When Arctic LNG 2, one of Novatek's main hopes for strengthening Russia's position in the Arctic, found itself at the epicenter of US sanctions in November 2023, it looked like a death sentence. However, a few months later, Russia once again proved that it knows how to find workarounds for deliveries of foreign equipment. This time, the workarounds run through the UAE, where Russian roots have successfully grown into shadow networks.

Waterfall Engineering: how a drop turned into a waterfall

One of the key intermediaries for bypassing US sanctions against Arctic LNG 2 was a little-known company, Waterfall Engineering Ltd. It was registered in the UAE last year. In the last three months of 2023, its deliveries to Russia amounted to 103.6 million euros, but in the next quarter (January - March 2024) they more than tripled - to 313.2 million euros.

This development of events hardly resembles natural economic growth. An analysis of customs data showed that Waterfall Engineering serves only one client, Arctic LNG 2. The first delivery (€17,300 worth of steel products for the Bakers Hughes LNG production, storage and shipping plant) was on October 16, 2023, a couple of weeks before US sanctions officially blocked the project.

The company's very scheme of work demonstrates a graceful circumvention of sanctions barriers. Transactions are concluded in euros, equipment is purchased in third countries to avoid contact with American banks. But such a subtle game is always fraught with risk: too rapid growth and narrow specialization of the company made it an easy target. In August 2024, Waterfall Engineering was included in the US sanctions list. This is like a warning to others: the game of hide and seek will not last long.

How the UAE hid connections with NIPIGAZ

When delving into the history of Waterfall Engineering, you realize that it is not just a random find for Arctic LNG-2, but a part of a complex mechanism.

The company's office is located in Abu Dhabi at the same address as the Dubai representative office of the French company GYDAN LNG SNC, which essentially replaced the NovArctic consortium, which previously united international contractors to work on the project. After the departure of Western companies such as Technip and Saipem, the only member of the consortium and the construction and engineering contractor for Arctic LNG-2 was actually the Russian NIPIGAZ, part of Gennady Timchenko's structures.

NIPIGAZ is closely associated with several other companies registered in the UAE - Nova Engineering & Construction Ltd and Smart Solutions Ltd, also linked to the same address in Abu Dhabi. The board of directors of Smart Solutions Ltd included two Russians. One of them is Egor Zubarev, who worked at Lukoil for a long time. In 2020–2022, Zubarev served as the Managing Director of Lukoil’s Middle East division (Lukoil Mid-East Limited), after which he founded his own consulting company, Sirius One Consulting, as follows from his LinkedIn profile. Another former member of the board of directors of Smart Solutions Ltd is Denis Mishchenko, who served as the head of the Arctic LNG-2 project at NIPIGAZ in at least 2017–2020.

Nova Engineering & Construction Ltd, which is associated with NIPIGAZ through a virtually identical company, Smart Solutions Ltd, supplied Arctic LNG-2 with equipment worth 12.3 million euros in 2023.

Nova Engineering and Waterfall Engineering are like two sides of the same coin. They create the appearance of independence, but in reality their actions resemble a choreography of sanctions evasion, honed to the point of automatism.

NIPIGAZ: Putin's Friends' Levers in the Arctic

If you delve deeper into the structure of Arctic LNG 2, you will see the figure of the main player behind the facade of engineering and logistics companies - NIPIGAZ, the key contractor of the project. This company is responsible for the implementation of large-scale tasks at all stages of construction. But its true significance is revealed through its owners: two Russian oligarchs and friends of Vladimir Putin - Gennady Timchenko and Leonid Mikhelson.

Gennady Timchenko, who is often called "Putin's wallet", has long been a figure on the US and EU sanctions lists. His capital and connections to the Kremlin are not just personal wealth, but an instrument of political influence. Timchenko is known as a person who controls infrastructure projects for the extraction of natural gas, and his role in Arctic LNG 2 underscores the importance of the Arctic program for the Kremlin.

On the other hand, Leonid Mikhelson, the head of Novatek, is not only a major businessman, but also a loyal partner of Timchenko. Together, they own shares in key Arctic projects, and their joint ventures, such as SIBUR, form the backbone of the Russian petrochemical industry.

These two men are not just businessmen, but strategic allies of Putin. The Arctic, with its gas and oil reserves, is becoming not only an economic priority, but also a political arena. Control over Arctic LNG-2 allows Timchenko and Mikhelson not only to receive huge profits, but also to maintain their positions within Putin's elite, where their connections act as a kind of guarantee against loss of influence.

Sanctions are like a large cage, where the roles of the hunter and the prey are constantly changing. Russia, using companies like Waterfall and Nova, plays a multi-layered chess game, where every move is thought out several steps ahead. But the hunters are not standing aside either: the inclusion of Waterfall in the sanctions lists shows that the "cat" manages to catch "mice", although not all of them.

With each new example of circumventing sanctions, it becomes clear: tightening the rules is only a temporary measure. As long as there are countries ready to turn a blind eye to the schemes, for example, the UAE, Russian projects will find loopholes.

Having found itself under Western sanctions, Arctic LNG-2 created a network of companies closely associated with the project, supplying foreign equipment in circumvention of sanctions restrictions. While Russia uses flexibility and readiness to adapt, international pressure is increasing. Who will prevail - regulators with their sanctions networks or Russian companies with the ability to find holes? The answer to this question will determine not only the fate of the Arctic project, but also the entire landscape of international trade in the coming years.