BP Plc (BP/), Siemens AG (SIE) and Renault SA (RNO) are among European companies preparing for a downward turn in their Russian business following the European Union’s decision to impose its widest-ranging sanctions yet over President Vladimir Putin’s involvement in eastern Ukraine.
EU leaders announced plans yesterday to restrict the export to Russia of equipment to modernize the oil industry and forbid the sale of machinery, electronics and other civilian products with potential military uses. New arms contracts with Russia are also not allowed.
The sanctions will have a direct impact on companies like Siemens, which may no longer be able to sell oil equipment to Russia, and an indirect effect on many others like Renault, which expects the country’s auto market to contract more than 10 percent in 2014 as consumers hold back purchases. BP, owner of 20 percent of state-backed OAO Rosneft (ROSN), yesterday warned of risks to its profit and production due to the crisis.
“In Europe, for some companies this is becoming a major problem, and they can see it becoming an even bigger one,” said Andrew Kenningham, an economist at research firm Capital Economics. “The long-term impact of a standoff, if it continues, is clearly very bad for business confidence and future investment in Russia.”
Despite targeting oil production, the EU sanctions have steered clear of the natural-gas sector — leaving unscathed so far companies like BASF SE, the world’s biggest chemical producer, which gets about half its natural gas from state-controlled Gazprom, and other utilities like E.ON AG (TAG1Y) and RWE AG. On average, EU countries get 24 percent of their gas from Russia, according to Deutsche Bank — meaning that confronting Gazprom could result in supply cut-offs.