Western firms head for the exit in Russia as sanctions tighten, all measures so far

The West has sought to punish Russia with a raft of measures, including closing airspace to Russian aircraft, shutting out some Russian banks from the SWIFT global financial network and limiting Moscow’s ability to deploy its $630 billion foreign reserves.

Russia’s economy was already reeling on Monday. The rouble RUB=EBS plunged as much as 30% to an all-time low, while the central bank doubled its key interest rate to 20%, kept stock markets and derivative markets closed and temporarily banned brokers from selling securities held by foreigners to help limit losses.

BP BP.L, Russia’s biggest foreign investor, abruptly announced at the weekend that it was abandoning its 20% stake in state-controlled Rosneft ROSN.MM at a cost of up to $25 billion, cutting the British firm’s oil and gas reserves in half and reducing BP’s production by a third.

BP’s decision, which followed talks with the British government, shone a spotlight on other Western firms with stakes in Russian oil and gas projects, such as U.S. firm ExxonMobil XOM.N, France’s TotalEnergies TTEF.PA and Britain’s Shell SHEL.L.

Equinor EQNR.OL, the energy firm majority owned by the Norwegian state, said it would start divesting its joint ventures in Russia, while Norway’s sovereign wealth fund, the world’s largest, will also divest its Russian assets, worth around 25 billion Norwegian crowns ($2.8 billion).

Australia’s sovereign wealth fund also said it planned to wind down its exposure to Russian-listed companies.

Large parts of the Russian economy will be a no-go zone for Western banks and financial firms after the decision to cut some of its banks off from SWIFT, a secure messaging system used for trillions of dollars’ worth of transactions around the world.

The European arm of Sberbank SBER.MM, Russia’s biggest lender, faces failure, the European Central Bank (ECB) warned on Monday, after a run on its deposits.

British bank HSBC HSBA.L said it was starting to wind down relations with a host of Russian banks including the second-largest, VTB, one of those targeted by sanctions, a memo seen by Reuters showed.

Amid the broadening economic squeeze on Russia, even neutral Switzerland said it was likely to follow the EU by imposing sanctions and freezing Russian assets.

While Russians queued at ATMs at the weekend over worries that sanctions would trigger cash shortages, Western firms with exposure to Russia took a knock when markets opened on Monday.

Nokian Tyres TYRES.HE, which said last week it was shifting some production to Finland from Russia where it has a plant and warehouse, withdrew its 2022 guidance, hammering its shares.

Shares also slid in Societe Generale SOGN.PA, the French bank that owns Russia’s Rosbank, and carmaker Renault RENA.PA, which controls Russian carmaker Avtovaz.

Finnair FIA1S.HE lost a fifth of its value after it withdrew guidance for 2022 due to the potential closure of Russian airspace, after European nations and Canada to the unprecedented step of shutting their airspace to Russian aircraft.

The United States was considering a similar move, U.S. officials said.

Leasing firms said they would terminate hundreds of aircraft leases with Russian airlines because of sanctions. Russia has 980 passenger jets in service, with 777 leased and 515 rented from foreign firms, analytics firm Cirium said.

Ireland’s AerCap Holdings AER.N, the world’s biggest plane lessor with about 5% of its fleet leased to Russian airlines, said it would halt leasing to Russia. Asian lessor BOC Aviation 2588.HK said most of its planes in Russia, or about 4.5% of its fleet, would be affected.

U.S.-based United Parcel Service Inc UPS.N and FedEx Corp FDX.N, two of the world’s largest logistics companies, said they were halting deliveries to Russia and Ukraine.

The EU has banned Russian media outlets RT and Sputnik, while Canadian telecoms operators also stopped offering the RT channel. Google has barred RT and other Russian channels from receiving money for ads on websites, apps and YouTube videos, similar to a move by Facebook.

The European Union’s internal market chief told the chief executives of Google-owner Alphabet GOOGL.O and its YouTube unit on Sunday to ban users pushing war propaganda as part of measures to halt disinformation on Ukraine.

The EU has frozen part of what it calls “Putin’s war chest” by banning its transactions and freezing all its assets in the EU. This is meant to make it impossible for the central bank to liquidate its assets.

A certain number of Russian banks, representing 70% of the country’s banking market, are to be cut off from SWIFT, the world’s dominant global payment system. The moved is intended to harm their ability to operate globally, stopping the banks from conducting most of their financial transactions worldwide and effectively blocking Russia’s exports and imports.

The EU is set to tackle what it calls “the Kremlin’s media machine”, banning state-owned broadcaster Russia Today, the news agency Sputnik and their subsidiaries. The move is intended to make sure they “will no longer be able to spread their lies to justify Putin’s war and to sow division in the Union”.

The EU has shut down its airspace for Russia, banning all Russian aircraft from taking off, landing or overflying the EU. The ban applies to all aircraft, no matter whether they are owned by Russians, registered in Russia or controlled by Russian individuals or companies – including private jets owned or chartered by oligarchs.

For the first time in its history, the EU has agreed to use its funds for purchasing and delivering weapons to Ukraine. 450 million euros are earmarked for buying arms, another 50 million euros will be used for financing other supplies such as fuel or medical equipment.

The EU has agreed to hit Belarus, which it sees as complicit in Russia’s invasion of Ukraine, with further sanctions. The bloc aims to stop Belarusian exports of mineral fuels, tobacco, wood, timber, cement, iron and steel.

The EU has blacklisted hundreds of additional people, many of them members of the Russian parliament who voted for the recognition of the breakaway regions in eastern Ukraine. Their bank accounts in the EU are now frozen and they are banned from travelling to the bloc.

The most prominent individuals on the blacklist are Russia’s President Vladimir Putin and Foreign Minister Sergey Lavrov, although they are exempt from the travel ban. This is meant to enable negotiations with them should the opportunity arise.

Still, Putin is now one of only three world leaders blacklisted by the EU, along with Syria’s Bashar al-Assad and Alexander Lukashenko of Belarus. The blacklist currently includes 654 individuals and 52 entities in total.

The sanctions ban the export of specific refining technologies, making it harder and more expensive for Russia to modernise its oil refineries. They add to an existing oil equipment ban imposed in 2014. Russia earned 24 billion euros in 2019 from refined oil exports to the EU, according to the bloc.

The EU has banned the export, sale, supply or transfer of all aircraft, aircraft parts and equipment to Russia as well as all services related to the repair, maintenance and financing of aircraft.

Three-quarters of Russia’s commercial air fleet were built in the EU, United States and Canada, according to the EU. The sanctions mean that “Russia will not be able to maintain its fleet to international standards”, the EU said.

The EU has toughened existing sanctions on goods that can be used for civilian as well as military purposes, targeting Russia’s and Belarus’ military-industrial complex and limiting their access to advanced technology such as drones and software for drones, software for encryption devices, semiconductors and advanced electronics.

These measures are meant to downgrade Russia’s technological capabilities over time.

Russian holders of diplomat passports will no longer enjoy visa-free travel to the EU, and Russian government officials and business people will no longer benefit from lower fees when applying for a visa. This measure will not apply to Russian citizens in general, who will retain the benefits they currently have.

The EU has imposed an import ban on goods from breakaway regions in eastern Ukraine, on doing business with tourism services there and on exports of certain goods and technologies.

REUTERS