Russia: Sanctions fail to hit pressure points, analysts say

Western sanctions from a conglomerate of EU and other Western countries have thus far failed to hit the pressure points in the Russian economy, according to spate of new articles. In fact, their imposition appears to be hurting several Western companies more than Russian ones and the primary factors causing economic pain in Russia are related to issues around the appreciating dollar in conjunction with lower oil prices.

Western companies hurt by the sanctions are those who were exporting Enhanced Oil Recovery Equipment (EOR) to Arctic drillers in Russia, some of whom are operated by non-Russian oil majors such as the French Total. However, OAO Rosneft did report that project financing is the main issue – as Western capital markets originally provided much of the cash needed to keep Artic rigs pumping their oil. Thus, alternative sources are being sought in the short term to refinance oil and gas debt, primarily from the Russian government (which has its hands mostly full recapitalizing the domestic financial industry), export-credit agencies, and Chinese lenders.

However, unrelated to energy, other companies like Rusal, a producer of aluminum, welcome to pivot back to domestic lenders because they get better interest rates than from abroad anyway. In contrast, Exxon Mobil, whose earnings still exceeded expectations in the last quarter of 2014, will likely suffer greatly as a result of the sanctions due to having just made a large oil discovery in the Kara Sea and needing to withdraw from the project due to lack of US government support.

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