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BP sells its stake in the Russian oil company Rosneft

This is an audio transcription of the FT press briefing podcast episode: BP sells its stake in the Russian oil company Rosneft

Marc Filipino
Hello from the Financial Times. Today is Monday, February 28, and it’s your FT News Briefing.

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Over the weekend, we saw tougher government sanctions on Moscow and a surprising decision by companies to divest from Russia after the invasion of Ukraine. We’ll also chat with John Thornhill of the FT about what this invasion reveals about the limits of Russian cyberwarfare.

John Thornhill
Cyberweapons can amplify or complement other forms of power, but they do not substitute for them, and they cannot do anything on their own. So I think hard power still matters.

Marc Filipino
I’m Marc Filippino and here’s the news you need to start your day.

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The world’s largest sovereign investor, the Norwegian Oil Fund, has been instructed to immediately freeze all new investment in Russia. It will also begin unwinding its existing Russian holdings worth $3 billion. This is part of a larger package of support for Ukraine. And in the UK, oil major BP has announced it will sell its 20% stake in Russian state oil company Rosneft. We spoke to Tom Wilson of the FT about it.

Thomas Wilson
This move is absolutely huge and if you asked me three days ago, completely unexpected, and BP has been in Russia for 30 years and has held this stake in Rosneft for almost a decade. Until very, very recently, I mean, when you asked BP about its stake in Rosneft, which has always been controversial, BP said they were in Russia for business, not politics. But really, in the last four days of seeing the brutality of Putin’s invasion of Ukraine, we reported on Friday that Chief Executive Bernard Looney was called to see a senior British cabinet official who expressed his unease with BP’s involvement in the business. And then 48 hours later, we have this announcement.

Marc Filipino
So Tom, how exactly will BP go about selling its stake?

Thomas Wilson
It will be very difficult. What BP said yesterday was that it planned to divest, but it did not say how or when it might do so. And like I said, they really have three options: they can either cancel participation completely and walk away. They could try to sell it back to Rosneft, which they could do, and if Rosneft accepted, they would pay a huge discount. Third, they could try to find another buyer. So when I talk to people in the industry they speculated that the only entities that might be interested in taking a stake with Rosneft given all this geopolitical risk and optics might be a parastatal from Asia from the East, particularly a group from the Middle East, but there are no easy options.

Marc Filipino
Should this hurt Rosneft?

Thomas Wilson
So in the short term, the immediate impact on Rosneft is not significant. BP was a 20% shareholder, but a minority shareholder, was a passive shareholder, so they didn’t really collaborate together on specific projects. Thus, Rosneft can continue to pump oil from its oil projects and continue to sell this oil on the international market. So it doesn’t hurt immediately, but in the long run it does a lot of damage to Rosneft’s reputation as a viable partner for international companies. And Rosneft has a whole host of other relationships and joint ventures with other Western entities. And those relationships will now come under scrutiny. So we’ll see what happens in the following days and whether other companies like oil traders Trafigura and Vitol, both of which have joint ventures with Rosneft in the Russian Arctic, we’ll see if they react to BP’s decision. , if they do something similar.

Marc Filipino
Tom Wilson is the FT’s senior energy correspondent.

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In another significant response to Russia’s invasion of Ukraine, the United States and its Western allies unveiled harsh financial sanctions. The EU said it would kick some Russian banks out of the main international banking payment network called Swift. And the American and European allies have announced their intention to prevent the Russian central bank from using its foreign exchange reserves. This would harm Moscow’s ability to consolidate its economy and prevent Moscow from circumventing existing sanctions. Here’s our US economics editor Colby Smith with more.

Colby Smith
The purpose of these sanctions is therefore to effectively cut the country off from the global financial system and make it almost impossible for the country to support its currency as well. So what these sanctions do, they really undermine Russia’s ability to circumvent some of the sanctions that have already been put in place against some of the biggest banks and other leaders. So this is a really important moment in the response of the United States and the Western alliance to this crisis.

Marc Filipino
So Colby, how would Russia have circumvented some of the sanctions already in place? And how does this decision against the central bank prevent that?

Colby Smith
One tactic is that Russia could have used its stockpile of approximately $630 billion in foreign exchange reserves, and essentially those reserves could have been used to support the economy and shield it from some of the costs associated with the sanctions. So basically if there was, say, downward pressure on the currency as we’ve seen, the central bank could, you know, use its reserves to support the ruble. And now what these sanctions essentially do is they prevent the central bank from being able to easily do that. An important counterpoint is the fact that the country has a very high current account surplus which has been amassed through large energy exports. So that’s going to provide him with some protection. But the Russian central bank will be quite paralyzed by these new restrictions.

Marc Filipino
Did Russia react to this, Colby?

Colby Smith
So we don’t know the kind of full financial fallout from these sanctions and we might have a better idea when we see the resumption of trading on Monday. But the central bank has sought to quell any form of financial panic and has said, you know, that it has sufficient resources to ensure that it can support the currency and to ensure that there is no destabilizing run on the banks. That’s the real impact here, that’s what it means more broadly for the Russian financial system and the economy as a whole.

Marc Filipino
Colby Smith is the FT’s US economics editor. Thanks Colby.

Colby Smith
Thank you.

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Marc Filipino
Shares of cybersecurity companies such as CrowdStrike and Cloudflare surged last week as companies around the world rushed to beef up their cyber defenses. This was prompted by the discovery in Ukraine of erasing malware, a kind of cyber-weapon that permanently deletes data on infected computers. Today, Ukraine has long been one of Russia’s top targets for cyberattacks, as part of Moscow’s efforts to undermine Ukraine. But John Thornhill of the FT says the current military invasion demonstrates the limits of cyber warfare. He joins me now to talk more about it. Hey, John.

John Thornhill
Hi Mark.

Marc Filipino
So John, in addition to being our current innovation editor, you’re our former FT Moscow bureau chief, so you have some idea of ​​what’s happened in the past with respect to the Russia and cyber warfare. Can you explain this to me?

John Thornhill
Yes. So I was in Russia in the 1990s. I was there for six years and left around when Putin came to power and had an interview with Putin in 1999 when he was Prime Minister. And I mean, the way it’s evolved over the last 20 years is extraordinary. When he arrived, he was very well, he presented himself as a figure of Westernization. He explained that Russia’s mission was to be part of Europe and the rest of the world. And he’s been on a very long journey since then. One of the things he’s really focused on is cyber as a way to project power which I think he thinks there’s a power asymmetry in the world that Russia is still a relatively small economy , certainly compared to America and the rest of Europe. But cyber gives it asymmetric power, which is why the Russians have spent a lot of money investing in their cyber capabilities, both offensive and defensive.

Marc Filipino
So John, if Putin places such importance on a cyber warfare approach, why are we seeing a military approach right now when it comes to Ukraine?

John Thornhill
Well, I think that’s a fascinating thing. I mean, Russia has effectively been waging a cyber war against Ukraine since 2014, after the Maidan revolution and the expulsion of Viktor Yanukovych. And they deployed all kind of Russian arsenal of cyber weapons against Ukraine. But I think in a way it highlights the limits of cyberpower. I mean, it’s been incredibly effective in some ways in temporarily dismantling airports, banks, or government departments. But the Ukrainian system has been relatively resilient, and it hasn’t achieved Putin’s strategic goals, which are in fact to undermine Ukraine and change the course of its politics. So I think the fact that Putin has now decided to send in a military force shows that cyber weapons can amplify or complement other forms of power, but they don’t replace them, and they can’t accomplish things by themselves. So I think hard power still matters.

Marc Filipino
So what could be the role of cyber warfare in this ongoing conflict in Ukraine and when the international community becomes more involved?

John Thornhill
I think the honest answer to that is that no one has a clue. I mean, I’ve talked to a lot of cyber experts who think there’s a certain pattern that this is going to follow, which is that both sides are going to be pretty wary of doing anything terrible to the other because of the fear of what the other side can do. But given that we are now in a fairly open conflict situation, I think it is extremely difficult to predict in which direction this will go. So I think it’s going to be very intriguing to see how that plays out.

Marc Filipino
John Thornhill is our former Moscow Bureau Chief and current Innovation Editor. Thanks, John.

John Thornhill
Thanks Mark.

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Marc Filipino
You can read more about all these stories on FT.com. This has been your daily press briefing on FT. Be sure to check back tomorrow for the latest trade news.

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