Economic Sanctions Against Russia: Short and Medium Term Consequences for the Oil and Gas Industry

Rustem M. Nureev
Honorary employee of Higher School of RF, Doctor of economic sciences, Head of the department of economic theory of Financial University under the Government of Russian Federation, Ordinary professor of NRU HSE, Moscow, This email address is being protected from spambots. You need JavaScript enabled to view it.

Evgeniy G. Busygin
PhD student, NRU HSE, Moscow, This email address is being protected from spambots. You need JavaScript enabled to view it.

Journal of Economic Regulation, 2017, Vol. 8 (no. 3),

p. 6-22
DOI: 10.17835/2078-5429.2017.8.3.006-022

The growth in production and exports of oil and gas from the United States and other OECD countries led to pressure on energy prices, and posed the problem of redistribution of the structure of oil and gas market shares. The aggravation of competition contributed to the selection of measures to modernize the industry in Russia as the main measures of economic sanctions, as well as restrictions on the supply of Russian oil and gas to Europe, which jeopardized the implementation of the South Stream and North Stream-2 projects. The oil and gas industry continues to play a significant role in the formation of the revenue base of the federal budget of the Russian Federation. As a result of the imposition of sanctions, the export of Western equipment to Russia was banned, it could be a serious blow to the industry, which potential could be fully realized in the next 3–5 years. Oil and gas companies are most dependent on the pumping equipment (import share is 50%), catalysts (80% share of imports), applied software (the share of imports is more than 80%). Currently, Russian companies purchase equipment in China and South Korea, but the quality is much lower than the US, and the equipment often fails, so it is associated with the high costs of repairs. The import substitution should revive the domestic production of oil and gas equipment, but how this policy is implemented is difficult to predict, as enterprises have to overcome a significant technological gap and lag behind foreign developments. Russia managed to survive the short-term period of economic sanctions with significant, but not extremely large losses. Much more acute consequences can affect in the medium term, unless vigorous steps are taken to import substitution and modernization of oil and gas production and processing.

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Keywords: Economic sanctions, oil industry, gas industry, import substitution

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Publisher: Ltd. "Humanitarian perspectives"
Founder: Ltd. "Humanitarian perspectives"
Online ISSN: 2412-6047
ISSN: 2078-5429