Oil Imports and Exports Are Subject to Political Influences

Political factors

Oil imports and exports are subject to political influences

All of Russian oil that is exported is going through a single pipeline and quotas are allocated by the state. As oil prices have been rapidly declining in the past six months, the Russian government may choose to increase quotas to make up for the lost revenues. The current budget is being prepared with the base price of oil at 60$ per barrel but the market price may fall even lower.

Lukoil is not a government-owned company unlike RosNeft which receives preferential treatment from the Putin administration. Recently, RosNeft was bailed out by the Government to cover for their losses due to the falling oil prices and westen sanctions. Such a course of action would be unlikely in Lukoil’s case.

Russian Oil Production is not being cut despite the falling market prices, as was announced by the Russian Government. As Russia suffers from the Dutch Disease, the government will most likely try to keep the oil and gas sectors going as they amount to 54% of Russian exports. However, the oil and gas sector is largely dominated by government owned companies, which means Lukoil will not get any preferential treatment with the Russian governments and amy have to suffer as a result.

The Russian Oil exports into Europe have been falling over the past year, due to the crisis in the Ukraine. The political uncertainty over the Russian-Ukranian relations remains a constant threat to the oil exports coming from Russia. The Russian government has stated that the Europe has to bear the risks of energy safety it may bear if the Ukrainiane stops allowing transit oil and gas. In such as situation, Lukoil would have to bear heavy losses as the volume of exports will have to decline considerably and there is not enough domestic consumption to make up for it.

The latest round European sanctions has had a particular impact on the oil industry. In short, these sanctions prohibit European companies and individuals to partake in exploration and extraction activities with Russian entities. As a result Lukoil cannot rely on their European partners in many projects, nor can they avail of the European-produced machinery used in extraction projects. These sanctions come as a result of the political situation Russia has found itself in pursuant to the annexation of Crimea last March.