BP to sell its stake in Russia’s state-oil company Rosneft

This is an audio transcript of the FT News Briefing podcast episode: BP to sell its stake in Russia’s state-oil company Rosneft

Marc Filippino
Good morning from the Financial Times. Today is Monday, February 28th, and this is your FT News Briefing.

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Over the weekend, we saw tougher government sanctions on Moscow and a stunning corporate move to divest from Russia after it invaded Ukraine. We’ll also talk with the FT’s John Thornhill about what this invasion says about the limits of Russia’s cyber warfare.

John Thornhill
Cyber weapons can amplify or complement other forms of power but they are not a substitute for them and they can’t achieve things on their own. So I think hard power still counts.

Marc Filippino
I’m Marc Filippino and here’s the news you need to start your day.

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The world’s biggest sovereign wealth investor, Norway’s oil fund, has been instructed to freeze all new investments in Russia immediately. It’ll also start unwinding its existing $3bn worth of Russian holdings. This is part of a wider package of support for Ukraine. And in the UK, oil major BP announced that it will divest its 20 per cent stake in Russian state-oil company Rosneft. We spoke to the FT’s Tom Wilson about that.

Tom Wilson
This move is absolutely huge and if you’d asked me three days ago, completely unexpected, and BP’s been in Russia for 30 years and it’s held this stake in Rosneft for almost a decade. Up until very, very recently, I mean, when you would ask BP about its Rosneft stake, which has always been contentious, BP would say that they’re in Russia for business, not for politics. But really, in the last four days when we’ve seen the brutality of Putin’s invasion of Ukraine, on Friday we reported that chief executive Bernard Looney had been called in to see a senior British cabinet member who expressed his unease with BP’s stake in the business. And then 48 hours later, we’ve got this announcement.

Marc Filippino
So Tom, how exactly will BP go about divesting its stake?

Tom Wilson
That’s going to be very difficult. What BP said yesterday was that it was planning to divest, but it didn’t specify how or when it might do that. And as I said, they’ve really got three options: they can either write off the shareholding completely and walk away. They could try and sell it back to Rosneft, which they might do, and if Rosneft agreed, they would pay a huge discount. Thirdly, they might try and find another buyer. So when I speak to people in the industry, they have speculated that the only entities that might be interested in taking a stake with Rosneft given all that geopolitical risk and the optics might be an east Asian parastatal, particularly Middle Eastern group, but there aren’t any easy options.

Marc Filippino
Is this expected to hurt Rosneft?

Tom Wilson
So short-term, the immediate impact on Rosneft is not significant. BP was a 20 per cent shareholder, but a minority shareholder, was a passive shareholder, so they weren’t actually collaborating together on specific projects. So Rosneft can continue to pump oil from its oil projects and continue to sell that oil on the international market. So it doesn’t hurt immediately, but long-term, it does huge damage to Rosneft’s reputation as a viable partner for international companies. And Rosneft has a whole series of other relationships and joint ventures with other western entities. And those relationships are now going to come under huge scrutiny. So we’ll see what happens in the following days and whether other companies like the oil traders Trafigura and Vitol, who both have joint ventures with Rosneft in the Russian Arctic, we’ll see whether how they respond to BP’s decision, whether they do something similar.

Marc Filippino
Tom Wilson is the FT’s senior energy correspondent.

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In another important response to Russia’s invasion of Ukraine, the US and western allies unveiled tough financial sanctions. The EU said it will expel some Russian banks from the major international bank payments network called Swift. And the US and European allies announced plans to block Russia’s central bank from using its foreign reserves. This would hurt Moscow’s ability to shore up its economy and prevent Moscow from getting around existing sanctions. Here’s our US economics editor Colby Smith with more.

Colby Smith
So the aim of these sanctions is to really cut off the country from the global financial system and to make it almost impossible for the country to also support its currency. So what these sanctions do, they really undermine the ability of Russia to circumvent some of the sanctions that have already been put in place against some of the biggest banks and other leadership. So it’s a really important moment in the US and western alliance’s response to this crisis.

Marc Filippino
So Colby, how would Russia have circumvented some of the sanctions already in place? And how does this move against the central bank prevent that?

Colby Smith
One tactic is Russia could have used its roughly $630bn stockpile of foreign reserves, and essentially those reserves could have been used to support the economy and shield it from some of the costs associated with the sanctions. So essentially, if there was, let’s say, downward pressure on the currency which we’ve seen, the central bank could, you know, use its reserves in order to prop up the rouble. And now what these sanctions essentially do is it prevents the central bank from easily being able to do this. One important counterpoint is the fact that the country has a very high current account surplus that’s been amassed due to significant energy exports. So that’s gonna provide it some protection. But Russia’s central bank is going to be quite hamstrung by these new restrictions.

Marc Filippino
Has Russia responded at all to this, Colby?

Colby Smith
So we don’t know the kind of full financial fallout from these sanctions and we might get a better sense when we see trading resume on Monday. But the central bank has sought to quell any kind of financial panic and have said, you know, they have sufficient resources to ensure that they can support the currency and ensure that there isn’t a destabilising run on the banks. That’s the real impact here is is what this more broadly means for Russia’s financial system and the economy as a whole.

Marc Filippino
Colby Smith is the FT’s US economics editor. Thanks, Colby.

Colby Smith
Thank you.

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Marc Filippino
Shares in cybersecurity companies like CrowdStrike and Cloudflare jumped last week as companies around the world rushed to boost their cyber defences. Spurring this was the discovery in Ukraine of a wiper malware, a kind of cyber weapon that permanently deletes data on infected computers. Now, Ukraine has long been one of Russia’s top targets for cyber attacks, part of Moscow’s effort to undermine Ukraine. But the FT’s John Thornhill says the current military invasion speaks to the limits of cyber warfare. He joins me now to talk more about this. Hey, John.

John Thornhill
Hi there, Marc.

Marc Filippino
So John, in addition to being our current innovation editor, you are our former FT Moscow bureau chief, so you have an idea of what has happened in the past when it comes to Russia and cyber warfare. Can you walk me through that?

John Thornhill
Yes. So I was actually in Russia in the 1990s. I was there for six years and I left pretty much when Putin came to power and I had an interview with Putin in 1999 when he was prime minister taking over. And I mean, how he has developed over the past 20 years is extraordinary. When he came in, he was very much, he starred himself as a westernising figure. He talked about how Russia’s mission was to be part of Europe and the broader world. And he’s come on a very long journey since then. One of the things that he has really focused on is cyber as a means of projecting power that I think he thinks that there is an asymmetry in power in the world that Russia is still a relatively small economy, certainly compared to America and the rest of Europe. But cyber does give him asymmetrical power, which is why the Russians have spent a lot of money investing in their cyber capabilities, and both offensive and defensive.

Marc Filippino
So John, if Putin put so much stock in a cyber warfare approach, why are we seeing a military approach right now when it comes to Ukraine?

John Thornhill
Well, I think that’s a fascinating thing. I mean, Russia has effectively been waging cyber war against Ukraine since 2014, after the Maidan revolution and Viktor Yanukovych got thrown out. And they have deployed all of the kind of Russian arsenal of cyber weapons against Ukraine. But I think in a way, it highlights the limitations of cyber power. I mean, it has been incredibly effective in some senses in taking down airports or banks or government ministries temporarily. But the Ukrainian system has been relatively resilient, and it hasn’t achieved Putin’s strategic goals, which is really to kind of undermine Ukraine and to change the course of its politics. So I think the fact that Putin has now decided to send in military force shows that cyber weapons can amplify or complement other forms of power, but they are not a substitute for them and they can’t achieve things on their own. So I think hard power still counts.

Marc Filippino
So what could cyber warfare’s role be in this ongoing conflict in Ukraine and as well as when the international community gets more involved?

John Thornhill
I think the honest answer to that is no one has a clue. I mean, I’ve spoken to a lot of experts on cyber who think there is a certain pattern that this will follow, which is namely that both sides are going to be quite wary of doing anything terrible to the other because of fear of what the other side can do. But given that we are now in a pretty open conflict situation, I think it’s extraordinarily difficult to predict in which way this is going to go. So I think it’s going to be very intriguing to see how this plays out.

Marc Filippino
John Thornhill is our former Moscow bureau chief and our current innovation editor. Thanks, John.

John Thornhill
Thanks, Marc.

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Marc Filippino
You can read more on all of these stories at FT.com. This has been your daily FT News Briefing. Make sure you check back tomorrow for the latest business news.

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