(Bloomberg) –U.S. President Joe Biden’s push to slash carbon emissions may inadvertently give a short-term boost to energy companies in one of the world’s biggest polluters.

Investors are betting that Russian oil giants such as Lukoil PJSC, Rosneft PJSC and Tatneft PJSC will rally as they mop up market share from rivals in the U.S. and and other countries seeking to switch to clean energy. An index of Russian energy stocks has returned 8% in dollar terms so far this year as crude prices rallied, compared with 2% for European oil and gas companies.

“Governments will likely limit global companies’ capacities to drill and extract resources,” said Eduard Kharin, who helps oversee $1 billion of assets at Alfa Capital Asset Management in Moscow. “The global majors are entering a new market, a new industry where there are a lot of unknowns, and the return on capital is unclear.”

Russia is the world’s fourth-biggest carbon emitter, but unlike other major polluters, the government doesn’t have a plan to transition away from fossil fuels. Instead, its state-owned energy companies benefit from some of the world’s lowest production costs and tax breaks, making them well placed to gain in the short term.

Global oil companies will stop investing in exploration and shift to clean energy, “but somebody still needs to produce oil,” said Ekaterina Iliouchenko, a money manager at Union Investment Privatfonds GmbH in Frankfurt, who increased exposure to Russian oil stocks last year. “That’ll be the Russians and Saudi Aramco.”

Rosneft and Lukoil have been among the best performers in Russia’s benchmark equity index so far this year, handing investors total returns of 15% and 12% in dollar terms. They’ve also outperformed an index of global energy stocks.

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February 11, 2021 at 12:36PM