Just How Much Control Does Russia Have Over Global Oil Supplies?The United States increased sanctions against Russia this week by banning exports of high-tech defense items and blacklisting several companies, Kremlin political operatives and corporate bosses, including major oil player and Rosneft (MCX:ROSN) CEO Igor Sechin, according to the UK Telegraph.

Overall, the sanctions were less harsh than expected, but the intertwining of Russia’s Rosneft with other international oil companies highlights Russia’s importance in the oil market and raises the question of who, if anyone, would truly win in an oil tug of war between Russia and the west.

Significant supplies?

According to a global economics report by ScotiaMcleod’s Patricia Mohr, tension surrounding Russia and the Ukraine has lent significant support to oil prices as of late as Russia is the world’s second-largest oil producer, behind only the United States. Still, the Telegraph points out that the US targeted Sechin over natural gas producer Gazprom’s (MCX:GAZP) CEO Alexei Miller because a cut off of natural gas supplies would be much more troubling for Europe than a stoppage of oil delivery. That’s because oil supplies from Russia could conceivably be replaced by stockpiles from the US, Iraq or Libya.

Furthermore, while VTB Capital analyst Andrey Kryuchenkov told Reuters that “[t]he market is paranoid about Ukraine tensions in the short run,” WTRG Economics energy economist James L. Williams said that worries over oil supplies from Russia are more psychological, noting that, “[r]eal risk to oil supply is minimal.”

Business partners

The real concern is Russia’s entanglement with international companies. As Bloomberg reported, ExxonMobil (NYSE:XOM) is investing in a joint campaign in Russia’s Arctic with Rosneft that will see it carry the costs for the exploration and development of discoveries. The two companies also have plans for a Black Sea well in 2015 and are slated to start a $300-million shale drilling project in Siberia this year.

Sanctions have been laid against Rosneft’s CEO, not the company itself, and a US treasury official said that means companies can still do business with Rosneft, according to Bloomberg. However, the significance of Sechin’s blacklisting and of rising tension over the Ukraine cannot be ignored.

Others have large investments in Russia as well. As Businessweek notes, companies such as France’s Total (NYSE:TOT) also have projects in the Arctic, while Royal Dutch Shell (NYSE:RDS.A) has Siberian oil fields; most significantly, BP (NYSE:BP) owns a 19.75-percent interest in Rosneft itself. BP is handling the situation delicately, but has stood by its investment in Rosneft. A spokesperson told Bloomberg, “[w]e will comply with all relevant sanctions. But we also want to make clear we remain committed to our investment in Russia.”

Who needs who more?

With the almost chicken-and-egg relationship between Russia and major international oil companies, “who needs more” is a difficult question to answer. James Henderson, a senior research fellow at Britain’s Oxford Institute for Energy Studies, told Bloomberg Businessweek that Russia fell behind the west in terms of technology under Soviet rule, and that it still needs the “technology, financing, levels of management expertise” and other factors that companies such as Exxon can offer.

In other words, Exxon might lose out on its $900-billion Arctic well if it can’t do business with Rosneft, but so will Russia.

Henderson states that endangering joint ventures with foreign companies, “would set an appalling precedent for future investment,” in Russia, as per Businessweek.

Not enough incentive to play nice

However, Russian president Vladimir Putin still warned on Wednesday after the increase in US and European sanctions that “[i]f something like this continues, then of course we will have to consider who’s working and how in the Russian Federation, in the key sectors of the Russian economy, including energy.” Clearly, the Russian president is aware that he has a valuable bargaining chip in terms of his nation’s oil reserves.

In a Washington Post blog, Michael Ross and Erik Voeten present results from a study of oil-rich countries, noting that these nations often have little incentive to follow international codes of conduct. According to their results, economic globalization is not linked to political globalization for oil rich nations, meaning that countries — like Russia — that enjoy large oil reserves can interact with others on the world’s markets without playing by their political rules.

So far, that seems to be holding true for Russia. As noted above, the country is still maintaining investment from foreign oil companies, even with sanctions against Sechin. As the authors conclude, “[t]his underscores the complex dilemma that Obama faces in imposing costs on Russia,” as it is unclear how much pressure the US and the European Union can truly impose on the former Soviet nation.

Securities Disclosure: I, Teresa Matich, hold no investment interest in any companies mentioned