Russia Business: Fool’s Gold

President Donald J. Trump’s efforts to attain peace between Russia and Ukraine have already prompted questions about the future of Russian energy exports, the country’s main cash cow, and whether the door will open to joint projects between Russia and the E.U or the U.S. Whatever progress is made in any negotiations, will be difficult if not impossible to go back to pre-2022 arrangements. Doing so isn’t necessarily in the E.U.’s or America’s strategic or economic interests.

Tougher Times Ahead for the Russian Economy?

As the Russian war against Ukraine grinds on, much to the frustration of President Trump, a quick look down the road at the prospects for the Russian economy indicates potential trouble ahead.

Earlier this month, Senators Lindsay Graham (R-South Carolina) and Richard Blumenthal (D-Connecticut) led a bipartisan group of 50 U.S. senators in introducing a bill that may help increase the pressure on Russian President Vladimir Putin to focus on getting the war over with. The bill would impose stiff primary and secondary sanctions on the sale of Russian oil and energy products if a ceasefire agreement is not reached, or if Russia breaches an agreed-upon deal.

Next, oil prices dived in the wake of President Trump’s “Liberation Day” tariff announcements as the markets prepare for a recession. Though they are recovering now that Washington has opened a window for negotiations with everyone except China, oil producers—including Russia—are still nervous about the long-term prospects. These days, a combined threat that tariffs and a potential recession can lower per-barrel prices long-term causes resistance by U.S.-based firms to calls from Washington for “drill, baby drill”. This gives Russia’s economy hope, albeit rather faint hope. On the other hand, the fact that Moscow pivoted heavily to trading with Asia to keep the Russian economy afloat as Western sanctions began to bite also means that there is particular vulnerability to moves on the part of the U.S. that negatively affect China.

While Trump wants to improve relations with Putin, many in Washington are skeptical about it. Just recently, a difference of opinions and outlooks among senior advisors in the Trump Administration has gone very public. At issue is how Washington should handle Moscow in the interests of attaining peace, or at least a durable ceasefire, to end the war in Ukraine. The story was first broken by the Wall Street Journal, and then quickly picked up by a variety of news outlets. One outcome appears to be that the Europeans and the U.S. are now talking together about what Secretary of State Marco Rubio and others term a “secure real, practical solutions to end the Russia-Ukraine war” when initially it appeared that trying to end the ongoing conflict could drive a wedge between the U.S. and its historic allies.

Meanwhile, the Russian economy is and has been on a war footing. The war is driving a shortage in available workers, concentrating growth (and subsidies) in the military industrial sectors, and contributing to inflation. While the future is uncertain, economics alone will clearly not force Putin’s hand into signing for peace, at least not yet. However, it does seem that allowing things to drag on too long may result in a deterioration of his country’s position. Likely, this is why recent reports indicate that a spring offensive by Moscow is underway – Putin’s strategy may be to get whatever he can quickly, and then go for a peace deal with enough territorial gains to call it a victory.

The Future of Nord Stream 2

Russian state hydrocarbon giant Gazprom’s $11-billion Nord Stream 2 pipeline project to transit the Baltic Sea refuses to die. It has been a magnet for controversy, but the anticipation of peace in Ukraine has sparked discussions regarding a restart of its gas flow. Early in March, reports emerged that Moscow had enlisted Vladimir Putin’s longtime ally Matthias Warnig, Vice-chairman of the Board of Rosneft, to lobby the Trump team to revive the pipeline in the event of a post-sanctions deal through which the United States would regulate the tap. But Europe doesn’t want a resumption, and the U.S. shouldn’t either.

Europe is wary of sleepwalking back into the trap of reliance on Russian energy resources that caused an energy crisis at the outset of the 2022 invasion and mounting speculation that Europe might reopen its taps has sparked pushback from key European voices.

Europe’s standoff with Russia created a massive opportunity for the U.S., facilitating a surge in American LNG exports to Europe and elevating the geopolitical utility of American energy. Reintroducing Russian gas to Europe will only come at the expense of the U.S.’s European market share –and this at a time when President Trump has just told Brussels that the price of a mutual zero tariff policy will be that the E.U. buys $350-billion worth of energy “Made in the U.S.A.”

American oilfield services company Oliver Hughes said that it would “evaluate the commercial environment for a return” when sanctions are lifted, but the lowest hanging fruit in Nord Stream 2 hurts American interests, and much of Europe is actively seeking to reduce reliance on Russian gas.

Though American leadership may seek a first-mover advantage in Russia’s energy industry following a potential peace deal in Ukraine, it is worth considering how much of a benefit it can truly grant. Between eating into America’s growing market share in Europe, boosting Russia’s economic position, rushing to remove sanctions and cooperate with Russia could work to the detriment of the United States.

What about the Arctic?

Historically, Arctic energy projects have posed significant economic and logistical challenges due to the region’s harsh geographical conditions. While receding ice levels have alleviated some of these difficulties, Russia’s Arctic operations have a new thorn in their side: sanctions.

Sanctions packages have had major implications for many of Gazprom’s long-term offshore exploration projects and two of Russia’s flagship projects in the region: Rosneft’s Vostok Oil, which had its commissioning delayed until 2026 due to a sanctions-induced shortage of ice-capable tankers and Novatek’s Arctic LNG 2, which was put on hold from 2026 until 2028 after losing access to vital equipment.

February discussions between Russia and the U.S. in Riyadh hinted at potential cooperation between the two in the Arctic, but offshore exploration in the region is still prohibitively expensive, technologically challenging, and long-term, according to global energy research firm Wood Mackenzie.

Kiril Dmitriev, General Director of Russia’s Sovereign Wealth Fund, views the Arctic as a core piece of potential rapprochement between the United States and Russia, arguing that the increasingly important geopolitical region is “too important for Cold War-style politics.” But American investors must consider whether the Kremlin is only dangling these projects as an incentive to get the U.S. to release the sanctions which are impeding Russia’s ambitions.

Russia’s Nuclear Sector

The potential revival of business ties between the U.S. and Russia has also been extended into the nuclear sphere, with Dmitriev directly addressing Elon Musk, a key figure in the second Trump Administration, floating the idea of a small-sized nuclear power plant for Mars exploration.

Nuclear energy has emerged as a priority under the Trump administration, and this recent development, along with Trump’s interest in Ukraine’s Zaporizhzhia Nuclear Power Plant, has expanded energy cooperation speculations.

Russia is one of world’s most advanced producers of nuclear technology and energy, and is taking advantage of this core competence to expand its own nuclear power stations export capacity. Russian state-owned Rosatom is under contract to build 40 international installations, in addition to its ongoing domestic Kursk II, Leningrad II, and Brest-OD-300 nuclear fuel facility projects.

The U.S. is eager to unleash its own nuclear energy capabilities, and currently imports nearly all the enriched uranium it uses and work is underway to build out domestic manufacturing capabilities. Although imports of Russian uranium products were specifically banned in August 2024, companies can apply for waivers through January 2028. In this field, cooperation offers more mutual benefits than some of the other potential hydrocarbon energy projects.

Potential U.S. – Russia Détente No Guarantee of a Return to Business As Usual

Regardless of the political advantages of rapprochement, it remains uncertain whether Western businesses will be eager to flock back to Russia, as companies weigh the new risks of operating in a much-changed business environment of the late Putin’s authoritarian system.

Much like the difficulties accompanying strategic mineral development in Russia, joint energy cooperation between the U.S. and Russia requires high up-front costs with long-dated production, exacerbated by the risks of asset seizures and corruption. Today, any compliance-conscious corporate board would nix a high-CAPEX Russia project.

Some may dream of US-Russian rapprochement turning them into the next Armand Hammer, the legendary CEO of Occidental Petroleum who did business in the USSR from Lenin to Brezhnev, but most business leaders correctly view Russia’s business prospects as fool’s gold.