Exxon Mobil Corp.’s work on a $700 million Arctic well in Russia could be stopped before it’s finished under new U.S. and European Union sanctions that outlaw the drilling partnership.

New sanctions ban U.S. and EU companies from working with Russian officials or companies to find or produce crude from deep seas, shale fields or the Arctic. The decrees, reported earlier this week by Bloomberg, were imposed today, the 35th day of drilling at the 9 Bbbl Universitetskaya prospect off Russia’s northern coast that was scheduled to last for 70 days.

American and European explorers such as Exxon Mobil and Shell, which is drilling in Siberian shale rock formations, will have to act fast to avoid violating the bans, said Mark Herlach, an international lawyer and partner at the Sutherland Asbill Brennan LLP law firm in Washington. U.S. companies have until Sept. 26 to shut down sanctioned operations with Russian partners, according to the new rules.

“The purpose of the sanctions is penalizing Russian interests for their actions in Ukraine, so there’s no policy reason to allow a delay,” Herlach said. “The high likelihood is that there is no grace period” for the oil companies.

The U.S. and EU have been ratcheting up economic pressure on Russian President Vladimir Putin to halt support for pro- Russian separatists in eastern Ukraine since March. In an exclusive report Sept. 10, Bloomberg News spelled out the widest, hardest-hitting sanctions the EU and U.S. were preparing to impose.

Exxon Mobil ‘Assessing’

Exxon Mobil, which began drilling the well last month as part of a $3.2 billion venture with Moscow-based OAO Rosneft, declined to say whether it has begun transporting employees or contractors from the drilling project, or if it has plans in place to do so. “We are assessing the sanctions,” a spokesman said in an e-mailed statement.

For Exxon Mobil, whose $410 billion market valuation makes it the world’s largest energy producer, Russia represents the second- biggest exploration prospect worldwide. The Irving, Texas-based company holds drilling rights across 11.4 million acres in Russia, an area only eclipsed by its 15.1 million U.S. acres.

Exxon Chairman and CEO Rex Tillerson is counting on Russian oil discoveries to reverse a trend of stalled exploration and escalating costs to pump crude and natural gas from the ground. Production from the company’s wells fell in 2012 and 2013 and is expected to be flat this year.

Costs Rising

Exxon Mobil found commercial quantities of oil or gas in 67% of the exploratory wells it drilled worldwide in 2013, unchanged from 2012, according to a filing with the U.S. Securities and Exchange Commission. At the same time, Exxon Mobil’s costs to produce the equivalent of a barrel of crude jumped to $11.48 last year from $9.91 in 2012.

Fighting in Ukraine has killed more than 3,000 people this year, driven 1 million from their homes, toppled a president and heightened tensions between Russia and its former Cold War foes. Putin’s regime threatened to increase its own retaliatory sanctions against the U.S. and Europe today, singling out automobiles and textile imports as potential targets.

The Universitetskaya well, about 113 km (70 miles) off the coast of Novaya Zemlya, is the first of 40 offshore Arctic prospects Exxon and Rosneft plan to drill by the end of 2018. The partners are using a floating rig leased from a unit of Bermuda-based Seadrill Ltd. to drill the well.

Extended Pain

The latest round of sanctions imposed by the U.S. and EU cut off Russia’s access to technology and expertise needed to find and harvest oil from Arctic, deepwater and shale fields. The measures also curtailed the Russian energy sector’s access to capital markets and forbade sales of so-called dual use equipment to defense firms.

The oil-industry sanctions “impose pain on Russia on a five- to 10-year horizon,” said Anna Belova, lead Russian oil and gas analyst at GlobalData Ltd. The exploration projects disrupted or delayed by the sanctions wouldn’t turn into productive oilfields for years, she said.

Schlumberger Ltd., the world’s largest provider of oilfield services, last month warned that sanctions on Russia would shave 3 cents off third-quarter earnings. The Paris- and Houston-based company relies on Russia for 5 percent to 7 percent of annual sales, according to RBC Capital Markets.

The restrictions also are expected to hurt Halliburton Co., Baker Hughes Inc. and Weatherford International Plc, which compete to help oil companies drill wells and maximize output from fields. The companies each generate 4% to 5% of annual sales from Russia, according to RBC.