A proposed new U.S. bill laying sanctions on Russia, the harshest so far, would only have a limited impact on its oil industry, because the country has drastically reduced its reliance on Western funding and foreign partnerships and is cutting its dependence on imported technology, Reuters wrote on Friday.
After four years of Western sanctions, imposed over Russia’s annexation of Crimea, many state oil firms such as Rosneft already have major problems finding ways to borrow abroad or use Western technology to develop shale, offshore and Arctic deposits.
While the sanctions have slowed down a number of challenging oil projects, they have done little to halt the Russian industry’s growth with production near a record high of 11.2 million barrels per day in July – and set to climb further.
Since 2014, the Russian oil industry has effectively halted borrowing from Western institutions, instead relying on its own cash flow and lending from domestic state-owned banks while developing technology to replace services once supplied by Western firms. According to analysts, this is partly why Russian oil stocks have been relatively stable since U.S. senators introduced legislation to impose new sanctions on Russia over its interference in U.S. elections and its activities in Syria and Ukraine.
Earlier this month, U.S. senators introduced a new sanctions bill, dubbed as the “bill from hell,” which includes potential curbs on the operations of state-owned Russian banks, restrictions on holding Russian sovereign debt as well as measures against Western involvement in Russian oil and gas projects.
While the news resulted in the ruble falling more than 10 percent and Russian banking stocks slumping 20 percent since the legislation was introduced, shares in Russian oil firms have climbed 2 percent, leaving them 27 percent higher so far in 2018.
“The main driver of the Russian oil industry’s profitability is the oil price denominated in rubles and it is currently posting new records as the trouble is getting weaker. Hence the sanction noise often even has a positive impact on Russian oil stocks,” said Dmitry Marinchenko at Fitch Ratings.