Arthur Zurabyan, of ART DE LEX, evaluated the prospects of Rosneft’s attempt to be excluded from sanctions and to recover damages they caused

Last week, the United States included the subsidiaries of Rosneft on its sanction list. In response, Rosneft claimed that the US continues to extend the consequences of its political decisions to businesses, which have no power to influence such decisions. To protect its interests, the company is creating a system of accounting losses, resulting from the application of sanctions, to transfer these losses to an off-balance account. In the future, Rosneft plans to seek damages in court. A representative of the company did not specify exactly what losses the firm will take into account. According to him, Rosneft will evaluate “all the losses that it may assess.” He said that the company still has not estimated the damage the sanctions have caused.

Vitaly Kryukov, the director of Small Letters, the market analysis firm, thinks that Rosneft’s losses can be divided into two types: actual costs, such as expensive credits and equipment, as well as earnings losses, for example, because of the need to suspend its development of the Arctic Shelf.

For investors, the main losses from the sanctions are the reduction of the company’s capitalization. A portfolio manager of the GL Financial Group, Sergei Vakhrameev, stated that, at the beginning of 2014, before the Ukrainian events, Rosneft was worth about US 80 billion on the London Stock Exchange, and now it is half that amount. He added that the fall in oil prices led to the reduction of the company’s capitalization equally. That means, because of sanctions, Rosneft could lose US 20 billion of market capitalization. When calculating the value of the company, he explained, investors estimated even the distant prospect of oil production on the shelf in the Kara Sea. The reserves in the Arctic are enormous and are comparable with the reserves in the entire Russian mainland. Rosneft is going to develop the shelf with American and European partners, but since EU governments and the US banned companies from working there, the growth rate of its long-term production may fall from 2-3 percent to about 1 percent per year. This is a significant decline, experts say. However, the average cost of credit for Rosneft has not changed because it pays most of its debts with Chinese advances.

Arthur Zurabyan, the head of International Practice of ART DE LEX, noted that Rosneft already has challenged the company’s inclusion on the sanctions list in the European Court of Justice (Luxembourg). Now, the company probably will challenge the sanctions in a competent court in the United States. Zurabyan explained that Zawailla & Co., based in London, is a consultant to Rosneft (as the Wall Street Journal reported). That firm successfully challenged the inclusion of the Iranian bank, Mellat, on the sanction list, proving that the bank did not support the Iranian nuclear program. Now, the bank has stated its demands from the British government, which had included the bank in its sanction list, and is attempting to recover US 4 billion in international business losses. Rosneft’s situation is likely to be more difficult. It is a global national company, noted Zurabyan, which operates and develops business in all regions, including Crimea. Zurabyan concluded that the only way Rosneft can claim that it has no relationship to the Crimea is if the EU and US recognize geopolitical realities, which is unlikely to happen in the foreseeable future.