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Governments around the world are studying punitive economic measures against Russian President Vladimir Putin, in addition to those already imposed over the past week.Chris Donovan/For The Globe and Mail

The world weighed its options for ensuring energy security in the face of Russia’s attack on Ukraine, as Western countries and OPEC members prepared on Monday to hammer out ways of taming oil prices, which have surged past US$100 a barrel.

So far, the United States and the European Union have avoided restricting imports of Russia’s oil, even though such sanctions are seen as the most effective measure against the Russian economy. Doing so could trigger a painful spike in global oil prices and fuel runaway inflation around the world. Canada announced a ban on Russia’s oil shipments on Monday, but the move is symbolic, because this country has not bought any Russian crude for the past two years.

Governments around the world are studying punitive economic measures against Russian President Vladimir Putin, in addition to those already imposed over the past week. And on Monday Shell PLC became the latest major oil company to announce plans to jettison billions of dollars worth of Russian energy interests, including its joint venture with Gazprom, which it values at US$3-billion.

The potential for Russian oil and gas sanctions will colour talks on Tuesday when the International Energy Agency holds an emergency meeting to discuss the impact of the Ukraine invasion on global supplies, and how the agency’s members can help stabilize markets.

The agency’s director, Fatih Birol, announced the meeting Monday. It will be chaired by Jennifer Granholm, secretary of the U.S. Department of Energy and the IEA’s Ministerial Chair. The Canadian government confirmed it will take part.

OPEC+ is due to to meet on Wednesday to discuss production quotas. The cartel and its allies are expected to stick with modest supply increases, taking a wait-and-see approach to the situation in Europe, said Abhi Rajendran, head of global oil and North America energy research at Energy Intelligence.

“The problem with that is OPEC+ has been underperforming supply additions for the last six months, to the point where they are behind schedule by a million barrels a day already,” he said. “So even if they were to ask [to increase] supply, there’s definitely some questions around whether they’d be able to deliver.”

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Western countries have already imposed sanctions on some parts of the Russian economy, including the country’s central bank. But given that oil and gas comprise more than 60 per cent of Russia’s export revenues, cutting off those shipments is one of the main economic weapons left that could hurt the country. Russia produces around 17 per cent of the world’s oil, and 13 per cent of its natural gas.

The oil industry is taking action. Shell’s announcement that it will divest from Russia follows BP Plc, which said it will drop its 19.75-per-cent share of Russian oil company Rosneft.

“We cannot – and we will not – stand by,” Shell chief executive Ben van Beurden said in a statement. “Our immediate focus is the safety of our people in Ukraine and supporting our people in Russia. In discussion with governments around the world, we will also work through the detailed business implications, including the importance of secure energy supplies to Europe and other markets, in compliance with relevant sanctions.”

London-based Shell’s Russian interests include a 27.5-per-cent stake in the Sakhalin-II liquefied natural gas facility, a 50-per-cent stake in the Salym Petroleum Development, and the Gydan energy venture. The company also said it intends to end its involvement in the contentious Nord Stream 2 pipeline project.

Meanwhile, Prime Minister Justin Trudeau said Canada’s ban on Russian oil sends “a powerful message,” even though the country’s refineries have not been buying the barrels lately. The move could influence allies to follow suit.

Oil is “an industry that has benefited President Putin and his oligarchs greatly,” Mr. Trudeau told a news conference in Ottawa. The ban follows other Canadian economic sanctions against Russia, including a prohibition on Canadian financial institutions having dealings with Russia’s central bank and a ban on transactions in Russian sovereign debt.

In 2019, before Russian imports tailed off the following year, Canada bought about 17,870 barrels a day from Russia, or about 2.5 per cent of this country’s total oil imports.

Two of Canada largest refineries, Irving Oil Ltd.’s 320,000-barrel-a-day facility in Saint John, NB, and Valero’s 235,000-barrel-a-day plant in Levis, Que., import no Russian oil, spokespeople for the refineries confirmed. Suncor Energy Inc., also said it did not buy Russian feedstock for its refineries.

The government may go beyond crude to also ban other Russian petroleum products, but is still studying future measures, according to a senior government official. The Globe is not naming the official because they were not authorized to speak publicly on the matter.

By contrast, the United States imported 405,000 barrels a day of Russian oil and petroleum products in December, representing 4.7 per cent of its total oil imports. Canada gave Washington advance notice of its plans to ban Russian supplies, and the U.S. may be considering following suit, according to the government official.

Sanctions targeting payments for Russian oil haven’t yet hit global oil supplies in a significant way. But their size and scope have prompted some skittishness among the shippers who would usually carry the country’s crude oil to market, Mr. Rajendran said.

“You don’t want to have your vessel tied up with cargo that you don’t know you’re going to get paid on. Or you just tied up your vessel for several days trying to move product somewhere, and you don’t know if the credit is good,” he said.

If Putin escalates his aggression towards Ukraine, forcing the West to directly sanction oil and gas exports, “you won’t be talking about US$100 oil – you’ll be talking about $110, $120 oil, if not higher,” he said.

If that happens, it may compel other oil producers toward a co-ordinated response, such as the release of strategic reserves.

Another fear is that Mr. Putin retaliates against the West and its growing list of financial sanctions by cutting off exports himself, despite the toll it might take on his own country’s revenues.

Stock markets remain skittish. Despite no obvious current impact on production and export from the conflict, “the market is certainly incorporating additional risk premium into pricing,” CIBC said in a note to clients. “The scale of the invasion is more extensive and the risks are greater. This argues for continued equity volatility, and likely additional price weakness.”

Canadian companies have faced questions from stock analysts about their exposure to the conflict, according to investor-call transcripts accessed via the Sentieo financial-research platform. CCL Industries, a label maker with $5.7-billion in annual revenue, has 428 people, five factories and a joint venture with $70-million in sales in Russia, according to CEO Geoffrey Martin.

“And I’d just like to say on the call, on behalf of all those people, we know perfectly well that none of them had anything to do with the situation that’s unfolded in the Ukraine, and they have our continuing support,” Mr. Martin said.

Robert Le Blanc, president of investment company Onex Corp., said three of its portfolio companies – Carestream, WireCo and Munich Re – have “pretty meaningful revenues in Russia and the Ukraine,” but overall, for all of its portfolio companies, sales in the region are “in the $30-million range.” Onex reported nearly $2.6-billion in revenue in 2021.

At least three Canadian oilfield-services providers operate in Russia. Michael Buker, president of PHX Energy Services Corp., told investors Wednesday morning, hours before the invasion, that his company was “seeing improved activity levels” and “expect[ed] to strengthen profitability” in Russia this year. In 2021, PHX’s Russian division represented 3 per cent of revenue and less than 1 per cent of profits.

Calfrac Well Services Ltd., which has yet to report full-year 2021 results, said in its third-quarter report that its revenue from its Russian operations in the first nine months was $94.1-million – 28 per cent higher than in the first three quarters of 2020.

Toronto-based Shawcor, which also has yet to report 2021 results, includes Russian sales in its emerging-markets segment and doesn’t break out sales among countries in the category.

With a report from David Milstead

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