If they cause a slide in the Russian currency their ruble-denominated operating costs will go down while their dollar and yuan-denominated earnings stay the same
The ‘bill from hell’ of hard-hitting sanctions against Russia that U.S. Senators introduced earlier this month is unlikely to have a wide-ranging impact on Russia’s oil industry, analysts and economists tell Reuters.
Since the United States slapped sanctions on Russia in 2014 over the Crimea annexation, Russian oil firms have drastically cut their exposure to Western bank funding, but this simply increased Russia’s reliance on domestic drilling and Moscow-derived oil field technology in its attempt to reduce Moscow’s dependence on imported technology.
The latest bill that U.S. Senators from both parties introduced on August 2 contains proposals for wide-ranging sanctions, including on goods, services, technology, financing, and support that currently directly and significantly contributes to Russia’s ability to develop crude oil resources located in the Russian Federation.
According to Russia-based analysts who spoke to Reuters, the oil industry would only see limited impact if those sanctions are approved, signed into law, and enacted, because Russian oil and gas firms now rely almost entirely on domestic and Chinese banks for funding, and have lessened their dependence on Western drilling technology.
This is one of the reasons why Russian stocks weren’t hit by the news that U.S. Senators were seeking harsher sanctions on Moscow, according to the analysts. Reuters has estimated that since the legislation was introduced, the Russian ruble has lost 10 percent in value, and banking stocks have plunged 20 percent. But oil stocks have gained 2 percent and have risen by 27 percent year to date.
“The main driver of the Russian oil industry’s profitability is the oil price denominated in roubles and it is currently posting new records as the rouble is getting weaker. Hence the sanction noise often even has a positive impact on Russian oil stocks,” Dmitry Marinchenko at Fitch Ratings told Reuters.
Russia’s oil industry would mostly feel the pinch in the access to high-end Western drilling technology if the ‘bill from hell’ is enacted. Yet, in recent years, Moscow has been looking to develop its own solutions to replace imported technology, and that process has been gathering pace, Denis Borisov, director of EY’s oil and gas center in Moscow, told Reuters.