BP warned on Tuesday of thepotential scale of the damagethatsanctions on Russiacould cause to its business. This warning was, as the "Financial Times” note, a sign of the fears stemming from the deepening impact on Europe’s companies of theUkraine crisis.
But whileBP’s commentswere the strongest so far made by any multinational on the issue, potentially more worrying for the fragile European recovery were signs that even companies not immediately affected by sanctions could also feel the pain.
Renault said on Tuesday that sales to Russia had fallen sharply in the first half. The French carmaker, which with its Japanese partner Nissan controls Avtovaz, Russia’s largest automaker by sales, said deliveries to Russia had fallen by 8 per cent year on year in the first six months of this year.
"We’re in a situation where it’s complicated to know what sanctions will be implemented and what their impact will be,” said Jerome Stoll, a senior Renault executive.
A top 20 shareholder in Renault said: "It is too early to make a judgment over how much a company like Renault will be impacted by Russian sanctions, but it is a big concern for all investors with holdings in companies with Russian links or interests.”
Merchandise exports to Russia from the 27 EU countries in 2012 accounted for only 7 per cent of total exports, or €123bn, according to Standard & Poor’s, while services exports were €28bn. Trade exposure is proportionally larger for some EU countries, in particular eastern European economies and Finland.
But analysts warned that, although the direct impact on Europe’s trade was likely to be limited, fragile business confidence could be negatively affected by the worsening crisis.
The latest Ifo survey of German companies suggests they arealready feeling the painof declining economic confidence in Russia. German exports to Russia dropped 14 per cent in the first four months of 2014.
Andreas Rees, chief German economist at UniCredit, said last week: "Psychological headwinds coming from the Russia-Ukraine conflict have now been blowing strongly in the face of German companies. Only 3.3 per cent of all German goods are shipped to Russia.
"What has probably been weighing more on business sentiment in various sectors was the uncertainty going forward and what all the recent events could mean for exports and domestic demand.”
For BP, the sanctions vulnerability comes through its stake inRosneft, the oil group whose majority shareholder is the Russian government, after a $55bn deal completed in 2013. Yet it is not the only western oil major exposed to Rosneft.
ExxonMobilhas a joint venture with the company to explore for oil in the Arctic Sea, which isdue to drill its first wellthis summer. Under the more stringent sanctions agreed by EU diplomats, exports to Russia of high-tech equipment needed for Arctic exploration will be banned.
After the US last week imposed restrictions on Rosneft’s access to long-term dollar financing markets, Vladimir Putin, Russia’s president, said: "We gave this major American company the opportunity to work on the [Arctic] shelf. So, the United States does not want it [Exxon] to work there now?”
Norway’sStatoilandEniof Italy also have joint ventures with Rosneft. The Russian oil group recently became the largest shareholder inPirelli, the tyremaker, and is in talks to buy Morgan Stanley’s oil trading business.
Marco Tronchetti Provera, Pirelli’s chairman, said in May that sanctions did not affect the Rosneft deal. People at the company continued to adhere to that line on Tuesday.
On Tuesday, Igor Sechin, the powerful head of Rosneft, admitted for the first time that the sanctions were likely to affect Rosneft’s strategic plans, suggesting the company may need to push back certain projects.
"We are working under varied conditions and are prepared for the volatility connected with these sanctions,” Mr Sechin said. "We will move certain projects but above all the focus will be on working efficiently.”
BP’s comments on Tuesday were the strongest so far made by any multinational company about the potential impact of sanctions against Russia over Ukraine. But potentially more worrying for the fragile European recovery were signs that the worsening situation is not just impacting companies directly affected by sanctions.
"It is not surprising that the first mutterings of concern have been from energy companies, since Russian trade and foreign direct investment are dominated by the energy sector,” said Richard Batley, senior economist at Lombard Street Research.
"But even if we accept that the direct trade linkages and effects are quite small, with the very delicate situation that Europe is in, relatively small trade shocks and shocks to growth could have a more potent effect than at other points in the business cycle. That is critical.”
