The Impact of International Sanctions on Russian Public Companies

This study examines the impact of the international sanctions imposed on the Russian Federation as a result of the annexation of Crimea in 2014 on the Russian public companies from the oil and gas sector. Firms, banned from accessing foreign technology and equipment, were forced to be content with the existing equipment because of their inability to replace Western technologies with domestic counterparts. This resulted in a slowdown of the companies’ development, suspension of international projects, however, restrictions also caused a stimulating effect on import substitution and development of domestic technologies. The general purpose of this paper is to identify how sanctions affected the firm value of oil and gas companies and to determine how to adapt the companies’ strategy under the influence of the economic restrictions. The hypothesis for this study is that sanctions negatively influence the firm value. Lukoil and Gazprom are the largest representatives of the oil and gas industry and were chosen as the objects of this research. The main goal of the paper is achieved by the regression analysis, where the influence of several factors on the share price of Gazprom and Lukoil are revealed. Moreover, some qualitative methods are applied to analyze the adaptation of the strategy in the selected companies and its key directions. The conducted analysis revealed that sanctions imposed in 2014 had no effect in the long term in the selected companies. The hypothesis of the study was not confirmed in both cases. However, companies had to adapt their strategy as losses that have been caused by sanctions included the cancellation and delay of projects. Companies have adapted to external pressures, and as a result, the sanctions had an insignificant impact on the oil and gas sector. The results obtained could enrich our knowledge in the consequences of sanctions, used as a foreign policy tool, on the companies and offer opportunities for further investigations as new sanctions continue to be imposed on Russia.