Western companies largely exiting from Russian market midst sanctions

The number of Western companies looking to exit from Russia is growing with energy giants BP, Shell, HSBC and the world’s biggest aircraft leasing firm AerCap joining the list.

Following Russia’s invasion of Ukraine, Western countries have slapped punitive economic sanctions among a raft of measures to restrict Moscow’s ability to use its $630 billion foreign reserves.

The Russian economy has started feeling the impact of the sanction with the rouble plunging to a record low on Monday, while the Russian central bank doubled its key interest rate to 20%, and closed the stock and derivative markets.

In a statement energy giant Shell said, it would exit all of its Russian operations, including the flagship Sakhalin 2 LNG plant in which it holds a 27.5% stake.

“We cannot – and we will not – stand by,” said Shell’s CEO Ben van Beurden in a statement. He went on to add, the company was talking to governments on securing energy supplies to Europe.

Mirroring the move, BP , Russia’s biggest foreign investor said, it was abandoning its 20% stake in state-controlled Rosneft at a cost of up to $25 billion, cutting its oil and gas reserves by 50%.

Energy major Equinor also said, it would start divesting its joint ventures in Russia. 

These development places a spotlight on Western companies who are divesting their stakes in Russian oil and gas projects.

Impact of sanctions on Russian economy

With Western countries cutting some Russian banks from SWIFT, large parts of the Russian economy have become no-go zones for Western banks and financial institutions as a result the European arm of Russia’s biggest lender Sberbank warned that it faces failure after a run on its deposits.

In a statement British bank HSBC said it has started to wind down relations with a host of Russian banks including VTB, Russia’s second-largest bank which has been targeted by sanctions.

Even Switzerland, known for its neutrality said, it was adopting European Union sanctions and freezing assets of some Russian individuals and companies.

Nasdaq Inc and Intercontinental Exchange’s NYSE have temporarily halted trading in stocks of Russia-based companies listed on their exchanges, according to their websites.

Global automakers including General Motors Co, Daimler Truck, and Volkswagen have suspended deliveries of cars to dealers in Russia; Swedish automaker Volvo and GM said they would suspend exports to Russia.

“Deliveries are to resume as soon as the effects of the sanctions imposed by the European Union and the United States have been clarified,” said VW’s spokesperson.

All of these may not be sufficient given the complexity of the conflict and sanctions process.

“We are likely to be in this environment of a very complicated, multipronged, multifaceted sanctions regime for months if not years,” said Marcus Thompson, a London-based partner at Kirkland & Ellis.

Singapore-headquartered container shipping company Ocean Network Express said, it has suspended bookings to and from Russia while Maersk said it was considering doing the same.

Shares of several companies which have exposure to the Russian market saw their shares tumble. Nokian Tyres it was withdrawing its 2022 outlook and was shifting some production from Russia to Findland. Shares of Societe Generale which owns Russia’s Rosbank, and carmaker Renault, which controls Russian carmaker Avtovaz, also fell.

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