By Natalya Morozova, Rob Patterson, and David Blumental

For a number of years, Chinese energy companies have showed great interest in acquiring oil and gas assets in the Russian Federation, in order to secure a stable supply of hydrocarbons to support China’s growing economy. Such attempts have largely proved unsuccessful,with only a few proposed acquisitions reaching successful completion. The 2006 acquisition by China Petrochemical Corporation (Sinopec) of Russian oil company Udmurtneft (51% of which was shortly afterwards sold by Sinopec to Russian major Rosneft), and Sinopec’s joint venture (again, with Rosneft) in part of the Sakhalin-3 project in the Far East of Russia, remain the only substantial direct investments by Chinese companies in the upstream sector in Russia. However, there is hope that the announcement in February this year of a $25 billion loan by the China Development Bank to Rosneft and Russian oil pipeline operator Transneft, in exchange for the supply of a reported 300,000 barrels per day of Russian crude (representing around 10% of China’s current demand), will signal the start of further Chinese success in the bid to acquire direct upstream assets. This article examines the terms, and early implementation by the Russian authorities, of new laws introduced in May 2008 which restrict the ability of foreign companies to invest in a number of strategic industries in Russia, and the implications of which will need to be considered by any Chinese company exploring investment opportunities in the Russian oil and gas sector. The new laws are referred to collectively in this article as the “Strategic Industries Law.” Read entire article here.