Canada bans provision of services to Russia’s oil, gas, mining and chemical sectors

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Ottawa is banning Canadian companies from providing dozens of services to Russia’s oil, natural gas and chemical industries in a further effort to choke off Moscow’s access to petroleum revenue.

Foreign Affairs Minister Mélanie Joly said on Wednesday that Canada will ban the provision of 28 services “vital for the operation” of petroleum and chemical industries, including technical, management, accounting and advertising work.

It also includes construction, transport services, research and development or repairs, the government said.

Russia’s petroleum industry accounts for about half of Moscow’s budget revenue. Canada was the first Group of Seven country to slap sanctions on Russian oil after the invasion of Ukraine, and the Russian energy sector has seen significantly decreased production this year as Western sanctions – both informal and formal – take effect.

Lawyer John Boscariol, head of McCarthy Tétrault’s trade and investment group, said his phone was “ringing off the hook” with queries from clients on the Canadian ban.

He called the announcement “really significant” and noted Canada’s rules are broader than what other countries have announced. Ottawa has not granted businesses a grace period to stop working for Russia or a grandfather exemption for existing deals.

“There is not even a provision for winding down a deal – 10, 30 or 60 days to get your equipment out of there,” Mr. Boscariol said.

He said this will also not only cover companies in Canada but Canadian citizens and firms working anywhere around the world. It will also extend to any work that could indirectly help Russia.

Ukraine’s new ambassador to Canada, Yulia Kovaliv, who was sitting on stage at the Global Energy Show in Calgary when the new sanctions were announced, welcomed the news.

“I think everybody in Canada is watching us and hearing us,” the Ukrainian envoy said. “Energy is war, too, and we need all together to address it.”

Ms. Kovaliv also thanked Canadian companies that have already cut their operations in Russia, and implored those yet to do so to make a move.

“We call to stop the operations in Russian energy sector, because this is the biggest sector that fuels the Russian war against Ukraine,” she said.

The measures announced Wednesday can be traced back to a G7 leader’s statement in early May where Prime Minister Justin Trudeau and his counterparts pledged to “take measures to prohibit or otherwise prevent the provision of key services on which Russia depends” in order to “reinforce Russia’s isolation across all sectors of its economy.”

Ms. Joly said the ban in tandem with similar measures in other Western countries are intended to press Russian President Vladimir Putin “to immediately withdraw his forces from Ukrainian soil.”

The Russian embassy in Canada said in a statement that the new sanctions only further deprive Canadian entrepreneurs of the opportunity to earn money from doing business with Russia and described them as an empty political gesture that only hurts Canadian interests.

Toronto-based trade lawyer Cyndee Todgham Cherniak said it’s rare to see many of these services affected by sanctions.

“Technical services, management, accounting, advertising services – I have never seen those services targeted before,” she said.

“It remains to be seen whether these measures will significantly hurt Russia as other countries such as China which are not applying sanctions on Moscow step up to fill the void left by Western nations.”

Some in Alberta’s oil patch said it’s unclear what real effect the new sanctions announcement will have, and who exactly it’s meant to apply to.

Stifel analyst Cole Pereira said the impact of sanctions on the Canadian oil field-service firms relating to Russian operations would be “relatively immaterial,” as Calgary’s Calfrac Well Services Ltd. is the “only substantial Canadian-based oil field-service firm with material Russian operations, and the company has already announced it has initiated a plan to sell this business.”

Calfrac, which provides oil field services such as hydraulic fracturing in Canada, the U.S., Argentina and Russia, announced in May that it plans to sell its Russian operations, targeting a divestiture by the end of this year.

Speaking to The Globe and Mail, Mike Olinek, Calfrac’s chief financial officer, said the company had just learned about Wednesday’s announcement.

“We’re undertaking to review the sanctions and understand what the impacts could be to the company,” he said.

At Rystad Energy, Mark Quesada said that since Calfrac has already made clear its plans to sell its Russian assets and has classified them as “held for sale” in company financial statements, “the net impact of these new sanctions are irrelevant from Calfrac’s perspective.”

Other services included in the new sanctions list are likely not purely Canadian, such as management consulting firms, said Mr. Quesada, a senior analyst based in Calgary.

“Fundamentally, the services which are entirely Canadian and are tied to oil, gas and chemicals in Russia are largely marginal in size, which mutes the impact of these sanctions from a Russian perspective,” he added.

Wednesday’s sanctions list “is on par with the announcement to ban the import of Russian crude oil and petrochemicals into Canada, for which there are marginal volumes being imported. In many instances, corporations have taken the lead on suspending or shutting down business operations within Russia prior to these additional sanctions.”

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