Assessing the Political Risk and Challenges Facing Western Oil and Gas Companies in Russia

Using the strategic partnership between Rosneft OAO and Exxon Mobil Corp as its primary lens for analysis, the Capstone workshop team's final report examines the various types of risk facing Western Oil & Gas companies seeking to enter or operate in Russia. This is accomplished via a two-fold process that focuses on (a) constructing a framework for identifying and prioritizing political, social, economic and fiscal risks, and then (b) evaluating the potential impact of each risk supported by anecdotal evidence. Risks are evaluated at the macro, government, company, and asset level. The Capstone team's final report then assesses the potential impact of these risks on cooperative strategic partnerships, particularly as it relates to current and planned projects in the Bazhenov and the Kara Sea. 

The report places added emphasis on the current crisis in Ukraine. By applying a scenario analysis to the crisis situation focused on two key variables, the report analyzes possible and likely outcomes. Other cooperative arrangements in recent years between Western and Russian companies are also analyzed for further evidence of related themes and sector trends. Specific topics for consideration include the influence of geopolitics on Russia’s energy sector, Europe’s ability to diversify away from Russia energy supplies, critical infrastructure, and alternative markets for Russian energy. In conclusion, the report determines that Western firms who create reciprocal relationships with Russian companies are most likely to succeed in the long-term. In general, while the Ukraine crisis is a grave situation, Russia and Europe are too dependent upon each other to dramatically alter the energy landscape in the short-term.