In Russia, a Bow to the Powerful Energy Sector

Over the weekend, Russian media reported that the Kremlin changed its position and will agree to sell a private stake in state-owned oil firm Bashneft to state oil giant Rosneft. According to Russian First Deputy Prime Minister Igor Shuvalov, quoted by Kommersant, Moscow is planning to lift its suspension on the sale following a fierce political battle waged since August, when the sale was halted. If Rosneft is allowed to complete the purchase, it would end one of the most important battles being fought within the Kremlin among the Finance Ministry, the executive branch under President Vladimir Putin and Rosneft chief Igor Sechin.

But the oil dispute is not the only one of its kind souring relations between the government and the energy sector. The Russian government announced a series of privatization schemes last year, including selling a 50 percent stake in Bashneft (Russia's sixth-largest oil firm) for $4.6 billion and a 19.5 percent stake in Rosneft (Russia's largest oil firm) for $11.4 billion. Rosneft, however, contested its sale, and Sechin has since fought for greater control over the company. The Russian government has resisted his efforts, feeling it has little choice given its dire economic situation: The 2016 budget shows an expected $36 billion shortfall if the current account deficit is kept under 3.6 percent, and the Kremlin is counting on the funds raised by Rosneft's privatization to offset the damage. Otherwise, it will be forced to borrow heavily on international markets at the high interest rates caused by international sanctions or tap its reserve funds, which would leave little cushion for the 2017 and 2018 budgets. With budget drafts for 2017 expected to begin circulating this week, resolution on the privatization dispute was expected. Now it seems a final deal will be struck soon.