Putin Seizes Control Over Major Gas And Oil Project From Foreign Investors

Topline

President Vladimir Putin has seized control of a major gas project in Russia’s far east—a move that could force foreign investors to abandon the project—shocking already skittish energy markets and worrying other multinationals as the Kremlin starts to make good on its threat to punish companies leaving Russia over its invasion of Ukraine.

Key Facts

Putin on Thursday signed a decree handing the rights to the Sakhalin-2 natural gas project to a new Russian company, citing the need to protect Russia’s national interests and economic security in light of Western sanctions.

The project was jointly owned by Russia’s Gazprom, which held a controlling stake of 50% plus one share, British energy giant Shell (27.5% minus one share) and Japanese firms Mitsui (12.5%) and Mitsubishi (10%).

Gazprom will automatically retain its controlling stake and the decree gives other investors one month to decide whether they want to stay on as stakeholders in the new company, though they must prove their ownership rights and the Kremlin will have the final say.

Those departing may not be fully compensated, the decree warned, as the government will hold funds and deduct any damages their actions have caused.

Both Japanese firms are expected to stay with the project, which accounts for a significant portion of Japan’s energy imports.

Key Background

Putin has long threatened to retaliate against the companies leaving Russia in protest of Moscow’s invasion of Ukraine. While the Kremlin has taken assets—notably a factory owned by French carmaker Renault—this decree marks the first time the Kremlin has actually seized and nationalized a company. The choice of Sakhalin-2 seems both symbolic and strategic, weaponizing the globally important energy sector at a time prices are surging and forcing Tokyo to pick between punishing Russia and domestic need. It follows a series of retaliatory Russian sanctions targeting prominent Americans, including the family of President Joe Biden and Senate Minority Leader Mitch McConnell, after Group of Seven leaders pressed forward with their own wave of sanctions against Moscow. G-7 leaders are also in the process of negotiating a price cap on Russian oil, which they hope will be able to cut off one of Putin’s most important revenue streams while also addressing soaring energy prices caused by the war.

What To Watch For

Shares of Mitsui and Mitsubishi in Tokyo dropped more than 5% on Friday following the announcement, a fall that was out of line with other market movements. Shell shares were relatively unmoved.

Further Reading

Shell Faces $5 Billion Hit For Leaving Russia As Energy Sector Braces For Fallout Of Putin’s Invasion Of Ukraine (Forbes)

‘Tasty And That’s It’: Former McDonald’s Restaurants Reopen In Russia Under New Name (In Photos) (Forbes)