With the latest round of sanctions announced Friday, the Russians will now have to abandon the joint venture project they have inked with U.S. super-major Exxon Mobil (XOM) , bringing a long-term problem for both Putin and America's largest energy company.
Getting fossil fuels out of the ground is what energy companies do, but their stock price is reliant upon two related metrics -- how much it costs to get the oil out and also whether and how quickly they can increase the amount of oil and gas they produce. What has been happening with the largest U.S. energy companies has been a mixed bag on both of these fronts in the last several years -- oil has continued to cost more and more per barrel to recover and most of the largest companies have not found it easy to grow production significantly.
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That's why the massive Russian Arctic with an estimated nine billion barrels of oil represents such an important project for Exxon -- a relatively cost effective project with tremendous possible production increases on the horizon.
Of course, the loss of the development of the Arctic will be a major blow to Russia as well. While currently the largest energy producer in the world, Russia was hoping to increase its production even further and was banking upon their Arctic project to be a major contributor.