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WASHINGTON/HOUSTON (Reuters) - The United States on Thursday admonished Exxon Mobil Corp for "reckless disregard" of U.S. sanctions in dealings with Russia in 2014 when Secretary of State Rex Tillerson was the global oil company's chief executive, and fined it $2 million.

ExxonMobil said the decision was "fundamentally unfair," and sued the U.S. government in Texas in an effort to overturn the decision.

The fine came after a U.S. review of deals Exxon signed with top Russian oil producer Rosneft weeks after Washington imposed sanctions on Moscow for annexing Ukraine's Crimea region.

Between May 14 and May 23, 2014, top U.S.-based ExxonMobil executives signed eight documents with Igor Sechin, the head of state-run Rosneft, the U.S. Treasury's Office of Foreign Assets Control (OFAC) said in a statement on its website.

ExxonMobil had "demonstrated reckless disregard for U.S. sanctions requirements" by signing the deals with Sechin just weeks after the United States blacklisted him, OFAC said in an unusually lengthy three-page statement laying out its reasoning. (For the Treasury statement, see: bit.ly/2vnvQf2)

The Treasury announced sanctions on Sechin in April 2014 as part of measures to pressure Russia over its intervention in Ukraine, saying Sechin had shown "utter loyalty" to Russia's President Vladimir Putin.

The sanctions prohibit U.S. citizens or those located in the United States from dealing with those on the blacklist, such as Sechin. Rosneft itself is subject to narrower U.S. sanctions that still allow Americans to deal with the company on some transactions.

Tillerson left ExxonMobil to become secretary of state after 10 years at the helm of the global energy power. He is now responsible for U.S. foreign policy, which includes helping to make sanctions decisions.

The State Department referred questions about the fine to ExxonMobil and the Treasury. State Department spokeswoman Heather Nauert told reporters on Thursday that the agency was alerted to the fine on Wednesday.

Though the State Department plays a part in formulating broad sanctions policy, former U.S. officials and sanctions experts said it was unlikely the agency had a role in deciding the fine announced on Thursday.

ExxonMobil had fully complied with guidance from Democratic former President Barack Obama's administration that ongoing oil and gas business activities with Rosneft were permitted, Exxon spokesman Alan Jeffers said in a statement.

The Treasury Department "is trying to retroactively enforce a new interpretation of an executive order" inconsistent with its prior guidance, Jeffers said.

"OFAC's action is fundamentally unfair," he said.

Sechin signed the documents on behalf of Rosneft, Jeffers said.

ExxonMobil also cited a Treasury Department representative's comments in May 2014 that BP Plc Chief Executive Bob Dudley - an American citizen - could continue to participate in Rosneft board meetings so long as they related only to Rosneft's business.

In its statement explaining the fine, OFAC said that the Treasury representative's comments did not address ExxonMobil's conduct.

No White House or Treasury statements asserted "an exception or carve-out for the professional conduct of designated or blocked persons, nor did any materials suggest that U.S. persons could continue to conduct or engage in business with such individuals," OFAC said.

Publicly available guidance on Treasury's website at the time of Exxon's dealings with Sechin said Americans should ensure they do not enter into contracts signed by sanctioned individuals, OFAC said.

By dealing with Sechin, the company "caused significant harm" to U.S. sanctions on Russia, the Treasury said.

Because Rosneft itself is not off-limits to Americans, another company executive could have signed the contract with no sanctions risk to ExxonMobil, said David Mortlock, who was a State Department and White House sanctions official during the Obama administration.

"You could have Sechin standing over the guy's shoulder," said Mortlock, now an attorney at Willkie Farr & Gallagher LLP in Washington. "But the problem here is that it was signed by Sechin himself."

The fine is minor to ExxonMobil, which made $7.84 billion in profit in 2016.

The company has long opposed sanctions on Russia. Tillerson said in 2014 that the company did not support sanctions because they are not effective "unless they are very well implemented."

Nevertheless, in May 2014 Tillerson chose not to attend an oil industry forum in Moscow, instead sending top lieutenant Neil Duffin, who signed an agreement with Sechin to explore for oil in the Arctic Ocean.

The deal came at a time when other oil companies, including BP and Total SA, were clamoring to enter Russia, aiming to tap its vast oil and natural gas reserves.

As the United States and others tightened Russian sanctions, ExxonMobil's ability to operate there dwindled. The company was allowed to finish drilling a well in the Russian Arctic in the fall of 2014 but could not produce oil.

ExxonMobil has since sought permission to operate in Russia. Earlier this year, the Trump administration said it would not let any U.S. company, including ExxonMobil, drill in areas prohibited by U.S. sanctions on Russia.

Reporting by Yeganeh Torbati and Ernest Scheyder; editing by Simon Webb and

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US fines Exxon Mobil over Ukraine-related sanctions violations - Reuters

Since the conclusion of Maidan, politically motivated private security actors operating in parallel with the Ukrainian government have played an integral part in the countrys security landscape. While some have been cooperating with Ukrainian authorities, others experience great friction with the Ukrainian Armed Forces (UAF) and Ministry of Interior Affairs (MIA), undermining the formal security structures of the Ukrainian government. It seems that political and military power have become inseparable at the unit level, with many battalion commanders also being career politicians or parliamentary members.

The term volunteer battalion is common vernacular in the context of post-Maidan Ukraine. While the term may seem straightforward to anyone with a basic familiarity of the conflict in eastern Ukraine, it encompasses a wide range of units active and inactive in the Anti-Terrorist Operation (ATO) zone today. Effectively, these units can be viewed along an axis of patronage, with those relying on the government as the primary patron representing the formal units, and those that rely on civil society representing the independent units.

Frictions with the government and lasting connections to political entitiesa result of a haphazard, and in some instances nonexistent, reorganization effortraise questions about the allegiances of these units. If unchecked, some of these units will erode the legitimacy of the Ukrainian security institutions.

A persistent issue facing Kyiv originates in its own complacency, and to some degree the ambivalence of the Ukrainian people towards security institutions. Since the beginning of the conflict in the Donbas, far-right nationalist militias operating completely independently from the government have been a recurring theme, and while many have demobilized, integrated into the formal security structure or entirely disbanded, some still persist. The two largest groups that represent this phenomenon are the Pravy Sektor Ukrainian Volunteer Corps (DUK) and the Ukrainian Volunteer Army (UDA) militias. While both share a common history, they have come to diverge in how they interact with the government.

In late March 2015, well after illegal groups were issued a general stand-down-and-disarm order, Pravy Sektor was ordered to leave the coastal frontline city of Mariupol and the ATO area. Pravy Sektor, which believed themselves to have an agreement with the Ministry of Defense regarding their presence in the ATO zone, considered the order treacherous. Months later, Pravy Sektor ended up in a shootout with Ukrainian authorities after an extensive standoff. After the standoff between DUK and police in late 2015, Peoples Deputy and former leader of Pravy Sektor Dmitro Yarosh resigned from Pravy Sektor. He took the fifth and eighth DUK battalions with him to form the Ukrainian Volunteer Army (UDA) under his own new political party. Shortly after, DUK disbanded virtually its entire structure in order to carry out an extensive reform. It aimed to organize itself on a small amount of active combat units, with a large reserve force built around the sotni structure.

Units of the Ukrainian Volunteer Army under Dmitro Yarosh and his political party Diya (Action) enjoy an improved relationship with the Ukrainian government compared to DUK. The UDAs two combat battalions and single medical battalion are funded through citizen initiatives, supplying them with everything a light infantry battalion could need. These initiatives are funded by private donations of material support or financial deposits. The UDA has an exceptionally good relationship with official Ukrainian units compared to other independent volunteer units, and will in some cases even invite UAF units onto their bases to conduct joint drills.

Equally interesting is the case of the Organization of Ukrainian Nationalists (OUN) and their volunteer battalions. After a prolonged standoff with the UAFs 93rd Separate Mechanized Brigade in the frontline town of Pisky in 2015, the OUN agreed to relinquish its command of part of its battalion and let it integrate with the formal Ukrainian security structure under the Ministry of Defense. This specific brigade has come to be the destination for a number of other formerly independent volunteer units, such as the Carpathian Sich, a unit with deep connections to the political party Svoboda (freedom). Still, the unit maintains its relationship with the OUN, which is one of the oldest Ukrainian nationalist organizations, and has been ripe with controversy throughout the past century.

Read the original:
Ukraine Needs to Address Its Paramilitary Problem | The National ... - The National Interest Online

The conflict between Ukraine and Russia has taken on many facets, of which the energy-related ones are seemingly the easiest ones to solve. As Kiev and Moscow are exploring the limits of arbitration, it seems that all the necessary prerequisites and conditions for a potential settlement are present. It has to be said that such a dispute adjustment faces numerous obstacles, with political headwinds dominating not only the two nations energy discourse, but also its coverage in the media. If one is to avoid the temptation to have recourse to the usual finger-pointing and rather delve into the realm of figures, the potential for cooperation is easily detectable.

Ukraines gas market is in a dire condition. Despite many potentially favorable measures initiated by the cabinet of ministers, i.e. the unbundling of Naftogazs activities, the corruption-ridden character of Ukraines public administration has led to scant progress in their implementation. In just three years, gas consumption has fallen by 40 percent (see Graph 1) due to the ongoing conflict in Ukraines Eastern regions, as well as several-fold increases in gas prices, as mandated by the IMF. Ukraines gas transmission system urgently needs refurbishment and modernization, only immediate costs to cover for supplies by 2030 amount to at least $3 billion. Moreover, its pipelines are becoming obsolete, too, Gazproms Nord Stream pipelines operate under 120 bar pressure, whilst Ukraines are 75 bar. Yet on the back of arbitration dealings, visceral political atmosphere and full cessation of Russian imports, Russian transit to Europe has actually increased in the last two years and Ukraine assured supply safety for transited volumes, so coming to an agreement is not a delirious idea.

Graph 1. Ukraines Domestic Gas Consumption, Russian Gas Imports and Transit 2000-2016.

(Click to enlarge)

The protracted arbitration proceedings at the Stockholm Arbitration Court have so far only partially indicated where the Russo-Ukrainian gas issue could develop further. The claims and counterclaims are very unlikely to yield any sensational result, Gazproms $44.8 billion take-or-pay non-payment claim seems to be dismissed on the ground that Kiev neednt have paid the minimum take-or-pay price as there was a material change in market circumstances, a clause included in the contract. Naftogazs claim that Gazprom applied unfair pricing from 2011 is also believed to be significantly curbed, as the Stockholm Court ruled that it was only after 2014 that such practices could be observed. The Courts overall ruling will try to counterbalance the two sides claims, possibly with a little tilt towards Naftogaz (apart from legal factors, politics will make an impact, too, as any large Gazprom victory would result in a Naftogaz bankruptcy). Yet the arbitration will achieve what the two sides by themselves could not place the Russo-Ukrainian gas issue into a wider European context, equating it to effective terms that became norm with Gazproms other European partners. Related:The Only Way OPEC Can Kill U.S. Shale

Since December 2015, Ukraine is buying gas to its own detriment. In every single month since the abrupt cessation of supplies, the price of reverse gas supplies has significantly exceeded that of Gazproms European average (see Graph 2). By buying reverse Russian gas, supplied to Kiev by European traders, Ukraine is losing $35-40 million on a monthly basis, which, given the wretched state of its public finances and its economy (GDP-wise it is back to 2005 levels), is a sore neglect. Although it would be politically suicidal to express interest in resuming supplies, Ukraines Naftogaz has admitted that the price it pays for reverse gas could be more favorable. Hopes that LNG supplies transported to Ukraine via Poland might be profitable are plainly wrong under current market conditions, only a considerable price hike in global oil prices could alter the balance as both Poland and Ukraines gas supply contracts (valid until 2022 and 2019, correspondingly) are oil-indexed.

Graph 2. Gazproms Average European Gas Price vs Ukraines Average Fact Price (December 2015 June 2017)

(Click to enlarge)

Since 2015, Gazprom has repeatedly confirmed that it seeks to nullify the Ukrainian transit route after the currently effective 10-year contract runs out in 2019. There are numerous obstacles to this, however, as even the 55 BCm/year throughput capacity Nord Stream 2 and TurkStreams 15.75 BCm/year branch destined for Southeastern Europe cannot fully cover Ukraines 82.2 BCm transit (as of 2016, expected to reach 88-90 BCm in 2017). Therefore, Gazprom officials have acknowledged the full cessation of gas transit via Ukraine is improbable and stated that approximately 15 BCm per annum will be supplied after 2019. Even if a sweeping renaissance of relations were to take place between Moscow and Kiev, Ukraine will no longer be a priority for Russian exporters, as the Baltic route is economically more profitable. Apart from being 1800km shorter than the Ukrainian route and as a consequence being closer to Russias leading gas-producing regions which are drifting all the more to the north, it entails no transit fees. Related:4 Reasons Oil Will Rally Back To $50

Whilst the Stockholm Arbitration will curtail Gazproms maneuvering possibilities in Ukraine and dovetail it with dealings vis--vis other European partners, it is unlikely to influence Ukraines tariff-setting much. Yet it remains one of the key factors if Ukraine is intent to keep at least the 15-20 BCm/year transit further on. The Kiev-set tariffs are currently prohibitively high, for instance, transiting to Slovakia totals $32.8/MCm, almost the same as the total fee for Nord Stream ($37/MCm). According to Naftogaz, this is due to cover amortization costs which occurred as a result of the 115BCm/year pipeline systems underutilization it now operates around 60% of capacity, in 2014-2015 it was oscillating around 50%. Traditionally, Naftogazs transportation branch has been used to cross-subsidize pretty much all the other branches which operated at a loss, yet this has to change. The underlying logic is fairly obvious. Even though the re-export clause that Gazprom incorporated into the previous contracts is now gone, Ukraine has no chances whatsoever of exporting gas to Russia. If it wants to garner any transit money, it must reconsider the foundations of its tariff-setting.

All in all, the resolution of the gas dispute between Ukraine and Russia is both feasible and desirable. Moscow needs it because it seems unlikely it will be able to find another viable transportation route for Central European countries that would not jeopardize its other commitments, Kiev, on the other hand, ought to come to terms with the fact that no one apart from Russia will use its gas transportation system for transiting. Even if gas transit is limited at 15-20BCm/year, the $500-600 million to be earned from this is too big a sum to be shrugged off, especially for depression-stricken Ukraine. Political issues, such as the appropriate determination of Crimeas legal status or the unobjectionable fulfillment of the Minsk Agreements, represent a far bigger challenge it would be a waste not to normalize relations at least in the gas sector.

By Viktor Katona for Oilprice.com

More Top Reads From Oilprice.com:

Excerpt from:
Settling The Ukrainian Gas War - OilPrice.com

By Navy Petty Officer 1st Class Sharay Bennett U.S. 6th Fleet

ODESSA, Ukraine, July 19, 2017 Ships from Georgia, Romania, Turkey, Ukraine and the U.S. departed the port of Odessa and the nearby Western Naval Base yesterday to participate in the free-play phase of Exercise Sea Breeze 2017.

Sea Breeze is a U.S. and Ukraine co-hosted multinational maritime exercise held in the Black Sea to enhance the interoperability of participating nations and strengthen maritime security in the region. The exercise is taking place from July 10-22, and air, land, sea, and amphibious forces from 17 nations will participate.

While the first phase of the exercise consisted of knowledge-based scenario training, the second phase will focus on the ability of participating forces to react to various scenarios.

Integrating Units

The initial push was to integrate individual units into one organization, said Navy Capt. Matthew Lehman, deputy commander of U.S. 6th Fleet's Task Force 65 and the officer in tactical control of the exercise.

"During the initial phase, the surface ships focused on command-and-control and platform interoperability to allow for better coordination during the more advanced underway phase," Lehman said. "They knew what to expect."

The second phase, however, will be more complex, he added.

As the exercise forces transition into free play, an exercise control cell will inject information about notional events as part of the scenario. Operational-level leaders will assess the events and order tactical units -- such as ships -- to respond with controllers evaluating the decision-making and the execution of tasks by the tactical units.

"They know the mission and specified task, but they don't know the implied task," said Ukrainian navy Capt. Andrey Ryzhenko, commander of maritime forces for the exercise.

Flotilla

More than 30 ships will participate in the four-day free-play phase, operating and training together in the Black Sea.

Divers will conduct search-and-rescue and explosive ordnance disposal missions, while other units will carry out anti-submarine warfare, submarine warfare and air warfare missions.

According to Lehman, aviation and amphibious components will also be tested during this phase. U.S. Marines will operate with their Ukrainian and Turkish counterparts, carrying out visiting, boarding, and search-and-seizure missions at sea and employing other tactics on land.

"The key thing about this exercise is, over the last renditions of it, it's becoming far more complex; a very robust sea, air and land component," Lehman said.

See original here:
Exercise Sea Breeze 2017 Continues in Ukraine > U.S. ... - Department of Defense

Separatists in eastern Ukraine claimed Tuesday to have founded a new country Malorossiya, which means Little Russia in English that they hope will eventually overtake Ukraine.

We offer Ukrainian citizens a peaceful way out of the difficult situation, without the war, Alexander Zakharchenko, leader of the self-proclaimed Donetsk People's Republic, told reporters during a surprise announcement. This is our last offer not only to the Ukrainians, but also to all countries that supported the civil war in Donbass.

The move seems to undermine the falteringMinsk peace agreement, a 2015 deal reached between Russian-backed rebels and the government in Kiev that sought to end the violence in Ukraine's industrial east. News of the Malorossiya proposal quickly drew condemnation from the international community, with Ukrainian President Petro Poroshenko calling theDonetsk People's Republic apuppet show that broadcasts messages from Russia.

Notably, both Russia and other separatist movements in eastern Ukraine also distanced themselves from the move, with the self-proclaimedLuhansk People's Republic saying it wasnot notified ahead of time about the announcement and that discussions about the project were untimely.

Despite this, the proclamation of Malorossiya was dubbed a historic event by the Donetsk People's Republic. In a map released by the separatists, all of Ukraine was portrayed as part ofMalorossiya with the sole exception of Crimea, thepeninsula annexed by Russia in March 2014. Kiev would remain a historical and cultural center without the capital city status in the new state, according to the separatists' statement Tuesday, but Donetsk would be the new political center of Malorossiya.

TheDonetsk People's Republic also released a flag, which it said was based on that of Bogdan Khmelnitsky, a 17th-century Ukrainian Cossack leader who organized a rebellion against Polish rule and transferred Ukrainian lands to Russian control.

The rhetoric behind Malorossiyadraws on the complicated history of Ukraine. Much of what now makes up the country was once part of the Russian Empire and later theUkrainian Soviet Socialist Republic, a part of the Moscow-dominated Soviet Union, until it gainedindependence in 1991.

Many people in eastern Ukraine are ethnically Russian and speak the Russian language. Many Russians also hail their own historical links to Ukrainian land and the Kievan Rus, an East Slavic state that peaked in the 11th century and was centered uponwhat is now the Ukrainian capital.

As tensions flared between Kiev and Russian-backed rebels in 2014, separatists beganto talk about the concept of Novorossiya a concept that means new Russia in English. The name referred to what is now the east of Ukraine lands that were taken from the Ottoman Empire by the Russian Empire in the late 18th century. RussianPresident Vladimir Putin referredto the historical concept during a December 2014 question-and-answer session.

However, Malorossiya is different fromNovorossiya. The word is thoughtto date back as far as the medieval era, but came intowidespread use under the Russian Empire in the 19th century when it was used to describe the land that now makes up Ukraine. The term has long been considered archaic in Ukraine itself; some nationalists use it disparagingly, and it issometimes used as an insult to describe Russified Ukrainians in the country's east.

Importantly, the word is usedto refer to almost of all of Ukraine rather than the eastern provinces that made upNovorossiya implying increased ambitions for theDonetsk People's Republic.Zakhar Prilepin, a Russian writer who formed a volunteer battalion for theDonetsk People's Republic, told the Komsomolskaya Pravdanewspaper that the ultimate aim ofMalorossiya was to merge with both Russia and Belarus.

Despite these lofty ideals, there were signs that the announcement of Malorossiya was rushed. The statement announcing the proposed country referred to "19 regions of the former Ukraine an apparent error as Ukraine has 24 administrative regions and the Malorossiya map showed all these regionsaccurately. Documents claiming to mark the official establishment of the country were riddled with red squiggly lines, suggesting that they were images taken hastily from word-processing software.

More strikingly, although the news was covered exhaustively by Russian state media Tuesday, Moscow said it did not support Zakharchenko's calls for Malorossiya, and there was little sign of backing from other separatists.

Kremlinpress secretary Dmitry Peskov distanced Russia from Malorossiya, telling reporters that the proposed country was a personal initiative ofZakharchenko. Moscow learned about it from the press, Peskov said. Boris Gryzlov, Russia's envoy for the Minsk talks, also Russian told journalists that the proposal was likely related to informational warfare and is not a subject of real politics.

Althoughthere seems little prospect ofMalorossiya becoming a recognized country anytime soon, Tuesday's announcement highlights that little progress has been made in finding a solution to the conflict in eastern Ukraine since the Minsk agreement came into force in 2015.AndZakharchenko seemed undeterred by the low feasibility ofhis plan.

I am convinced that we will do everything possible and impossible, Zakharchenko told reporters Tuesday.

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Ukrainian separatists claim to have created a new country: Malorossiya, or 'Little Russia' - Washington Post