Financial Sanctions Impact Russian Oil, Equipment Export Ban's Effects Limited

Abstract

In reaction to Russia’s involvement in the conflict in Ukraine, the EU and the USA launched two-pronged sanctions against Russia. The equipment export ban will have limited effect in a 10-year perspective because it targets shale, deep water, and the Arctic, and few such projects are planned to come on stream before 2025. But the effect of financial sanctions is immediate and significant. The expected fall in Russian oil output is linked to the decline in production from existing fields, the substantial investment needed to counter this decline, and the dominant role in the industry of state-controlled Rosneft. This conclusion stems from modelling Russia’s oil production outlook in three scenarios. These encompass a range of possibilities from a 2.5 % fall in Russian oil production by 2018 followed by a recovery at one end, to a more long-term decline leading to 7% lower production by 2025 at the other end. These estimates are conservative and do not fully account for the impact of sanctions on companies like Gazprom Neft and Lukoil.

Keywords: Russia, sanctions, oil, petroleum