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The exodus

Western businesses pull out of Russia

Abandoning the country is easier for some firms than others

Mar 2nd 2022

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IT TOOK MORE than 30 years for BP, a British energy company, to build its
Russian business. It took less than four days to decide to dismantle it. As
Vladimir Putin’s forces invaded Ukraine early on February 24th, the logic of BP’s
20% stake in Rosneft, Russia’s state-owned oil giant, began to collapse. BP’s
board met to discuss the matter on February 25th; later that day Britain’s
business secretary, Kwasi Kwarteng, expressed the government’s concern to
Bernard Looney, BP’s boss. By February 27th the board was ready to make its
decision public: BP ould sell its stake in Rosneft Mr Loone has resigned from
decision public: BP would sell its stake in Rosneft. Mr Looney has resigned from
Rosneft’s board (as has his predecessor, Bob Dudley). The company may face a
write-down of up to $25bn.

Mr Putin’s war has prompted a reckoning for multinational firms. Russia

presents a host of risks, from reputational damage to logistical disruption and
the peril of violating sanctions. For many firms disentangling from Russia, a
middling market, will do little damage to their broader business. For others it
will be financially painful and logistically difficult.

Many other multinationals have, like BP, spent decades scouring for opportunity
in Russia. In 1974 Pepsi became the first Western product made and sold behind
the Iron Curtain. Disney hoped to charm sullen Soviets with screenings of “Snow
White” and “Bambi” in Moscow and Leningrad in 1988. More companies arrived
after the collapse of the Soviet Union—Danone, a French yogurt-maker, peddled
its snacks from a store on Tverskaya Street in Moscow in 1992. BP opened its first
petrol station in 1996.

Now companies are racing to devise new strategies for an uncertain era. The
most decisive breaks with Russia came from entities with the least to lose.
Norway’s sovereign wealth fund said it would freeze all investments in Russian
equities—which account for a piddling 0.2% of its portfolio. Companies with
larger exposures to the Russian market are more circumspect. Renault, a
carmaker, and Danone earn 9% and 6% of revenue in Russia, respectively, and
have announced no plans to scale back.

Many Western businesses find themselves somewhere in between. Their

response is similarly middling: a pause rather than a rupture. UPS and FedEx,
two American logistics companies, have suspended deliveries to Russia. CMA
CGM, Maersk and MSC, three European shipping giants, said they would not sail
there. Bain, Boston Consulting Group and McKinsey, three management
consultancies, are rethinking their business in Russia. Boeing is suspending
deliveries of parts, maintenance and technical support for Russian airlines that
use its aeroplanes.

Some of these actions were doubtless provoked by companies’ fears that they
might fall foul of an expanding array of Western sanctions against Russia. Volvo,
a Chinese-owned carmaker based in Sweden mentioned “potential risks
associated with trading material with Russia, including the sanctions imposed
by the EU and US” as a reason for suspending sales in Russia.
 y g

But companies are fielding explicit or implicit demands from their home
governments and, in some cases, domestic consumers in effect to boycott
Russia even beyond the scope of official measures. On March 1st Apple stopped
selling its products in Russia. Disney and other Hollywood studios said they will
delay the release of films on Russian screens. Google, Meta and Twitter are
seeking to limit Russian propaganda on their online platforms.

Some of these moves present quandaries for companies. Any decisions by tech
firms in Russia, for instance, may complicate their situation in other
controversial markets. Apple’s tough stance over the Ukraine war highlights its
historically pliant position in China, a giant market that has admittedly not
invaded any neighbours but whose rulers are accused of human-rights abuses.
McKinsey’s declaration that it would not do business with “any government
entity” in Russia comes after years of criticism for its work with state-backed
enterprises there and in China.

Complying with demands from governments seeking to punish Mr Putin

presents practical problems for firms, as well as moral and reputational ones.
Non-Russian companies that lease aircraft to Russian airlines are a prime
example. They have more than 500 jets and turboprops in the country, according
to Cirium, a consultancy. Those lessors have the unenviable task of trying to
recover the planes before sanctions against the supply of aircraft take effect later
this month.

It is energy companies that have the most at stake. For years international oil
firms provided capital and expertise to their Russian partners, who controlled
the reserves and had the local know-how. In a sign of companies’ enthusiasm for
Russia, European supermajors maintained investments there even as they
trimmed their oil business elsewhere. Last year Rosneft accounted for 50% of
BP’s reserves and 11% of operating profits. Shell, a rival British giant, operates
joint ventures with Gazprom, Russia’s state-owned gas company. For
TotalEnergies, a French company, Russia could supply 17% of growth in output
over the next five years, reckons Wood Mackenzie, an energy consultancy.

TotalEnergies, which has long tolerated risky jurisdictions, is resisting calls to

exit. But energy firms are re-evaluating their positions in real time. Three other
big firms—Shell, Equinor of Norway and ExxonMobil of America—have all said
they would follow BP’s lead and leave. How quickly that might happen is another
question E onMobil has cautioned that safel e iting its project in Russia’s far
question. ExxonMobil has cautioned that safely exiting its project in Russia s far
east would take time. Selling stakes in joint ventures or in Rosneft itself may
prove difficult, particularly if Russia’s government maintains the ban it has just
imposed on the sale of foreign-owned Russian assets in order to stanch capital
flight. The moral and reputational case for firms to leave Russia will become
stronger the longer the war goes on. It may also become financially and
logistically harder.

Our recent coverage of the Ukraine crisis can be found here

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