Shell to Exit Russia as US, UK and EU Move to End Russian Oil Imports
With global pressure mounting for boycotts against Russian oil in retaliation for the invasion of Ukraine, Shell became the first of the majors to announce plans to phase out the remainder of its Russian oil business. The company took the move as the EU and UK committed to dramatically reducing their dependence on Russian oil and gas shortly before the United States announced its ban on Russian oil and gas imports.
Responding to mounting calls and political pressures, President Joe Biden said the United States would target the vital oil and gas industry that drives the Russian economy. "Russian oil will no longer be acceptable at US ports and the American people will deal another powerful blow to Putin's war machine," said President Biden. He, however, warned that there "will be cost as well here in the United States," telling the American public that higher oil and gas prices would be the cost for standing with Ukraine and demonstrating the defense of freedom. The US, however, only imports a small fraction of its oil from Russia.
The UK, which has already closed its ports to Russian shipping, said that it would phase out Russian oil imports while also exploring options to end supplies of Russian gas. UK Secretary of State for Business, Energy and Industrial Strategy Kwasi Kwarteng said the strategy was designed to give industry time to establish alternative sources for energy products. Similarly, the EU is also set to announce commitments to phase out its dependence on Russian oil and gas well before 2030, according to reports from the Associated Press.
The oil industry had begun freezing assets and announcing plans to end Russian projects shortly after the invasion began. Now with the pressures building further, Shell became the first of the majors to announce its intent to withdraw from its involvement in all Russian oil and gas projects in a phased manner. This followed last week's announcement of Shell's intent to end its involvement in the Nord Stream 2 pipeline project and exit its equity partnerships with Gazprom and related entities. As an immediate first step, the company said it would stop all spot purchases of Russian crude oil while also closing its service stations, aviation fuels, and lubricant operations in Russia.
"We are acutely aware that our decision last week to purchase a cargo of Russian crude oil to be refined into products like petrol and diesel – despite being made with security of supplies at the forefront of our thinking – was not the right one and we are sorry," said Ben van Beurden, Chief Executive Officer of Shell. He also said any profits from the remaining Russian oil in Shell's system would be devoted to a fund targeted to provide aid to Ukraine.
Shell said it would also start a phased withdrawal from Russian petroleum products, pipeline gas, and LNG, while noting that it would be a complex challenge. "Changing this part of the energy system will require concerted action by governments, energy suppliers, and customers, and a transition to other energy supplies will take much longer."
The moves by Shell and anticipated similar actions by other majors come as the Russian oil industry is already largely in collapse. BIMCO, in its analysis of the potential impacts of the Ukraine war, said that European buyers had already appeared to be shying away from Russian crude oil. "It is being reported that as much as 70 percent of crude exports do not have a buyer despite being heavily discounted, wrote Niels Rasmussen, BIMCO's Chief Shipping Analyst. UK Minster Kwarteng echoed the view saying that "even without sanctions, nearly 70 percent of supplies are unable to find a buyer."