Lube Suppliers in Russia
Lube Suppliers in Russia – Seven weeks into Vladimir Putin’s invasion of Ukraine, the number of foreign businesses vowing to leave Russia or scale back there continues to grow well into the hundreds. In the lubricant industry, companies are taking a wide range of tacks – some vowing to exit, others saying they will stay and still others declining to discuss their plans.
The actions taken by companies also varies. At least one supplier says it has already significantly reduced its operations in Russia, while another company says it is still formulating a strategy to leave the country. Plans of some companies may be complicated by draft legislation now before Russia’s parliament that would criminalize compliance with foreign sanctions.
The invasion that Russia launched on Feb. 24 has drawn widespread though far from universal condemnation, and businesses across the globe have announced actions aimed at registering their protest and adding to the pressure on Russia to withdraw. In some cases, businesses are complying with sanctions ordered by governments, while in other cases they are acting voluntarily.
The Chief Executive Leadership Institute at Yale’s School of Management has identified more than 600 companies that announced they will curtail operations beyond levels required by sanctions. As of last week, that included 253 that vowed to leave Russia, 248 that stated intentions to suspend operations there, 75 that planned to scale back and 96 saying they had suspended investments. The institute also identified a few hundred companies that said they would maintain operations.
The New York Times reported that some companies curtailing operations had stopped supplying products under international brands but were continuing to supply Russian brands. The news group said some Western financial companies were winding down operations in the country but were still buying depressed domestic securities.
German lubricant marketer Fuchs Petrolub SE said it has largely curtailed operations in Russia but that it would not close its blending plant in Kaluga, a city southwest of Moscow. The facility has capacity to manufacturing 40,000 metric tons of lubes per year.
“Fuchs no longer supplies raw materials or finished products to Russia, and our local business operations there run on a limited basis,” a company spokesperson told Lube Report last week, adding, “We have no plans to close our plant in Kaluga.”
Shell was one of the first international energy companies to tangibly protest the invasion, announcing March 8 that it would exit all hydrocarbon operations in Russia, including its lubricant business, which operates a 180,000 t/y blending plant in Torzhok, northwest of Moscow. Last week the company said it is still working on a strategy for doing that.
“At present, our lubricant operations in Torzhok continue,” a Shell Neft spokesperson told Lube Report recently. “The plan for further actions is being developed, taking into account the decisions of Shell regarding its operations in Russia.”
Shell Neft is a subsidiary managing much of Shell’s up- and downstream business in Russia.
TotalEnergies, another foreign oil major with extensive activities in the country, by deadline didn’t respond to an inquiry on whether its blending plant is affected by the company’s pullout from Russia. Through its local business unit, Total Vostok, the French oil major operates a 70,000 t/y lubricants blending plant in the same city, Kaluga.
Industry insiders say companies wanting to exit the country face a couple significant problems. One is the likelihood of having facilities and equipment expropriated, forcing them to write off local investments. In addition, there now looms a threat that local managers could be prosecuted for the company’s actions.
A bill submitted last week to the Russian State Duma, the lower house of the Parliament, would criminalize compliance with sanctions aimed at penalizing the country. According to this bill, “decisions and actions taken by any Russian company executive based on sanctions against Russia may result in criminal liability and prosecution with sentence of up to three years in prison.”
“We fear for our colleagues, and closing the operation there might mean prison sentences for them,” a Western company official, who asked for anonymity, told Lube Report.
The bill, which might become a law very soon, intentionally provides a diluted understanding of what could be “compliance with anti-Russian sanctions.”
“Examples of such actions include refusal to perform outstanding obligations or suspending deliveries due to export control limitations,” Baker McKenzie, a Chicago-based consultancy, said in a recent blog post.
The consultancy said that those affected may be a broad range of company executives, such as the general director, the board members, the members of the management board, and their pro proxies, as well as individuals performing administrative duties in the company.
“The in-house legal team and external counsel may also be at risk of being prosecuted as accomplices, depending on their advice,” Baker McKenzie said.
United States-based Chevron has announced it will pause transactions and sales of refined products, lubricants and chemicals, according to Yale’s Chief Executive Leadership Institute. Japan-based Idemitsu Kosan said it would halt crude oil and coal imports from Russia out of concerns over delivery disruptions, but it said it will continue supplying lubricants in the country, the institute said.
