Russia's invasion of the Crimea and heavy involvement in ethnically Russian Eastern Ukraine has brought tensions to a boiling point. Both Russia and the West are accusing each other of attempting to incite a civil war and using it as a pretext for either military intervention (Russia) or severe economic sanctions (NATO.) Russia has threatened to retaliate with sanctions of its own. Its upper house of Parliament is even considering legislation allowing Russia to seize the assets of foreign companies in the case of international sanctions against its companies. It has made good on its threats by banning Canadian officials from entering the country after Canada imposed sanctions over the Crimea-Russia reunification vote.

With Russia sitting atop some of the largest energy reserves in the world and supplying Europe with 30% of its gas and 35% of its oil, the West is facing real economic danger in its showdown with Putin.

This article is designed to show the interplay between this tense geopolitical situation and the ExxonMobil (NYSE:XOM) and BP (NYSE:BP), major oil companies with heavy involvement in Russia. I feel that it is important for investors in these companies to understand the potential damage that further escalations in the Ukraine might pose to these two companies and how that might affect the investment thesis for both.

BP's Russian assets
After the 2010 Deepwater horizon oil spill, BP faced financial ruin. The company was forced to pay or set aside $42.5 billion for the environmental cleanup and sold $40 billion in assets (and cuts its dividend for 2010 by 88%). At the time, this sale represented 41% of BP's total assets. Part of this sale included half of the company's stake in TNK-BP (an investment in the Russian oil giant Rosneft). 

Rosneft is Russia's largest oil company, with 339 billion barrels of estimated and proven reserves. It produces 40% of Russia's oil and 20% of its refining capacity. The company is 69.5% owned by a state-owned oil company, putting BP's 19.5% remaining stake (and one board seat) at risk of government intervention should a sanction war commence.

Currently the market cap of Rosneft is $66.9 billion. Thus, BP potentially has $13.05 billion (13.4% of total company assets) at risk to the geopolitical machinations of Vladimir Putin. 

More worrisome than a mere $13 billion in equity, is the fact that BP's Rosneft share represents profit rights to 8% of Russia's oil production, which totals 830,000 bpd. According to BP's most recent investor update, this represents 26% of the company's total daily production. Rosneft also holds 33% of BP's total oil and gas reserves.

Readers should not misunderstand me. I am not saying that a total loss of its Rosneft assets is likely, nor that BP should be avoided as an investment. In fact, BP's chairman has recently reassured investors that Russia remains "very keen" on maintaining its existing relationships. I do, however, feel that potential investors should be aware of the geopolitical risk inherent in BP's shares.

Exxon's Russian assets
ExxonMobil is partnering with Rosneft to exploit Western Siberia's shale deposits, drill the Black Sea, and explore for offshore oil in the Arctic Ocean. This last joint venture represents the biggest potential for profit. The total deal may be worth $500 billion, and Vladimir Putin personally waived taxation for oil exports from the Arctic for 15 years. 

The terms of the deal, struck in 2011, call for Exxon to invest $2.2 billion in exploratory drilling in the Kara Sea (estimated to hold $36 billion barrels of recoverable oil). It must also invest $1.1 billion in Black Sea drilling and allow Rosneft to invest in North American oil projects, such as the Gulf of Mexico, Texas, Alaska's north slope, and the Alberta Tar Sands. In exchange, Exxon gains a 33% stake in the Kara Sea venture and, most importantly, the goodwill of the Russian government. 

Rosneft is making out very well in this deal, as it will be able to purchase a 30% stake in projects in the Gulf, Texas, and the Alberta Tar Sands. It will also gain a 25% stake in a natural gas liquids project on the Alaskan north slope. Rosneft's gaining access to investment opportunities in North America will likely help insulate ExxonMobil from harsh retaliatory sanctions (Rosneft will have its own investments to worry about losing).

Foolish takeaway
Both BP and ExxonMobil have billions of dollars at stake in Russian assets and joint ventures. Luckily for investors in these companies, while both companies would be hurt financially should Russia choose to freeze, seize, or cancel these projects, neither one would be fatally wounded. Of the two, ExxonMobil makes for the safer investment due to the company's closer ties with Rosneft and the Russian government. BP's financial injuries from the Gulf Coast oil spill are still being felt, and massive potential setbacks in Russia could cripple both the company's earnings and dividend growth for the foreseeable future.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.