What does the Russia-Ukraine crisis mean for businesses

Many companies are now re-evaluating their business in Russia, with some reducing their operations there or deciding to leave altogether. Meanwhile, some companies with facilities in Ukraine have suspended operations.

While the relatively small size of the Russian and Ukrainian economies and the perceived difficulty of doing business there mean that most multinationals have limited exposure to countries, many large Western companies have built business in both.

Even for companies not operating in the region, Russia’s invasion of Ukraine poses new risks to the global economy, which is already grappling with rising inflation and supply-chain woes. , who are in the midst of recovering from the pandemic.

oil and gas

Energy companies are the most exposed in the region, with several major oil companies investing extensively in Russia. While those companies stand to benefit from higher commodity prices, they could potentially be among those most exposed to sanctions or disruption in Russia.

British energy giant BP Plc has said it plans to pull out of its nearly 20% stake in Russian government-controlled oil producer Rosneft, a move that came after pressure from UK officials to unload the holding. The company, which relies on Rosneft for about a third of its oil and gas production, faces a potential loss of $25 billion over the move. BP said its chief executive and former CEO had resigned from Rosneft’s board. It is not yet clear how BP will exit its stake.

Shell plc has also said it will withdraw from Russia. It said it would exit its joint ventures in the country with Russian company Gazprom PJSC and give up its role in financing the now stalled Nord Stream 2 gas pipeline.

Separately, Norwegian energy major Equinor ASA said it would halt new investments in Russia and begin the process of exiting its Russian joint ventures after more than 30 years in the country.

consumer goods

Several large consumer-goods companies have factories in Ukraine, including Danish brewer Carlsberg A/S, Swiss food giant Nestlé SA and Davidoff cigarette maker Imperial Brands plc. All those companies have suspended operations in the country in recent days, calling on their employees to stay safe at home.

Philip Morris International Inc. has also said it is suspending operations in Ukraine, including its factory in Kharkiv, as Russian forces continue to attack the country.

The most exposed is Carlsberg, which has eight breweries in Russia. The brewer has said that he generates about 10% of his total revenue in the country. Yogurt maker Danone SA says it generates about 5% of its revenue from Russia, where it says it mostly sources, produces and sells locally, rather than shipping products across borders.

auto

Several major auto makers have operations in Russia, some have decided to back down in light of the conflict, and others have warned of disruption to their businesses.

Volvo Car AB and truck maker Volvo AB have both halted business in Russia until further notice, with the Swedish auto brand citing “potential risks associated with trading material with Russia, including sanctions imposed by the European Union and the US”.

Daimler Truck Holding AG has said it will suspend delivery of truck components to its Russian partner KAMAZ in the wake of Russia’s invasion of Ukraine.

France’s Renault SA is one of the biggest players in Russia’s car market in 2014 – with partner Nissan Motor Co. as well as having a controlling stake in the former state-owned Lada manufacturer, AvtoVAZ. The company has temporarily closed a plant near Moscow due to “some logistical issues” stemming from Western measures against the country.

Renault CEO Luca de Maio recently said that worsening tensions between Russia and Ukraine “could lead to another supply-chain crisis involving parts coming from abroad.” Separately, Jeep-owner Stelantis NV has said it would be willing to shift or limit production of its vehicles in Russia if Western sanctions impede those operations.

Elsewhere, Volkswagen AG luxury car unit Audi has stopped selling cars it already has with dealers in Russia, so that it can adjust the price of the vehicles to reflect the fall in the value of the ruble. The conflict has also hampered VW’s operations in Germany, where it has stopped some production because it could no longer receive wiring systems produced in Ukraine.

Auto makers, already grappling with shortages of semiconductors, could also face additional problems if Russia’s supply of palladium slows.

airlines

The fallout of the invasion has prompted dozens of countries to ban Russian airlines from entering their airspace, triggering a mutual prohibition from Moscow. While Russia is a busy route for some Western carriers, the big disruption comes from restrictions on Russian airspace, which is used to connect most flights between Europe and Asia.

Russia’s ban now applies to 38 countries, including all EU members, the UK and Canada, meaning a slew of airlines have had to redirect or cancel routes. For example, Finnair Oyj has suspended flights from Helsinki to Japan, South Korea and China in response, while Virgin Atlantic Airways Ltd has stopped flying its cargo route from London to Shanghai.

Political airspace restrictions come in addition to restrictions over security concerns. The European Union Aviation Safety Agency has instructed airlines to avoid Ukrainian airspace as well as neighboring Moldova and Belarus. The aircraft is banned from flying over airspace in Russia’s southwest Rostov region and within 200 nautical miles of the Ukrainian border.

Healthcare

Global pharmaceutical companies want to ensure that their medicines and vaccines continue to reach patients in Ukraine. Ukraine relies heavily on drugs from abroad: imported medicines and vaccines were worth $2.5 billion in 2020, according to UN trade figures. The bulk of it comes from Germany, where many large Western drug makers have their plants.

Roche Holding AG said it is working relentlessly to ensure that patients in Ukraine and Russia have access to medicine and diagnostics. Denmark’s Novo Nordisk A/S, one of the world’s largest insulin makers, said it is monitoring the safety of about 100 people in Ukraine.

Technique

In recent years, companies in the US and Europe have outsourced technical services to Ukraine. According to a monitoring dashboard operated by the Georgia Institute of Technology, Internet was shut down across the country after Russia’s incursion.

German software provider SAP SE and London-based financial-technology company Revolut Ltd., as well as Israel-based services marketplace Fiverr International Ltd. And technology companies, including website design and development platform Wix.com Ltd., say they employ workers in the area. SAP said it had closed its Kyiv office and put in place security measures to support its employees, while Wix said it fired employees in Poland and Turkey.

The CEO of Grammarly, a Ukrainian-founded startup that aims to improve people’s writing, said he expects the situation between Russia and Ukraine to get worse, but his company has also prepared for the worst. Brad Hoover said in a LinkedIn post that Grammarly is “committed to Ukraine,” still hiring for various team roles and that the company plans to make sure its services are not disrupted.

Meanwhile, the US tech giant has come under pressure from both Russia and the West to respond to the conflict in Ukraine.

Agriculture

US farm companies operating in Ukraine are closing offices and facilities in the country in response to Russia’s attack. Archer Daniels Midland Company said it has ceased operations of its facilities in Ukraine, where crop traders and processors employ more than 630 people. ADM’s Ukraine facilities include an oilseed crushing plant in Kornomorsk, a grain terminal in the port of Odessa, six grain silos and a trading office in Kyiv.

Agriculture giant Bunge Ltd, which employs more than a thousand workers in Ukraine, has temporarily suspended its own operations at two processing facilities in the country.

Cargill Inc said a seaplane it chartered was hit by a projectile offshore Ukraine on the Black Sea on Thursday. The food supplier, which operates an export terminal in Ukraine, said the ship was still seaworthy and no one was injured. A spokesman said the crew is responsible and the ship is headed for Romania.

Entertainment

Some of Hollywood’s biggest film studios, including The Walt Disney Company and Warner Bros., are delaying the release of much-anticipated films in Russia in response to the invasion of Ukraine.

Nevertheless, the Russian market represents a small part of global box office receipts.

Other corners of the American entertainment industry have also severed ties with Russia since the invasion. Rock band Green Day canceled a concert in Moscow scheduled for the end of May, and venue development and investment firm Oak View Group said it was severing all connections to Russia, even Russian Also for the wine that is served in its buildings.