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The impact of anti-Russian sanctions on Western companies

27.02.2019 18:23

Starting in 2014 the United States and the European Union countries have applied a number of sanctions to the Russian Federation. Firstly, that was done because of the annexation of the Crimea by Russia. Secondly, because of the events in Donbas and a number of other additional reasons. Of course, such a pressure can not pass without the consequences.

In the modern economy there were vivid examples when large states came under pressure and found themselves in rather difficult circumstances. For example, Venezuela, Cuba, Iran, and some other Latin American countries. Venezuela is a very resource-rich country. Income from the sale of oil could bring the standard of living to the European level. But in practice, the country cannot resolve its own economic problems under pressure and loses money.

The anti-Russian sanctions, coupled with oil prices fall seriously shook the financial system of the country. Any person suffers increase of prices for goods, food products, especially imported. The gasoline price is also rising, as well as the cars themselves because they are produced abroad. And even if the automobiles are made in the Russian Federation, then the factories, involved in their producing, belong to the foreigners who are losing money because of the ruble weakening. Consequently, capital outflow is beginning.

However, restrictive measures have a very negative impact on many Western companies operating in Russian, especially in the oil and gas sector. A striking example of such a company affected by sanctions is ExxonMobil. In July 2017, the Office of Foreign Assets Control fined the American company
ExxonMobil for violating the sanctions regime against Russia for $ 2 million. As a result, the company filed a lawsuit against the US government in the court of Texas.

 In May 2014, ExxonMobil concluded a number of deals (on oil and gas projects) with the Russian company Rosneft, which was not yet subject to US restrictive measures. However, the documents were signed by Igor Sechin presenting Rosneft, the chief executive officer of the company, who has already been included in one of the US sanctions lists since April 2014.

In addition, British BP also received some damage. It is worth highlighting that in cooperation with BP a joint venture Ermak-Neftegaz was established for the extraction of natural gas at the Baikal field in Krasnoyarsk region. Western Siberia and the Yenisei-Khatanga basin were named as zones of mutual interests of the two companies. Participation is almost equal: Rosneft owns 51% of the shares of the established company, and the British - 49%. British investment is estimated at $ 300 million.

Another company that fell under the sanctions is NOVATEK. It is implementing a large project in the Arctic: the construction of a plant for the liquefaction of natural gas (Yamal LNG) outside the Arctic Circle based on the South Tambeyskoye field. In this case, losses are incurred by the French firm Total, as well as the Chinese CNPC, which became shareholders of Yamal LNG in equal shares of 20% each.

Though new sanctions from the West will have a limited impact on the Russian oil and gas industry. Since 2014 the Russian companies have already significantly reduced their dependence on Western equipment and technology. The Russian oil industry has ceased borrowing from Western banks, relying instead on its own funds and lending from the state banks aimed at developing technologies in order to replace those services that were previously supplied by Western companies.

But according to the American Chamber of Commerce in Russia, 84% of companies in the United States noted the negative impact of sanctions on the development of their business in Russia. The study is based on data from a survey on the prospects for direct investment and bilateral trade between Russia and the United States. The research involved 72 US companies from more than 500 members of AmCham. Thus, «84% of surveyed companies felt the negative impact of US sanctions on their business in Russia and in 2017 there were 69% of such companies». 35% of surveyed companies stated that sanctions put American business in unequal conditions with competitors from other countries. Another 25% of respondents reported that they had to freeze their projects because of the sanctions. About 15% of companies reported difficulties in attracting financing, another 11% said that sanctions had limited doing business with key clients in Russia and led to market contraction. Among the negative factors caused by the sanctions the companies indicated also violation of the existing supply chain, general deterioration of the business climate and business conditions in Russia, as well as difficulties in finding correspondences between the laws in Russia and the United States.

Therefore, the US and European restrictive measures influenced negatively not only the Russian, but also the Western economy. At the same time, despite the effect of the sanctions Russia is not on the verge of a «system crisis». The probability of bankruptcy of companies that fell under the restrictions increased only by 2-3%. And it is unlikely that the «strategically important» organizations will be ruined. In conclusion, foreign investors suffer financial losses on the initiative of their own governments.