Analysis of FDI Impact on Russian Economy and Oil Industry

The essay explores the dual aspects of Foreign Direct Investment (FDI) in Russia's oil sector, highlighting both its substantial benefits and inherent risks. It starts by underscoring how FDI has been instrumental for Russia to harness its vast natural resources, particularly oil, allowing it to maintain a status as one of the world’s leading oil exporters. This influx of foreign investment revitalized Russian oil companies post-Soviet Union dissolution, providing essential capital for technological advancements and infrastructure upgrades necessary to compete globally. However, the essay also delves into the significant risks that deter foreign investors. Post-dissolution economic challenges have left Russia with a weakened currency and fraught geopolitical relations, resulting in stringent regulations that hinder foreign participation. The state's substantial control over assets further complicates investment prospects, leading to caution among potential investors due to perceived government hostility towards business-friendly practices. Despite these deterrents, the essay suggests that collaboration with major oil companies might mitigate some risks by negotiating more favorable terms with Russian authorities.

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What are the benefits to the Russian government from foreign direct investment in general
and in the oil industry in particular?
FDI holds an important place in the macro as well as micro economy of Russia. It has led
to important economic development as it has provided proper allocation of funds to the state
budget where the distribution of funds were inadequate. FDI has helped in enhancing the
scientific and technical potential of Russia (Berdysheva & Romanova, 2017). It has also
provided access to the Russian products in international market. Due to an opening in
international market FDI has improved the production of various industries in Russia. Moreover
FDI has helped in starting up new business ventures based on production in the country. The
most important contribution of FDI to Russian economy is the development of their abundant
natural resources especially in the field of oil. Russia has been largest oil exporter in the world
and it maintained its status quo for a long time which has made it the global superpower for a
better part of the century (Kapusuzoglu & Ceylan, 2017). But after dissolution of the Soviet
Union, Russian oil companies started to fade due to lackluster condition and improper
availability of funds. FDI has helped those oil companies to re-establish themselves by providing
them with proper funds to enhance their technology and upgrade their infrastructure to compete
in the international market.
What are the risks that foreign companies must bear when making investment in Russia?
What are the sources of this risk? How substantial are they?
After the dissolution of Soviet Union, Russia has suffered from economic breakdown as
its government machinery has lacked the means and resources to uplift its
economy(Berdysheva& Romanova, 2017). In recent days Russian currency has taken a dip in the
international market and has become one of the weakest currencies. Due to this reason Global

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players are reluctant in investing in Russian economy. Moreover, Russia has been at war with
one or the other countries which has weakened its economy to a substantial level. Even if global
investors try to start a venture in Russia their strict rules and regulations restrict the global
players to take part in the Russian economy. Even with the presence of abundant natural
resources, Russia is not able to produce the desired output because of the ignorance of its
government and legislative rules (Kapusuzoglu & Ceylan, 2017). Consumerism in Russia is not
very market friendly which is why generic products are not manufactured and sold in Russia.
Investors are scared of the market responses and from the attitudes of the government which is
not very business oriented. Russia has about 70% of their assets owned by the state which
prohibits investment and entrepreneurship in business ventures. These risks are quite substantial
for a businessman to invest in Russia.
Is there any way foreign companies can reduce these risks?
Russian economy can only be uplifted through incorporation of big oil companies like
Royal Dutch Shell, Gazprom, British Petroleum and Sianco which are very deep pocketed and
have the economic leverage to break the shackles of sanction rules in Russia (Berdysheva &
Romanova, 2017). Oil is still the most prominent factor which can revive Russian economy if
big oil companies are allowed to trade in the Russian oil.The main barrier for the upgradation of
Russian economy is its strict rules and sanction regulations which can be modified for the oil
companies if they are willing to have proper negotiation with the Russian government
(Kapusuzoglu & Ceylan, 2017).

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References
Berdysheva, E., & Romanova, R. (2017). Rethinking prices during an economic crisis:
Calculation as a new mode of consumer behavior in Russia. International Journal of
Consumer Studies.
Kapusuzoglu, A., &Ceylan, N. B. (2017). The Impact of Russian Economy on the Trade, Foreign
Direct Investment and Economic Growth of Turkey: Pre-and Post-Global Financial
Crisis. In Global Financial Crisis and Its Ramifications on Capital Markets (pp. 275-
286). Springer International Publishing.