Save for later Print Download Share LinkedIn Twitter Risks for BP and Shell's substantial operations in Russia intensified following the announcement by the UK of legislative changes as part of moves to bolster sanctions against Moscow.The amendments that are to be approved by the UK Parliament by Feb. 10 expand its sanctions targets from those directly linked to Russian actions in Ukraine, to individuals and businesses that have strategic significance for the Russian budget and economy. UK Foreign Secretary Liz Truss said that assets of Russian oligarchs and companies that are close to the Kremlin could be frozen. The UK "can target anyone providing strategic support close to Vladimir Putin," she said.Oil and gas, which are to account for 38% of Russia's state budget revenues this year, are key strategic industries that could clearly be in the firing line. Commenting on the threats from London, Kremlin spokesman Dmitry Peskov noted that in case of a UK attack on Russian business, Moscow would take countermeasures. What those measures could be remains unknown, but sources tell Energy Intelligence that Moscow would think them over carefully so as not to shoot itself in the foot. Even without any possible retaliation from Moscow, the UK companies could have to wind down their operations in Russia, if not to abandon them completely, especially if they are partners with state-controlled Rosneft or Gazprom that could become targets of the new sanctions. Despite the damage that the UK and its companies could face in such scenario, this is a cost that London seems to be ready to pay for its political stand, sources claim. No Pain, No Gain The UK majors have learned how to work under the US and EU sanctions that have been in place against Moscow since 2014. They even managed to gain by facing less competition following the withdrawal in some instances of US companies. However, in the face of growing uncertainty and new sanctions risks, they appear to have sought to avoid major investment decisions. Indeed, BP has been lately mainly involved in the exploration joint venture (JV) with Rosneft, Yermak Neftegas, investments in which stand at about $150 million. Another JV between Rosneft and BP, Kharampurneftegas, is still to take a final investment decision on the development of the more costly and geologically challenging Turonian gas. The biggest unknown is whether BP would be allowed to retain its 19.75% stake in Rosneft if the Russian major is sanctioned. The same uncertainty remains about Shell's 27.5% minus one share in the Sakhalin-2 LNG project on the Russian Pacific Shelf led by Gazprom. Since Sakhalin-2 is being developed under a production-sharing agreement, costs have been reimbursed, but one problem could be a ban on buying Gazprom's gas. Russian gas supplies to the UK are already declining, having gone down to 6.03 billion cubic meters in 2020 from 10.32 Bcm in 2019, under Gazprom Export contracts. In the first half of 2021, Gazprom’s exports to the UK dropped 42% on the year to 1.73 Bcm.The UK used to be an important market for Gazprom’s trading with third-party gas, but it has shifted most of its European gas trading activity away from the UK's National Balancing Point (NBP), once Europe’s largest gas hub, to the Dutch Title Transfer Facility (TTF) hub, currently the most liquid on the continent. Including trading activity, Gazprom’s sales to the UK fell to 8.9 Bcm in 2020 from 59 Bcm in 2019 and around 30 billion cubic meters per year in 2016-18.War and Peace Analysts still see a scenario without a war but limited sanctions as a more likely one. Restrictive measures affecting Russian banking activity and energy trade are unlikely without any extreme escalation, according to Renaissance Capital investment bank. This rather optimistic view is supported by the fact that Moscow and the West are still talking, although Russia was not satisfied with the written response to its demand for security guarantees it received from the US and Nato last week. According to Putin, those responses didn't take into consideration Russia's "essential concerns" and demands such as the non-expansion of Nato, a ban on the deployment of offensive systems near the Russian borders and the withdrawal of troops and military equipment from Eastern European countries admitted to Nato since 1997.Putin, who will determine Russia's next step, refused to cast any light on what his decision would be. But he expressed hope the negotiations will continue and "a solution will be found." Indeed, Russian Foreign Minister Sergei Lavrov had a telephone conversation on Feb. 1 with US Secretary of State Antony Blinken. Putin in the last week also talked with France's President Emmanuel Macron and Italy's Prime Minister Mario Draghi, and received in the Kremlin Hungary's Prime Minister Viktor Orban.