Western Sanctions Sting Russian Oil Firms

Western sanctions imposed on Russia over the Ukraine crisis have hurt domestic oil producers, cut access to foreign financial markets and increased borrowing costs, Lukoil President Vagit Alekperov told the Vedomosti business daily.

Lukoil, Russia’s largest independent oil producer, was hit by U.S. sanctions last year, but not by European sanctions, for Moscow’s actions in Ukraine. The U.S. measures prohibit providing, exporting, or re-exporting goods, services and technology to the company and other Russian energy firms.

“Access to capital markets has been reduced, to technology,” Alekperov said in an interview. “It’s increasingly difficult to form consortia with foreign companies for the implementation of geological and technologically complex projects. All of this is happening.”

President Vladimir Putin and a number of companies turned towards Asia, especially China, seeking commercial ties, after Russia was hit with sanctions.

But Alekperov said his firm has not been in talks with Chinese lenders.

“They’re willing to provide financing either for the purchase of oil or the supply of equipment,” Alekperov said. “These are the most expensive loans in the world. We do not go for such borrowing.”

Alekperov said Lukoil was in talks with Korea EximBank, seeking financing for the firm’s projects in Uzbekistan.

“The negotiations are also not easy,” he said. “We hope that a decision will be made and funding for this project will be provided.”

Lukoil and a consortium headed by Hyundai Engineering signed a contract earlier this year to build a gas processing plant in Uzbekistan.