Back in April I explained how harsh western sanctions against Russia could hurt two major oil giants, BP (NYSE:BP) and ExxonMobil (NYSE:XOM). Well, the US and EU have now greatly strengthened those sanctions, threatening lucrative deals for these and other oil related high-yield/dividend growth stocks such as Baker Hughes (NYSE:BHI), Halliburton (NYSE:HAL), and Schlumberger (NYSE:SLB).

Let's examine these recent events to see what they mean for these companies and their dividend growth rates.

Sanctions against Russia strengthened
In April, the US and EU imposed sanctions banning the transfer of oil technology that would help Russia to exploit its shale oil deposits and deep water arctic oil reserves. 

On September 12 these sanctions were strengthened against five specific Russian oil firms: Gazprom, Lukoil, Rosneft, Surgutneftegaz, and Transneft. In addition to banning the export of fracking technology and the lending of money to these firms, the US Treasury Department sent a letter to US companies operating within Russia telling them they had until September 26 to "wind down applicable transactions with these entities." 

The cutting off of fracking and deep-water drilling technology, as well as the loss of $300 billion to $500 billion in previously projected direct investment from western oil firms, is a major blow to Russia's oil industry, which faces the prospect of a 10% decline in its oil production by 2020 unless it can exploit new shale oil and arctic resources. 

What's at stake for western oil firms?
BP CEO Bob Dudley stated in April that BP, which owns 19.75% of Russian oil giant Rosneft, would continue to work with the company despite sanctions. He held true to his word, with BP signing a $1.5 billion, five year deal to deliver 12 million tons of oil products to the company on June 27. Why would BP, a British company, flout sanctions and keep doing business with Rosneft? The answer is twofold. 

First, BP's stake in Rosneft means that about 12.5% of its total assets are tied up in Russia, including rights to 8% of Russian daily oil production. In fact, through its Rosneft stake, BP has 26% of its daily oil production and 33% of its oil and gas reserves reserves at risk should Russia decide to seize the assets of foreign companies as retaliation over western sanctions. That is not an idle threat, as on September 25 Russia's legislature announced a bill designed to let the government do just that. 

The second reason for BP wanting to play nice with Rosneft is Russia's enormous potential as an oil production growth catalyst.

Russian shale oil potential

Bazehnov Shale Oil Resevoir
Source: US Geological Survery

BP and oil service companies  such as Baker Hughes, Halliburton, and Schlumberger, all major suppliers of fracking technology and expertise to the Russian oil industry, might miss out on one of the world's greatest untapped oil shale formations should sanctions continue. This is because part of Russia's long-term plan to expand its oil production, which provided 52% of Russia's federal budget funding in 2013, involves exploiting shale oil formations such as its mammoth Bazhenov shale formation (above map), which is the size of California and Texas combined. This formation is estimated to hold 75 billion barrels of recoverable oil, 10 times the reserves of North Dakota's prolific Bakken shale.

In fact, all told Russia is estimated to hold $7.58 trillion worth of oil and gas reserves, and companies such as ExxonMobil are eager to get a slice of this very large energy pie. For example, according to Barclay's Capital, Exxon had been planning to invest $51.7 billion in Russia this year alone

Which brings me to ExxonMobil's potential lost opportunity. 

What Exxon might lose due to sanctions
In 2011 ExxonMobil signed a $3.2 billion deal with Rosneft to explore for oil in the Kara sea, part of the Arctic Ocean. This is significant, because Ernst and Young estimates that the Arctic Ocean contains up to 13% of the world's remaining undiscovered oil and 30% of undiscovered gas reserves. To put that in perspective, that's up to 90 billion barrels of oil (worth about $1 trillion) and 1.6 trillion cubic feet of natural gas (worth between $20 billion and $28 billion if sold to Europe or Japan at current prices).

Japan Liquefied Natural Gas Import Price Chart
Japan Liquefied Natural Gas Import Price data by YCharts

In fact, when taking into account the potential for Exxon to partner with Russian oil companies on shale oil and deep-water arctic drilling, some experts believe the company could have struck $500 billion worth of deals over several decades. 

An excellent example of the kind of opportunity Exxon missed came on September 27 when Rosneft, with whom Exxon had recently completed drilling the first offshore well in the Kara sea, announced it had discovered what it believes to be 714 million barrels of oil. Exxon was able to gain a 14 day extension to wind down the project (for safety reasons), but nonetheless was forced to shut down further exploration due to sanctions.

Now, Exxon investors shouldn't misunderstand me. I am not saying that Exxon losing lucrative deals in Russia means that the company's short-term earnings or dividend growth is at stake. In fact, Exxon's primary involvement in Russia until recently was on Sakhalin Island, where it produced a mere 50,000 barrels/day. That's just 2.4% of Exxon's daily output of 2.1 million barrels/day. 

However, the problem for Exxon is in the fact that it's struggling to grow production, which declined 6% year over year in the second quarter. Its partnerships in Russia represented significant growth opportunities that now might be lost.

Russian sanctions: long-term lost opportunity
For all of these oil and oil service companies, Russian sanctions aren't the main risks that investors or potential investors should be concerned with. The missed opportunities represented by Russia's trillions in oil reserves are less likely to affect earnings and dividend growth in the short- to medium-term than the slowing global economy and potential for long-term depressed energy prices. 

However, in the long-run lucrative partnerships and contracts with Russian oil firms do represent significant growth potential for these five companies, and the loss of that growth catalyst may result in lower earnings growth than is currently projected.

Company Yield 5 Year Projected Annual Earnings Growth Rate 5 Year Projected Annual Dividend Growth Rate
BP 5.60% 8.30% 2.44%
ExxonMobil 3% 3.88% 7.47%
Halliburton 1.10% 21% 9.03%
Baker Hughes 1.20% 34.80% 11.44%
Schlumberger 1.70% 17.03% 16.05%
S&P 500 2.04% 12.54% 5.05%

Sources: Yahoo Finance, Multpl.com, Fastgraphs

Bottom line
Stronger sanctions against Russia are likely to negatively affect not only Russia's oil industry, but also potentially many western oil companies and oil service providers. While dividend investors in companies such as ExxonMobil, BP, Baker Hughes, Schlumberger, and Halliburton shouldn't be overly concerned about sanctions in terms of short-term dividend security, you may want to keep an eye on earnings growth over the next few years to see how much of an impact these sanctions may have should they continue. 

Adam Galas has no position in any stocks mentioned. The Motley Fool recommends Halliburton. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.