Image: Alexei Nikolsky\TASS via Getty Images
Western oil and gas giants are, one by one, exiting their stake in the Russian fossil fuel sector—a series of moves that energy experts say could impose meaningful hits to the country’s oil and gas sector. First it was BP: On Sunday, the British fossil fuel corporation announced it would be exiting its 19.75 percent share in Rosneft, a Moscow-based petroleum company with a shady environmental record. Then, Norwegian energy group Equinor followed suit, announcing it would halt all business activity in Russia, including its partnership with Rosneft. On Monday morning, calls for Shell and Exxon to do the same with their stake in Russian oil mounted globally. By Monday afternoon, Shell announced it was out. Now, all eyes are on Exxon.
Exxon has deep ties with Russia; former CEO Rex Tillerson essentially became Donald Trump’s secretary of state based on his foreign policy “experience” with Exxon in Russia, and was notoriously reticent to call Vladimir Putin a war criminal or to support Russian sanctions. In 2012, Tillerson and Putin met for a signing ceremony for Exxon’s partnership with Rosneft.
The moves could result in a huge financial hit for the exiting companies: In cutting ties with Russia, BP is giving up both profit and one-third of its production capacity it reaped from the company. But CEO Bernard Looney said in a press release Sunday that the decision would prove beneficial in the long term. “Our immediate priority is caring for our great people in the region and we will do our utmost to support them. We are also looking at how BP can support the wider humanitarian effort,” Looney, who is leaving the Rosneft board of directors as part of the move, said in the statement.The move represents the end of a long era of profit from Russian markets for BP, and a historic moment for the Western oil and gas sector broadly, says Jonathan Elkind, senior research scholar at Columbia University’s Center on Energy Policy. Though BP has stayed mum about exactly how it will get rid of its shares in Russia — by forfeiture or by sale — either way, it means financial losses for the company.
“This represents a dramatic change from business as usual for that industry and for these companies,” he said. “This cannot have been an easy call for BP.” Anna Mikulksa, nonresident fellow for the Center for Energy Studies at Rice University, says each company’s decision was likely carefully thought through. Forfeiting ties with a company that’s been historically resistant to decarbonization could prove beneficial for BP’s image in the long term, for example, she says. The moves would also likely relieve global pressure on each company, including from the governments in countries where they operate. Even so, Mikulska says the hits the divestments pose to Russia oil are meaningful—U.S. oil and gas companies offer them the infrastructure and technological know-how required to continue drilling for oil in hard-to-reach places, she says. “The reason that Sakhalin projects are there is because the Western companies are there,” Mikulska said of the offshore oil and gas projects in the Sea of Okhotsk, of which Shell and Exxon both have stake. As such, a mass exodus from Russia could cause financial hits that interrupt the country’s oil supply, leading to global price increases that the Biden administration has attempted to avoid by neglecting to directly sanction Russia’s oil and gas sector. Any oil giants with remaining ties to Russia’s fossil fuel economy are likely weighing this consideration, she says—Exxon included. Elkind says Exxon would not be “at the top of the list” of corporations he’d expect to make the move, given its massive empire around the world, often in countries with poor records on human rights. Even so, the handful of companies that have already severed ties with Russia have already dealt a substantial blow.“This is a really, really big moment,” Elkind said. “It’s not a moment that any decision makers in Russia would have been hoping for.”