Sanctions Against Russia Also Create Risks for Western Companies of the Oil and Gas Sector

A new wave of the US and EU sanctions introduced last week is further undermining the most important sectors of the Russian economy: the financial sector, the oil and gas sector and the military-defense sector. Once again, the sanctions are aimed at oil and gas corporations, enterprises of the military-industrial complex and large banks with a state participation. It is to be noted that as in the previous cases the effects from introduction of sanctions can be different for different players.


As regards the military-defense complex, for most enterprises in respect of which export and financial limitations have been introduced by the US and the EU the consequences due to the above sanctions may be different. So, as regards the ОАО «ОАК» limitations on attraction of European loans will have no effect because the company's lending abroad does not exceed 1% of the total sum of the debt, while its main creditors are Russian banks with a state participation (over 60%).


As regards other enterprises of the military-industrial complex, in the short-term prospect the new sanctions may stimulate diversification of importers through purchasing of dual goods from Asian partners who can also be used as contractors for buying such goods from Western producers. In the long-term prospect, such a situation may contribute to import substitution of dual goods and expansion of production by Russian manufacturers. As regards the oil and gas sector, the sanctions affected over 90% of Russian companies of the oil industry and nearly the entire gas production, in particular, companies' abilities to attract financing from abroad and buy high-tech equipment from US and European manufacturers for extraction of fuel.


The companies with a high level of debt and current projects on development of natural fuel deposits are in the most vulnerable situation. In particular, the Rosneft has the highest debt level on Western capital markets. However, the situation can be eased by advance payments to the Rosneft for the amount of $70bn and $1.9bn from the Chinese-based CNPC and the British-based BP, respectively. It is to be noted that the Gasprom Neft and Transneft are in a less vulnerable situation as regards future US and European loans. So, the Gasprom Neft's account balances and deposits are sufficient enough to meet its current needs, while the main creditor of the Transneft is the Chinese bank СDBC, which extended $10bn to the Russian corporation until 2029.

Sanctions against Russia create risks for Western companies of the oil and gas sector, too. So, the US ExxonMobil may sustain serious losses related to a delay in realization of the project with the Rosneft on production of energy resources in the Arctic region. A serious delay in production of oil and gas at the West Alpha platform in the Kara Sea may reduce both the expected volumes of production by the ExxonMobil and the expected profit.

Panic sentiments among Russian and foreign investors can be calmed by the statement made recently by the RF Government on establishment of the anti-crisis fund for assistance of companies hit by the sanctions; the fund will be formed partially by means of resources which are to be saved on the transfer to the Pension Fund of Russia in 2015. The government will finance companies' endangered investment programs. In addition to the above, the prospect of allocation to the NOVATEK and the Rosneft of funds from the National Welfare Fund is being considered and relevant approval procedures have begun. However, utilization of such instruments is possible only on a paid and repayable basis.


Yuri Zaitsev, Senior Researcher