Exxon Mobil (XOM) Corp.’s dream of drilling in the Russian Arctic may risk running aground on the politics of Ukraine.

The company plans to start drilling in August in the Arctic’s remote Kara Sea – the centerpiece of Exxon’s global alliance with Russian state-controlled OAO Rosneft. (ROSN) The partnership, which includes shale exploration in Siberia and joint venture fields in Texas, will come under greater scrutiny after the U.S. placed sanctions on Rosneft’s Chief Executive Officer Igor Sechin.

“With Sechin being sanctioned it may complicate relations for Rosneft with Western companies,” said Mattias Westman, who oversees about $3.3 billion in Russia assets as CEO of Prosperity Capital. “Maybe some transactions will be threatened as a result and perhaps Russia will counter and they will be less keen for American companies to work on Arctic projects.”

Patrick McGinn, a spokesman for Exxon’s exploration arm, said on April 25 that the company’s Kara Sea project was on schedule. He declined to make any additional comment after the U.S. extended the reach of sanctions yesterday.

Rosneft assures its “shareholders and partners, including those in America,” that cooperation won’t be hurt by sanctions, Sechin said in a statement yesterday. “Our cooperation won’t suffer.”

A U.S. Treasury official said yesterday U.S. companies can still do business with Rosneft.

That said the sanctions leaves Exxon in business with a group headed by a man who’s not allowed into the U.S. The exploration with Exxon is the most high-profile of several drilling ventures Rosneft plans with international oil companies including Norway’s OAO Statoil and Eni SpA (ENI) of Italy.

Potential Prize

The Arctic well will be among the most expensive Exxon has ever drilled, costing at least $600 million. The spending is justified by the potential prize. Universitetskaya, the geological structure being drilled, is the size of the city of Moscow and large enough to contain more than 9 billion barrels, a trove worth more than $900 billion at today’s prices.

The only way to reach the prospect is a four-day voyage from Murmansk, the largest city north of the Arctic circle. Everything will have to shipped in – workers, supplies, equipment – for a few months of drilling, then evacuated before winter renders the sea icebound. Even in the short Arctic summer, a flotilla is needed to keep drifting ice from the rig.

All this means drilling the prospect will cost more than $600 million, more than triple typical offshore exploration wells in other parts of the world, according to people in the industry familiar with the plans.

Huge Risks

“Exxon is trying to plant its flag in the Arctic, which could be a future growth point in global oil production,” Alexander Nazarov, an oil and gas analyst at OAO Gazprombank, said before sanctions were announced. “There are huge risks: ice, freezing temperatures, limited season for work. There’s no guarantee of finding anything.”

This year’s well is only the first Arctic foray in a joint Exxon-Rosneft campaign expected to last years and account for a large chunk of Exxon’s $3 billion-a-year exploration budget. The U.S. company, which holds 33 percent of the Arctic licenses, carries Rosneft’s costs through exploration and the development of any discoveries, recouping the cash once production starts.

Universitetskaya is just one prospect in three license blocks covering 49,000 square miles of Arctic Ocean, an area the size of Pennsylvania. The companies have already identified 22 additional prospects in the venture’s initial exploration phase.

West Alfa

The Exxon-Rosneft partnership has Seadrill’s West Alfa rig under contract through the second quarter of 2016 with an option to extend the contract into 2017, Alf Ragnar Lovdal, CEO of North Atlantic Drilling Ltd. (NADL), a company controlled by Seadrill, said in a Feb. 25 conference call. The rig, which Exxon has previously used in the North Sea, is being refitted in Norway for the job.

Exxon and Rosneft also have a $300 million Siberian shale drilling project starting this year, further Arctic wells next year and plans for a Black Sea well in 2015 targeting a deepwater prospect off the coast near Sochi’s Olympic village. They’ll install a new platform this year to increase production at an oil venture near Sakhalin Island in Russia’s Far East.

Rosneft shares rose as much as 2.4 percent in Moscow after hitting a 10-month low yesterday after sanctions against Sechin were announced. Exxon gained 0.8 percent in New York.

Investment Grade

Rosneft’s rating for foreign currency debt was downgraded by Standard and Poor’s yesterday one level to BBB-, the lowest investment grade.

Developing an oil industry in Russia’s Arctic will take decades, meaning international oil companies will be wary about a short-term crisis in Russia-U.S. relations jeopardizing their relationship with Rosneft and other producers.

Europe’s largest oil companies including BP Plc (BP/), Royal Dutch Shell Plc (RDSA) and Total SA (FP) all have investment plans in Russia are yet to show any sign of backing away. Shell CEO Ben van Beurden met Putin earlier this month in Moscow to discuss expanding a gas-export plant.