Save for later Print Download Share LinkedIn Twitter The announced exit of BP, Exxon Mobil, Shell and Equinor from Russia after its invasion of Ukraine marks a new era for global oil. Wider existential pressures and a fast-fading social license in the West have significantly eroded IOCs' ability to sustain substantial reputational risks. More discerning upstream investment could make cutting ties an easier prospect — provided the assets are not mission-critical.This week's exodus from Russia has no precedent. The oil industry's history is rooted in navigating around geopolitical conflict, with producers claiming inherent neutrality due to their inability to choose the location or control of available hydrocarbons. Choosing to outwardly condemn Russia's invasion breaks with that tradition — and likely closes the door for some on future access to one of the world’s largest hydrocarbon resources.Jeopardizing such access is why IOCs have been loath to cut ties even in more marginal jurisdictions or amid similarly intense human rights circumstances. Resource scarcity has long been a guiding light driving corporate decision-making, with sanctions or other external force often required to sever ties.But the stakes have changed. First, the oil industry has been struggling for acceptance in much of the Western world, with fossil fuels’ climate footprint seen as a fatal flaw and recent market dislocations undermining arguments that oil and gas is reliable and affordable. Reputational risk carries tangible license to operate costs like never before, changing the calculus.Second, diversification and growth within oil and gas are no longer must-haves. Most IOCs are voluntarily shrinking footprints through asset sales, selective exploration and high investment thresholds. BP, for example, will concentrate 80% of its upstream capex this decade on six regions. Exxon’s upstream growth capex sits in three. Downstream portfolios are also shrinking down to a handful of hubs.This fundamental shift makes heading to the exits in non-core jurisdictions easier to swallow. TotalEnergies and Chevron operated for years in Myanmar with a military junta in charge, but chose to leave this time, citing the country’s minimal strategic significance. On the flip side, however, portfolio risk becomes escalated should a prized region become problematic.Russia isn’t a back-breaking loss to these IOCs. But BP has very real strategic complications to sort out now that 40% of its expected equity production in 2030 is gone — at a time when its in-house output is supposed to fall by 40%. Shell will lose a geographically advantaged LNG scheme in Sakhalin-2, denting its optimized LNG portfolio. Total is no doubt hoping its involvement with private Novatek will give it an easier pass given its extensive LNG ties to Russia.The Russia-Ukraine war is an extreme case. But climate policies were already forcing IOCs to learn that they must align with the values of home states, at times independent of formal policies. Reputational risk running faster than regulatory risk is a new risk management paradigm the industry must learn to navigate.