Channel NewsAsia

Analysts say EU's sanctions on Russia may also harm local economies

Moscow has claimed that EU economies will be harmed as much as Russia's by its sanctions, as the latest round targets Russia's oil industry.

MOSCOW: Some of latest round of sanctions launched by the European Union against Russia has targeted the country's oil industry. Moscow claimed that EU economies will be harmed as much as Russia's by the sanctions, and has responded with bans on imports of food items from some European countries.

The latest EU sanctions against Russia's energy sector have placed an embargo on high technology used in deep water, Arctic and shale oil production.

But the EU levelled no sanctions against Russia's gas industry, and Russia will still be able to export oil and gas to Europe without any limitations. EU currently imports around a third of its energy from Russia.

The EU and the US have both insisted that the latest round of sanctions has been designed in such a way to harm Russia's industries with minimal damage to domestic economies. But Russian officials have continued to claim that the sanctions hurt Western economies more than they will hurt Russia.

In statements following the sanctions, energy companies targeted echoed the government's reactions, saying that the effects of sanctions would be negligible. Financial analysts seemed to agree.

Evgeny Nadorshin, head economist at Sistema, Joint-Stock Financial Corporation, said: "There were originally discussions to completely shut off access to consulting firms and to services, but actually only access to equipment has been stopped for now.

“But actually, what's generally valuable in this sector is expertise, especially if we're dealing with complex oil fields. I think we'll be able to locate and produce equipment as long as we have the required expertise. We will need some time and effort, but consultations are crucial."

Major energy companies are looking in different directions to cancel out any damage done by the sanctions.

Igor Yushkov, leading analyst at National Energy Security Fund, said: “Rosneft is planning to develop its eastern routes, it's constantly talking about developing the Sakhalin-1 project and a project linked to that - constructing the LNG plant in Sakhalin.

“And Rosneft of course would need financial resources to implement that, so borrowing limitations will first of all affect the time of implementation of such projects. The question is whether Igor Sechin will be able to establish a dialogue with Asian partners who could provide finances, if they will be limited, for long term, in the Western capital market.”

Although stock prices for Russian oil companies appeared stable following the announcement of the latest sanctions, the government’s promises to compensate for any damage may prove difficult to fulfill in the long term.