Financial Times: Sanctions are unpleasant for Russia, but not fatal

The new US sanctions against the companies "Lukoil" and "Rosneft" are unpleasant for Russia, but not fatal. In particular, due to the fact that the restrictions are being introduced with a one-month delay, not immediately. This gives Russia time to prepare, the Financial Times writes.

The publication notes that the sanctions imposed this week against "Rosneft" and "Lukoil" are potentially very serious indeed, since these two companies account for about half of Russia's daily oil production. "Rosneft" alone generates about 17% of Russian budget revenues.

According to analysts, these two oil companies will now be forced to build new supply chains to avoid direct deals between oil buyers and Russian sellers, who are subject to sanctions. Tatyana Mitrova, a research fellow at the Center for Global Energy Policy at Columbia University (USA), believes that the Russians will resort to the already familiar tactic of creating a multilayered system of fictitious intermediary companies and intermediaries.

According to Mitrova, for the Russians in general, "this is a very unpleasant situation", but "it is not fatal".

"In November and December, when the measures come into force, there will be a decline, but volumes will most likely recover later", she believes.

The Russian oil sector as a whole has had enough time to prepare for the new Western sanctions and was even surprised that Trump gave them additional time by introducing sanctions with a one-month delay in their implementation. "Rosneft" and "Lukoil" can benefit from the experience that other Russian companies already subject to sanctions, such as "Surgutneftegaz" and "Gazpromneft", have.

In addition, the decline in export volumes may be partially offset by the fact that world oil prices have slightly risen after the introduction of new sanctions against Russia.

"Russian oil companies, their associated oil traders and buyers have been practicing this for three years. As long as there are willing buyers, a way will probably be found to circumvent the sanction," commented Ronald Smith, founder of the consulting company Emerging Markets Oil and Gas Consulting Partners.

All this does not mean that the sanctions are pointless. According to experts, the measures create for the Russians not only additional headaches, but also very real material losses. To stay in the market, the Russians are forced to offer buyers additional discounts on their oil, because otherwise they simply would not want to deal with oil subject to sanctions. In addition, each intermediary company requires additional costs, each intermediary takes a certain commission, which also "bites" part of the income of Russian oil companies.