The Obama administration stepped up pressure on the Russian
government with a fresh round of sanctions on Wednesday. These
measures are being viewed as the most aggressive to date and are
designed to exert pressure on Russia over the conflict in Ukraine.
If these sanctions have their desired effect, they could exert
further pressure on the troubled $2 trillion economy.
Following Russia's bloodless seizure of border posts in Ukraine's
Crimean Peninsula, President Putin had taken several steps to
reduce tensions. Putin ordered the withdrawal of troops from
Ukraine in late June and provided support to the short-lived truce.
These actions were viewed as positive signals by the U.S. and
Europe. Putin also agreed to secure the country's border with
southern Ukraine. This was intended to stop the flow of weapons and
reinforcements for pro-Russian separatists.
However, the U.S. remains dissatisfied with Russian measures to
deescalate the situation, accusing Russia of secretly aiding the
separatist movement. The Obama administration has accused Russia of
declining to ask separatists to stop their armed conflict. They
have also indicated that several separatist leaders are from Russia
or have links to the Russian administration. Russia, for its part,
has refuted these allegations and has asked the government in
Ukraine to hold discussions with separatists to arrive at a truce.
This has prompted new and more aggressive sanctions from the U.S.
These measures are aimed at increasing pressure on energy majors
and key banks. Several important Russian defense firms and
individuals providing support to the armed separatists have also
Under Secretary for Terrorism and Financial Intelligence David S.
Cohen said: "Because Russia has failed to meet the basic standards
of international conduct, we are acting today to open Russia's
financial services and energy sectors to sanctions and limit the
access of two key Russian banks and two key energy firms to U.S.
sources of financing, and to impose blocking sanctions against
eight arms firms and a set of senior Russian officials."
The energy companies which have been targeted are state owned OAO
Rosneft, which is the country's largest oil producer and OAO
Novatek, the largest independent natural gas company in Russia. The
financial institutions facing sanctions are Gazprombank, the
banking unit of the country's largest energy company and state
In case of the two Russian banks, equity and debt financing due in
more than 90 days will be affected by the measures. Meanwhile, the
Obama administration has prevented U.S. institutions from providing
new debt with a maturity period exceeding 90 days to the two energy
Stocks in Focus
) is the largest investor in Rosneft and owns a 19.8% stake in the
company. BP's total production in Russia in 2013 was 961,000
barrels of oil equivalents per day. BP holds 14.3 billion barrels
of reserves and 48 billion barrels of offshore resource potential
in Russia. This is around a third of its total global output. In
fact, the company is among the biggest foreign investors in
Russia's oil industry.
In its 2014 Investor Update, BP spoke of Russia playing a vital
role in shaping its future. The company believes there is a
significant long-term opportunity in Russia. The company lost
nearly $4.4 billion of its market value on Thursday following fresh
However, analysts believe that sanctions may not have an immediate
impact on operations. They will only impact Rosneft's ability to
secure funds from Western sources and hinder its growth plans. It
seems the one way in which sanctions could hit BP is if they hurt
Rosneft's ability to pay dividends.
Exxon Mobil Corp.
) has also been working on projects with Rosneft. The two companies
have entered into a deal valued at approximately $500 billion to
explore an oil field in Western Siberia. Exxon has been planning to
construct a LNG terminal project in the oil field worth $15
billion. In fact, it also has joint venture projects to explore the
Black Sea reserves.
Rosneft Chief Executive Igor Sechin promised he would continue to
cooperate with Exxon Mobil. According to Interfax, Sechin said: "We
are now in consultation with Exxon's lawyers and tentatively
believe that this decision does not affect the implementation of
our current projects."
) has also taken the view that sanctions on Rosneft will not affect
an upcoming deal between the two companies. The bank's CFO Ruth
Porat said plans to sell its oil trading operations to the Russian
company would go ahead.
It seems that the new sanctions may only have a cursory impact on
the Russian economy and stocks with linkages to that nation.
However, this may only be a sign of tougher measures in the months
to come. Meanwhile, Russian companies will look towards other means
to finance growth or continuing operations. Clearly, the standoff
over Ukraine and its economic implications are far from over.
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