By Elliot Wilson
Despite their cultural disparities, and minimal trade in recent years, economic relations between Russia and Latin America are on the rise for the first time since the Soviet Union’s collapse.
Then, Moscow’s influence south of the Rio Grande was politically tilted. Russian leaders funded regimes from Havana to Santiago, largely to undermine the United States.
Under president Vladimir Putin, however, Russia is more petrostate than ideologue. So it is little surprise that most trade between Moscow and South America involves energy-heavy deals.
One major partnership is between Russian and Venezuelan state energy companies to develop the Junin 6 block on Venezuela’s eastern Orinoco River. Rosneft is to take over as chief operator of the project, which is worth as much as $50 billion and involves PDVSA, Gazprom and Lukoil, among others.
The Russian partners are likely to spend up to $17.6 billion over the next eight years on the project. Rosneft will put up more than half of that, Venezuelan energy minister and PDVSA chief executive Rafael Ramírez has said. If all goes to plan, total oil output from Russia’s investments in the Junin 6 block should nearly quintuple to 1.123 million barrels a day by 2021.
The Rosneft deal stands out for its size, but it is not alone. In October 2011, TNK-BP, now 50% owned by Rosneft, paid $1.25 billion for a 45% stake in 21 blocks in Brazil’s Solimões Basin.
Growth potential
All the same, Russian-Latin American trade is still small. Bilateral trade between Russia and Latin America in 2012 was around 15 billion roubles ($500 million) –around 2% of Russia’s foreign investment flows, says Grigory Birg, head of research at Moscow-based independent research firm Investcafe.
“The potential for growth in trade is there,” said Birg, before the Rosneft-led PDVSA deal was signed.
During Dmitry Medvedev’s presidency in the five years to May 2012, Russia tried to diversify. In May 2011, Russian steel giant Severstal bought a 25% stake in Brazil’s SPG Mineração mining firm for $49 million.
But efforts to sell military weapons to Peru and Argentina and nuclear power technology to Brazil largely failed. Putin’s third presidential term has been notable for its reversion to oil and gas.
Given Russia’s economic dependence on that industry, it makes sense that most of the country’s investment in Latin America is in the energy sector, says Birg.
But there are signs of growing bilateral alliances in other areas. VTB Capital, Russia’s largest investment house, announced a cooperation agreement with Brazil’s BTG Pactual last June. The two agreed to “expand and establish a long-term presence in two of the world’s most promising regions”.
They will look at potential alliances in M&A advice, asset and wealth management, private equity, and proprietary investments. LF