OPINION: The Russian invasion of Ukraine has dramatically altered the world of energy and turned Moscow into a city where few want to do business.

The decision by several international oil companies to pull their investments from Russia reflects this dramatically.

A wave of sanctions from the West has caused the value of the Russian rouble to plummet and Brent crude prices to smash the $100 per barrel barrier, nudging $120 per barrel on Wednesday.

For all its previous military involvement in places like Georgia, Syria and Crimea, Russia until last week was seen as a country where the normal commercial rules applied.

No more. Sending tanks across the border into neighbouring Ukraine has secured rogue status for Russian President Vladimir Putin in Europe and the US, with Asian partners such as China and India also looking to distance themselves.

The reputations of Russian state-controlled oil companies such as Rosneft and gas exporter Gazprom are in tatters, and no amount of preparation for this moment can protect them from the financial consequences.

Gazprom’s Nord Stream 2 pipeline to Germany looks set to be a white elephant, and more direct embargoes against Russian oil could be introduced.

Putin has almost certainly been surprised by the strength of unity shown between Western allies.

Europe will not rapidly shrug off its dependence on Russian fossil fuels, but policymakers have the bit between their teeth.

Nowhere is this more evident than in Germany, where Chancellor Olaf Scholz halted Nord Stream 2 and announced plans to build two terminals for importing liquefied natural gas and to step up investments in clean energy.

European Union initiatives reportedly under discussion include rules to require the replenishment of gas storage levels and a proposed windfall tax on energy companies’ profits to fund additional investments in renewable energy and energy efficiency.

EU officials admit they may have to flexibilise some decarbonisation targets and Germany, along with some eastern European member states, is likely to continue using coal longer than anticipated to fill the Russian gap.

European governments, as in the US, are anxious about the effects of energy inflation on their populations.

But none of them was criticising the firmness of the response by Western oil companies this week.

BP led the exodus from Russia by showing willingness to absorb $25 billion of impairments by disposing of its near 20% stake in Rosneft.

It is a big move for the London-based company which earned almost $640 million from Rosneft dividends over 2021 alone.

Equinor and Shell followed suit, announcing they would exit operations in Russia, including the latter’s involvement in the Nord Stream 2 pipeline and the Sakhalin 2 LNG facility.

TotalEnergies took a more moderate course, merely cutting off new investments, but then ExxonMobil made a decisive move to pull the plug on its oil and gas investments in the Sakhalin Island region.

True, commercial relations will continue even as war and geopolitics rage above ground.

Putin’s decision to increase gas flows through Ukraine transit helped ease some of the initial panic on the natural gas markets when the invasion began.

But the enormity of events in Ukraine and the risk to supply was understood on the oil and gas markets, and prices have surged again this week.

Advocates of energy transition fret that policymakers will now think twice about quickly phasing out production in places like the UK North Sea.

They should not worry. The shock to the system that countries such as Germany have suffered will surely strengthen their resolve on clean energy.

In Scholz’ words: “An LNG terminal that receives gas today can also receive green hydrogen tomorrow.”

But the case for natural gas to play a medium-term role in bridging the difficult path to transition is also made stronger, not weaker, by the Russian crisis.

LNG continues to look like a good bet for energy-sector investors.

(This is an Upstream opinion article.)

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