Britain’s top energy companies face an extremely delicate situation as the world’s G7 powers prepare to launch the next wave of sanctions against Russia, and may be forced to curtail operations or freeze certain commercial ties with the country.
The US, Japan, Germany, Britain, France, Italy and Canada have agreed to “intensify targeted sanctions to increase the costs of Russia’s actions” – possibly as soon as Monday – unless the Kremlin takes immediate steps to defuse the crisis in Ukraine.
The G7 is for now holding back Iranian-style “stage 3” sanctions against the whole Russian banking system, mining industry, or the oil and gas nexus. This nuclear option will be deployed only if Russia escalates from black operations in Eastern Ukraine to an outright invasion, said Alastair Newton, head of political risk at Nomura.
Yet diplomats say the Obama administration has the means to choke Russia’s bond market and greatly disrupt the energy sector even under limited “stage 2” sanctions, and intends to do so in a step by step escalation.
Sources in Washington say the US Treasury may soon extend the black list to Igor Sechin, president of the oil giant Rosneft, the biggest traded oil company in the world. Any such move would be a costly headache for BP, which owns 19.75pc of Rosneft’s shares under a deal reached in 2012 ending its stormy misadventures in TNK-BP.
It is unclear whether BP could continue to operate in the United States or even carry out its global business smoothly if it continued to be a Rosneft shareholder with Mr Sechin still in charge, yet it would be difficult to find buyers for a holding worth $12.5bn in the midst of a crisis. America’s Exxon Mobile would have to reconsider its drilling plans with Rosneft in the Arctic `High North’.
The US Treasury is also eyeing some form of sanction against Gazprombank, the financial arm of the gas monopoly Gazprom. This would greatly complicate Shell’s joint operations with Gazprom at Sakhalin Island and in the Arctic, though this would depend on the exact wording and how the US Securities and Exchange Committee chose to enforce it.
Both BP and Shell said they remain committed to their long-term investments in Russia but are monitoring the situation closely.
Centrica may also have to navigate with care as it launches a three-year gas supply with Gazprom for 7pc of British Gas’s supply, to be delivered later this year. Other UK industrial groups also buy from Gazprom and might have to declare “force majeure” on their contracts in extremis.