Oil companies and City and law firms are among many working round the clock to sever ties with Russian-owned businesses
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Pressure is mounting on more British businesses to sever ties with Russia after oil giant Shell became the latest company to quit the country, ditching gas projects with the country’s state energy firm Gazprom.
Shell on Monday said it would exit its 27.5% stake in the Sakhalin-2 liquefied natural gas facility, its 50% stake in Salym Petroleum Development and the Gydan energy venture.
A day before, BP announced plans to offload its 19.75% investment in the state oil behemoth Rosneft following international outrage.
Shell has been one of the Russian oil industry’s most important partners thanks to a “global cooperation” pact with Gazprom through which Shell offered expertise and equipment for offshore fossil fuel exploration. It also held a 10% stake worth $1bn in Gazprom’s planned Nord Stream 2 pipeline, which was due to double the flow of Russian gas to Germany, until Berlin called a halt to it earlier this month. It will also exit that project.
“Our decision to exit is one we take with conviction,” Shell’s chief executive, Ben van Beurden, said. “We cannot – and we will not – stand by.”
Shell said its Russian projects are worth about $3bn, while BP said it will incur a $25bn writedown on its decision to offload its Rosneft stake.
“We are shocked by the loss of life in Ukraine, which we deplore, resulting from a senseless act of military aggression, which threatens European security,” said van Beurden.
After decades of integration that led to dozens of Russian firms listing on London’s Stock Exchange and City firms spending billions of pounds on Russian shares, British firms are scrambling to decouple from their Moscow counterparts.
Countries around the world are introducing an unprecedented package of sanctions against Russia that have so far hit the country’s central bank, airlines, energy firms, and major commercial lenders including VTB and Bank Rossiya.
BP and Shell’s costly decisions to quit a country they have spent years cultivating and ploughed billions of pounds into reflect an unprecedented severing of economic ties – one that will have huge ramifications for the global energy industry. Similarly vexed decisions are having to be taken at businesses from City banks and law firms to consumer goods giants.
One banking executive told the Guardian that he had been working around the clock for more than a week to ensure the sanctions measures, including the blocking of some Russian banks from accessing the Swift payments system, were being enforced. The City had expected “incursion” on Ukrainian territory, he said. “No one expected a full-blown invasion.”
It means firms across the City are having to review millions of client transactions, investments and fundraising deals. Dedicated sanctions teams at lenders including Goldman Sachs worked overtime this weekend to help implement the blacklist, while JP Morgan Chase bulked up its sanctions enforcement team in London and the US to ensure the money taps were being turned off.
Goldman Sachs revealed on Friday that its exposure to Russia was worth more than $1bn (£793m), over half of which was related to credit and loans to Russian-linked businesses. It is unclear whether the Wall Street bank intends to exit those positions.
“The banks have extensive trading relationships with companies that transact with Russia, not just from the UK but from across Europe,” said Benjamin Ensor, director of research and strategy at fintech consultancy 11:FS. “How decoupling works, and how quick it is, depends on the extent of sanctions and how much the conflict escalates.”
Even implementing blocks on Swift – the main messaging system used to make cross-border payments – has been “a maze”, the executive said. “It’s not as simple as turning the system on or off,” he added. “A process can be in place, but more capillaries will reveal themselves as time goes on.”
Meanwhile, the Investment Association trade body has been contacting fund managers as they try to assess their exposure to Russia and offload stakes in sanctioned firms. But some of its members are already struggling. Abrdn, which manages £465.3bn in assets for its clients, has so far failed to sell its £5m stake in Rosneft due to new Russian rules that restrict foreigners from trading on its Micex stock exchange.
Widening sanctions could cause problems for a broad array of British companies. Russia’s large population of 144 million people has made it an attractive market for some of the UK’s best-known consumer brands, including Marks & Spencer, which has 32 shops in Moscow alone.
Unilever, the London-headquartered consumer goods company, which sells products ranging from Dove soap to Marmite, has a subsidiary in Russia with registered offices in Moscow and Omsk, but has declined to give any details of its employee numbers or its operations in the country.
While its Ben & Jerry’s ice-cream brand earlier this month tweeted criticism of the US government’s approach to talks with Russia, Unilever chief executive Alan Jope criticised the intervention. The FTSE 100 firm only said it was “watching with concern and focusing on the safety of our people”.
London-listed mining companies are also in the spotlight after politicians in the UK and the US said they would target resource-heavy industries with fresh sanctions.
While FTSE 100 member Polymetal International, which operates goldmines in Russia and Kazakhstan, has not been named as a potential target for sanctions, its shares plummeted by 56% on Monday.
Shares in steel producer Evraz, which is listed on the FTSE 100 but has major mining and processing operations in Russia, also fell by 29%. Before the Russian invasion of Ukraine, lawyers for Evraz’s largest shareholder, Chelsea football club owner Roman Abramovich, disputed that he or Evraz fitted the criteria for potential designation for sanctions.
Other companies that have quietly built up investments in the Russian market in recent years are expected to start disclosing their positions – and any related financial risks – to investors over the coming weeks.
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