/ 8 March 2022

Shell announces it will exit Russia

Russia Builds Ruble Defense After Crude Rout
Petroleum giant Shell announces its intention to withdraw from Russia’s oil and gas market. (Andrey Rudakov/Bloomberg via Getty Images)

Petroleum giant Shell has announced its intention to withdraw from Russia’s oil and gas market. This comes as Moscow’s escalating aggression on Ukraine has seen oil prices skyrocket amid expectations that the West will ban Russian crude imports from the world’s second-largest producer.

In a statement on Tuesday, Shell laid out its plans to exit — in a phased manner — from its involvement in all Russian hydrocarbons, including crude oil, petroleum products, gas and liquefied natural gas. As an immediate first step, the company will stop all spot purchases of Russian crude oil. It will also shut its service stations, aviation fuels and lubricants operations in Russia.

Shell joins the 250 companies that have announced their withdrawal from Russia.

The announcement comes just days after Shell was criticised for buying a consignment of oil from Russia. On Friday, Shell purchased 100 000 metric tons of crude from Russia, reportedly at a highly discounted price. The purchase did not violate Western sanctions, which so far have targeted Russia’s financial system.

In Shell’s statement, the company’s chief executive Ben van Beurden apologised for the purchase, saying it “was not the right one and we are sorry”. 

“As we have already said, we will commit profits from the limited, remaining amounts of Russian oil we will process to a dedicated fund,” he added.

Shell, Van Beurden noted, has held continuous discussions with governments about the need to disentangle from Russian energy flows, while maintaining energy supplies. 

Russia has threatened to close its main gas pipeline to Germany if the West goes ahead with a ban on its oil. This prospect, Van Beurden said, further illustrates “the difficult choices and potential consequences” of the West’s flight from Russia.

The phased withdrawal from Russia’s energy market “is a complex challenge”, Van Beurden said. Changing this part of the energy system, he said, “will require concerted action by governments, energy suppliers and customers and a transition to other energy supplies will take much longer”.

“These societal challenges highlight the dilemma between putting pressure on the Russian government over its atrocities in Ukraine and ensuring stable, secure energy supplies across Europe,” Van Beurden added.

“But ultimately, it is for governments to decide on the incredibly difficult trade-offs that must be made during the war in Ukraine. We will continue to work with them to help manage the potential impacts on the security of energy supplies, particularly in Europe.”

Crude futures rose 2% to near $122 a barrel on Tuesday, having touched a new $130 in the previous session, the highest level since 2008. 

Elevated oil prices — which will probably worsen if the West bans Russian oil imports, putting greater strain on energy supplies — will cause global inflation to rise even further than current record levels.

The annual inflation rate in the United States accelerated to 7.5% in January 2022. This was the highest since February 1982 and was the result of soaring energy costs, labour shortages, and supply disruptions, all worsened by a strong recovery in demand. 

In the Eurozone, consumer inflation rose from 5.1% in January to 5.8% year-on-year in February, on the back of surging energy prices. This was the highest since the creation of the euro and well above the European Central Bank’s inflation target of 2%.

The Bureau for Economic Research (BER) warned on Monday that South Africa will not escape the inflationary effect of war-related stock market fluctuations. “In January, we forecast that headline CPI would average 5% in 2022. In an interim step, this has been revised up notably to 5.5%,” the BER noted in its weekly update.

“Given the further oil price surge in recent days, the updated forecast is already outdated, with further upward revisions required if oil stays at these levels. This is especially the case as a growing list of local companies are commenting that they can no longer absorb a sustained rise in input costs and will now start to pass these on to the end consumer.”