How Western sanctions may affect Russian retirees (thanks to the Russian government)
a Kommersant photo
The Kommersant newspaper recently did an article about how the latest round of USA/EU sanctions will probably affect state and private oil companies. And the picture it paints is quite grim.
US and EU measures limit the delivery and re-export of goods for the companies that fall under the sanctions, as well as services (other than financial) and technologies for offshore and shale oil extraction. Until now, bid contracts and construction agreements haven't been forbidden. The sanctions also affect US citizens' ability to work on Russian projects.
Which is a huge problem, since the companies have been in the process of partnering up with Western companies on oil exploration and extraction. Without their financing and equipment... well, the companies are left in a pretty bad position. Unless sanctions are lifted relatively soon, there's no obvious solution.
Experts are divided on the impact of the sanctions
Konstantin Cherepanov of USSB thinks that sanctions won't reflect on the current oil extraction and projects that have been sslated for the near future, but the negative effect can appear later. Grigoriy Birg of "Investcafe" agrees that the current projects likely won't be affected by sanctions. [He feels that] if new technologies will be required, they can be purchased in the Asian-Pacific region. In his opinion, there are several potential scenarios: the companies can "find loopholes" if the political will is there, but the possibility that equipment and services won't be delivered to Russian Federation for a prolonged period is there. Mr. Birg thinks that, if left without options, Russia can build its own equipment. Meanwhile, Kommersant's source in the industry calls the ban on technology and services "a disaster for offshore drilling."
The Russian government is trying to put the best spin on it. Minister of Natural Resources Sergey Donskoy feels that a state run oil industry service provider could be created to step in and fill in the gap. He also expressed confidence that Russian companies could step in to fill in the gap - which, in my opinion, may be plausible, but only after a few years. The article explains that the kind of equipment and technology the Western companies can provide simply isn't there in Russia, and developing it will take time.
But here's what I'm really concerned about:
Minister of Economic Development Aleksey Ulyukayev said that pension funds and the National Welfare Fund can be used to support the companies that fell under sanctions. According to Minister of Finance Anton Siluanov, up to 60% of NWF funding that was supposed to be used for infrastructure projects could be used to support the companies that lost access to foreign credit, with [majority state-owned] Rosneft' and [mostly private] NOVATEK being first in line.
Now, for a bit of context... NWF is one of the funds that's used to finance pensions, and it's there to make sure that the main pension fund doesn't go into default. In June, the Russian government announced its intention to put 60% of NWF into infrastructure projects. And few weeks ago, Rosneft requested a loan financed through the NWF. It would be a $42,000,000,000 loan - a large sum, but one that's still dwarfed by 2,900,640,000,000 rubles ($75,588,763,745) of the NWF funding Russia was planning to put into infrastructure - the sum that I guess is going to go to oil companies now.
Since Russian Federation annexed Crimea, a lot of federal infrastructure funding has been sunk into the Crimean Republic, so the temptation to try to get funding from other sources is obvious, especially with Russian economy not doing so well even before the Ukrainian Crisis. But taking it from pensions... Illinois residents reading this should understand immediately why that is a problem. For those who aren't - in better economic times, Illinois state government and governments of many cities borrowed from pension funds to cover a whole host of expenses. Once the recession hit, the state and cities like Chicago found themselves with pensions funds that are underfunded by billions of dollars and no way to fill in the gaps. And that debt has been dragging the state economy down ever since.
Heck, if you are Russian... I'm sure I'm not the only child of the late 80s who remembers what happened when Soviet Union collapsed. Being a kid, there's a lot I didn't quite get at the time, but I remember my relatives complaining about pensions and benefits that got delayed for months and months. Even back then, I understood enough to realize that this sort of thing affected my mom's ability to put food on the table, or buy, well... anything.
This sort of thing haunts you.
But hey - at least Crimea is ours. #sarcasm