Shell said Tuesday that it will stop buying Russian oil after Ukrainian officials criticized the energy giant for buying a shipment of crude from Moscow and demanded that all multinational companies sever ties with Russia over the war.
The move came hours before the U.S. and British governments banned Russian oil imports. The European Union has held back because of heavy reliance on Russian oil and natural gas and concerns about the impact on global energy supplies. The turmoil has rattled global markets, sending oil prices surging to a 14-year high of $139 a barrel overnight.
London-based Shell said it would immediately stop buying Russian oil on the spot market, which is used for one-time deals involving rapid deliveries, and it would not renew longer-term contracts. The company intends to totally withdraw from the Russian market for oil, oil products, natural gas and liquefied natural gas in a “phased manner.”
“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 — despite being made with security of supplies at the forefront of our thinking — was not the right one and we are sorry,” CEO Ben van Beurden said in a statement.
Shell said any profit it makes on the “limited, remaining amounts of Russian oil” it processes will go into a fund for humanitarian relief efforts for Ukrainians. It also said it would shut its service stations, aviation fuels and lubricants businesses in Russia.
David Elmes, a professor at Warwick Business School in the United Kingdom and a former energy industry executive, said Shell may find it hard to ensure it isn’t buying Russian oil because shipments are often sold multiple times and mixed with products from other sources before they reach a refinery.
“The challenge for someone like Shell is how do you detach yourself from a global market — from one participant in that market?” Elmes said.
Shell got about 5% of its oil and 4% of its natural gas from Russia in 2020, according to the company’s annual report.
Its decision to stop buying Russian energy comes a week after it said it was “shocked by the loss of life in Ukraine” and would end its joint ventures with Gazprom, the massive oil and gas company controlled by the Russian government.
But soon after, Ukrainian Foreign Minister Dmytro Kuleba said he had been told Shell “discreetly” bought a shipment of Russian oil. He put the news on Twitter, forcing Shell to explain its decision.
“One question to Shell: doesn’t Russian oil smell (like) Ukrainian blood for you?” Kuleba said.
Ukraine and its supporters have called on countries to stop buying Russian oil to restrict funding for its military. But there is a tradeoff. Russia is the world’s second-biggest oil producer, so it could have major effects on consumers already facing higher prices for everything from food to electricity bills because of low energy supplies in Europe and elsewhere.
Major companies from Apple to Volkswagen also have pulled out of Russia, with McDonald’s the latest Tuesday.
A month ago, oil was selling for about $90 a barrel. Now, prices have surged past $120 a barrel as buyers shun Russian crude, with many refiners fearing that sanctions could be imposed in the future. They worry about being left with inventories they can’t resell if sanctions were imposed in the near future.
Van Beurden said Shell’s actions until now have been guided by discussions with various governments about the need to reduce Western reliance on Russian oil and gas, while maintaining energy supplies for business and consumers.
The company made the decision to stop buying Russian energy after receiving new government guidance, he said. European Union officials unveiled proposals Tuesday to slash reliance on Russian natural gas by two-thirds by the end of the year, including by purchasing natural gas from other suppliers.
“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 said. “But ultimately, it is for governments to decide on the incredibly difficult tradeoffs that must be made during the war in Ukraine.”