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US sanctions raise concerns for foreign investors

LONDON -- U.S. sanctions targeting the president of Russia's largest oil company could complicate the operations of Western oil companies with important investments in Russia, such as BP and Exxon.

The sanctions target only Igor Sechin, the president of Rosneft, and not the company itself. That means BP, Exxon and others will be able to continue to work with Rosneft, one of the world's biggest oil companies, to explore for and produce oil and gas.

For now.

Analysts are worried that the sanctions by the U.S. against Sechin are a prelude to tougher ones against Rosneft. That could force Western oil companies to abandon or suspend their partnerships and some very ambitious oil exploration plans.

"(Sechin) perhaps may not be able to go shopping in Paris in the foreseeable future, but that is not the same thing as penalizing the actual company," says Pavel Molchanov, an energy analyst at Raymond James. "That could be the next step, though."

Russian President Vladimir Putin warned late Tuesday that Western companies could eventually risk being shut out of Russia's energy sector.

Putin said he saw no reason for Russia to take retaliatory steps now against the U.S. and European Union, as he said the Russian government has proposed.

But "if something like this continues, then of course we will need to think about who works and how they work in the Russian federation in key sectors of the Russian economy, including the energy sector," Putin said.

BP, based in London, owns a 20 percent stake in Rosneft. ExxonMobil, based in Irving, Texas, has a broad agreement with Rosneft to explore for oil in the Russian arctic and across a wide region of western Siberia. Eni of Italy and Statoil of Norway also have deals with the Russian company.

Western investor-owned oil companies and Rosneft, which is controlled by the Kremlin, need each other. These companies are in a constant struggle to find more oil and gas to replace what they produce and sell every day. Russia is one of the few countries in the world that harbor vast reserves of untapped hydrocarbons.

But much of Russia's remaining oil and gas is expensive and difficult to reach, found either in the harsh climate of Arctic seas or trapped in tight rock onshore. Western companies have the capital and the technical expertise to help Rosneft produce that oil and gas — and generate cash that helps the Russian government fund its operations.

Adnan Vatansever, a senior lecturer at the Russia Institute at King's College London, estimates that half of Russia's federal revenue comes from oil and gas sales.

Sechin has been president of Rosneft since the early 1990s. He is seen as the mastermind behind the 2003 takeover of the private oil company Yukos, whose founder, Mikhail Khodorkovsky, was jailed following disputes with the Kremlin. Rosneft seized Yukos' most valuable assets, making it Russia's largest company.

Targeting Sechin, a Putin confidante, is seen as a warning shot, signaling that the West could also go after Russia's biggest companies if Moscow doesn't help to resolve the crisis in Ukraine.

The fact that such sanctions might have an impact on Western interests gives them more heft, said Philip Hanson, associate fellow in the Russia and Eurasia program at the think tank Chatham House.

"Sanctions are a message," he said. "They are an instrument that are somewhere between pure diplomacy —talking — and warfare."

At the same time, Western governments also would prefer to avoid sacrificing important investments made by their own companies, or to disrupt oil and gas supplies in a way that would push energy prices higher around the world.

"The goal of these actions is not to punish energy companies, it's to get the Kremlin to think twice," says Molchanov.

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With their faces covered and carrying burning torches, Ukrainian nationalists attempt to march to Kiev's Independence Square to honor the so called Heavenly Hundred, the protesters who were killed in clashes with police in February 2014, in Kiev, Ukraine, Tuesday, April 29.

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