Ukrainian crisis: the exodus of companies from Russia cancels 30 years of investment

The invasion of Ukraine causes a mass exodus of business from Russia, reversing three decades of Western and foreign business investment following the collapse of the Soviet Union.

The list of those cutting ties or revising their operations is growing by the hour as foreign governments tighten sanctions on Russia, close airspace to its planes and block some banks from the SWIFT messaging system. With the fall of the ruble and the United States banning transactions with the Russian central bank, operating in Russia has become deeply problematic. Some companies have concluded that the risks, both reputational and financial, are too great to continue.

For some companies, the decision to leave Russia is the conclusion of decades of lucrative, albeit sometimes burdensome, investments. Foreign energy majors have been pumping in money since the 1990s. Russia’s biggest foreign investor, BP Plc, led the way with its startling announcement on Sunday that it would exit its 20% stake in oil-controlled Rosneft. the state, a move that could result in a $25 billion write-off and cut its global oil and gas production by a third.

The stake was the product of a long battle in 2012 for control of TNK-BP, a joint venture between the oil giant and a group of billionaires. He is now considering whether to sell his stake back to Rosneft, according to people familiar with the matter.

Shell Plc followed on Monday. Citing Russia’s ‘senseless act of military aggression’, he said he was ending his partnerships with state-controlled Gazprom, including the Sakhalin-II liquefied natural gas facility and its involvement in the Nord Stream 2 gas pipeline project, which Germany blocked last week. Both projects are worth around $3 billion. Kwasi Kwarteng, the UK business secretary, met Shell CEO Ben van Beurden on Monday to discuss the company’s involvement and welcomed the move.

“Shell made the right call,” he tweeted. “There is now a strong moral imperative for British business to isolate Russia. This invasion must be a strategic failure for Putin.

Equinor ASA, which is Norway’s largest energy company and majority state-owned, has also announced that it will begin to withdraw from its joint ventures in Russia, worth around $1.2 billion. “In the current situation, we see our position as untenable,” CEO Anders Opedal said.

French company TotalEnergies SE, involved in major liquefied natural gas projects in Russia, said it would no longer provide capital for new developments in the country, a modest concession to mounting political pressure. Among other major energy companies, Exxon Mobil Corp. oversees the Sakhalin-1 project with Rosneft and Japanese and Indian companies.

“I wouldn’t be surprised if you saw more release announcements,” said Allen Good, industry strategist at Morningstar.

When the Soviet Union collapsed, foreign companies saw huge opportunities – a massive new market of millions of consumers as well as minerals and oil – and flocked to buy, sell and partner with companies. Russians.

With the invasion of neighboring Ukraine by Russia, this trend came to an abrupt halt. Norway’s sovereign wealth fund, the world’s largest, said it is freezing Russian assets worth around $2.8 billion and will come up with an exit plan by March 15.

Banned from football

In a move that will reverberate far beyond the business community, world football body FIFA and European governing body UEFA have banned Russian teams from playing. “Football is fully united here and in full solidarity with everyone affected in Ukraine,” he said in a joint statement. The entertainment world has also reacted, with Sony Pictures suspending new film releases in Russia, according to Nikkei, which cited a statement from the company. A boycott of one of Russia’s most iconic products, vodka, is also gaining momentum, with at least three US governors. ordering the removal of Russian-made or branded spirits from stores. One of New Zealand’s biggest liquor chains pulled thousands of bottles of Russian vodka out of stock, filling the empty shelves with Ukrainian flags.

Mark McNamee, European director of consulting firm FrontierView, was in Moscow two weeks ago to speak to leaders about the potential fallout from an invasion. Many ignored the worst-case scenarios, he said, meaning they weren’t necessarily prepared for what happened.

Many companies will struggle to support local operations given the SWIFT ban and capital controls, he said. Companies in the energy or commodities sectors or those selling to the Russian government will run the potential risk of being perceived as “profiteering from the war”.

Consumer goods companies with extensive operations and local production in Russia cannot easily exit, even if they want to, but face financial turmoil. Ahead of last week’s invasion, Danone SA, which runs Russia’s biggest dairy company and has operated in Ukraine for more than 20 years, said it was putting additional plans in place to prepare for any military escalation.

Chief Financial Officer Juergen Esser said the company is trying to source more local ingredients for its products in both markets, where the vast majority of raw materials are already domestically sourced. Danone entered the Russian market three decades ago. The country represents about 5% of the company’s net sales and Ukraine less than 1%.

Carlsberg A/S is Russia’s largest brewer through its ownership of Baltika Breweries. The majority of Baltika’s supply chain, production and customers are based in the country, limiting the direct impact of many sanctions, a Carlsberg spokeswoman said. The company has limited its exports and imports to Russia, where Carlsberg employs 8,400 people, but it is currently not possible to estimate the extent of the direct or indirect consequences of the sanctions, she said. It employs 1,300 workers in Ukraine, where last week it halted operations at its breweries and sent workers home.

Foreign companies could be pushed back by the Russian government, which could encourage boycotts or – in an extreme case – a decision to seize assets, McNamee said.

“If you have iconic brands from Italy, Germany, the UK and America, you are ripe for retaliation from the Russian government,” he said.

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