense
customerrdquo28
Nevertheless many experts believe that US domestic alternatives to replace Rus sian engines will
be viable in five to eight years
27 Ken Dilanian ldquoWhy Does the US Use Rus sian Rockets to Launch Its Satellitesrdquo NBC News updated November 15
2016 http wwwnbcnews com why - does - u - s - use - russian - rockets - launch - its - satellites - n588526
28 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364
Figure 518 Spacecraft Excluding Military US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 40 102017 404 PM
41
Diversity and technological complexity are the most vis i ble advantages supporting US exports to
Rus sia Three major groups of export goods include civilian aircraft engines and parts (Figure 61)
drilling and oil field equipment (Figure 62) and industrial machines and engines (Figure 63)
Despite sanctions against the transfer of advanced oil producing and pro cessing technologies the
realization of US drilling and oil field equipment in Rus sia is sustainable although some bilateral
proj ects have been frozen
Another category of goods that has demonstrated resilience is the phar ma ceu ti cal industry (Fig-
ure 64) because most drugs in Rus sia are imported (about 70 percent of the Rus sian phar ma ceu-
ti cal market in value) Import substitution policies have had only modest results in this industry
As confirmed by American Chamber of Commerce surveys US exports to Rus sia are closely
connected to US FDI 30 percent of total imports of US companies working in the Rus sian
market come from the United States (more than $2 billion in 2016) In other words about
40 percent of all US exports to Rus sia are related to a US corporate- sector business pro cess in
the country The major sectors of activity of these companies are energy and natu ral resources
(52 percent) manufacturing (17 percent) information and communications technology or ICT
(13 percent) retail (7 percent) automotive industry (6 percent) phar ma ceu ti cal production
(1 percent) professional ser vices (05 percent) and other (2 percent)1
Some obvious constraints on US exports to Rus sia have resulted from a reduction in demand A
deterioration of bilateral relations and implementation of sanctions and counter- sanctions have
directly or indirectly afected all businesses Figures 65 and 66 provide data regarding a dramatic
drop in the sale of US agricultural production in Rus sia with all other categories of exports in
goods showing big cuts as well (see Figures 67ndash69)
Exports of civilian aircraft engines and parts put the state of Washington in first place among
other states as a leading exporter to the Rus sian market (Figure 610)
1 American Chamber of Commerce in Rus sia ldquoInvestment and Import to Rus sia 2nd Surveyrdquo 13
Diversity and Constraints
06
594-71613_ch01_4Pindd 41 102017 404 PM
Figure 61 US Exports of Civilian Aircraft Engines Equipment and Parts to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
$2500000000
$2000000000
$1500000000
$1000000000
$500000000
$-
Figure 62 US Exports of Drilling and Oil Field Equipment US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
$40000000
$45000000
$50000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 42 102017 404 PM
Figure 63 US Exports of Industrial Engines to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Figure 64 US Exports of Phar ma ceu ti cal Preparations to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 43 102017 404 PM
Figure 65 US Exports of Meat and Poultry to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Meat poultry etc
$1000000000
$800000000
$600000000
$400000000
$200000000
$-
$1200000000
$1400000000
$1600000000
Figure 66 US Exports of Soybeans to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
$200000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 44 102017 404 PM
Figure 67 US Exports of Vehicles Engines and Parts to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Other parts and accessories of vehicles
Automotive tires and tubes
Bodies and chassis for passenger cars
Engines and engine parts (carburetors pistonsrings and valves)
Trucks buses and special purpose vehicles
Passenger cars new and used
$2500000000
$2000000000
$1500000000
$500000000
$-
$1000000000
Figure 68 US Exports of Medicinal Equipment to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 45 102017 404 PM
Figure 610 US Exports to Rus sia by States (2016 US$ Value) Million US$ 2013ndash2016
Source US Census Bureau ldquoState and Metropolitan Area Trade Datardquo
Iowa Kentucky
North Dakota
Oklahoma
South Carolina
Washington
0
$500
$1000
$1500
$2000
2013 2014 2015 2016
District of Columbia
Iowa
Kentucky
North Dakota
Oklahoma
South Carolina
Washington
Figure 69 US Exports of Excavating Machinery to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
$40000000
$45000000
$50000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 46 102017 404 PM
47
Upon reviewing the current trend in US- Russia economic relations we must acknowledge that
the existing trade model is obsolete and exhausted Imports are resource- oriented and reflect
constraints of the Rus sian economic structure while five groups of goodsmdash oil metals nuclear
fuels fertilizers and fishmdash make up more than 90 percent of total imports from Rus sia (Figure 71)
Each of these industries has a limited capacity for growth in the foreseeable future
Rus siarsquos core export to the United Statesmdash oilmdash will inevitably decrease in the mid- term under any
scenario The value and volume of Rus sian exports to the United States are open to global market
volatility and po liti cal pressures with limited hedging mechanisms
Overall US exports to Rus sia are unsustainable due to bilateral po liti cal tensions the whims of
commodity markets and changing domestic policies Sanctions and counter- sanctions have
created additional barriers particularly in finance banking high- tech energy and agro- business
According to the American Chamber of Commerce 69 percent of US companies working in the
country consider the impact of US sanctions against Rus sia on their business as negative At the
same time 60 percent of companies do not expect big changes in business relations between
Rus sia and the United States under Trump1 as the new law codifies existing sanctions fortifies
them and extends them to new sectors
Current US investments are low due to the weak rule of law in Rus sia a lack of property right
protections and proper contract enforcement high levels of statization and monopolization in the
economy a poor business climate outdated capital stock dependence on natural- resource
sectors and of course sanction and counter- sanction mea sures Bloated administrative compo-
nents created as risk mitigation instruments have also served as impediments The countryrsquos
institutional weakness low level of productivity bud get constraints and a declining inflexible
workforce will restrain future economic growth even if commodity prices recover Rus sian eco-
nomic policy will likely continue to be statist and protectionist relying mostly on import
substitutions
1 Ibid 11
Existing Trends and Future Scenarios
07
594-71613_ch01_4Pindd 47 102017 404 PM
US-Russia Economic Relations48
What scenarios can be expected in such a challenging environment
One probability (no peace no war) is based on the assumption that matters will not deteriorate
further and implementation of the Sanctions Act will be cursory This will cause relatively slow
degradation in the economic field with occasional flashes of activity in selected areas (eg closer
cooperation against Islamist terrorist groups in Syria)
A second worse case or critical scenario is the intensive and full- scale execution of current sanc-
tion legislation and even the imposition of new economic punitive and restrictive mea sures which
could incite asymmetric retaliatory actions and lead to the introduction of additional protectionist
policies This in turn could trigger a further escalation of mutual confrontation and could eventu-
ally destroy the fundamentals of the current bilateral trade system Rus sian leadership has charac-
terized the Sanctions Act as a declaration of a trade war that ends all hope for improving bilateral
relations2
2 Дмитрий Медведев ldquoПодписание президентом США нового санкционного закона против России создает несколько
последствийrdquo [The US Presidentrsquos signing of the package of new sanctions against Rus sia will have a few conse-
quences] Facebook August 2 2017 https wwwfacebook com Dmitry Medvedev posts 10154587161801851
Figure 71 US Imports from Rus sia Share of Oil Metals Nuclear Fuel Fertilizers and Fish Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
93
94
93
94
95
96
93
92
87
89
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals Nuclear FuelFertilizers and Fish
594-71613_ch01_4Pindd 48 102017 404 PM
Vadim Grishin 49
The best case and most favorable scenario looks less probable now It assumes the realization of
structural reforms in Rus sia in such a way that would adapt Rus siarsquos foreign policy to national
economic needs reduce confrontations with the West and make a concerted efort to integrate
Rus sian businesses into global supply and value chains A revitalization of the structural reform
agendamdash including eforts to diversify economic activities through de- monopolization and support
for SMEs a restructuring of the banking sector the creation of a vibrant business climate to foster
entrepreneurships and innovation the implementation of administrative and judicial reforms to
tackle red tape and endemic corruption and the reduction of state control over key sectors of the
economy via wide- spread privatization could kick- start the development of a nonoil economy and
improve long- term growth prospects Despite ongoing discussion of reform strategies deep
economic and po liti cal changes are extremely complicated over the next po liti calelectoral cycle
(2018ndash2024) particularly because of re sis tance of vested interests and growing commodity prices
The urgency to tackle structural shortcomings in natu ral resource- dependent economies usually
correlates with the price of those resources and the degree to which resource rents drive eco-
nomic activity However there may be marginal improvements in the efficiency of the current
economic system
Future US- Russia relations can be thought of through three pillars one pillar focuses on areas
where both countries maintain a competitive rivalry another looks at potential areas of interaction
under pres ent conditions a third pillar and one that has evaporated from the current bilateral
agenda concentrates on future cooperation Stronger economic ties could not only be a kind of
po liti cal shock absorber but contribute to the building of this future (particularly business contacts
aim to support future structural reforms) although po liti cal factors are depressing the prospects
for cooperation To escape deadlock it will be impor tant to establish the right balance between
politics and economics and create a model of collaboration within the framework of contention
594-71613_ch01_4Pindd 49 102017 404 PM
About the Author
Vadim Grishin PhD MBA has been involved in the reform pro cess in Rus sia as adviser to the
deputy prime minister of Rus sia in 1992ndash1993 and 2006ndash2010 He has extensive experience
working with the Bretton Woods Institutions He was the board member of the World Bank Group
and served as se nior adviser at the International Monetary Fund Currently he is a con sul tant to the
chief economistrsquos office of the International Finance Corporation and teaches the economics of
transition at Georgetown University in Washington DC
50
594-71613_ch99_4Pindd 50 102017 403 PM
Blank
COVER PHOTO ADOBE STOCK
1616 Rhode Island Avenue NW
Washington DC 20036
202 887 0200 | wwwcsisorg
v++ISBN 978-1-4422-8035-9
Lanham bull Boulder bull New York bull London
4501 Forbes Boulevard
Lanham MD 20706
301 459 3366 | wwwrowmancom
A U T H O R
Vadim Grishin
Myths and Realities
A Report of the
CSIS RUSSIA AND EURASIA PROGRAM
US-RussiaEconomicRelations
O C T O B E R 2 0 1 7
Euml|xHSLEOCy280359z
The Man Pupu Nyor Rock Formations at the Northern Urals also known as Seven
Strong Man or Little Mountain of the God in the local tribe (Mansi) language
Figure 515 US Imports from Rus sia Chemical- Fertilizers US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
S-
$200000000
$400000000
$600000000
$800000000
$1000000000
$1200000000
$1400000000
$1600000000
$1800000000
$2000000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Figure 516 US Exports to Rus sia Fish and Shellfish US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$10000000
$20000000
$30000000
$40000000
$50000000
$60000000
$70000000
$80000000
$90000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Fish and shellfish
594-71613_ch01_4Pindd 38 102017 404 PM
Vadim Grishin 39
consumer market caused by Rus siarsquos import ban but it has failed As result the group most af-
fected by the self- imposed counter- sanctions were Rus sian consumers
With a significant drop in fish imports a devaluation of the ruble and inflationary pressures on
seafood prices yearly consumption of fish in Rus sia has declined precipitously In 2015 alone
fish prices increased 20 percent and consumption dropped to 14 kilograms per person24 from
22 kilograms in 201425 In 2016 food rose to 355 percent of house hold expenditure as a result of
increases in food prices26 This has pushed vertically integrated fishing monopolies to sell even
more of their catch abroad rather than deliver to the Rus sian Federation (Figure 517) Thus we
cannot exclude the possibility of further growth in US fish and shellfish imports from Rus sia on a
marginal scale
24 Александр Савельев ldquoПотребление рыбы в России упало до 14 кг на человекаrdquo [Fish consumption in Rus sia fell to
14 kg per person] Экономика Интерфакс January 28 2015 http wwwinterfax ru business 492038
25 Илья Шестаков ldquoПотебление рыбы в России снизилось на 10 процентов из- за роста ценrdquo [Fish consumption in
Rus sia dropped by 10 percent due to price increases] RNS March 8 2017 https rnsonline consumer - market
Potreblenie - ribi - v - Rossii - snizilos - na - 10 - iz - za - rosta - tsen - 2017 - 03 - 08
26 Zoya Sheftalovich and Christian Oliver ldquoRus siarsquos Boom (Farming) Economyrdquo Politico November 8 2016 http
wwwpolitico eu article russias - boom - farming - economy
Figure 517 US Imports from Rus sia Fish and Shellfish US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$50000000
$100000000
$150000000
$200000000
$250000000
$300000000
$350000000
$400000000
$450000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 39 102017 404 PM
US-Russia Economic Relations40
SPACE ODYSSEY
Among high- end products beyond the top five groups of goods imported from Rus sia cheap and
efficient Rus sian engines have been used to launch US rockets into space for about 16 years
(Figure 518) There was a serious po liti cal strug gle around a 2014 ban on the purchase of Rus sian
RD-180 rocket engines revealing the conflicting business interests of power ful high- tech companies
This restrictive mea sure was temporary and was quickly lifted because of significant cost impacts
and risks of disruption to launch schedules27 For the same reason the Sanctions Act does not autho-
rize ldquothe imposition of any sanction or other condition limitation restriction or prohibition that
directly or indirectly impedes the supply by any entity of the Rus sian Federation of any product or
ser vice or the procurement of such product or ser vice by any contractor or subcontractor of the
United States or any other entity relating to or in connection with any space launch conducted for
the National Aeronautics and Space Administration or any other nonndash Department of Defense
customerrdquo28
Nevertheless many experts believe that US domestic alternatives to replace Rus sian engines will
be viable in five to eight years
27 Ken Dilanian ldquoWhy Does the US Use Rus sian Rockets to Launch Its Satellitesrdquo NBC News updated November 15
2016 http wwwnbcnews com why - does - u - s - use - russian - rockets - launch - its - satellites - n588526
28 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364
Figure 518 Spacecraft Excluding Military US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 40 102017 404 PM
41
Diversity and technological complexity are the most vis i ble advantages supporting US exports to
Rus sia Three major groups of export goods include civilian aircraft engines and parts (Figure 61)
drilling and oil field equipment (Figure 62) and industrial machines and engines (Figure 63)
Despite sanctions against the transfer of advanced oil producing and pro cessing technologies the
realization of US drilling and oil field equipment in Rus sia is sustainable although some bilateral
proj ects have been frozen
Another category of goods that has demonstrated resilience is the phar ma ceu ti cal industry (Fig-
ure 64) because most drugs in Rus sia are imported (about 70 percent of the Rus sian phar ma ceu-
ti cal market in value) Import substitution policies have had only modest results in this industry
As confirmed by American Chamber of Commerce surveys US exports to Rus sia are closely
connected to US FDI 30 percent of total imports of US companies working in the Rus sian
market come from the United States (more than $2 billion in 2016) In other words about
40 percent of all US exports to Rus sia are related to a US corporate- sector business pro cess in
the country The major sectors of activity of these companies are energy and natu ral resources
(52 percent) manufacturing (17 percent) information and communications technology or ICT
(13 percent) retail (7 percent) automotive industry (6 percent) phar ma ceu ti cal production
(1 percent) professional ser vices (05 percent) and other (2 percent)1
Some obvious constraints on US exports to Rus sia have resulted from a reduction in demand A
deterioration of bilateral relations and implementation of sanctions and counter- sanctions have
directly or indirectly afected all businesses Figures 65 and 66 provide data regarding a dramatic
drop in the sale of US agricultural production in Rus sia with all other categories of exports in
goods showing big cuts as well (see Figures 67ndash69)
Exports of civilian aircraft engines and parts put the state of Washington in first place among
other states as a leading exporter to the Rus sian market (Figure 610)
1 American Chamber of Commerce in Rus sia ldquoInvestment and Import to Rus sia 2nd Surveyrdquo 13
Diversity and Constraints
06
594-71613_ch01_4Pindd 41 102017 404 PM
Figure 61 US Exports of Civilian Aircraft Engines Equipment and Parts to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
$2500000000
$2000000000
$1500000000
$1000000000
$500000000
$-
Figure 62 US Exports of Drilling and Oil Field Equipment US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
$40000000
$45000000
$50000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 42 102017 404 PM
Figure 63 US Exports of Industrial Engines to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Figure 64 US Exports of Phar ma ceu ti cal Preparations to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 43 102017 404 PM
Figure 65 US Exports of Meat and Poultry to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Meat poultry etc
$1000000000
$800000000
$600000000
$400000000
$200000000
$-
$1200000000
$1400000000
$1600000000
Figure 66 US Exports of Soybeans to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
$200000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 44 102017 404 PM
Figure 67 US Exports of Vehicles Engines and Parts to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Other parts and accessories of vehicles
Automotive tires and tubes
Bodies and chassis for passenger cars
Engines and engine parts (carburetors pistonsrings and valves)
Trucks buses and special purpose vehicles
Passenger cars new and used
$2500000000
$2000000000
$1500000000
$500000000
$-
$1000000000
Figure 68 US Exports of Medicinal Equipment to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 45 102017 404 PM
Figure 610 US Exports to Rus sia by States (2016 US$ Value) Million US$ 2013ndash2016
Source US Census Bureau ldquoState and Metropolitan Area Trade Datardquo
Iowa Kentucky
North Dakota
Oklahoma
South Carolina
Washington
0
$500
$1000
$1500
$2000
2013 2014 2015 2016
District of Columbia
Iowa
Kentucky
North Dakota
Oklahoma
South Carolina
Washington
Figure 69 US Exports of Excavating Machinery to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
$40000000
$45000000
$50000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 46 102017 404 PM
47
Upon reviewing the current trend in US- Russia economic relations we must acknowledge that
the existing trade model is obsolete and exhausted Imports are resource- oriented and reflect
constraints of the Rus sian economic structure while five groups of goodsmdash oil metals nuclear
fuels fertilizers and fishmdash make up more than 90 percent of total imports from Rus sia (Figure 71)
Each of these industries has a limited capacity for growth in the foreseeable future
Rus siarsquos core export to the United Statesmdash oilmdash will inevitably decrease in the mid- term under any
scenario The value and volume of Rus sian exports to the United States are open to global market
volatility and po liti cal pressures with limited hedging mechanisms
Overall US exports to Rus sia are unsustainable due to bilateral po liti cal tensions the whims of
commodity markets and changing domestic policies Sanctions and counter- sanctions have
created additional barriers particularly in finance banking high- tech energy and agro- business
According to the American Chamber of Commerce 69 percent of US companies working in the
country consider the impact of US sanctions against Rus sia on their business as negative At the
same time 60 percent of companies do not expect big changes in business relations between
Rus sia and the United States under Trump1 as the new law codifies existing sanctions fortifies
them and extends them to new sectors
Current US investments are low due to the weak rule of law in Rus sia a lack of property right
protections and proper contract enforcement high levels of statization and monopolization in the
economy a poor business climate outdated capital stock dependence on natural- resource
sectors and of course sanction and counter- sanction mea sures Bloated administrative compo-
nents created as risk mitigation instruments have also served as impediments The countryrsquos
institutional weakness low level of productivity bud get constraints and a declining inflexible
workforce will restrain future economic growth even if commodity prices recover Rus sian eco-
nomic policy will likely continue to be statist and protectionist relying mostly on import
substitutions
1 Ibid 11
Existing Trends and Future Scenarios
07
594-71613_ch01_4Pindd 47 102017 404 PM
US-Russia Economic Relations48
What scenarios can be expected in such a challenging environment
One probability (no peace no war) is based on the assumption that matters will not deteriorate
further and implementation of the Sanctions Act will be cursory This will cause relatively slow
degradation in the economic field with occasional flashes of activity in selected areas (eg closer
cooperation against Islamist terrorist groups in Syria)
A second worse case or critical scenario is the intensive and full- scale execution of current sanc-
tion legislation and even the imposition of new economic punitive and restrictive mea sures which
could incite asymmetric retaliatory actions and lead to the introduction of additional protectionist
policies This in turn could trigger a further escalation of mutual confrontation and could eventu-
ally destroy the fundamentals of the current bilateral trade system Rus sian leadership has charac-
terized the Sanctions Act as a declaration of a trade war that ends all hope for improving bilateral
relations2
2 Дмитрий Медведев ldquoПодписание президентом США нового санкционного закона против России создает несколько
последствийrdquo [The US Presidentrsquos signing of the package of new sanctions against Rus sia will have a few conse-
quences] Facebook August 2 2017 https wwwfacebook com Dmitry Medvedev posts 10154587161801851
Figure 71 US Imports from Rus sia Share of Oil Metals Nuclear Fuel Fertilizers and Fish Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
93
94
93
94
95
96
93
92
87
89
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals Nuclear FuelFertilizers and Fish
594-71613_ch01_4Pindd 48 102017 404 PM
Vadim Grishin 49
The best case and most favorable scenario looks less probable now It assumes the realization of
structural reforms in Rus sia in such a way that would adapt Rus siarsquos foreign policy to national
economic needs reduce confrontations with the West and make a concerted efort to integrate
Rus sian businesses into global supply and value chains A revitalization of the structural reform
agendamdash including eforts to diversify economic activities through de- monopolization and support
for SMEs a restructuring of the banking sector the creation of a vibrant business climate to foster
entrepreneurships and innovation the implementation of administrative and judicial reforms to
tackle red tape and endemic corruption and the reduction of state control over key sectors of the
economy via wide- spread privatization could kick- start the development of a nonoil economy and
improve long- term growth prospects Despite ongoing discussion of reform strategies deep
economic and po liti cal changes are extremely complicated over the next po liti calelectoral cycle
(2018ndash2024) particularly because of re sis tance of vested interests and growing commodity prices
The urgency to tackle structural shortcomings in natu ral resource- dependent economies usually
correlates with the price of those resources and the degree to which resource rents drive eco-
nomic activity However there may be marginal improvements in the efficiency of the current
economic system
Future US- Russia relations can be thought of through three pillars one pillar focuses on areas
where both countries maintain a competitive rivalry another looks at potential areas of interaction
under pres ent conditions a third pillar and one that has evaporated from the current bilateral
agenda concentrates on future cooperation Stronger economic ties could not only be a kind of
po liti cal shock absorber but contribute to the building of this future (particularly business contacts
aim to support future structural reforms) although po liti cal factors are depressing the prospects
for cooperation To escape deadlock it will be impor tant to establish the right balance between
politics and economics and create a model of collaboration within the framework of contention
594-71613_ch01_4Pindd 49 102017 404 PM
About the Author
Vadim Grishin PhD MBA has been involved in the reform pro cess in Rus sia as adviser to the
deputy prime minister of Rus sia in 1992ndash1993 and 2006ndash2010 He has extensive experience
working with the Bretton Woods Institutions He was the board member of the World Bank Group
and served as se nior adviser at the International Monetary Fund Currently he is a con sul tant to the
chief economistrsquos office of the International Finance Corporation and teaches the economics of
transition at Georgetown University in Washington DC
50
594-71613_ch99_4Pindd 50 102017 403 PM
Blank
COVER PHOTO ADOBE STOCK
1616 Rhode Island Avenue NW
Washington DC 20036
202 887 0200 | wwwcsisorg
v++ISBN 978-1-4422-8035-9
Lanham bull Boulder bull New York bull London
4501 Forbes Boulevard
Lanham MD 20706
301 459 3366 | wwwrowmancom
A U T H O R
Vadim Grishin
Myths and Realities
A Report of the
CSIS RUSSIA AND EURASIA PROGRAM
US-RussiaEconomicRelations
O C T O B E R 2 0 1 7
Euml|xHSLEOCy280359z
The Man Pupu Nyor Rock Formations at the Northern Urals also known as Seven
Strong Man or Little Mountain of the God in the local tribe (Mansi) language
Vadim Grishin 39
consumer market caused by Rus siarsquos import ban but it has failed As result the group most af-
fected by the self- imposed counter- sanctions were Rus sian consumers
With a significant drop in fish imports a devaluation of the ruble and inflationary pressures on
seafood prices yearly consumption of fish in Rus sia has declined precipitously In 2015 alone
fish prices increased 20 percent and consumption dropped to 14 kilograms per person24 from
22 kilograms in 201425 In 2016 food rose to 355 percent of house hold expenditure as a result of
increases in food prices26 This has pushed vertically integrated fishing monopolies to sell even
more of their catch abroad rather than deliver to the Rus sian Federation (Figure 517) Thus we
cannot exclude the possibility of further growth in US fish and shellfish imports from Rus sia on a
marginal scale
24 Александр Савельев ldquoПотребление рыбы в России упало до 14 кг на человекаrdquo [Fish consumption in Rus sia fell to
14 kg per person] Экономика Интерфакс January 28 2015 http wwwinterfax ru business 492038
25 Илья Шестаков ldquoПотебление рыбы в России снизилось на 10 процентов из- за роста ценrdquo [Fish consumption in
Rus sia dropped by 10 percent due to price increases] RNS March 8 2017 https rnsonline consumer - market
Potreblenie - ribi - v - Rossii - snizilos - na - 10 - iz - za - rosta - tsen - 2017 - 03 - 08
26 Zoya Sheftalovich and Christian Oliver ldquoRus siarsquos Boom (Farming) Economyrdquo Politico November 8 2016 http
wwwpolitico eu article russias - boom - farming - economy
Figure 517 US Imports from Rus sia Fish and Shellfish US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$50000000
$100000000
$150000000
$200000000
$250000000
$300000000
$350000000
$400000000
$450000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 39 102017 404 PM
US-Russia Economic Relations40
SPACE ODYSSEY
Among high- end products beyond the top five groups of goods imported from Rus sia cheap and
efficient Rus sian engines have been used to launch US rockets into space for about 16 years
(Figure 518) There was a serious po liti cal strug gle around a 2014 ban on the purchase of Rus sian
RD-180 rocket engines revealing the conflicting business interests of power ful high- tech companies
This restrictive mea sure was temporary and was quickly lifted because of significant cost impacts
and risks of disruption to launch schedules27 For the same reason the Sanctions Act does not autho-
rize ldquothe imposition of any sanction or other condition limitation restriction or prohibition that
directly or indirectly impedes the supply by any entity of the Rus sian Federation of any product or
ser vice or the procurement of such product or ser vice by any contractor or subcontractor of the
United States or any other entity relating to or in connection with any space launch conducted for
the National Aeronautics and Space Administration or any other nonndash Department of Defense
customerrdquo28
Nevertheless many experts believe that US domestic alternatives to replace Rus sian engines will
be viable in five to eight years
27 Ken Dilanian ldquoWhy Does the US Use Rus sian Rockets to Launch Its Satellitesrdquo NBC News updated November 15
2016 http wwwnbcnews com why - does - u - s - use - russian - rockets - launch - its - satellites - n588526
28 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364
Figure 518 Spacecraft Excluding Military US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 40 102017 404 PM
41
Diversity and technological complexity are the most vis i ble advantages supporting US exports to
Rus sia Three major groups of export goods include civilian aircraft engines and parts (Figure 61)
drilling and oil field equipment (Figure 62) and industrial machines and engines (Figure 63)
Despite sanctions against the transfer of advanced oil producing and pro cessing technologies the
realization of US drilling and oil field equipment in Rus sia is sustainable although some bilateral
proj ects have been frozen
Another category of goods that has demonstrated resilience is the phar ma ceu ti cal industry (Fig-
ure 64) because most drugs in Rus sia are imported (about 70 percent of the Rus sian phar ma ceu-
ti cal market in value) Import substitution policies have had only modest results in this industry
As confirmed by American Chamber of Commerce surveys US exports to Rus sia are closely
connected to US FDI 30 percent of total imports of US companies working in the Rus sian
market come from the United States (more than $2 billion in 2016) In other words about
40 percent of all US exports to Rus sia are related to a US corporate- sector business pro cess in
the country The major sectors of activity of these companies are energy and natu ral resources
(52 percent) manufacturing (17 percent) information and communications technology or ICT
(13 percent) retail (7 percent) automotive industry (6 percent) phar ma ceu ti cal production
(1 percent) professional ser vices (05 percent) and other (2 percent)1
Some obvious constraints on US exports to Rus sia have resulted from a reduction in demand A
deterioration of bilateral relations and implementation of sanctions and counter- sanctions have
directly or indirectly afected all businesses Figures 65 and 66 provide data regarding a dramatic
drop in the sale of US agricultural production in Rus sia with all other categories of exports in
goods showing big cuts as well (see Figures 67ndash69)
Exports of civilian aircraft engines and parts put the state of Washington in first place among
other states as a leading exporter to the Rus sian market (Figure 610)
1 American Chamber of Commerce in Rus sia ldquoInvestment and Import to Rus sia 2nd Surveyrdquo 13
Diversity and Constraints
06
594-71613_ch01_4Pindd 41 102017 404 PM
Figure 61 US Exports of Civilian Aircraft Engines Equipment and Parts to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
$2500000000
$2000000000
$1500000000
$1000000000
$500000000
$-
Figure 62 US Exports of Drilling and Oil Field Equipment US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
$40000000
$45000000
$50000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 42 102017 404 PM
Figure 63 US Exports of Industrial Engines to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Figure 64 US Exports of Phar ma ceu ti cal Preparations to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 43 102017 404 PM
Figure 65 US Exports of Meat and Poultry to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Meat poultry etc
$1000000000
$800000000
$600000000
$400000000
$200000000
$-
$1200000000
$1400000000
$1600000000
Figure 66 US Exports of Soybeans to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
$200000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 44 102017 404 PM
Figure 67 US Exports of Vehicles Engines and Parts to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Other parts and accessories of vehicles
Automotive tires and tubes
Bodies and chassis for passenger cars
Engines and engine parts (carburetors pistonsrings and valves)
Trucks buses and special purpose vehicles
Passenger cars new and used
$2500000000
$2000000000
$1500000000
$500000000
$-
$1000000000
Figure 68 US Exports of Medicinal Equipment to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 45 102017 404 PM
Figure 610 US Exports to Rus sia by States (2016 US$ Value) Million US$ 2013ndash2016
Source US Census Bureau ldquoState and Metropolitan Area Trade Datardquo
Iowa Kentucky
North Dakota
Oklahoma
South Carolina
Washington
0
$500
$1000
$1500
$2000
2013 2014 2015 2016
District of Columbia
Iowa
Kentucky
North Dakota
Oklahoma
South Carolina
Washington
Figure 69 US Exports of Excavating Machinery to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
$40000000
$45000000
$50000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 46 102017 404 PM
47
Upon reviewing the current trend in US- Russia economic relations we must acknowledge that
the existing trade model is obsolete and exhausted Imports are resource- oriented and reflect
constraints of the Rus sian economic structure while five groups of goodsmdash oil metals nuclear
fuels fertilizers and fishmdash make up more than 90 percent of total imports from Rus sia (Figure 71)
Each of these industries has a limited capacity for growth in the foreseeable future
Rus siarsquos core export to the United Statesmdash oilmdash will inevitably decrease in the mid- term under any
scenario The value and volume of Rus sian exports to the United States are open to global market
volatility and po liti cal pressures with limited hedging mechanisms
Overall US exports to Rus sia are unsustainable due to bilateral po liti cal tensions the whims of
commodity markets and changing domestic policies Sanctions and counter- sanctions have
created additional barriers particularly in finance banking high- tech energy and agro- business
According to the American Chamber of Commerce 69 percent of US companies working in the
country consider the impact of US sanctions against Rus sia on their business as negative At the
same time 60 percent of companies do not expect big changes in business relations between
Rus sia and the United States under Trump1 as the new law codifies existing sanctions fortifies
them and extends them to new sectors
Current US investments are low due to the weak rule of law in Rus sia a lack of property right
protections and proper contract enforcement high levels of statization and monopolization in the
economy a poor business climate outdated capital stock dependence on natural- resource
sectors and of course sanction and counter- sanction mea sures Bloated administrative compo-
nents created as risk mitigation instruments have also served as impediments The countryrsquos
institutional weakness low level of productivity bud get constraints and a declining inflexible
workforce will restrain future economic growth even if commodity prices recover Rus sian eco-
nomic policy will likely continue to be statist and protectionist relying mostly on import
substitutions
1 Ibid 11
Existing Trends and Future Scenarios
07
594-71613_ch01_4Pindd 47 102017 404 PM
US-Russia Economic Relations48
What scenarios can be expected in such a challenging environment
One probability (no peace no war) is based on the assumption that matters will not deteriorate
further and implementation of the Sanctions Act will be cursory This will cause relatively slow
degradation in the economic field with occasional flashes of activity in selected areas (eg closer
cooperation against Islamist terrorist groups in Syria)
A second worse case or critical scenario is the intensive and full- scale execution of current sanc-
tion legislation and even the imposition of new economic punitive and restrictive mea sures which
could incite asymmetric retaliatory actions and lead to the introduction of additional protectionist
policies This in turn could trigger a further escalation of mutual confrontation and could eventu-
ally destroy the fundamentals of the current bilateral trade system Rus sian leadership has charac-
terized the Sanctions Act as a declaration of a trade war that ends all hope for improving bilateral
relations2
2 Дмитрий Медведев ldquoПодписание президентом США нового санкционного закона против России создает несколько
последствийrdquo [The US Presidentrsquos signing of the package of new sanctions against Rus sia will have a few conse-
quences] Facebook August 2 2017 https wwwfacebook com Dmitry Medvedev posts 10154587161801851
Figure 71 US Imports from Rus sia Share of Oil Metals Nuclear Fuel Fertilizers and Fish Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
93
94
93
94
95
96
93
92
87
89
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals Nuclear FuelFertilizers and Fish
594-71613_ch01_4Pindd 48 102017 404 PM
Vadim Grishin 49
The best case and most favorable scenario looks less probable now It assumes the realization of
structural reforms in Rus sia in such a way that would adapt Rus siarsquos foreign policy to national
economic needs reduce confrontations with the West and make a concerted efort to integrate
Rus sian businesses into global supply and value chains A revitalization of the structural reform
agendamdash including eforts to diversify economic activities through de- monopolization and support
for SMEs a restructuring of the banking sector the creation of a vibrant business climate to foster
entrepreneurships and innovation the implementation of administrative and judicial reforms to
tackle red tape and endemic corruption and the reduction of state control over key sectors of the
economy via wide- spread privatization could kick- start the development of a nonoil economy and
improve long- term growth prospects Despite ongoing discussion of reform strategies deep
economic and po liti cal changes are extremely complicated over the next po liti calelectoral cycle
(2018ndash2024) particularly because of re sis tance of vested interests and growing commodity prices
The urgency to tackle structural shortcomings in natu ral resource- dependent economies usually
correlates with the price of those resources and the degree to which resource rents drive eco-
nomic activity However there may be marginal improvements in the efficiency of the current
economic system
Future US- Russia relations can be thought of through three pillars one pillar focuses on areas
where both countries maintain a competitive rivalry another looks at potential areas of interaction
under pres ent conditions a third pillar and one that has evaporated from the current bilateral
agenda concentrates on future cooperation Stronger economic ties could not only be a kind of
po liti cal shock absorber but contribute to the building of this future (particularly business contacts
aim to support future structural reforms) although po liti cal factors are depressing the prospects
for cooperation To escape deadlock it will be impor tant to establish the right balance between
politics and economics and create a model of collaboration within the framework of contention
594-71613_ch01_4Pindd 49 102017 404 PM
About the Author
Vadim Grishin PhD MBA has been involved in the reform pro cess in Rus sia as adviser to the
deputy prime minister of Rus sia in 1992ndash1993 and 2006ndash2010 He has extensive experience
working with the Bretton Woods Institutions He was the board member of the World Bank Group
and served as se nior adviser at the International Monetary Fund Currently he is a con sul tant to the
chief economistrsquos office of the International Finance Corporation and teaches the economics of
transition at Georgetown University in Washington DC
50
594-71613_ch99_4Pindd 50 102017 403 PM
Blank
COVER PHOTO ADOBE STOCK
1616 Rhode Island Avenue NW
Washington DC 20036
202 887 0200 | wwwcsisorg
v++ISBN 978-1-4422-8035-9
Lanham bull Boulder bull New York bull London
4501 Forbes Boulevard
Lanham MD 20706
301 459 3366 | wwwrowmancom
A U T H O R
Vadim Grishin
Myths and Realities
A Report of the
CSIS RUSSIA AND EURASIA PROGRAM
US-RussiaEconomicRelations
O C T O B E R 2 0 1 7
Euml|xHSLEOCy280359z
The Man Pupu Nyor Rock Formations at the Northern Urals also known as Seven
Strong Man or Little Mountain of the God in the local tribe (Mansi) language
US-Russia Economic Relations40
SPACE ODYSSEY
Among high- end products beyond the top five groups of goods imported from Rus sia cheap and
efficient Rus sian engines have been used to launch US rockets into space for about 16 years
(Figure 518) There was a serious po liti cal strug gle around a 2014 ban on the purchase of Rus sian
RD-180 rocket engines revealing the conflicting business interests of power ful high- tech companies
This restrictive mea sure was temporary and was quickly lifted because of significant cost impacts
and risks of disruption to launch schedules27 For the same reason the Sanctions Act does not autho-
rize ldquothe imposition of any sanction or other condition limitation restriction or prohibition that
directly or indirectly impedes the supply by any entity of the Rus sian Federation of any product or
ser vice or the procurement of such product or ser vice by any contractor or subcontractor of the
United States or any other entity relating to or in connection with any space launch conducted for
the National Aeronautics and Space Administration or any other nonndash Department of Defense
customerrdquo28
Nevertheless many experts believe that US domestic alternatives to replace Rus sian engines will
be viable in five to eight years
27 Ken Dilanian ldquoWhy Does the US Use Rus sian Rockets to Launch Its Satellitesrdquo NBC News updated November 15
2016 http wwwnbcnews com why - does - u - s - use - russian - rockets - launch - its - satellites - n588526
28 Countering Amer i carsquos Adversaries through Sanctions Act HR 3364
Figure 518 Spacecraft Excluding Military US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 40 102017 404 PM
41
Diversity and technological complexity are the most vis i ble advantages supporting US exports to
Rus sia Three major groups of export goods include civilian aircraft engines and parts (Figure 61)
drilling and oil field equipment (Figure 62) and industrial machines and engines (Figure 63)
Despite sanctions against the transfer of advanced oil producing and pro cessing technologies the
realization of US drilling and oil field equipment in Rus sia is sustainable although some bilateral
proj ects have been frozen
Another category of goods that has demonstrated resilience is the phar ma ceu ti cal industry (Fig-
ure 64) because most drugs in Rus sia are imported (about 70 percent of the Rus sian phar ma ceu-
ti cal market in value) Import substitution policies have had only modest results in this industry
As confirmed by American Chamber of Commerce surveys US exports to Rus sia are closely
connected to US FDI 30 percent of total imports of US companies working in the Rus sian
market come from the United States (more than $2 billion in 2016) In other words about
40 percent of all US exports to Rus sia are related to a US corporate- sector business pro cess in
the country The major sectors of activity of these companies are energy and natu ral resources
(52 percent) manufacturing (17 percent) information and communications technology or ICT
(13 percent) retail (7 percent) automotive industry (6 percent) phar ma ceu ti cal production
(1 percent) professional ser vices (05 percent) and other (2 percent)1
Some obvious constraints on US exports to Rus sia have resulted from a reduction in demand A
deterioration of bilateral relations and implementation of sanctions and counter- sanctions have
directly or indirectly afected all businesses Figures 65 and 66 provide data regarding a dramatic
drop in the sale of US agricultural production in Rus sia with all other categories of exports in
goods showing big cuts as well (see Figures 67ndash69)
Exports of civilian aircraft engines and parts put the state of Washington in first place among
other states as a leading exporter to the Rus sian market (Figure 610)
1 American Chamber of Commerce in Rus sia ldquoInvestment and Import to Rus sia 2nd Surveyrdquo 13
Diversity and Constraints
06
594-71613_ch01_4Pindd 41 102017 404 PM
Figure 61 US Exports of Civilian Aircraft Engines Equipment and Parts to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
$2500000000
$2000000000
$1500000000
$1000000000
$500000000
$-
Figure 62 US Exports of Drilling and Oil Field Equipment US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
$40000000
$45000000
$50000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 42 102017 404 PM
Figure 63 US Exports of Industrial Engines to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Figure 64 US Exports of Phar ma ceu ti cal Preparations to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 43 102017 404 PM
Figure 65 US Exports of Meat and Poultry to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Meat poultry etc
$1000000000
$800000000
$600000000
$400000000
$200000000
$-
$1200000000
$1400000000
$1600000000
Figure 66 US Exports of Soybeans to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
$200000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 44 102017 404 PM
Figure 67 US Exports of Vehicles Engines and Parts to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Other parts and accessories of vehicles
Automotive tires and tubes
Bodies and chassis for passenger cars
Engines and engine parts (carburetors pistonsrings and valves)
Trucks buses and special purpose vehicles
Passenger cars new and used
$2500000000
$2000000000
$1500000000
$500000000
$-
$1000000000
Figure 68 US Exports of Medicinal Equipment to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 45 102017 404 PM
Figure 610 US Exports to Rus sia by States (2016 US$ Value) Million US$ 2013ndash2016
Source US Census Bureau ldquoState and Metropolitan Area Trade Datardquo
Iowa Kentucky
North Dakota
Oklahoma
South Carolina
Washington
0
$500
$1000
$1500
$2000
2013 2014 2015 2016
District of Columbia
Iowa
Kentucky
North Dakota
Oklahoma
South Carolina
Washington
Figure 69 US Exports of Excavating Machinery to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
$40000000
$45000000
$50000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 46 102017 404 PM
47
Upon reviewing the current trend in US- Russia economic relations we must acknowledge that
the existing trade model is obsolete and exhausted Imports are resource- oriented and reflect
constraints of the Rus sian economic structure while five groups of goodsmdash oil metals nuclear
fuels fertilizers and fishmdash make up more than 90 percent of total imports from Rus sia (Figure 71)
Each of these industries has a limited capacity for growth in the foreseeable future
Rus siarsquos core export to the United Statesmdash oilmdash will inevitably decrease in the mid- term under any
scenario The value and volume of Rus sian exports to the United States are open to global market
volatility and po liti cal pressures with limited hedging mechanisms
Overall US exports to Rus sia are unsustainable due to bilateral po liti cal tensions the whims of
commodity markets and changing domestic policies Sanctions and counter- sanctions have
created additional barriers particularly in finance banking high- tech energy and agro- business
According to the American Chamber of Commerce 69 percent of US companies working in the
country consider the impact of US sanctions against Rus sia on their business as negative At the
same time 60 percent of companies do not expect big changes in business relations between
Rus sia and the United States under Trump1 as the new law codifies existing sanctions fortifies
them and extends them to new sectors
Current US investments are low due to the weak rule of law in Rus sia a lack of property right
protections and proper contract enforcement high levels of statization and monopolization in the
economy a poor business climate outdated capital stock dependence on natural- resource
sectors and of course sanction and counter- sanction mea sures Bloated administrative compo-
nents created as risk mitigation instruments have also served as impediments The countryrsquos
institutional weakness low level of productivity bud get constraints and a declining inflexible
workforce will restrain future economic growth even if commodity prices recover Rus sian eco-
nomic policy will likely continue to be statist and protectionist relying mostly on import
substitutions
1 Ibid 11
Existing Trends and Future Scenarios
07
594-71613_ch01_4Pindd 47 102017 404 PM
US-Russia Economic Relations48
What scenarios can be expected in such a challenging environment
One probability (no peace no war) is based on the assumption that matters will not deteriorate
further and implementation of the Sanctions Act will be cursory This will cause relatively slow
degradation in the economic field with occasional flashes of activity in selected areas (eg closer
cooperation against Islamist terrorist groups in Syria)
A second worse case or critical scenario is the intensive and full- scale execution of current sanc-
tion legislation and even the imposition of new economic punitive and restrictive mea sures which
could incite asymmetric retaliatory actions and lead to the introduction of additional protectionist
policies This in turn could trigger a further escalation of mutual confrontation and could eventu-
ally destroy the fundamentals of the current bilateral trade system Rus sian leadership has charac-
terized the Sanctions Act as a declaration of a trade war that ends all hope for improving bilateral
relations2
2 Дмитрий Медведев ldquoПодписание президентом США нового санкционного закона против России создает несколько
последствийrdquo [The US Presidentrsquos signing of the package of new sanctions against Rus sia will have a few conse-
quences] Facebook August 2 2017 https wwwfacebook com Dmitry Medvedev posts 10154587161801851
Figure 71 US Imports from Rus sia Share of Oil Metals Nuclear Fuel Fertilizers and Fish Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
93
94
93
94
95
96
93
92
87
89
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals Nuclear FuelFertilizers and Fish
594-71613_ch01_4Pindd 48 102017 404 PM
Vadim Grishin 49
The best case and most favorable scenario looks less probable now It assumes the realization of
structural reforms in Rus sia in such a way that would adapt Rus siarsquos foreign policy to national
economic needs reduce confrontations with the West and make a concerted efort to integrate
Rus sian businesses into global supply and value chains A revitalization of the structural reform
agendamdash including eforts to diversify economic activities through de- monopolization and support
for SMEs a restructuring of the banking sector the creation of a vibrant business climate to foster
entrepreneurships and innovation the implementation of administrative and judicial reforms to
tackle red tape and endemic corruption and the reduction of state control over key sectors of the
economy via wide- spread privatization could kick- start the development of a nonoil economy and
improve long- term growth prospects Despite ongoing discussion of reform strategies deep
economic and po liti cal changes are extremely complicated over the next po liti calelectoral cycle
(2018ndash2024) particularly because of re sis tance of vested interests and growing commodity prices
The urgency to tackle structural shortcomings in natu ral resource- dependent economies usually
correlates with the price of those resources and the degree to which resource rents drive eco-
nomic activity However there may be marginal improvements in the efficiency of the current
economic system
Future US- Russia relations can be thought of through three pillars one pillar focuses on areas
where both countries maintain a competitive rivalry another looks at potential areas of interaction
under pres ent conditions a third pillar and one that has evaporated from the current bilateral
agenda concentrates on future cooperation Stronger economic ties could not only be a kind of
po liti cal shock absorber but contribute to the building of this future (particularly business contacts
aim to support future structural reforms) although po liti cal factors are depressing the prospects
for cooperation To escape deadlock it will be impor tant to establish the right balance between
politics and economics and create a model of collaboration within the framework of contention
594-71613_ch01_4Pindd 49 102017 404 PM
About the Author
Vadim Grishin PhD MBA has been involved in the reform pro cess in Rus sia as adviser to the
deputy prime minister of Rus sia in 1992ndash1993 and 2006ndash2010 He has extensive experience
working with the Bretton Woods Institutions He was the board member of the World Bank Group
and served as se nior adviser at the International Monetary Fund Currently he is a con sul tant to the
chief economistrsquos office of the International Finance Corporation and teaches the economics of
transition at Georgetown University in Washington DC
50
594-71613_ch99_4Pindd 50 102017 403 PM
Blank
COVER PHOTO ADOBE STOCK
1616 Rhode Island Avenue NW
Washington DC 20036
202 887 0200 | wwwcsisorg
v++ISBN 978-1-4422-8035-9
Lanham bull Boulder bull New York bull London
4501 Forbes Boulevard
Lanham MD 20706
301 459 3366 | wwwrowmancom
A U T H O R
Vadim Grishin
Myths and Realities
A Report of the
CSIS RUSSIA AND EURASIA PROGRAM
US-RussiaEconomicRelations
O C T O B E R 2 0 1 7
Euml|xHSLEOCy280359z
The Man Pupu Nyor Rock Formations at the Northern Urals also known as Seven
Strong Man or Little Mountain of the God in the local tribe (Mansi) language
41
Diversity and technological complexity are the most vis i ble advantages supporting US exports to
Rus sia Three major groups of export goods include civilian aircraft engines and parts (Figure 61)
drilling and oil field equipment (Figure 62) and industrial machines and engines (Figure 63)
Despite sanctions against the transfer of advanced oil producing and pro cessing technologies the
realization of US drilling and oil field equipment in Rus sia is sustainable although some bilateral
proj ects have been frozen
Another category of goods that has demonstrated resilience is the phar ma ceu ti cal industry (Fig-
ure 64) because most drugs in Rus sia are imported (about 70 percent of the Rus sian phar ma ceu-
ti cal market in value) Import substitution policies have had only modest results in this industry
As confirmed by American Chamber of Commerce surveys US exports to Rus sia are closely
connected to US FDI 30 percent of total imports of US companies working in the Rus sian
market come from the United States (more than $2 billion in 2016) In other words about
40 percent of all US exports to Rus sia are related to a US corporate- sector business pro cess in
the country The major sectors of activity of these companies are energy and natu ral resources
(52 percent) manufacturing (17 percent) information and communications technology or ICT
(13 percent) retail (7 percent) automotive industry (6 percent) phar ma ceu ti cal production
(1 percent) professional ser vices (05 percent) and other (2 percent)1
Some obvious constraints on US exports to Rus sia have resulted from a reduction in demand A
deterioration of bilateral relations and implementation of sanctions and counter- sanctions have
directly or indirectly afected all businesses Figures 65 and 66 provide data regarding a dramatic
drop in the sale of US agricultural production in Rus sia with all other categories of exports in
goods showing big cuts as well (see Figures 67ndash69)
Exports of civilian aircraft engines and parts put the state of Washington in first place among
other states as a leading exporter to the Rus sian market (Figure 610)
1 American Chamber of Commerce in Rus sia ldquoInvestment and Import to Rus sia 2nd Surveyrdquo 13
Diversity and Constraints
06
594-71613_ch01_4Pindd 41 102017 404 PM
Figure 61 US Exports of Civilian Aircraft Engines Equipment and Parts to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
$2500000000
$2000000000
$1500000000
$1000000000
$500000000
$-
Figure 62 US Exports of Drilling and Oil Field Equipment US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
$40000000
$45000000
$50000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 42 102017 404 PM
Figure 63 US Exports of Industrial Engines to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Figure 64 US Exports of Phar ma ceu ti cal Preparations to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 43 102017 404 PM
Figure 65 US Exports of Meat and Poultry to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Meat poultry etc
$1000000000
$800000000
$600000000
$400000000
$200000000
$-
$1200000000
$1400000000
$1600000000
Figure 66 US Exports of Soybeans to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
$200000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 44 102017 404 PM
Figure 67 US Exports of Vehicles Engines and Parts to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Other parts and accessories of vehicles
Automotive tires and tubes
Bodies and chassis for passenger cars
Engines and engine parts (carburetors pistonsrings and valves)
Trucks buses and special purpose vehicles
Passenger cars new and used
$2500000000
$2000000000
$1500000000
$500000000
$-
$1000000000
Figure 68 US Exports of Medicinal Equipment to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 45 102017 404 PM
Figure 610 US Exports to Rus sia by States (2016 US$ Value) Million US$ 2013ndash2016
Source US Census Bureau ldquoState and Metropolitan Area Trade Datardquo
Iowa Kentucky
North Dakota
Oklahoma
South Carolina
Washington
0
$500
$1000
$1500
$2000
2013 2014 2015 2016
District of Columbia
Iowa
Kentucky
North Dakota
Oklahoma
South Carolina
Washington
Figure 69 US Exports of Excavating Machinery to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
$40000000
$45000000
$50000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 46 102017 404 PM
47
Upon reviewing the current trend in US- Russia economic relations we must acknowledge that
the existing trade model is obsolete and exhausted Imports are resource- oriented and reflect
constraints of the Rus sian economic structure while five groups of goodsmdash oil metals nuclear
fuels fertilizers and fishmdash make up more than 90 percent of total imports from Rus sia (Figure 71)
Each of these industries has a limited capacity for growth in the foreseeable future
Rus siarsquos core export to the United Statesmdash oilmdash will inevitably decrease in the mid- term under any
scenario The value and volume of Rus sian exports to the United States are open to global market
volatility and po liti cal pressures with limited hedging mechanisms
Overall US exports to Rus sia are unsustainable due to bilateral po liti cal tensions the whims of
commodity markets and changing domestic policies Sanctions and counter- sanctions have
created additional barriers particularly in finance banking high- tech energy and agro- business
According to the American Chamber of Commerce 69 percent of US companies working in the
country consider the impact of US sanctions against Rus sia on their business as negative At the
same time 60 percent of companies do not expect big changes in business relations between
Rus sia and the United States under Trump1 as the new law codifies existing sanctions fortifies
them and extends them to new sectors
Current US investments are low due to the weak rule of law in Rus sia a lack of property right
protections and proper contract enforcement high levels of statization and monopolization in the
economy a poor business climate outdated capital stock dependence on natural- resource
sectors and of course sanction and counter- sanction mea sures Bloated administrative compo-
nents created as risk mitigation instruments have also served as impediments The countryrsquos
institutional weakness low level of productivity bud get constraints and a declining inflexible
workforce will restrain future economic growth even if commodity prices recover Rus sian eco-
nomic policy will likely continue to be statist and protectionist relying mostly on import
substitutions
1 Ibid 11
Existing Trends and Future Scenarios
07
594-71613_ch01_4Pindd 47 102017 404 PM
US-Russia Economic Relations48
What scenarios can be expected in such a challenging environment
One probability (no peace no war) is based on the assumption that matters will not deteriorate
further and implementation of the Sanctions Act will be cursory This will cause relatively slow
degradation in the economic field with occasional flashes of activity in selected areas (eg closer
cooperation against Islamist terrorist groups in Syria)
A second worse case or critical scenario is the intensive and full- scale execution of current sanc-
tion legislation and even the imposition of new economic punitive and restrictive mea sures which
could incite asymmetric retaliatory actions and lead to the introduction of additional protectionist
policies This in turn could trigger a further escalation of mutual confrontation and could eventu-
ally destroy the fundamentals of the current bilateral trade system Rus sian leadership has charac-
terized the Sanctions Act as a declaration of a trade war that ends all hope for improving bilateral
relations2
2 Дмитрий Медведев ldquoПодписание президентом США нового санкционного закона против России создает несколько
последствийrdquo [The US Presidentrsquos signing of the package of new sanctions against Rus sia will have a few conse-
quences] Facebook August 2 2017 https wwwfacebook com Dmitry Medvedev posts 10154587161801851
Figure 71 US Imports from Rus sia Share of Oil Metals Nuclear Fuel Fertilizers and Fish Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
93
94
93
94
95
96
93
92
87
89
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals Nuclear FuelFertilizers and Fish
594-71613_ch01_4Pindd 48 102017 404 PM
Vadim Grishin 49
The best case and most favorable scenario looks less probable now It assumes the realization of
structural reforms in Rus sia in such a way that would adapt Rus siarsquos foreign policy to national
economic needs reduce confrontations with the West and make a concerted efort to integrate
Rus sian businesses into global supply and value chains A revitalization of the structural reform
agendamdash including eforts to diversify economic activities through de- monopolization and support
for SMEs a restructuring of the banking sector the creation of a vibrant business climate to foster
entrepreneurships and innovation the implementation of administrative and judicial reforms to
tackle red tape and endemic corruption and the reduction of state control over key sectors of the
economy via wide- spread privatization could kick- start the development of a nonoil economy and
improve long- term growth prospects Despite ongoing discussion of reform strategies deep
economic and po liti cal changes are extremely complicated over the next po liti calelectoral cycle
(2018ndash2024) particularly because of re sis tance of vested interests and growing commodity prices
The urgency to tackle structural shortcomings in natu ral resource- dependent economies usually
correlates with the price of those resources and the degree to which resource rents drive eco-
nomic activity However there may be marginal improvements in the efficiency of the current
economic system
Future US- Russia relations can be thought of through three pillars one pillar focuses on areas
where both countries maintain a competitive rivalry another looks at potential areas of interaction
under pres ent conditions a third pillar and one that has evaporated from the current bilateral
agenda concentrates on future cooperation Stronger economic ties could not only be a kind of
po liti cal shock absorber but contribute to the building of this future (particularly business contacts
aim to support future structural reforms) although po liti cal factors are depressing the prospects
for cooperation To escape deadlock it will be impor tant to establish the right balance between
politics and economics and create a model of collaboration within the framework of contention
594-71613_ch01_4Pindd 49 102017 404 PM
About the Author
Vadim Grishin PhD MBA has been involved in the reform pro cess in Rus sia as adviser to the
deputy prime minister of Rus sia in 1992ndash1993 and 2006ndash2010 He has extensive experience
working with the Bretton Woods Institutions He was the board member of the World Bank Group
and served as se nior adviser at the International Monetary Fund Currently he is a con sul tant to the
chief economistrsquos office of the International Finance Corporation and teaches the economics of
transition at Georgetown University in Washington DC
50
594-71613_ch99_4Pindd 50 102017 403 PM
Blank
COVER PHOTO ADOBE STOCK
1616 Rhode Island Avenue NW
Washington DC 20036
202 887 0200 | wwwcsisorg
v++ISBN 978-1-4422-8035-9
Lanham bull Boulder bull New York bull London
4501 Forbes Boulevard
Lanham MD 20706
301 459 3366 | wwwrowmancom
A U T H O R
Vadim Grishin
Myths and Realities
A Report of the
CSIS RUSSIA AND EURASIA PROGRAM
US-RussiaEconomicRelations
O C T O B E R 2 0 1 7
Euml|xHSLEOCy280359z
The Man Pupu Nyor Rock Formations at the Northern Urals also known as Seven
Strong Man or Little Mountain of the God in the local tribe (Mansi) language
Figure 61 US Exports of Civilian Aircraft Engines Equipment and Parts to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
$2500000000
$2000000000
$1500000000
$1000000000
$500000000
$-
Figure 62 US Exports of Drilling and Oil Field Equipment US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
$40000000
$45000000
$50000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 42 102017 404 PM
Figure 63 US Exports of Industrial Engines to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Figure 64 US Exports of Phar ma ceu ti cal Preparations to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 43 102017 404 PM
Figure 65 US Exports of Meat and Poultry to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Meat poultry etc
$1000000000
$800000000
$600000000
$400000000
$200000000
$-
$1200000000
$1400000000
$1600000000
Figure 66 US Exports of Soybeans to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
$200000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 44 102017 404 PM
Figure 67 US Exports of Vehicles Engines and Parts to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Other parts and accessories of vehicles
Automotive tires and tubes
Bodies and chassis for passenger cars
Engines and engine parts (carburetors pistonsrings and valves)
Trucks buses and special purpose vehicles
Passenger cars new and used
$2500000000
$2000000000
$1500000000
$500000000
$-
$1000000000
Figure 68 US Exports of Medicinal Equipment to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 45 102017 404 PM
Figure 610 US Exports to Rus sia by States (2016 US$ Value) Million US$ 2013ndash2016
Source US Census Bureau ldquoState and Metropolitan Area Trade Datardquo
Iowa Kentucky
North Dakota
Oklahoma
South Carolina
Washington
0
$500
$1000
$1500
$2000
2013 2014 2015 2016
District of Columbia
Iowa
Kentucky
North Dakota
Oklahoma
South Carolina
Washington
Figure 69 US Exports of Excavating Machinery to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
$40000000
$45000000
$50000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 46 102017 404 PM
47
Upon reviewing the current trend in US- Russia economic relations we must acknowledge that
the existing trade model is obsolete and exhausted Imports are resource- oriented and reflect
constraints of the Rus sian economic structure while five groups of goodsmdash oil metals nuclear
fuels fertilizers and fishmdash make up more than 90 percent of total imports from Rus sia (Figure 71)
Each of these industries has a limited capacity for growth in the foreseeable future
Rus siarsquos core export to the United Statesmdash oilmdash will inevitably decrease in the mid- term under any
scenario The value and volume of Rus sian exports to the United States are open to global market
volatility and po liti cal pressures with limited hedging mechanisms
Overall US exports to Rus sia are unsustainable due to bilateral po liti cal tensions the whims of
commodity markets and changing domestic policies Sanctions and counter- sanctions have
created additional barriers particularly in finance banking high- tech energy and agro- business
According to the American Chamber of Commerce 69 percent of US companies working in the
country consider the impact of US sanctions against Rus sia on their business as negative At the
same time 60 percent of companies do not expect big changes in business relations between
Rus sia and the United States under Trump1 as the new law codifies existing sanctions fortifies
them and extends them to new sectors
Current US investments are low due to the weak rule of law in Rus sia a lack of property right
protections and proper contract enforcement high levels of statization and monopolization in the
economy a poor business climate outdated capital stock dependence on natural- resource
sectors and of course sanction and counter- sanction mea sures Bloated administrative compo-
nents created as risk mitigation instruments have also served as impediments The countryrsquos
institutional weakness low level of productivity bud get constraints and a declining inflexible
workforce will restrain future economic growth even if commodity prices recover Rus sian eco-
nomic policy will likely continue to be statist and protectionist relying mostly on import
substitutions
1 Ibid 11
Existing Trends and Future Scenarios
07
594-71613_ch01_4Pindd 47 102017 404 PM
US-Russia Economic Relations48
What scenarios can be expected in such a challenging environment
One probability (no peace no war) is based on the assumption that matters will not deteriorate
further and implementation of the Sanctions Act will be cursory This will cause relatively slow
degradation in the economic field with occasional flashes of activity in selected areas (eg closer
cooperation against Islamist terrorist groups in Syria)
A second worse case or critical scenario is the intensive and full- scale execution of current sanc-
tion legislation and even the imposition of new economic punitive and restrictive mea sures which
could incite asymmetric retaliatory actions and lead to the introduction of additional protectionist
policies This in turn could trigger a further escalation of mutual confrontation and could eventu-
ally destroy the fundamentals of the current bilateral trade system Rus sian leadership has charac-
terized the Sanctions Act as a declaration of a trade war that ends all hope for improving bilateral
relations2
2 Дмитрий Медведев ldquoПодписание президентом США нового санкционного закона против России создает несколько
последствийrdquo [The US Presidentrsquos signing of the package of new sanctions against Rus sia will have a few conse-
quences] Facebook August 2 2017 https wwwfacebook com Dmitry Medvedev posts 10154587161801851
Figure 71 US Imports from Rus sia Share of Oil Metals Nuclear Fuel Fertilizers and Fish Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
93
94
93
94
95
96
93
92
87
89
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals Nuclear FuelFertilizers and Fish
594-71613_ch01_4Pindd 48 102017 404 PM
Vadim Grishin 49
The best case and most favorable scenario looks less probable now It assumes the realization of
structural reforms in Rus sia in such a way that would adapt Rus siarsquos foreign policy to national
economic needs reduce confrontations with the West and make a concerted efort to integrate
Rus sian businesses into global supply and value chains A revitalization of the structural reform
agendamdash including eforts to diversify economic activities through de- monopolization and support
for SMEs a restructuring of the banking sector the creation of a vibrant business climate to foster
entrepreneurships and innovation the implementation of administrative and judicial reforms to
tackle red tape and endemic corruption and the reduction of state control over key sectors of the
economy via wide- spread privatization could kick- start the development of a nonoil economy and
improve long- term growth prospects Despite ongoing discussion of reform strategies deep
economic and po liti cal changes are extremely complicated over the next po liti calelectoral cycle
(2018ndash2024) particularly because of re sis tance of vested interests and growing commodity prices
The urgency to tackle structural shortcomings in natu ral resource- dependent economies usually
correlates with the price of those resources and the degree to which resource rents drive eco-
nomic activity However there may be marginal improvements in the efficiency of the current
economic system
Future US- Russia relations can be thought of through three pillars one pillar focuses on areas
where both countries maintain a competitive rivalry another looks at potential areas of interaction
under pres ent conditions a third pillar and one that has evaporated from the current bilateral
agenda concentrates on future cooperation Stronger economic ties could not only be a kind of
po liti cal shock absorber but contribute to the building of this future (particularly business contacts
aim to support future structural reforms) although po liti cal factors are depressing the prospects
for cooperation To escape deadlock it will be impor tant to establish the right balance between
politics and economics and create a model of collaboration within the framework of contention
594-71613_ch01_4Pindd 49 102017 404 PM
About the Author
Vadim Grishin PhD MBA has been involved in the reform pro cess in Rus sia as adviser to the
deputy prime minister of Rus sia in 1992ndash1993 and 2006ndash2010 He has extensive experience
working with the Bretton Woods Institutions He was the board member of the World Bank Group
and served as se nior adviser at the International Monetary Fund Currently he is a con sul tant to the
chief economistrsquos office of the International Finance Corporation and teaches the economics of
transition at Georgetown University in Washington DC
50
594-71613_ch99_4Pindd 50 102017 403 PM
Blank
COVER PHOTO ADOBE STOCK
1616 Rhode Island Avenue NW
Washington DC 20036
202 887 0200 | wwwcsisorg
v++ISBN 978-1-4422-8035-9
Lanham bull Boulder bull New York bull London
4501 Forbes Boulevard
Lanham MD 20706
301 459 3366 | wwwrowmancom
A U T H O R
Vadim Grishin
Myths and Realities
A Report of the
CSIS RUSSIA AND EURASIA PROGRAM
US-RussiaEconomicRelations
O C T O B E R 2 0 1 7
Euml|xHSLEOCy280359z
The Man Pupu Nyor Rock Formations at the Northern Urals also known as Seven
Strong Man or Little Mountain of the God in the local tribe (Mansi) language
Figure 63 US Exports of Industrial Engines to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Figure 64 US Exports of Phar ma ceu ti cal Preparations to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 43 102017 404 PM
Figure 65 US Exports of Meat and Poultry to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Meat poultry etc
$1000000000
$800000000
$600000000
$400000000
$200000000
$-
$1200000000
$1400000000
$1600000000
Figure 66 US Exports of Soybeans to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
$200000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 44 102017 404 PM
Figure 67 US Exports of Vehicles Engines and Parts to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Other parts and accessories of vehicles
Automotive tires and tubes
Bodies and chassis for passenger cars
Engines and engine parts (carburetors pistonsrings and valves)
Trucks buses and special purpose vehicles
Passenger cars new and used
$2500000000
$2000000000
$1500000000
$500000000
$-
$1000000000
Figure 68 US Exports of Medicinal Equipment to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 45 102017 404 PM
Figure 610 US Exports to Rus sia by States (2016 US$ Value) Million US$ 2013ndash2016
Source US Census Bureau ldquoState and Metropolitan Area Trade Datardquo
Iowa Kentucky
North Dakota
Oklahoma
South Carolina
Washington
0
$500
$1000
$1500
$2000
2013 2014 2015 2016
District of Columbia
Iowa
Kentucky
North Dakota
Oklahoma
South Carolina
Washington
Figure 69 US Exports of Excavating Machinery to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
$40000000
$45000000
$50000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 46 102017 404 PM
47
Upon reviewing the current trend in US- Russia economic relations we must acknowledge that
the existing trade model is obsolete and exhausted Imports are resource- oriented and reflect
constraints of the Rus sian economic structure while five groups of goodsmdash oil metals nuclear
fuels fertilizers and fishmdash make up more than 90 percent of total imports from Rus sia (Figure 71)
Each of these industries has a limited capacity for growth in the foreseeable future
Rus siarsquos core export to the United Statesmdash oilmdash will inevitably decrease in the mid- term under any
scenario The value and volume of Rus sian exports to the United States are open to global market
volatility and po liti cal pressures with limited hedging mechanisms
Overall US exports to Rus sia are unsustainable due to bilateral po liti cal tensions the whims of
commodity markets and changing domestic policies Sanctions and counter- sanctions have
created additional barriers particularly in finance banking high- tech energy and agro- business
According to the American Chamber of Commerce 69 percent of US companies working in the
country consider the impact of US sanctions against Rus sia on their business as negative At the
same time 60 percent of companies do not expect big changes in business relations between
Rus sia and the United States under Trump1 as the new law codifies existing sanctions fortifies
them and extends them to new sectors
Current US investments are low due to the weak rule of law in Rus sia a lack of property right
protections and proper contract enforcement high levels of statization and monopolization in the
economy a poor business climate outdated capital stock dependence on natural- resource
sectors and of course sanction and counter- sanction mea sures Bloated administrative compo-
nents created as risk mitigation instruments have also served as impediments The countryrsquos
institutional weakness low level of productivity bud get constraints and a declining inflexible
workforce will restrain future economic growth even if commodity prices recover Rus sian eco-
nomic policy will likely continue to be statist and protectionist relying mostly on import
substitutions
1 Ibid 11
Existing Trends and Future Scenarios
07
594-71613_ch01_4Pindd 47 102017 404 PM
US-Russia Economic Relations48
What scenarios can be expected in such a challenging environment
One probability (no peace no war) is based on the assumption that matters will not deteriorate
further and implementation of the Sanctions Act will be cursory This will cause relatively slow
degradation in the economic field with occasional flashes of activity in selected areas (eg closer
cooperation against Islamist terrorist groups in Syria)
A second worse case or critical scenario is the intensive and full- scale execution of current sanc-
tion legislation and even the imposition of new economic punitive and restrictive mea sures which
could incite asymmetric retaliatory actions and lead to the introduction of additional protectionist
policies This in turn could trigger a further escalation of mutual confrontation and could eventu-
ally destroy the fundamentals of the current bilateral trade system Rus sian leadership has charac-
terized the Sanctions Act as a declaration of a trade war that ends all hope for improving bilateral
relations2
2 Дмитрий Медведев ldquoПодписание президентом США нового санкционного закона против России создает несколько
последствийrdquo [The US Presidentrsquos signing of the package of new sanctions against Rus sia will have a few conse-
quences] Facebook August 2 2017 https wwwfacebook com Dmitry Medvedev posts 10154587161801851
Figure 71 US Imports from Rus sia Share of Oil Metals Nuclear Fuel Fertilizers and Fish Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
93
94
93
94
95
96
93
92
87
89
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals Nuclear FuelFertilizers and Fish
594-71613_ch01_4Pindd 48 102017 404 PM
Vadim Grishin 49
The best case and most favorable scenario looks less probable now It assumes the realization of
structural reforms in Rus sia in such a way that would adapt Rus siarsquos foreign policy to national
economic needs reduce confrontations with the West and make a concerted efort to integrate
Rus sian businesses into global supply and value chains A revitalization of the structural reform
agendamdash including eforts to diversify economic activities through de- monopolization and support
for SMEs a restructuring of the banking sector the creation of a vibrant business climate to foster
entrepreneurships and innovation the implementation of administrative and judicial reforms to
tackle red tape and endemic corruption and the reduction of state control over key sectors of the
economy via wide- spread privatization could kick- start the development of a nonoil economy and
improve long- term growth prospects Despite ongoing discussion of reform strategies deep
economic and po liti cal changes are extremely complicated over the next po liti calelectoral cycle
(2018ndash2024) particularly because of re sis tance of vested interests and growing commodity prices
The urgency to tackle structural shortcomings in natu ral resource- dependent economies usually
correlates with the price of those resources and the degree to which resource rents drive eco-
nomic activity However there may be marginal improvements in the efficiency of the current
economic system
Future US- Russia relations can be thought of through three pillars one pillar focuses on areas
where both countries maintain a competitive rivalry another looks at potential areas of interaction
under pres ent conditions a third pillar and one that has evaporated from the current bilateral
agenda concentrates on future cooperation Stronger economic ties could not only be a kind of
po liti cal shock absorber but contribute to the building of this future (particularly business contacts
aim to support future structural reforms) although po liti cal factors are depressing the prospects
for cooperation To escape deadlock it will be impor tant to establish the right balance between
politics and economics and create a model of collaboration within the framework of contention
594-71613_ch01_4Pindd 49 102017 404 PM
About the Author
Vadim Grishin PhD MBA has been involved in the reform pro cess in Rus sia as adviser to the
deputy prime minister of Rus sia in 1992ndash1993 and 2006ndash2010 He has extensive experience
working with the Bretton Woods Institutions He was the board member of the World Bank Group
and served as se nior adviser at the International Monetary Fund Currently he is a con sul tant to the
chief economistrsquos office of the International Finance Corporation and teaches the economics of
transition at Georgetown University in Washington DC
50
594-71613_ch99_4Pindd 50 102017 403 PM
Blank
COVER PHOTO ADOBE STOCK
1616 Rhode Island Avenue NW
Washington DC 20036
202 887 0200 | wwwcsisorg
v++ISBN 978-1-4422-8035-9
Lanham bull Boulder bull New York bull London
4501 Forbes Boulevard
Lanham MD 20706
301 459 3366 | wwwrowmancom
A U T H O R
Vadim Grishin
Myths and Realities
A Report of the
CSIS RUSSIA AND EURASIA PROGRAM
US-RussiaEconomicRelations
O C T O B E R 2 0 1 7
Euml|xHSLEOCy280359z
The Man Pupu Nyor Rock Formations at the Northern Urals also known as Seven
Strong Man or Little Mountain of the God in the local tribe (Mansi) language
Figure 65 US Exports of Meat and Poultry to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Meat poultry etc
$1000000000
$800000000
$600000000
$400000000
$200000000
$-
$1200000000
$1400000000
$1600000000
Figure 66 US Exports of Soybeans to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$20000000
$40000000
$60000000
$80000000
$100000000
$120000000
$140000000
$160000000
$180000000
$200000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 44 102017 404 PM
Figure 67 US Exports of Vehicles Engines and Parts to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Other parts and accessories of vehicles
Automotive tires and tubes
Bodies and chassis for passenger cars
Engines and engine parts (carburetors pistonsrings and valves)
Trucks buses and special purpose vehicles
Passenger cars new and used
$2500000000
$2000000000
$1500000000
$500000000
$-
$1000000000
Figure 68 US Exports of Medicinal Equipment to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 45 102017 404 PM
Figure 610 US Exports to Rus sia by States (2016 US$ Value) Million US$ 2013ndash2016
Source US Census Bureau ldquoState and Metropolitan Area Trade Datardquo
Iowa Kentucky
North Dakota
Oklahoma
South Carolina
Washington
0
$500
$1000
$1500
$2000
2013 2014 2015 2016
District of Columbia
Iowa
Kentucky
North Dakota
Oklahoma
South Carolina
Washington
Figure 69 US Exports of Excavating Machinery to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
$40000000
$45000000
$50000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 46 102017 404 PM
47
Upon reviewing the current trend in US- Russia economic relations we must acknowledge that
the existing trade model is obsolete and exhausted Imports are resource- oriented and reflect
constraints of the Rus sian economic structure while five groups of goodsmdash oil metals nuclear
fuels fertilizers and fishmdash make up more than 90 percent of total imports from Rus sia (Figure 71)
Each of these industries has a limited capacity for growth in the foreseeable future
Rus siarsquos core export to the United Statesmdash oilmdash will inevitably decrease in the mid- term under any
scenario The value and volume of Rus sian exports to the United States are open to global market
volatility and po liti cal pressures with limited hedging mechanisms
Overall US exports to Rus sia are unsustainable due to bilateral po liti cal tensions the whims of
commodity markets and changing domestic policies Sanctions and counter- sanctions have
created additional barriers particularly in finance banking high- tech energy and agro- business
According to the American Chamber of Commerce 69 percent of US companies working in the
country consider the impact of US sanctions against Rus sia on their business as negative At the
same time 60 percent of companies do not expect big changes in business relations between
Rus sia and the United States under Trump1 as the new law codifies existing sanctions fortifies
them and extends them to new sectors
Current US investments are low due to the weak rule of law in Rus sia a lack of property right
protections and proper contract enforcement high levels of statization and monopolization in the
economy a poor business climate outdated capital stock dependence on natural- resource
sectors and of course sanction and counter- sanction mea sures Bloated administrative compo-
nents created as risk mitigation instruments have also served as impediments The countryrsquos
institutional weakness low level of productivity bud get constraints and a declining inflexible
workforce will restrain future economic growth even if commodity prices recover Rus sian eco-
nomic policy will likely continue to be statist and protectionist relying mostly on import
substitutions
1 Ibid 11
Existing Trends and Future Scenarios
07
594-71613_ch01_4Pindd 47 102017 404 PM
US-Russia Economic Relations48
What scenarios can be expected in such a challenging environment
One probability (no peace no war) is based on the assumption that matters will not deteriorate
further and implementation of the Sanctions Act will be cursory This will cause relatively slow
degradation in the economic field with occasional flashes of activity in selected areas (eg closer
cooperation against Islamist terrorist groups in Syria)
A second worse case or critical scenario is the intensive and full- scale execution of current sanc-
tion legislation and even the imposition of new economic punitive and restrictive mea sures which
could incite asymmetric retaliatory actions and lead to the introduction of additional protectionist
policies This in turn could trigger a further escalation of mutual confrontation and could eventu-
ally destroy the fundamentals of the current bilateral trade system Rus sian leadership has charac-
terized the Sanctions Act as a declaration of a trade war that ends all hope for improving bilateral
relations2
2 Дмитрий Медведев ldquoПодписание президентом США нового санкционного закона против России создает несколько
последствийrdquo [The US Presidentrsquos signing of the package of new sanctions against Rus sia will have a few conse-
quences] Facebook August 2 2017 https wwwfacebook com Dmitry Medvedev posts 10154587161801851
Figure 71 US Imports from Rus sia Share of Oil Metals Nuclear Fuel Fertilizers and Fish Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
93
94
93
94
95
96
93
92
87
89
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals Nuclear FuelFertilizers and Fish
594-71613_ch01_4Pindd 48 102017 404 PM
Vadim Grishin 49
The best case and most favorable scenario looks less probable now It assumes the realization of
structural reforms in Rus sia in such a way that would adapt Rus siarsquos foreign policy to national
economic needs reduce confrontations with the West and make a concerted efort to integrate
Rus sian businesses into global supply and value chains A revitalization of the structural reform
agendamdash including eforts to diversify economic activities through de- monopolization and support
for SMEs a restructuring of the banking sector the creation of a vibrant business climate to foster
entrepreneurships and innovation the implementation of administrative and judicial reforms to
tackle red tape and endemic corruption and the reduction of state control over key sectors of the
economy via wide- spread privatization could kick- start the development of a nonoil economy and
improve long- term growth prospects Despite ongoing discussion of reform strategies deep
economic and po liti cal changes are extremely complicated over the next po liti calelectoral cycle
(2018ndash2024) particularly because of re sis tance of vested interests and growing commodity prices
The urgency to tackle structural shortcomings in natu ral resource- dependent economies usually
correlates with the price of those resources and the degree to which resource rents drive eco-
nomic activity However there may be marginal improvements in the efficiency of the current
economic system
Future US- Russia relations can be thought of through three pillars one pillar focuses on areas
where both countries maintain a competitive rivalry another looks at potential areas of interaction
under pres ent conditions a third pillar and one that has evaporated from the current bilateral
agenda concentrates on future cooperation Stronger economic ties could not only be a kind of
po liti cal shock absorber but contribute to the building of this future (particularly business contacts
aim to support future structural reforms) although po liti cal factors are depressing the prospects
for cooperation To escape deadlock it will be impor tant to establish the right balance between
politics and economics and create a model of collaboration within the framework of contention
594-71613_ch01_4Pindd 49 102017 404 PM
About the Author
Vadim Grishin PhD MBA has been involved in the reform pro cess in Rus sia as adviser to the
deputy prime minister of Rus sia in 1992ndash1993 and 2006ndash2010 He has extensive experience
working with the Bretton Woods Institutions He was the board member of the World Bank Group
and served as se nior adviser at the International Monetary Fund Currently he is a con sul tant to the
chief economistrsquos office of the International Finance Corporation and teaches the economics of
transition at Georgetown University in Washington DC
50
594-71613_ch99_4Pindd 50 102017 403 PM
Blank
COVER PHOTO ADOBE STOCK
1616 Rhode Island Avenue NW
Washington DC 20036
202 887 0200 | wwwcsisorg
v++ISBN 978-1-4422-8035-9
Lanham bull Boulder bull New York bull London
4501 Forbes Boulevard
Lanham MD 20706
301 459 3366 | wwwrowmancom
A U T H O R
Vadim Grishin
Myths and Realities
A Report of the
CSIS RUSSIA AND EURASIA PROGRAM
US-RussiaEconomicRelations
O C T O B E R 2 0 1 7
Euml|xHSLEOCy280359z
The Man Pupu Nyor Rock Formations at the Northern Urals also known as Seven
Strong Man or Little Mountain of the God in the local tribe (Mansi) language
Figure 67 US Exports of Vehicles Engines and Parts to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Other parts and accessories of vehicles
Automotive tires and tubes
Bodies and chassis for passenger cars
Engines and engine parts (carburetors pistonsrings and valves)
Trucks buses and special purpose vehicles
Passenger cars new and used
$2500000000
$2000000000
$1500000000
$500000000
$-
$1000000000
Figure 68 US Exports of Medicinal Equipment to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 45 102017 404 PM
Figure 610 US Exports to Rus sia by States (2016 US$ Value) Million US$ 2013ndash2016
Source US Census Bureau ldquoState and Metropolitan Area Trade Datardquo
Iowa Kentucky
North Dakota
Oklahoma
South Carolina
Washington
0
$500
$1000
$1500
$2000
2013 2014 2015 2016
District of Columbia
Iowa
Kentucky
North Dakota
Oklahoma
South Carolina
Washington
Figure 69 US Exports of Excavating Machinery to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
$40000000
$45000000
$50000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 46 102017 404 PM
47
Upon reviewing the current trend in US- Russia economic relations we must acknowledge that
the existing trade model is obsolete and exhausted Imports are resource- oriented and reflect
constraints of the Rus sian economic structure while five groups of goodsmdash oil metals nuclear
fuels fertilizers and fishmdash make up more than 90 percent of total imports from Rus sia (Figure 71)
Each of these industries has a limited capacity for growth in the foreseeable future
Rus siarsquos core export to the United Statesmdash oilmdash will inevitably decrease in the mid- term under any
scenario The value and volume of Rus sian exports to the United States are open to global market
volatility and po liti cal pressures with limited hedging mechanisms
Overall US exports to Rus sia are unsustainable due to bilateral po liti cal tensions the whims of
commodity markets and changing domestic policies Sanctions and counter- sanctions have
created additional barriers particularly in finance banking high- tech energy and agro- business
According to the American Chamber of Commerce 69 percent of US companies working in the
country consider the impact of US sanctions against Rus sia on their business as negative At the
same time 60 percent of companies do not expect big changes in business relations between
Rus sia and the United States under Trump1 as the new law codifies existing sanctions fortifies
them and extends them to new sectors
Current US investments are low due to the weak rule of law in Rus sia a lack of property right
protections and proper contract enforcement high levels of statization and monopolization in the
economy a poor business climate outdated capital stock dependence on natural- resource
sectors and of course sanction and counter- sanction mea sures Bloated administrative compo-
nents created as risk mitigation instruments have also served as impediments The countryrsquos
institutional weakness low level of productivity bud get constraints and a declining inflexible
workforce will restrain future economic growth even if commodity prices recover Rus sian eco-
nomic policy will likely continue to be statist and protectionist relying mostly on import
substitutions
1 Ibid 11
Existing Trends and Future Scenarios
07
594-71613_ch01_4Pindd 47 102017 404 PM
US-Russia Economic Relations48
What scenarios can be expected in such a challenging environment
One probability (no peace no war) is based on the assumption that matters will not deteriorate
further and implementation of the Sanctions Act will be cursory This will cause relatively slow
degradation in the economic field with occasional flashes of activity in selected areas (eg closer
cooperation against Islamist terrorist groups in Syria)
A second worse case or critical scenario is the intensive and full- scale execution of current sanc-
tion legislation and even the imposition of new economic punitive and restrictive mea sures which
could incite asymmetric retaliatory actions and lead to the introduction of additional protectionist
policies This in turn could trigger a further escalation of mutual confrontation and could eventu-
ally destroy the fundamentals of the current bilateral trade system Rus sian leadership has charac-
terized the Sanctions Act as a declaration of a trade war that ends all hope for improving bilateral
relations2
2 Дмитрий Медведев ldquoПодписание президентом США нового санкционного закона против России создает несколько
последствийrdquo [The US Presidentrsquos signing of the package of new sanctions against Rus sia will have a few conse-
quences] Facebook August 2 2017 https wwwfacebook com Dmitry Medvedev posts 10154587161801851
Figure 71 US Imports from Rus sia Share of Oil Metals Nuclear Fuel Fertilizers and Fish Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
93
94
93
94
95
96
93
92
87
89
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals Nuclear FuelFertilizers and Fish
594-71613_ch01_4Pindd 48 102017 404 PM
Vadim Grishin 49
The best case and most favorable scenario looks less probable now It assumes the realization of
structural reforms in Rus sia in such a way that would adapt Rus siarsquos foreign policy to national
economic needs reduce confrontations with the West and make a concerted efort to integrate
Rus sian businesses into global supply and value chains A revitalization of the structural reform
agendamdash including eforts to diversify economic activities through de- monopolization and support
for SMEs a restructuring of the banking sector the creation of a vibrant business climate to foster
entrepreneurships and innovation the implementation of administrative and judicial reforms to
tackle red tape and endemic corruption and the reduction of state control over key sectors of the
economy via wide- spread privatization could kick- start the development of a nonoil economy and
improve long- term growth prospects Despite ongoing discussion of reform strategies deep
economic and po liti cal changes are extremely complicated over the next po liti calelectoral cycle
(2018ndash2024) particularly because of re sis tance of vested interests and growing commodity prices
The urgency to tackle structural shortcomings in natu ral resource- dependent economies usually
correlates with the price of those resources and the degree to which resource rents drive eco-
nomic activity However there may be marginal improvements in the efficiency of the current
economic system
Future US- Russia relations can be thought of through three pillars one pillar focuses on areas
where both countries maintain a competitive rivalry another looks at potential areas of interaction
under pres ent conditions a third pillar and one that has evaporated from the current bilateral
agenda concentrates on future cooperation Stronger economic ties could not only be a kind of
po liti cal shock absorber but contribute to the building of this future (particularly business contacts
aim to support future structural reforms) although po liti cal factors are depressing the prospects
for cooperation To escape deadlock it will be impor tant to establish the right balance between
politics and economics and create a model of collaboration within the framework of contention
594-71613_ch01_4Pindd 49 102017 404 PM
About the Author
Vadim Grishin PhD MBA has been involved in the reform pro cess in Rus sia as adviser to the
deputy prime minister of Rus sia in 1992ndash1993 and 2006ndash2010 He has extensive experience
working with the Bretton Woods Institutions He was the board member of the World Bank Group
and served as se nior adviser at the International Monetary Fund Currently he is a con sul tant to the
chief economistrsquos office of the International Finance Corporation and teaches the economics of
transition at Georgetown University in Washington DC
50
594-71613_ch99_4Pindd 50 102017 403 PM
Blank
COVER PHOTO ADOBE STOCK
1616 Rhode Island Avenue NW
Washington DC 20036
202 887 0200 | wwwcsisorg
v++ISBN 978-1-4422-8035-9
Lanham bull Boulder bull New York bull London
4501 Forbes Boulevard
Lanham MD 20706
301 459 3366 | wwwrowmancom
A U T H O R
Vadim Grishin
Myths and Realities
A Report of the
CSIS RUSSIA AND EURASIA PROGRAM
US-RussiaEconomicRelations
O C T O B E R 2 0 1 7
Euml|xHSLEOCy280359z
The Man Pupu Nyor Rock Formations at the Northern Urals also known as Seven
Strong Man or Little Mountain of the God in the local tribe (Mansi) language
Figure 610 US Exports to Rus sia by States (2016 US$ Value) Million US$ 2013ndash2016
Source US Census Bureau ldquoState and Metropolitan Area Trade Datardquo
Iowa Kentucky
North Dakota
Oklahoma
South Carolina
Washington
0
$500
$1000
$1500
$2000
2013 2014 2015 2016
District of Columbia
Iowa
Kentucky
North Dakota
Oklahoma
South Carolina
Washington
Figure 69 US Exports of Excavating Machinery to Rus sia US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
0
$5000000
$10000000
$15000000
$20000000
$25000000
$30000000
$35000000
$40000000
$45000000
$50000000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
594-71613_ch01_4Pindd 46 102017 404 PM
47
Upon reviewing the current trend in US- Russia economic relations we must acknowledge that
the existing trade model is obsolete and exhausted Imports are resource- oriented and reflect
constraints of the Rus sian economic structure while five groups of goodsmdash oil metals nuclear
fuels fertilizers and fishmdash make up more than 90 percent of total imports from Rus sia (Figure 71)
Each of these industries has a limited capacity for growth in the foreseeable future
Rus siarsquos core export to the United Statesmdash oilmdash will inevitably decrease in the mid- term under any
scenario The value and volume of Rus sian exports to the United States are open to global market
volatility and po liti cal pressures with limited hedging mechanisms
Overall US exports to Rus sia are unsustainable due to bilateral po liti cal tensions the whims of
commodity markets and changing domestic policies Sanctions and counter- sanctions have
created additional barriers particularly in finance banking high- tech energy and agro- business
According to the American Chamber of Commerce 69 percent of US companies working in the
country consider the impact of US sanctions against Rus sia on their business as negative At the
same time 60 percent of companies do not expect big changes in business relations between
Rus sia and the United States under Trump1 as the new law codifies existing sanctions fortifies
them and extends them to new sectors
Current US investments are low due to the weak rule of law in Rus sia a lack of property right
protections and proper contract enforcement high levels of statization and monopolization in the
economy a poor business climate outdated capital stock dependence on natural- resource
sectors and of course sanction and counter- sanction mea sures Bloated administrative compo-
nents created as risk mitigation instruments have also served as impediments The countryrsquos
institutional weakness low level of productivity bud get constraints and a declining inflexible
workforce will restrain future economic growth even if commodity prices recover Rus sian eco-
nomic policy will likely continue to be statist and protectionist relying mostly on import
substitutions
1 Ibid 11
Existing Trends and Future Scenarios
07
594-71613_ch01_4Pindd 47 102017 404 PM
US-Russia Economic Relations48
What scenarios can be expected in such a challenging environment
One probability (no peace no war) is based on the assumption that matters will not deteriorate
further and implementation of the Sanctions Act will be cursory This will cause relatively slow
degradation in the economic field with occasional flashes of activity in selected areas (eg closer
cooperation against Islamist terrorist groups in Syria)
A second worse case or critical scenario is the intensive and full- scale execution of current sanc-
tion legislation and even the imposition of new economic punitive and restrictive mea sures which
could incite asymmetric retaliatory actions and lead to the introduction of additional protectionist
policies This in turn could trigger a further escalation of mutual confrontation and could eventu-
ally destroy the fundamentals of the current bilateral trade system Rus sian leadership has charac-
terized the Sanctions Act as a declaration of a trade war that ends all hope for improving bilateral
relations2
2 Дмитрий Медведев ldquoПодписание президентом США нового санкционного закона против России создает несколько
последствийrdquo [The US Presidentrsquos signing of the package of new sanctions against Rus sia will have a few conse-
quences] Facebook August 2 2017 https wwwfacebook com Dmitry Medvedev posts 10154587161801851
Figure 71 US Imports from Rus sia Share of Oil Metals Nuclear Fuel Fertilizers and Fish Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
93
94
93
94
95
96
93
92
87
89
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals Nuclear FuelFertilizers and Fish
594-71613_ch01_4Pindd 48 102017 404 PM
Vadim Grishin 49
The best case and most favorable scenario looks less probable now It assumes the realization of
structural reforms in Rus sia in such a way that would adapt Rus siarsquos foreign policy to national
economic needs reduce confrontations with the West and make a concerted efort to integrate
Rus sian businesses into global supply and value chains A revitalization of the structural reform
agendamdash including eforts to diversify economic activities through de- monopolization and support
for SMEs a restructuring of the banking sector the creation of a vibrant business climate to foster
entrepreneurships and innovation the implementation of administrative and judicial reforms to
tackle red tape and endemic corruption and the reduction of state control over key sectors of the
economy via wide- spread privatization could kick- start the development of a nonoil economy and
improve long- term growth prospects Despite ongoing discussion of reform strategies deep
economic and po liti cal changes are extremely complicated over the next po liti calelectoral cycle
(2018ndash2024) particularly because of re sis tance of vested interests and growing commodity prices
The urgency to tackle structural shortcomings in natu ral resource- dependent economies usually
correlates with the price of those resources and the degree to which resource rents drive eco-
nomic activity However there may be marginal improvements in the efficiency of the current
economic system
Future US- Russia relations can be thought of through three pillars one pillar focuses on areas
where both countries maintain a competitive rivalry another looks at potential areas of interaction
under pres ent conditions a third pillar and one that has evaporated from the current bilateral
agenda concentrates on future cooperation Stronger economic ties could not only be a kind of
po liti cal shock absorber but contribute to the building of this future (particularly business contacts
aim to support future structural reforms) although po liti cal factors are depressing the prospects
for cooperation To escape deadlock it will be impor tant to establish the right balance between
politics and economics and create a model of collaboration within the framework of contention
594-71613_ch01_4Pindd 49 102017 404 PM
About the Author
Vadim Grishin PhD MBA has been involved in the reform pro cess in Rus sia as adviser to the
deputy prime minister of Rus sia in 1992ndash1993 and 2006ndash2010 He has extensive experience
working with the Bretton Woods Institutions He was the board member of the World Bank Group
and served as se nior adviser at the International Monetary Fund Currently he is a con sul tant to the
chief economistrsquos office of the International Finance Corporation and teaches the economics of
transition at Georgetown University in Washington DC
50
594-71613_ch99_4Pindd 50 102017 403 PM
Blank
COVER PHOTO ADOBE STOCK
1616 Rhode Island Avenue NW
Washington DC 20036
202 887 0200 | wwwcsisorg
v++ISBN 978-1-4422-8035-9
Lanham bull Boulder bull New York bull London
4501 Forbes Boulevard
Lanham MD 20706
301 459 3366 | wwwrowmancom
A U T H O R
Vadim Grishin
Myths and Realities
A Report of the
CSIS RUSSIA AND EURASIA PROGRAM
US-RussiaEconomicRelations
O C T O B E R 2 0 1 7
Euml|xHSLEOCy280359z
The Man Pupu Nyor Rock Formations at the Northern Urals also known as Seven
Strong Man or Little Mountain of the God in the local tribe (Mansi) language
47
Upon reviewing the current trend in US- Russia economic relations we must acknowledge that
the existing trade model is obsolete and exhausted Imports are resource- oriented and reflect
constraints of the Rus sian economic structure while five groups of goodsmdash oil metals nuclear
fuels fertilizers and fishmdash make up more than 90 percent of total imports from Rus sia (Figure 71)
Each of these industries has a limited capacity for growth in the foreseeable future
Rus siarsquos core export to the United Statesmdash oilmdash will inevitably decrease in the mid- term under any
scenario The value and volume of Rus sian exports to the United States are open to global market
volatility and po liti cal pressures with limited hedging mechanisms
Overall US exports to Rus sia are unsustainable due to bilateral po liti cal tensions the whims of
commodity markets and changing domestic policies Sanctions and counter- sanctions have
created additional barriers particularly in finance banking high- tech energy and agro- business
According to the American Chamber of Commerce 69 percent of US companies working in the
country consider the impact of US sanctions against Rus sia on their business as negative At the
same time 60 percent of companies do not expect big changes in business relations between
Rus sia and the United States under Trump1 as the new law codifies existing sanctions fortifies
them and extends them to new sectors
Current US investments are low due to the weak rule of law in Rus sia a lack of property right
protections and proper contract enforcement high levels of statization and monopolization in the
economy a poor business climate outdated capital stock dependence on natural- resource
sectors and of course sanction and counter- sanction mea sures Bloated administrative compo-
nents created as risk mitigation instruments have also served as impediments The countryrsquos
institutional weakness low level of productivity bud get constraints and a declining inflexible
workforce will restrain future economic growth even if commodity prices recover Rus sian eco-
nomic policy will likely continue to be statist and protectionist relying mostly on import
substitutions
1 Ibid 11
Existing Trends and Future Scenarios
07
594-71613_ch01_4Pindd 47 102017 404 PM
US-Russia Economic Relations48
What scenarios can be expected in such a challenging environment
One probability (no peace no war) is based on the assumption that matters will not deteriorate
further and implementation of the Sanctions Act will be cursory This will cause relatively slow
degradation in the economic field with occasional flashes of activity in selected areas (eg closer
cooperation against Islamist terrorist groups in Syria)
A second worse case or critical scenario is the intensive and full- scale execution of current sanc-
tion legislation and even the imposition of new economic punitive and restrictive mea sures which
could incite asymmetric retaliatory actions and lead to the introduction of additional protectionist
policies This in turn could trigger a further escalation of mutual confrontation and could eventu-
ally destroy the fundamentals of the current bilateral trade system Rus sian leadership has charac-
terized the Sanctions Act as a declaration of a trade war that ends all hope for improving bilateral
relations2
2 Дмитрий Медведев ldquoПодписание президентом США нового санкционного закона против России создает несколько
последствийrdquo [The US Presidentrsquos signing of the package of new sanctions against Rus sia will have a few conse-
quences] Facebook August 2 2017 https wwwfacebook com Dmitry Medvedev posts 10154587161801851
Figure 71 US Imports from Rus sia Share of Oil Metals Nuclear Fuel Fertilizers and Fish Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
93
94
93
94
95
96
93
92
87
89
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals Nuclear FuelFertilizers and Fish
594-71613_ch01_4Pindd 48 102017 404 PM
Vadim Grishin 49
The best case and most favorable scenario looks less probable now It assumes the realization of
structural reforms in Rus sia in such a way that would adapt Rus siarsquos foreign policy to national
economic needs reduce confrontations with the West and make a concerted efort to integrate
Rus sian businesses into global supply and value chains A revitalization of the structural reform
agendamdash including eforts to diversify economic activities through de- monopolization and support
for SMEs a restructuring of the banking sector the creation of a vibrant business climate to foster
entrepreneurships and innovation the implementation of administrative and judicial reforms to
tackle red tape and endemic corruption and the reduction of state control over key sectors of the
economy via wide- spread privatization could kick- start the development of a nonoil economy and
improve long- term growth prospects Despite ongoing discussion of reform strategies deep
economic and po liti cal changes are extremely complicated over the next po liti calelectoral cycle
(2018ndash2024) particularly because of re sis tance of vested interests and growing commodity prices
The urgency to tackle structural shortcomings in natu ral resource- dependent economies usually
correlates with the price of those resources and the degree to which resource rents drive eco-
nomic activity However there may be marginal improvements in the efficiency of the current
economic system
Future US- Russia relations can be thought of through three pillars one pillar focuses on areas
where both countries maintain a competitive rivalry another looks at potential areas of interaction
under pres ent conditions a third pillar and one that has evaporated from the current bilateral
agenda concentrates on future cooperation Stronger economic ties could not only be a kind of
po liti cal shock absorber but contribute to the building of this future (particularly business contacts
aim to support future structural reforms) although po liti cal factors are depressing the prospects
for cooperation To escape deadlock it will be impor tant to establish the right balance between
politics and economics and create a model of collaboration within the framework of contention
594-71613_ch01_4Pindd 49 102017 404 PM
About the Author
Vadim Grishin PhD MBA has been involved in the reform pro cess in Rus sia as adviser to the
deputy prime minister of Rus sia in 1992ndash1993 and 2006ndash2010 He has extensive experience
working with the Bretton Woods Institutions He was the board member of the World Bank Group
and served as se nior adviser at the International Monetary Fund Currently he is a con sul tant to the
chief economistrsquos office of the International Finance Corporation and teaches the economics of
transition at Georgetown University in Washington DC
50
594-71613_ch99_4Pindd 50 102017 403 PM
Blank
COVER PHOTO ADOBE STOCK
1616 Rhode Island Avenue NW
Washington DC 20036
202 887 0200 | wwwcsisorg
v++ISBN 978-1-4422-8035-9
Lanham bull Boulder bull New York bull London
4501 Forbes Boulevard
Lanham MD 20706
301 459 3366 | wwwrowmancom
A U T H O R
Vadim Grishin
Myths and Realities
A Report of the
CSIS RUSSIA AND EURASIA PROGRAM
US-RussiaEconomicRelations
O C T O B E R 2 0 1 7
Euml|xHSLEOCy280359z
The Man Pupu Nyor Rock Formations at the Northern Urals also known as Seven
Strong Man or Little Mountain of the God in the local tribe (Mansi) language
US-Russia Economic Relations48
What scenarios can be expected in such a challenging environment
One probability (no peace no war) is based on the assumption that matters will not deteriorate
further and implementation of the Sanctions Act will be cursory This will cause relatively slow
degradation in the economic field with occasional flashes of activity in selected areas (eg closer
cooperation against Islamist terrorist groups in Syria)
A second worse case or critical scenario is the intensive and full- scale execution of current sanc-
tion legislation and even the imposition of new economic punitive and restrictive mea sures which
could incite asymmetric retaliatory actions and lead to the introduction of additional protectionist
policies This in turn could trigger a further escalation of mutual confrontation and could eventu-
ally destroy the fundamentals of the current bilateral trade system Rus sian leadership has charac-
terized the Sanctions Act as a declaration of a trade war that ends all hope for improving bilateral
relations2
2 Дмитрий Медведев ldquoПодписание президентом США нового санкционного закона против России создает несколько
последствийrdquo [The US Presidentrsquos signing of the package of new sanctions against Rus sia will have a few conse-
quences] Facebook August 2 2017 https wwwfacebook com Dmitry Medvedev posts 10154587161801851
Figure 71 US Imports from Rus sia Share of Oil Metals Nuclear Fuel Fertilizers and Fish Million US$ 2007ndash2016
Source US Census Bureau ldquoTrade in Goods with Rus siardquo (see data for 2007ndash2016)
93
94
93
94
95
96
93
92
87
89
0
$5000
$10000
$15000
$20000
$25000
$30000
$35000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Imports from Russia
Share of Oil Metals Nuclear FuelFertilizers and Fish
594-71613_ch01_4Pindd 48 102017 404 PM
Vadim Grishin 49
The best case and most favorable scenario looks less probable now It assumes the realization of
structural reforms in Rus sia in such a way that would adapt Rus siarsquos foreign policy to national
economic needs reduce confrontations with the West and make a concerted efort to integrate
Rus sian businesses into global supply and value chains A revitalization of the structural reform
agendamdash including eforts to diversify economic activities through de- monopolization and support
for SMEs a restructuring of the banking sector the creation of a vibrant business climate to foster
entrepreneurships and innovation the implementation of administrative and judicial reforms to
tackle red tape and endemic corruption and the reduction of state control over key sectors of the
economy via wide- spread privatization could kick- start the development of a nonoil economy and
improve long- term growth prospects Despite ongoing discussion of reform strategies deep
economic and po liti cal changes are extremely complicated over the next po liti calelectoral cycle
(2018ndash2024) particularly because of re sis tance of vested interests and growing commodity prices
The urgency to tackle structural shortcomings in natu ral resource- dependent economies usually
correlates with the price of those resources and the degree to which resource rents drive eco-
nomic activity However there may be marginal improvements in the efficiency of the current
economic system
Future US- Russia relations can be thought of through three pillars one pillar focuses on areas
where both countries maintain a competitive rivalry another looks at potential areas of interaction
under pres ent conditions a third pillar and one that has evaporated from the current bilateral
agenda concentrates on future cooperation Stronger economic ties could not only be a kind of
po liti cal shock absorber but contribute to the building of this future (particularly business contacts
aim to support future structural reforms) although po liti cal factors are depressing the prospects
for cooperation To escape deadlock it will be impor tant to establish the right balance between
politics and economics and create a model of collaboration within the framework of contention
594-71613_ch01_4Pindd 49 102017 404 PM
About the Author
Vadim Grishin PhD MBA has been involved in the reform pro cess in Rus sia as adviser to the
deputy prime minister of Rus sia in 1992ndash1993 and 2006ndash2010 He has extensive experience
working with the Bretton Woods Institutions He was the board member of the World Bank Group
and served as se nior adviser at the International Monetary Fund Currently he is a con sul tant to the
chief economistrsquos office of the International Finance Corporation and teaches the economics of
transition at Georgetown University in Washington DC
50
594-71613_ch99_4Pindd 50 102017 403 PM
Blank
COVER PHOTO ADOBE STOCK
1616 Rhode Island Avenue NW
Washington DC 20036
202 887 0200 | wwwcsisorg
v++ISBN 978-1-4422-8035-9
Lanham bull Boulder bull New York bull London
4501 Forbes Boulevard
Lanham MD 20706
301 459 3366 | wwwrowmancom
A U T H O R
Vadim Grishin
Myths and Realities
A Report of the
CSIS RUSSIA AND EURASIA PROGRAM
US-RussiaEconomicRelations
O C T O B E R 2 0 1 7
Euml|xHSLEOCy280359z
The Man Pupu Nyor Rock Formations at the Northern Urals also known as Seven
Strong Man or Little Mountain of the God in the local tribe (Mansi) language
Vadim Grishin 49
The best case and most favorable scenario looks less probable now It assumes the realization of
structural reforms in Rus sia in such a way that would adapt Rus siarsquos foreign policy to national
economic needs reduce confrontations with the West and make a concerted efort to integrate
Rus sian businesses into global supply and value chains A revitalization of the structural reform
agendamdash including eforts to diversify economic activities through de- monopolization and support
for SMEs a restructuring of the banking sector the creation of a vibrant business climate to foster
entrepreneurships and innovation the implementation of administrative and judicial reforms to
tackle red tape and endemic corruption and the reduction of state control over key sectors of the
economy via wide- spread privatization could kick- start the development of a nonoil economy and
improve long- term growth prospects Despite ongoing discussion of reform strategies deep
economic and po liti cal changes are extremely complicated over the next po liti calelectoral cycle
(2018ndash2024) particularly because of re sis tance of vested interests and growing commodity prices
The urgency to tackle structural shortcomings in natu ral resource- dependent economies usually
correlates with the price of those resources and the degree to which resource rents drive eco-
nomic activity However there may be marginal improvements in the efficiency of the current
economic system
Future US- Russia relations can be thought of through three pillars one pillar focuses on areas
where both countries maintain a competitive rivalry another looks at potential areas of interaction
under pres ent conditions a third pillar and one that has evaporated from the current bilateral
agenda concentrates on future cooperation Stronger economic ties could not only be a kind of
po liti cal shock absorber but contribute to the building of this future (particularly business contacts
aim to support future structural reforms) although po liti cal factors are depressing the prospects
for cooperation To escape deadlock it will be impor tant to establish the right balance between
politics and economics and create a model of collaboration within the framework of contention
594-71613_ch01_4Pindd 49 102017 404 PM
About the Author
Vadim Grishin PhD MBA has been involved in the reform pro cess in Rus sia as adviser to the
deputy prime minister of Rus sia in 1992ndash1993 and 2006ndash2010 He has extensive experience
working with the Bretton Woods Institutions He was the board member of the World Bank Group
and served as se nior adviser at the International Monetary Fund Currently he is a con sul tant to the
chief economistrsquos office of the International Finance Corporation and teaches the economics of
transition at Georgetown University in Washington DC
50
594-71613_ch99_4Pindd 50 102017 403 PM
Blank
COVER PHOTO ADOBE STOCK
1616 Rhode Island Avenue NW
Washington DC 20036
202 887 0200 | wwwcsisorg
v++ISBN 978-1-4422-8035-9
Lanham bull Boulder bull New York bull London
4501 Forbes Boulevard
Lanham MD 20706
301 459 3366 | wwwrowmancom
A U T H O R
Vadim Grishin
Myths and Realities
A Report of the
CSIS RUSSIA AND EURASIA PROGRAM
US-RussiaEconomicRelations
O C T O B E R 2 0 1 7
Euml|xHSLEOCy280359z
The Man Pupu Nyor Rock Formations at the Northern Urals also known as Seven
Strong Man or Little Mountain of the God in the local tribe (Mansi) language
About the Author
Vadim Grishin PhD MBA has been involved in the reform pro cess in Rus sia as adviser to the
deputy prime minister of Rus sia in 1992ndash1993 and 2006ndash2010 He has extensive experience
working with the Bretton Woods Institutions He was the board member of the World Bank Group
and served as se nior adviser at the International Monetary Fund Currently he is a con sul tant to the
chief economistrsquos office of the International Finance Corporation and teaches the economics of
transition at Georgetown University in Washington DC
50
594-71613_ch99_4Pindd 50 102017 403 PM
Blank
COVER PHOTO ADOBE STOCK
1616 Rhode Island Avenue NW
Washington DC 20036
202 887 0200 | wwwcsisorg
v++ISBN 978-1-4422-8035-9
Lanham bull Boulder bull New York bull London
4501 Forbes Boulevard
Lanham MD 20706
301 459 3366 | wwwrowmancom
A U T H O R
Vadim Grishin
Myths and Realities
A Report of the
CSIS RUSSIA AND EURASIA PROGRAM
US-RussiaEconomicRelations
O C T O B E R 2 0 1 7
Euml|xHSLEOCy280359z
The Man Pupu Nyor Rock Formations at the Northern Urals also known as Seven
Strong Man or Little Mountain of the God in the local tribe (Mansi) language
Blank
COVER PHOTO ADOBE STOCK
1616 Rhode Island Avenue NW
Washington DC 20036
202 887 0200 | wwwcsisorg
v++ISBN 978-1-4422-8035-9
Lanham bull Boulder bull New York bull London
4501 Forbes Boulevard
Lanham MD 20706
301 459 3366 | wwwrowmancom
A U T H O R
Vadim Grishin
Myths and Realities
A Report of the
CSIS RUSSIA AND EURASIA PROGRAM
US-RussiaEconomicRelations
O C T O B E R 2 0 1 7
Euml|xHSLEOCy280359z
The Man Pupu Nyor Rock Formations at the Northern Urals also known as Seven
Strong Man or Little Mountain of the God in the local tribe (Mansi) language
COVER PHOTO ADOBE STOCK
1616 Rhode Island Avenue NW
Washington DC 20036
202 887 0200 | wwwcsisorg
v++ISBN 978-1-4422-8035-9
Lanham bull Boulder bull New York bull London
4501 Forbes Boulevard
Lanham MD 20706
301 459 3366 | wwwrowmancom
A U T H O R
Vadim Grishin
Myths and Realities
A Report of the
CSIS RUSSIA AND EURASIA PROGRAM
US-RussiaEconomicRelations
O C T O B E R 2 0 1 7
Euml|xHSLEOCy280359z
The Man Pupu Nyor Rock Formations at the Northern Urals also known as Seven
Strong Man or Little Mountain of the God in the local tribe (Mansi) language
top related