Shell’s Apology For Purchasing Russian Oil During Ukraine Crisis

When the people speak, corporations listen

Shell has joined a long list of companies being forced by public pressure into crisis management over not taking the hint to back out of business ventures with Russia as the invasion of Ukraine escalated. Thought it didn’t violate any official Western sanctions, Shell’s March 4 purchase of 100,000 metric tons of flagship Urals crude from Russia (at a reported record discount) did not go unnoticed by consumers, politicians, and influencers, many of whom headed online to take the company to task. Shell was helped to quickly see the error of its ways by these not-so-friendly critics, and issues this statement shortly after serious pressure began to mount:

LONDON, March 8, 2022 — Shell plc (Shell) today announced its intent to withdraw from its involvement in all Russian hydrocarbons, including crude oil, petroleum products, gas and liquefied natural gas (LNG) in a phased manner, aligned with new government guidance. As an immediate first step, the company will stop all spot purchases of Russian crude oil. It will also shut its service stations, aviation fuels and lubricants operations in Russia.

“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. As we have already said, we will commit profits from the limited, remaining amounts of Russian oil we will process to a dedicated fund. We will work with aid partners and humanitarian agencies over the coming days and weeks to determine where the monies from this fund are best placed to alleviate the terrible consequences that this war is having on the people of Ukraine,” said Shell Chief Executive Officer, Ben van Beurden.

“Our actions to date have been guided by continuous discussions with governments about the need to disentangle society from Russian energy flows, while maintaining energy supplies. Threats today to stop pipeline flows to Europe further illustrate the difficult choices and potential consequences we face as we try to do this. Following government statements this week, I want to set out our position clearly. Unless directed by governments, we will:

Immediately stop buying Russian crude oil on the spot market and we will not renew term contracts.

At the same time, in close consultation with governments, we are changing our crude oil supply chain to remove Russian volumes. We will do this as fast as possible, but the physical location and availability of alternatives mean this could take weeks to complete and will lead to reduced throughput at some of our refineries.

We will shut our service stations, aviation fuels and lubricants operations in Russia. We will consider very carefully the safest way to do this, but the process will start immediately.

We will start our phased withdrawal from Russian petroleum products, pipeline gas and LNG. This is a complex challenge. Changing this part of the energy system will require concerted action by governments, energy suppliers and customers, and a transition to other energy supplies will take much longer.

“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,” said van Beurden. But ultimately, it is for governments to decide on the incredibly difficult trade-offs that must be made during the war in Ukraine. We will continue to work with them to help manage the potential impacts on the security of energy supplies, particularly in Europe.

From a purely business-oriented standpoint I do hope that the brands pulling out of the area have considered the possibility of global conflict leading to this worst-case scenario with their own crisis management planning and preparedness because this is one of the biggies when you’re running down the list that accompanies any international business effort. With reports showing Shell’s stock price falling almost immediately as news of the purchase and global criticism went public online, only to clamber its way back up as news of the withdrawal broke, it seems clear the smart approach is to put long-term reputation before immediate profit.

Erik Bernstein
erik@bernsteincrisismanagement.com