Western Sanctions on Russia

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In the wake of Russia’s involvement in the 2014 Crimea Crisis and subsequent annexation of the Crimean Peninsula, many Western governments enacted punitive sanctions against various aspects of the Russian economy. Key amongst the areas impacted was the energy sector, a high-profile target because of its importance to the Russian economy.

The sanctions have aff ected the Russian energy industry across two key areas: technology/expertise and financing. As a result of the sanctions, three Western ‘supermajors’, Shell, Total, and ExxonMobil, were forced to withdraw from multiple projects, taking with them the technology and expertise that they had beenbrought in to provide. In response, Russian companies have sought to leverage domestic expertise, and ‘go it alone’, but as the country seeks to expand production in harsher and more remote areas, such as the Arctic, the problems caused by a shortage of advanced technology are only likely to become more acute.

With regard to the impact on financing and foreign loans, sanctions have made it increasingly diff icult for Russian operators to invest in new projects. New off shore operations, particularly those in the Arctic, are expensive and therefore likely to be amongst the hardest hit. Ongoing operations are likely to suff er too, as Russian producers are unable to finance field developments and infrastructure improvements. Inevitably this will result in reduced output and, consequently, reduced revenues. Some estimates show that the Russian economy will lose approximately US$170 billion as a combined result of low oil prices and financial sanctions.

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