War May Change How We Rely on Big Oil

Energy companies’ reactions to Russia’s war on Ukraine

Image by Redhawk Investment Group from Pixabay

Economic inequality, war, abuse of natural resources and our living environment, and climate change have always been related. What is happening now, following Russia’s invasion of Ukraine, shows it clearly.

As the United States and Europe place economic sanctions on Russian banks and individuals, private business interests are becoming skittish about Russian oil, even when the sanctions don’t yet directly target oil. Buyers of oil worry that the burden falls on them — both to vet the product to ensure that it isn’t forbidden in some way by the existing sanctions and to bet that it will remain permitted under any future sanctions — and they find it easier to go elsewhere. When a product doesn’t have buyers, companies have to rethink what they produce.

How Energy Companies Are Pulling Back

Exxon, Shell, and BP

Exxon had only one remaining project in Russia, the Sakhalin-1, in which it had a 30 percent stake, and it said on March 1 that it would pull out of the project, leaving it to the project’s remaining backers (ONGC Videsh, SODECO, and Rosneft) to decide what to do with it. Shell pulled out from its 27.5 percent stake in the Sakhalin-2. BP said it would divest from Rosneft.

Nord Stream 2 AG and Gazprom

The Swiss-based company Nord Stream 2 AG, which is owned by the Russian company Gazprom, had recently finished building the Nord Stream 2 gas pipeline which was going to send gas from Russia to Germany. (Germany had not yet cleared the pipeline to begin operating.) After Russia’s invasion of Ukraine, however, Nord Stream 2 fired all its workers in Zug, Switzerland and is reportedly considering bankruptcy. Shell says it will no longer work with Gazprom, including on the Nord Stream 2 pipeline.

Lukoil

Over 2 percent of the world’s crude oil is produced by the Russian company Lukoil. Its chair and CEO, Vagit Alekperov, is among Russia’s richest individuals. Shortly after Russia invaded Ukraine, Lukoil became a penny stock on the London Stock Exchange, and the company’s board of directors asked for an end to the…