LONDON — Global energy giant Shell apologized Tuesday for past purchases of Russian petroleum products and agreed to phase out all involvement with the country’s oil and gas industry, which accounts for about a 10th of global oil supply.
Collectively, the moves amount to a crushing blow to Russia’s main source of revenue and a sharp rebuke of its invasion of Ukraine. But they also compounded uncertainty gripping global energy markets, and experts say the resulting economic ramifications could be fast and furious. Russian President Vladimir Putin has said he considers the avalanche of sanctions to be “akin to a declaration of war,” while the Kremlin has warned that global oil prices could hit $300 per barrel if the West bans Russian energy exports.
“There are big questions about how the world deals with both the current crisis and the longer-term shifts in supply and demand,” Danni Hewson, a financial analyst with AJ Bell, said Tuesday in comments emailed to The Washington Post. “Whichever way the pendulum swings, there is little doubt the consumer will suffer in the short term.”
The United States has limited direct exposure to the Russian economy, but the interconnected nature of energy supply chains means that soaring prices will be felt around the globe. Oil prices spiked 7 percent Tuesday, with brent crude, the international benchmark, surpassing $130 a barrel. In the United States, gas prices hit a record high of $4.17 Tuesday, supplanting the $4.11 set in 2008, according to data from AAA. The average price for a gallon of gas has spiked 56 cents in the past week alone.
Energy markets had already been grappling with polarities in supply and demand as the pandemic’s pain began to ease. Inflation has soared to a 40-year high and further disruption in energy sparked by sanctions could worsen the pain for households and businesses. Meanwhile, the overhaul of relationships with one of the world’s biggest energy producers could either speed up the shift to greener fuel sources or end up being a boon to legacy extraction industries at a moment when the window to prevent a hotter, more deadly future is quickly closing, according to the latest report from the Intergovernmental Panel on Climate Change.
Shell made headlines last week when it continued to purchase Russian oil despite the invasion and blitz of global sanctions. Ukraine’s foreign minister, Dmytro Kuleba, asked the company if it smelled “like Ukrainian blood.” On Tuesday, the oil giant said it would halt Russian crude purchases and shutter operations in the country, a move that could cut Russia off from a major international customer. Chief executive Ben van Beurden apologized for last week’s crude purchases and said that any profits would be donated to provide humanitarian support during the Ukraine crisis.
“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 … was not the right one and we are sorry,” van Beurden said in a statement. He pledged to “commit profits from the limited, remaining amounts of Russian oil we will process to a dedicated fund” and promised to aid humanitarian agencies over the coming weeks.
Van Beurden said there were “incredibly difficult trade-offs that must be made during the war in Ukraine.”
The actions deepen a global private-sector embargo that has isolated Russia’s economy over the past week. Russia’s petroleum exports have already diminished since it launched an unprovoked attack of neighboring Ukraine just under two weeks ago, with international shipping firms shying away from Russian purchases. Shell has already suspended its operations there, along with ExxonMobil and BP.
BP also said it would not enter into any new contracts for Russian oil and gas, and that it would not charter vessels owned, operated or flagged by Russia.
“Russian oil and gas is deeply integrated into Europe’s energy system and we are seeking guidance from governments to help ensure ongoing security of supply,” the London-based energy giant said in a statement emailed to The Post, citing the “highly-dynamic” state of sanctions and other international restrictions on business with Russia.
French energy giant TotalEnergies also walked a fine line, saying it would halt new spending in Russia but maintain its partnership there, including a nearly 20 percent stake in Russian gas producer Novatek.
TotalEnergies chief executive Patrick Pouyanné said at an energy industry conference Monday that his company would not renounce its Russian connections, noting that European governments had not directed it to do so.
“I had discussions obviously with the highest authority in my country, and there is no push from them for us to exit Russia,” he said, according to Reuters.
U.S. officials are looking for ways to take the pressure off global energy markets and ease the pocket pain of consumers, but analysts warn there is no supplier that could easily supplant Russia, the world’s third-largest energy producer. Oil prices hit their highest point in over a decade on Monday as Western sanctions lasered in on Russia’s energy industry.
The United States imports roughly 600,000 barrels of Russian oil per day, amounting to roughly 7 percent of total petroleum imports, according to Pavel Molchanov, an energy analyst with Raymond James. The limited reliance on Russian energy products (due in large part to sheer geography) insulates the United States from the worst impacts of disruption. For comparison, Europe relies on Russia for about a quarter of its oil and roughly 40 percent of its natural gas.
The good news, Molchanov said, is that oil markets are fungible, meaning products are essentially interchangeable, leaving other producers to fill in the gaps.
“Once oil is loaded onto a tanker, it can go anywhere,” Molchanov told The Post in an email. “The U.S. can buy from practically anywhere, and Russia can sell to practically anywhere.”
Western nations have been engaged in negotiations with Tehran for a possible nuclear deal that could return Iranian crude to international markets. And U.S. diplomats traveled to Venezuela over the weekend to discuss that nation’s oil exports, The Post reported.
War in Ukraine: What you need to know
The latest: Russia fired at least 85 missiles on at least six major cities in Ukraine on November 15, in one of the most widespread attacks of the war so far. The strikes came just hours after Ukrainian President Volodymyr Zelensky, speaking by video link, presented a 10-point peace plan to G-20 leaders at a summit in Indonesia. As in previous Russian missile attacks, critical civilian infrastructure appeared to be primary targets. Parts of several cities that were hit were left without electrical power on Tuesday afternoon.
Russia’s Gamble: The Post examined the road to war in Ukraine, and Western efforts to unite to thwart the Kremlin’s plans, through extensive interviews with more than three dozen senior U.S., Ukrainian, European and NATO officials.
Photos: Washington Post photographers have been on the ground from the beginning of the war — here’s some of their most powerful work.