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Who really gets hurt by Canada’s sanctions against Russia

In this Jan. 28, 2014 file photo, Russian President Vladimir Putin addresses the media at the end of an EU-Russia summit, at the European Council building in Brussels.

Yves Logghe/AP Photo

Stephen Harper is warning sanctions against Russia could cause some pain but he also knows that it is Europe, not Canada, that stands to bear the brunt of a tit-for-tat escalation.

And what he doesn't say is that Canada stands to benefit if Europe lessens its dependence on Russian oil and gas.

At this point, the sanctions announced as a result of Moscow's annexation of Crimea are mostly symbolic, aimed at prominent Russian citizens whose fortunes are well assured. Vladimir Putin's response has been to deny entry into his country of some MPs and prominent Ukrainian Canadians.

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During his visit to Germany Mr. Harper suggested G7 leaders should consider a new round of sanctions that would target Russia's natural gas exports to Europe – he rightly notes that Moscow is "extremely dependent" on energy revenues generated by the foreign sale of oil and gas.

The U.S. and European Union issued a joint statement Wednesday in which they agreed on the need for the continent to diversify its energy supply and reverse natural gas flows from the rest of Europe into Ukraine. But it's unlikely they will proceed with a new round of sanctions unless Mr. Putin escalates the crisis by moving into eastern Ukraine.

Mr. Harper has been among the most vocal and aggressive leaders in his response to the Russian threats against Ukraine and action in Crimea.

"To the extent we are looking at programs of sanctions, we all believe that in the short run this is going to cause us all, including ourselves, some pain as well," he said earlier this week.

But there are few Canadians who would be hurt if western countries ratchet up sanctions. Europe, on the other hand, not only relies on Russia for a third of its gas supplies and much of its crude oil, but has far greater two-way trade and investment at stake than does Canada.

There is some potential for pain among a handful of Canadian businesses.

Bombardier could lose a major sale if Ottawa imposes a ban on doing business with Russia or if Mr. Putin retaliates against NATO action by targeting western companies. The Montreal-based company last summer announced a $3.4-billion sale of Q400 turboprop plans to state-owned Rostekhnologii and agreed to set up an assembly plant in Russia as part of the deal.

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Talks to conclude the transaction have slowed as the company monitors the crisis, but the sanctions announced by Mr. Harper so far would not impede the deal, Bombardier spokeswoman Isabelle Rondeau said Wednesday.

Calgary-based Calfrac Well Services Ltd. has equipment and crews in Siberia, drilling for oil and gas. It would have to down tools if Ottawa impose commercial sanctions on Russia, but we're a long way from the kind of all-encompassing commercial sanctions that were imposed on Iran over its nuclear program.

Russia's real vulnerability lies in its hunger for western investment, said Daniel Yergin, vice-chairman of U.S.-based IHS Inc. consultancy. Its economy has slowed and, despite his increased belligerence, Mr. Putin has been courting foreign investors.

An escalation in the crisis would put a chill on western companies doing business in Russia.

On the energy front, companies like Texas-based Exxon Mobil Corp., Norway's Statoil ASA, and Italy's Eni SpA are planning major investments in the country to maintain or increase its production of crude oil and natural gas. Those investments are often targeting remote, high-cost and technically challenging fields and a loss of foreign investment could hurt Moscow's energy ambitions.

Such a move would certainly cause longer-term pain for global consumers, especially those in Europe. Removing future supply of natural gas and oil from international markets would drive up prices. The consumers' pain would be a gain for producers, including those in the western Canadian oilpatch.

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At the same time, the Canadian industry is pursuing new export projects for both natural gas and crude oil. Russia is a key competitor in global markets, and crippling its industry would represent a long term boon to Canadian producers.

Shawn McCarthy covers energy in Ottawa.

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About the Author
Global Energy Reporter

Shawn McCarthy is an Ottawa-based, national business correspondent for The Globe and Mail, covering a global energy beat. He writes on various aspects of the international energy industry, from oil and gas production and refining, to the development of new technologies, to the business implications of climate-change regulations. More

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