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Austria and Russia: A Love Story in Oil

 4 min read / 

Russia relies heavily on oil and its voice in the world market, the state-owned company Gazprom. The Russian government owns over 50% of the firm, which engages in multi-billion dollar deals spanning the globe. Meanwhile, OMV, the Austrian player in the commodity, is the largest company of its country. The Austrian government controls 31.5% in OMV. Both companies play a significant role in wealth creation for the two nations, enjoying a mutually beneficial relationship.

A Blossoming Relationship

Back in 1968, one deal started the long-thriving collaboration between the two companies, as OMV became the first company to sign a long-term natural gas purchasing contract with the USSR. At the peak of the Cold War, Austria’s neutrality allowed executives to play on both sides of the Iron Curtain and arrange deals, together with establishing close political ties and an increase in the east-west trade.

This longevity of relationship between the two countries could mean that Russia’s political risk potentially correlates more with Austria’s political situation and economic output than with any other country with which Russia has ties. Vienna became, and still is, a hotspot for wealthy individuals from the Eastern bloc depositing money and building close relationships between Austrian banks and their own businesses. Lending transactions gained volume after the Soviet Union such that, according to Bloomberg, Austria’s banks have exposure to Russia worth $52bn as of today.

$52bn the value of Austrian banks’ exposure to Russia

The two firms recently entered into an asset swap. Gazprom will receive a 38.5% stake in the Norway-based sister company of OMV, OMV Norge, which focuses on exploration and upstream. In return, OMV will receive a 24.89% stake in one of the largest gas fields in Russia available for development.

Collaborations like these have happened multiple times in the past and portray how closely both companies profit from each other’s business activities and co-operations. Austria has been very smart when it comes to gas trade and acknowledged early on that there are only four major suppliers of pipeline gas globally.

OMV is conducting a substantial amount of business with Russia and has done deals in the past with Iran, 24.9% of it being owned by the International Petroleum Investment Company of Abu Dhabi. Last year OMV received one million barrels of crude oil from Iran in a spot delivery. Since the 2012 sanctions against Iran, this was the first oil distribution made by the Persian country, and OMV is working to strengthen its relationship with it. Austria’s demand for Russian gas supplies continues to soar.

Furthermore, Austria’s demand for Russian gas supplies continues to soar. In November 2016 Gazprom supplied Austria with 31.5% more gas than in the previous year, according to a Gazprom news release.

A Symbiosis of Power

The US might be able to learn a few lessons from Austria’s relationship in order to improve the political tension between America and Russia. In April 2016, Federal President Heinz Fischer met with Dmitry Medvedev in Moscow to discuss closer ties in trade, the world’s economic outlook, and foreign investments. Two cooperators working closely together, and their governments having a friendly and productive relationship stemming from those business activities, makes this relationship a perfect example of how to interact with Russia and conduct business. Valuable lessons can be learned here.

These close ties also mean that Austrian businesses and (especially) banks are more exposed to geopolitical risks shaking the markets. One of the most profitable markets for Austrian lenders has always been Russia, and Vienna has traffic links to Central and Eastern Europe.

An increasingly positive economic outlook for Austria depends on the forecasted outlook for Russia’s economy. The Central Bank of Russia expects profits for banks to hit the $16.6bn mark soon, a long way from the recession of 2014, sanctions, plummeting oil prices, and a currency decline. Austrian Banks, like Raiffeisen Bank and Bank Austria, which are operating in Russia, might be able to profit from the uptick in the sector’s outlook and market activity as well as increasingly positive investor sentiment.

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