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World

Business Losses From Russia Top $59 Billion as Sanctions Hit

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Global companies have racked up more than $59 billion in losses from their Russian operations, with more financial pain to come as sanctions hit the economy and sales and shutdowns continue, according to a review of public statements and securities filings.

Almost 1,000 Western businesses have pledged to exit or cut back operations in Russia, following its invasion of Ukraine, according to Yale researchers.

Many are reassessing the reported value of those Russian businesses, as a weakening local economy and a lack of willing buyers render once-valuable assets worthless. Companies under U.S. and international reporting standards have to take impairment charges, or write-downs, when the value of an asset declines.

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The write-downs to date span a range of industries, from banks and brewers to manufacturers, retailers, restaurants and shipping companies—even a wind-turbine maker and a forestry firm. The fast-food giant

McDonald’s Corp.

expects to record an accounting charge of $1.2 billion to $1.4 billion after agreeing to sell its Russian restaurants to a local licensee;

Exxon Mobil Corp.

took a $3.4 billion charge after halting operations at an oil and gas project in Russia’s Far East; Budweiser brewer

Anheuser-Busch InBev SA

took a $1.1 billion charge after deciding to sell its stake in a Russian joint venture.

“This round of impairments is not the end of it,” said Carla Nunes, a managing director at the risk-consulting firm Kroll LLC. “As the crisis continues, we could see more financial fallout, including indirect impact from the conflict.”

The financial fallout of the conflict isn’t significant for most multinationals, in part because of the relatively small size of the Russian economy. Fewer than 50 companies account for most of the $59 billion tally. Even for those, the Russian losses are typically a relatively small part of their overall finances. McDonald’s, for example, said its Russia and Ukraine businesses represented less than 3% of its operating income last year.

Some companies are writing off assets stranded in Russia. The Irish aircraft leasing company

AerCap Holdings

NV last month took an accounting charge of $2.7 billion, which included writing off the value of more than 100 of its planes that are stuck in the country. The aircraft were leased to Russian airlines. Other leasing companies are taking similar hits.

Other businesses are assuming that they will realize no money from their Russian operations, even before they have finalized exit plans. The British oil major

BP

PLC’s $25.5 billion accounting charge on its Russian holdings last month included writing off $13.5 billion of shares in the oil producer

Rosneft.

The company hasn’t said how or when it plans to divest its Russian assets.

BP’s $25.5 billion accounting charge on its Russian holdings include writing off $13.5 billion of shares in oil producer Rosneft.



Photo:

Yuri Kochetkov/EPA/Shutterstock

Even some companies that are retaining a presence in Russia are writing down assets. The French energy giant

TotalEnergies

SE took a $4.1 billion charge in April on the value of its natural-gas reserves, citing the impact of Western sanctions targeting Russia.

The Securities and Exchange Commission last month told companies that they have to disclose Russian-related losses clearly, and that they shouldn’t adjust revenue to add back the estimated income that has been lost because of Russia.

Bank of New York Mellon Corp.

, which in March said it had stopped new banking business in Russia, appeared to breach this guidance when it reported its results for the first three months of this year. The New York custody bank in April reported $4 billion in revenue under one measure that included $88 million added to reflect income lost because of Russia.

A BNY Mellon spokesman declined to comment.

Investors appear to have mixed reactions to the write-downs, partly because most multinationals have relatively small Russian exposure, academic research suggests.

Financial markets are “rewarding companies for leaving Russia,” a recent study by Yale School of Management found. The share-price gains for companies pulling out have “far surpassed the cost of one-time impairments for companies that have written down the value of their Russian assets,” the researchers concluded.

Bank of New York Mellon said earlier this year that it had stopped new banking business in Russia.



Photo:

Gabriela Bhaskar/Bloomberg News

Research using a different methodology found a more subtle investor reaction. Analysis by Indiana University professor Vivek Astvansh and his co-authors of the short-term market impact of more than 200 corporate announcements revealed a marked trans-Atlantic divide. Investors punished U.S. companies for pulling out of Russia, and non-American companies for not withdrawing, the analysis found.

More write-downs and other Russia-related accounting charges are expected in the coming months, as companies complete their planned departures from the country.

British American Tobacco

PLC, whose brands include Rothmans and Lucky Strike, said on March 11 it had “initiated the process to rapidly transfer our Russian business.” That transfer is still ongoing, according to a BAT spokeswoman. BAT hasn’t taken an impairment in relation to the business.

Accounting specialist

Jack Ciesielski

said companies might hold off announcing a write-down until they have a good handle on how big the loss will be.

“You don’t want to put a number out there until you’re confident that it’s not likely to change,” said Mr. Ciesielski, owner of investment research firm R.G. Associates Inc.

The ruble’s recovery is helping Russia prop up its economy and continue its Ukraine war effort. WSJ’s Dion Rabouin explains how Russia boosted its ailing currency and how it is affecting the global economy. Illustration: Ryan Trefes

Many companies are giving investors rough estimates about what to expect on Russia-related losses.

The manufacturer

ITT Inc.,

which has suspended its operations in Russia, said last month it expects a $60 million to $85 million hit to revenue this year because of a “significant reduction in sales” in the country. That is a small slice of the $2.8 billion in total revenue for the maker of specialty components for the auto, aerospace and energy industries.

As sanctions weaken the Russian economy, businesses still operating there are reassessing their future earnings and booking losses. Ride-sharing giant

Uber Technologies Inc.

in May took a $182 million impairment on the value of its stake in a Russian taxi joint-venture because of forecasts of a protracted recession in the Russian economy. Uber said in February it was looking for opportunities to accelerate its planned sale of the stake.

—Thomas Gryta and Nick Kostov contributed to this article.

Write to Jean Eaglesham at jean.eaglesham@wsj.com

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World

Russian Forces Expand Donbas Assault, Take Heavy Losses

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KYIV, Ukraine—Russian forces were pushing to encircle two cities in eastern Ukraine on Wednesday, part of an all-out assault to take control of the Donbas area, which is making progress but at a cost for Moscow.

Fighting was centered around two cities on either side of the Siverskyi Donets River, Severodonetsk and Lysychansk. The two cities are among the easternmost parts of Donbas that Ukrainian forces still control.

Speaking on Ukrainian television Wednesday morning,

Serhiy Haidai,

governor of Luhansk province, where both cities are located, said the situation for Ukrainian forces in Severodonetsk was dire.

“The city is being destroyed,” Mr. Haidai said. “Yesterday, there were fights on the outskirts of the city. Our guys are holding on, but [Russian President Vladimir] Putin set a goal for his army to capture the Luhansk region, no matter what cost.”

The shelling in Severodonetsk was so heavy, he said in another TV interview, that the city could soon be reduced to rubble.

Russia’s focus on Severodonetsk, a city of 100,000 people, shows just how much its ambitions have been scaled back since the start of the war.

Pro-Russian troops in the Luhansk region of Ukraine on Tuesday.



Photo:

ALEXANDER ERMOCHENKO/REUTERS

Shelling on Wednesday hit a village north of Kharkiv that Ukrainian forces recently recaptured.



Photo:

dimitar dilkoff/Agence France-Presse/Getty Images

In the early weeks of the invasion, Russian forces pushed to take Kyiv and Kharkiv, Ukraine’s two largest cities. But Kyiv never fell, and now Kharkiv is back under Ukrainian control. Kharkiv reopened its subway system earlier this week, after pushing Russian forces largely out of artillery range. Russia now is concentrating on Donbas, the industrial area on Ukraine’s eastern edge, where fighting has been ongoing since 2014.

Russian forces are making progress in Donbas. Ukrainian military units have pulled out of Svitlodarsk, another city in Donbas, and earlier this week, Ukrainian President

Volodymyr Zelensky

said that up to 100 Ukrainian soldiers could be killed each day in the battle for the area.

But Russia is paying a steep price for the gains it has made. The Kremlin is sending units from southern Ukraine to fight in Donbas, according to Ukrainian officials, and losing so many men that continued Ukrainian resistance could eventually force it to shift strategies again.

Ukraine’s Defense Ministry said Wednesday morning that nine attacks had been repelled in the Donetsk and Luhansk regions, which together form Donbas. Dozens of Russian vehicles were destroyed, the ministry said, including three tanks.

Mr. Haidai said that holding Severodonetsk would be crucial for Ukraine’s efforts to stop any further Russian advances, adding that the heavy casualties would eventually force Moscow to ease the assault.

“They are no more bulletproof than anyone else,” he said of the Russian soldiers. “If they do not succeed during this week—by Saturday, Sunday —they will get tired, and the situation will at least stabilize for us.”

Today in Russia, holding the book “War and Peace” or a piece of paper with printed asterisks can get people detained. WSJ looks at how far the Kremlin is going to restrict free speech and control the narrative about the war in Ukraine. Photos: Maxim Salekh, Sota via AP, Konstantin Goldman

In a video released on Twitter early Wednesday, fighters claiming to be from the Donetsk People’s Republic, a pro-Russian breakaway area, said they had already sustained heavy losses, and didn’t want to fight for Russia in Luhansk, after already having fought to take Mariupol, a port city on the Sea of Azov, which is adjacent to the Black Sea.

“We refuse to go to the slaughter,” one fighter says in the video. “We don’t want to be cannon fodder.”

As Moscow seeks to boost morale and replenish its manpower for its offensive, Mr. Putin visited wounded soldiers at a Moscow hospital, his first known visit since the war began, and the Russian parliament adopted a bill lifting age limits for enlisting in the military.

Elsewhere Wednesday morning, four rockets struck the outskirts of the Ukrainian city of Zaporizhizhia, which has remained relatively safe since the start of the invasion, even as surrounding areas came under Russian control. Local Ukrainian officials said at least one person was killed in the attack. Moscow said this week that it would focus on expanding its occupation in the southeastern Ukrainian region.

Mr. Putin signed a decree Wednesday to enable residents of occupied areas of the Zaporizhzhia and Kherson regions in southern Ukraine to apply for Russian passports. A swath of southern Ukraine, including almost all of its Kherson region and the majority of its Zaporizhzhia region, has been under Russian military rule since early March. Russia has already distributed passports to residents of the self-proclaimed Donetsk People’s Republic and a similar area in the Luhansk region.

As fighting continues, Russian Deputy Foreign Minister

Andrey Rudenko

said Moscow was willing to consider a potential prisoner swap with Kyiv, but only after legal proceedings directed at Ukrainian prisoners are finished.

“We will consider all things once the surrendered have been convicted and sentenced, and then there may be some other steps,” Mr. Rudenko said Wednesday in comments carried by Russian state media. “Before that, talk of an exchange is premature.”

A potential swap could include Vadim Shishimarin, a Russian soldier who was recently convicted of premeditated murder and sentenced to life in prison in Ukraine’s first war-crimes trial since the invasion began in February.

Mr. Rudenko’s remarks come just days after Russia’s Ministry of Defense said a group of 531 Ukrainian soldiers, the last of a battalion that held out against a Russian siege at an industrial complex in Mariupol surrendered. In all, 2,439 soldiers turned themselves over to Russian forces at the Azovstal steel plant, Russia said.

Speaking via videoconference at the World Economic Forum in Davos, Switzerland, on Wednesday morning, Mr. Zelensky said Ukraine would continue fighting until it reclaimed all territories that had been seized from it, even ground lost in 2014, the year Russia annexed Ukraine’s Crimean Peninsula.

Ukrainian President Volodymyr Zelensky addressed the World Economic Forum in Davos, Switzerland, on Wednesday via video link.



Photo:

fabrice coffrini/Agence France-Presse/Getty Images

Mr. Zelensky said he doesn’t think Mr. Putin is fully aware of what is going on in Ukraine and only when he “understands reality” could there be a diplomatic solution to the conflict.

Kremlin spokesman Dmitry Peskov has insisted that Mr. Putin is fully on top of events in Ukraine. In March, the presidential spokesman said that it was Washington that lacked real information about Mr. Putin and the Kremlin, and such misunderstandings could result in “wrong decisions, in careless decisions that have very bad consequences.”

Meanwhile, European leaders are searching for ways to export Ukrainian grain supplies, which have been trapped in the country, fueling bread shortages in countries like Egypt.

Polish Prime Minister Mateusz Morawiecki said Poland is pushing the U.S. and European Union to help rapidly expand the rail infrastructure needed to export Ukraine’s looming grain harvest, circumventing Russia’s naval chokehold in the Black Sea.

United Nations Secretary-General

António Guterres

is pursuing a high-stakes deal with Russia, Turkey and other nations to open up Ukrainian food exports to world markets and stave off a potential global food shortage.

Humanitarian aid was distributed in Moshchun, outside Kyiv, on Tuesday.



Photo:

Alexey Furman/Getty Images

Mr. Rudenko, the Russian deputy foreign minister, said that Russia stands ready to establish a humanitarian corridor that would provide safe passage for ships carrying food from Ukrainian ports, but only if some sanctions are lifted.

“Solving the food problem requires a comprehensive approach, including the lifting of sanctions that were imposed on Russian exports and financial transactions,” Mr. Rudenko said.

Mr. Rudenko said that Moscow has been in touch with the U.N. on the matter. However, he didn’t elaborate on how a potential corridor would work in practice and appeared to rule out the involvement of Western vessels, saying “this would seriously exacerbate the situation in the Black Sea region.”

Ukrainian Foreign Minister

Dmytro Kuleba

stressed the importance of finding a way to ease Russia’s blockade of Ukrainian grain shipments to avert an international food catastrophe, but also warned against striking a deal with Moscow.

“We cannot allow the interruption of the agricultural cycle in Ukraine because that would mean a multiyear global food crisis,” Mr. Kuleba said Wednesday. “But in the end, the problem is, you cannot trust Russia even when they sign a paper guaranteeing safe passage.”

Russia said it has opened the port of Mariupol. The port, and the sea around it, were cleared of mines before a so-called humanitarian corridor for foreign vessels was opened on Wednesday, Russian Foreign Ministry spokeswoman

Maria Zakharova

told the state news agency RIA. Five foreign ships have sailed out of the port using the two-nautical-mile wide corridor, according to the report.

A damaged building in Kramatorsk, in the Donbas area of Ukraine, on Wednesday.



Photo:

aris messinis/Agence France-Presse/Getty Images

—Vivian Salama, James Marson, Ann M. Simmons, Mauro Orru and Illia Oliinyk contributed to this article.

Write to Ian Lovett at ian.lovett@wsj.com

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Business

Saudi Aramco Posts Record Quarterly Profit on Surging Oil Prices

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DUBAI—Saudi Arabia’s national oil company said Sunday that its net income rose more than 80% to record highs in the first quarter of the year, a surge that shows how some of the world’s biggest state-owned energy producers are benefitting from a price boom accelerated by Russia’s invasion of Ukraine.

Saudi Arabian Oil Co., known as Aramco, said its quarterly profit swelled to $39.5 billion in the quarter, a period during which Saudi Arabia, the de facto leader of the Organization of the Petroleum Exporting Countries, continued to rebuff U.S. requests to pump more oil to help tame surging crude prices, instead sticking by an agreement with Russia to only marginally increase output.

The agreement with Russia allows for production increases of around 400,000 barrels a day each month, but it has done little to stem the rise in oil prices, and the Saudis have pumped less than their share, according to the International Energy Agency.

Western countries including the U.S. have responded to Russia’s invasion of Ukraine by sanctioning exports of Russian oil, leading to fears of less oil in the market and higher prices. Some of Europe’s biggest economies are scrambling to find new sources of natural gas to replace Russian fuel on which they remain highly dependent.

The result has been a boon for traditional fossil-fuel producers in the Middle East. With oil prices rising as high as $139 a barrel in recent months and consistently above $100, Saudi Arabia has seen its fastest economic growth in a decade.

Last week, Saudi Aramco overtook

Apple Inc.

as the world’s most valuable company, with its market value rising to $2.4 trillion.

The Ukraine invasion and rising global oil prices have benefited Saudi Arabia. A gasoline station in Kenya.



Photo:

simon maina/Agence France-Presse/Getty Images

Soaring energy prices have also showered Western oil producers such as

Shell

PLC and

Exxon

Mobil Corp. with cash. But the companies are largely using the cash to reduce debt, accelerate share buybacks and otherwise reward investors, rather than increase exploration and other capital spending. Some have also suffered multibillion-dollar write-downs from their withdrawal from Russia.

For many members of OPEC and a coalition of Russia-led oil producers, known as OPEC+, high oil prices have been a windfall, providing a vital boost to their economies after years of slow growth due to relatively low prices, some OPEC delegates and analysts say.

Though the kingdom is trying to diversify away from oil, Aramco remains the engine of the Saudi economy. The company pumped an average of 10.2 million barrels a day between January and March, the most of any company in the world.

Crown Prince Mohammed bin Salman is seeking to restructure the Saudi economy by 2030.



Photo:

SAUDI PRESS AGENCY/REUTERS

Aramco is spending billions of dollars to up its oil production capacity from 12 million barrels a day to 13 million by 2027 and plans to increase its gas output by more than 50% by 2030.

Aramco is also looking to develop opportunities in refining and petrochemicals, known in the industry as the downstream sector. In recent months it bought a stake in a Polish refinery and said it would invest in a 300,000-barrel-a-day refining and petrochemicals complex in China.

Other Middle East energy producers are profiting from the energy-price boom.

Qatar, one of the world’s biggest natural-gas producers, is in talks to supply Germany, France and other European countries with long-term supplies of liquefied natural gas. In Iraq, one of the world’s biggest oil producers, officials say a windfall of more than $20 billion in oil revenues is putting the country on its strongest financial footing in years. Even Iran, where U.S. sanctions have crippled the oil industry, has ramped up exports in recent months.

In Saudi Arabia, gross domestic product in the first quarter expanded 9.6% from a year earlier, according to the kingdom’s statistics authority. London-based consulting firm Capital Economics estimates the Saudi economy will grow around 10% this year. That is far stronger than the 6.3% growth currently expected by most analysts, it said.

Saudi Arabia recorded a budget surplus equivalent to $15.3 billion for the first three months of 2022, the finance ministry said Sunday, bolstered by a 58% increase in oil revenues compared with the same period last year. It is the biggest surplus since the government began announcing budget figures on a quarterly basis six years ago.

Saudi Aramco’s first-quarter capital expenditure stood at $7.6 billion. The firm has previously set its full-year capital expenditure guidance at $40 billion to $50 billion, with further growth expected until around the middle of the decade.

Despite its free cash flow rising 68% to $30.6 billion, Aramco kept its quarterly dividend, a vital revenue source for the Saudi government, unchanged at $18.8 billion and approved the distribution of one bonus share for every 10 shares held in the company. That allowed the firm to reduce its gearing—a measure of debt as a percentage of equity—from 14% at the end of December to 8% at the end of March.

In March last year, Aramco’s gearing rose to 23%, above the company’s self-imposed cap of 15%, forcing Aramco to return to the debt market to meet its dividend commitment.

The Saudi government, with a stake of more than 94% in Aramco, has sought to monetize the country’s massive oil assets and use the proceeds to invest in industries outside of oil as part of Crown Prince

Mohammed bin Salman’s

plan to restructure the economy by 2030.

To help meet that goal, Prince Mohammed has tasked the Public Investment Fund to invest in companies and industries untethered to hydrocarbons. The government also transferred the $29.4 billion it raised from Aramco’s initial public offering on the Saudi stock exchange in 2019 to the PIF to deploy.

Earlier this year, the Saudi government said it transferred Aramco shares worth about $80 billion to the PIF as part of efforts to diversify the kingdom’s hydrocarbon-dependent economy.

—Ghassan Adnan and Stephen Kalin contributed to this article.

Write to Summer Said at summer.said@wsj.com

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World

Germany Drops Opposition to Embargo on Russian Oil

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BERLIN—Germany is now ready to stop buying Russian oil, clearing the way for a European Union ban on crude imports from Russia, government officials said.

Berlin had been one of the main opponents of sanctioning the EU’s oil-and-gas trade with Moscow.

However on Wednesday, German representatives to EU institutions lifted the country’s objection to a full Russian oil embargo provided Berlin was given sufficient time to secure alternative supplies, two officials said.

The German shift increases the likelihood that EU countries will agree on a phased-in embargo on Russian oil, with a decision possible as soon as next week, diplomats and officials say. However, how quickly the bloc ends its Russian oil purchases, and whether it also uses measures such as price caps or tariffs, is still being negotiated. The U.S. is pressing its European allies to avoid steps that could lead to a protracted increase in oil prices.

Europe’s debate on banning Russian oil has shifted decisively in recent days with Germany and some other countries taking practical steps to replace Russia with other suppliers. Some member states remain cautious about the economic impact of an oil embargo, including Hungary, Italy, Austria and Greece, diplomats say. All 27 EU governments must approve an oil ban.

The oil moves come as EU nations scramble to help member states Poland and Bulgaria make up for a natural gas shortfall after Russia stopped deliveries this week in reaction to what it said was the two countries’ refusal to pay for imports in rubles. The Kremlin demands EU buyers pay into special bank accounts where deposits would be converted from euros and dollars into rubles.

The EU pays state-controlled Russian firms around €1 billion, equivalent to $1.05 billion, a day for energy, according to estimates by Bruegel, a Brussels-based think tank. Critics have said that these funds are bankrolling Russian President

Vladimir Putin’s

regime and its war in Ukraine.

The consequences of harsh economic sanctions against Russia are already being felt across the globe. WSJ’s Greg Ip joins other experts to explain the significance of what has happened so far and how the conflict might transform the global economy. Photo Illustration: Alexander Hotz

On Thursday, Gazprom PJSC, Russia’s biggest gas producer, said profit soared in 2021 on the back of higher gas and oil prices.

Senior officials from EU member states discussed oil sanctions at length on Wednesday and the European Commission, the EU’s executive body, will hold further discussions with EU countries in coming days before presenting a proposal probably early next week, officials and diplomats say.

U.S. Treasury Secretary

Janet Yellen

said last week that a full European oil embargo on Russia would push up international oil prices, hurting a fragile global economy, and might “actually have very little negative impact on Russia,” which would benefit from higher oil prices on its remaining exports. She suggested Europe could keep buying oil while restricting Russia’s access to payments, echoing talk in Europe of making payments into an escrow account.

The EU imports between 3 million and 3.5 million barrels of oil a day from Russia, sending just under $400 million in payments daily, according to Bruegel. That amounts to some 27% of EU oil imports. Oil and gas revenues accounted for 45% of Russia’s federal budget in 2021, according to the International Energy Agency.

Many companies have been self-sanctioning, according to analysts and traders, avoiding trade in Russian oil over reputational concerns and the risk that the Western pressure campaign could soon encompass Moscow’s energy exports. That is already contributing to a sharp fall in Russian oil exports, according to the IEA.

EU officials designing the next sanctions proposals have to factor in that it will take some European oil refineries time to adapt to receive non-Russian crude. They also acknowledge that for countries such as landlocked Hungary, which receives its Russian oil through pipelines, adjusting to a Russian oil embargo will be complex.

The bloc is considering the option of combining a gradual phaseout of oil purchases with more immediate measures to reduce demand or cut payments to Moscow, such as a price cap or a tariff on oil imports. Another possibility is to phase out shipped oil purchases quickly and pipeline deliveries more slowly.

“There are all sorts of things that we’re running through,” said a senior EU official. “The aim is to hit the Russians as hard as possible while at the same time minimizing” the cost.

While Germany has swung behind the idea of phasing out Russian oil purchases, Berlin remains skeptical of price caps, tariffs and proposals to put Russia’s oil payments into escrow accounts.

German officials doubt that Mr. Putin would maintain oil deliveries if the EU unilaterally cut the price it pays, and they caution that Russia could easily sell its oil to other customers such as India and China instead of accepting a lower European price.

Berlin’s change of mind on oil came after it struck a deal with Poland that will enable Germany to import oil from global exporters via the Baltic Sea port of Gdansk, officials said Wednesday.

The Polish port is located close to the PCK oil refinery in Schwedt, Germany, which is controlled by the Russian oil giant

Rosneft

and receives crude via a Russian pipeline known as Druzhba, Russian for friendship.

The Gdansk port infrastructure, which is equipped to receive oil supertankers, is connected to the Russian pipeline with a separate link operated by Poland. This means oil imports to Gdansk could be immediately channeled through the pipeline to the Schwedt refinery, replacing Russian supplies, government officials said.

Oil imports to Gdansk, Poland, could be channeled to the Schwedt refinery, replacing Russian supplies.



Photo:

Michal Fludra/Zuma Press

The Schwedt refinery was the biggest obstacle to Germany accepting a ban on Russian oil imports because thousands of jobs in the region depend on it and there was no alternative supply to feed it until now, the officials said.

The Polish deal was necessary because the German port closest to the refinery, Rostock, doesn’t have the capacity to receive supertankers. In addition, Germany’s railways no longer operate oil wagons. The landmark deal was announced on Wednesday by German Economy Minister

Robert Habeck

during a visit to Poland.

Some 12% of Germany’s oil consumption relies on Russian imports, down from 35% before the war, Mr. Habeck said in a video statement posted on his ministry’s social media. He said Germany was now ready for the possibility that Rosneft would stop channeling oil, a scenario he said would no longer spell disaster for the German economy.

“Rosneft is a Russian state company and they have no interest in processing non-Russian oil,” Mr. Habeck said.

Should Rosneft refuse to process non-Russian oil imports, Germany could put the refinery under state management under laws protecting strategic assets. Berlin has already assumed stewardship of the main Russian gas-trading hub in Germany, a subsidiary of Russia’s state-controlled Gazprom.

Write to Bojan Pancevski at bojan.pancevski@wsj.com, Laurence Norman at laurence.norman@wsj.com and Georgi Kantchev at georgi.kantchev@wsj.com

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World

Russian Missile Attack Kills Dozens at Railway Station in Eastern Ukraine

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A Russian missile attack on a train station in the eastern Ukrainian city of Kramatorsk killed at least 52 people and injured more than 100 trying to flee the eastern Donbas region, Ukrainian authorities said Friday, in one of the largest single attacks on evacuees since the conflict began.

Around 4,000 people from across eastern Ukraine had gathered at the train station, a railroad hub for the region, waiting for evacuation days after Ukrainian officials told residents to leave ahead of a renewed Russian offensive in Donbas. Ukrainian President Volodymyr Zelensky said a ballistic Tochka-U missile had struck the station. Photographs posted on social media by Mr. Zelensky showed bodies strewn on the ground and dozens of suitcases, strollers and bags left behind.

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World

U.S. Won’t Negotiate Ukraine-Related Sanctions with Russia to Save Iran Nuclear Deal

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The U.S. won’t negotiate exemptions to Ukraine-related sanctions on Russia to save the 2015 Iranian nuclear deal and instead would try to strike an alternative agreement that excludes Russia if the Kremlin doesn’t back off from last-minute demands, a senior State Department official said.

With one of President Biden’s top foreign-policy goals imperiled, the senior U.S. official said Moscow had a week to withdraw its demand for written guarantees exempting Russia from any Ukraine-related sanctions that would constrain Moscow’s future trade with Iran. Such guarantees could undercut the West’s punishing array of sanctions leveled at Russia over the Ukraine invasion.

“I don’t see the scope for going beyond what is within the confines of the JCPOA,” the senior U.S. official said, referring to the 2015 nuclear deal formally known as the Joint Comprehensive Plan of Action. ”I think it’s pretty safe to say that there is no room for making exemptions beyond those.”

Former President

Donald Trump

exited the accord in 2018 and reimposed broad sanctions, saying the deal failed to stop Iran’s path to a nuclear weapon. In response, Iran expanded its nuclear work, breaching most limits in the deal.

The official said an agreement between Iran and the U.S. was “within reach,” saying only a few issues were holding up a deal when talks in Vienna were broken off Friday because of Russia’s demand. The official called Russia’s demands “the most serious stumbling block and obstacle to reaching a deal.”

European officials say Russia had promised to respond with its precise demands for guarantees in the next few days. The U.S. official said if Russia presses its guarantee demands or doesn’t reply “in the coming week,” Washington would need to “very quickly consider an alternative path.”

Earlier this month, as Western diplomats were seeking to wrap up the talks, Russia requested guarantees that its work under the JCPOA would be exempted from western sanctions over Ukraine. The U.S. had given sanctions waivers for the 2015 deal.

However after Russian Foreign Minister

Sergei Lavrov

told reporters Moscow wanted much broader guarantees, its chief negotiator in Vienna,

Mikhail Ulyanov,

presented a second paper to European negotiators on Tuesday seeking to protect all future trade and investment against Ukraine-related sanctions.

Russia’s chief negotiator in Vienna, Mikhail Ulyanov, said his country’s demands weren’t the only reason an agreement hadn’t been reached.



Photo:

christian bruna/Shutterstock

It couldn’t be determined whether Iran would be willing to negotiate an alternative deal without Russia, or whether China—which has grown closer to Russia—would participate. European officials also said Friday they would be open to exploring an alternative accord with Iran without Russia.

Mr. Ulyanov on Friday said his country’s demands weren’t the only reason an agreement on reviving the nuclear deal hadn’t been reached. Since negotiations hadn’t concluded, it was his country’s right to raise its concerns, he said.

Time is pressing. U.S. and European officials say that Iran’s nuclear work has expanded close to a point that the deal’s main benefit to the West—keeping Iran months away from amassing enough nuclear fuel for a nuclear weapon—would be impossible. Iran is currently just a few weeks from that so-called breakout point.

The U.S. is also on the hunt for new oil supplies during the war in Ukraine, as it seeks to contain surging energy prices. Iran could supply up to a million barrels a day of new crude supplies eventually if sanctions are lifted.

One option for the U.S. and its partners would be to create an interim deal that could freeze some of Iran’s activities and wind back aspects of its nuclear program in return for some level of sanctions relief from the U.S. Iran has always rejected the idea of an interim deal.

Another option would be to create what the senior U.S. official called a “replica of the JCPOA,” without Russia, which would assign Moscow’s tasks in the agreement elsewhere.

“I do think we would be open to various alternatives. We are beginning to think about what those might be,” the official said. “We…at this point wouldn’t rule anything out.”

Iran said it fired missiles near Erbil, Iraq, on Sunday, where the U.S. has a consulate.



Photo:

AZAD LASHKARI/REUTERS

Further complicating any attempt to re-craft a deal with Iran: Tehran has refused to let its negotiators talk directly to the U.S. until Washington lifts its sanctions. Regional tensions with Iran are growing again after a missile strike early Sunday which U.S. officials say originated from Iran and landed near an American consulate under construction in northern Iraq.

Any new deal would also trigger U.S. legislation giving Congress time for an in-depth review of the accord.

The negotiations in Vienna, which have dragged on for close to a year, aim to agree on the steps the U.S. and Iran would take to return into compliance with the nuclear deal. If Russia’s demands can be resolved, negotiators have said they could be back in Vienna within a few days to finish the talks.

Iran has avoided calling out Russia and has continued to blame the failure to complete the talks on Washington. However there have been hints of irritation from Iranian officials, who have said they wouldn’t let external factors get in the way of their interests.

The senior U.S. official declined to say whether an agreement would have been concluded by now without the Russian intervention. Among the issues still on the table is whether Iran’s Revolutionary Guards would have their Foreign Terrorist Organizations listing removed and what any conditions might be around that, Western diplomats say.

In a video message, Ukrainian President Volodymyr Zelensky denounced what he said was the kidnapping by Russian forces of the mayor of the southern city of Melitopol. On Saturday, a fresh round of Russian airstrikes hit on the outskirts of Kyiv. Photo: Dimitar Dilkoff/AFP/Getty Images

Write to Laurence Norman at laurence.norman@wsj.com

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Business

Shell, BP to Withdraw From Russian Oil, Gas

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European oil giants

Shell

SHEL 2.85%

PLC and

BP

BP 5.53%

PLC said they were stepping back further from doing business with Russia, with Shell saying it will immediately halt all spot purchase of crude from the country and will phase out its other trading and business dealings.

A spokesman for BP said it won’t enter into new business with Russian entities or business involving Russian ports “unless essential for ensuring security of supply.”

The two made their moves ahead of what people familiar with the matter say is a plan by the Biden administration to ban Russian oil imports into the U.S. The Wall Street Journal reported an announcement on the issue is imminent. The administration’s deliberations about the ban have ramped up as lawmakers of both parties, including House Speaker

Nancy Pelosi,

called for action on the issue.The White House declined to comment.

Futures for Brent crude, the global oil benchmark, rose more than 5% early Tuesday. Oil prices for both measures were already up before the Journal report but rose further after.

Shell had previously said it would pull out of a number of joint ventures in the country. On Tuesday, it said it would also shut its service stations and aviation fuels and lubricants operations in Russia, and it won’t renew any Russian term contracts. It said it would find alternative supplies of oil as soon as possible, though it cautioned it could take weeks to fully make up the difference, leading to reduced production at some refineries.

Shell faced a backlash last week and over the weekend when it snapped up a cargo of Russian crude at a bargain price, after many other players had started to curtail their purchases, creating an informal embargo from some buyers in response to Russia’s invasion of Ukraine.

The company on Tuesday apologized for the purchase and said it would commit from its Russian oil purchases to humanitarian funds aimed at alleviating the crisis in Ukraine. Shell had previously said it would exit its joint ventures with Russian energy giant

Gazprom PJSC.

BP won’t charter Russian-owned or Russian-operated vessels where possible, the spokesman said. In cases where it already has, the company “will continue to monitor their safe passage and comply with all applicable sanctions and local restrictions.” The spokesman said the decisions were made in the middle of last week, calling the situation a “rapidly changing and complex area” that BP continues to review. Previously, BP said it would relinquish its nearly 20% stake in oil giant

Rosneft,

following pressure from the U.K. government.

Russia’s attack on Ukraine helped push the price of oil to over $100 a barrel for the first time since 2014. Here’s how rising oil costs could further boost inflation across the U.S. economy. Photo illustration: Todd Johnson

The U.S. and its allies left energy out of an array of economic sanctions imposed on Moscow in response to the invasion. Many refiners, though, went further, shunning Russian crude. Such self-sanctioning has taken a chunk out of global supplies, pushing prices for international benchmark Brent sharply higher. Traders say it is also causing a backup in Russia’s energy supply chain, prompting refiners to cut back production.

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World

Biden’s Sanctions Plan Targets Russian Banks, Companies and Imports if Ukraine Is Attacked

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WASHINGTON—The Biden administration is finalizing its targets for a barrage of economic sanctions against Russia if it attacks Ukraine—hitting major Russian banks, state companies and key imports, though the strategy faces obstacles that have hindered previous pressure campaigns.

Administration officials said the planned actions are unparalleled in recent decades against Russia, putting teeth into President Biden’s threat to apply punishing financial and other sanctions in the event of a Russian assault.

President Biden said on Wednesday that the U.S. is ready to unleash sanctions against Russia if President Vladimir Putin makes a move against Ukraine. Biden also laid out a possible diplomatic resolution. Photo: Susan Walsh/Associated Press

While final decisions haven’t been made, the officials said, the potential targets include several of Russia’s largest government-owned banks, such as

VTB Bank,

the banning of all trade in new issues of Russian sovereign debt and the application of export controls across key sectors such as advanced microelectronics.

Russian President Vladimir Putin, left, meets with Andrey Kostin, president and chairman of the management board at VTB Bank, at the Kremlin in Moscow last November.



Photo:

Mikhail Metzel/Zuma Press

Past U.S. efforts to wage economic warcraft have produced mixed results. Iran and North Korea, for example, have adjusted over time to broad economic embargoes over their nuclear-weapons programs, though not without ongoing pain for their economies and people. After Russia invaded Ukraine in 2014, the Obama administration went after some energy-technology exports, sovereign debt and some government-owned banks and firms, though the narrow scope of those sanctions didn’t exact deep damage.

Russia is better prepared now, with deeper foreign-currency reserves, less reliance on foreign debt, faster economic growth and rising prices for oil—the country’s primary revenue source. Russia’s role as a top exporter of oil and gas and its economic integration with Europe have previously deterred the U.S. from applying broad sanctions out of concern that they would upset global markets and European allies.

Off the table, for now, are sanctions on oil and natural-gas exports or disconnecting Russia from SWIFT, the basic infrastructure that facilitates financial transactions between banks across the world, the U.S. officials said, but that could change depending on Russian actions.

Still, this time around, the officials said, the U.S. is doing away with the incremental approach that blunted the impact of the 2014 and other efforts—and instead is moving to prohibit a broader range of activities from the start.

“We and our allies have a full range of high-impact sanctions ready to go, both immediately after a Russian invasion and in waves to follow. Nothing is off the table,” said National Security Council spokeswoman

Emily Horne.

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“We would start high and stay high, and maximize the pain to the Kremlin,” one of the officials said.

European allies are also more in sync with the U.S. than in 2014, the officials said, given that Russian President

Vladimir Putin’s

demands go beyond Ukraine this time to include a reworking of post-Cold War security arrangements in Europe.

Europe understands “that if we’re going to change Putin’s calculus, we have to be ready together to impose massive consequences,” the official said. The U.S. and European Union actions won’t be identical, but will “deliver a severe and immediate blow to Russia and over time make its economy even more brittle,” the official said.

Russian Foreign Minister

Sergei Lavrov

said this week that the sanctions threats are part of the West’s “militaristic frenzy.” Russia, he said, is “ready for any developments.”

Other than VTB Bank, other large government-owned or controlled banks under consideration for blacklisting are Gazprombank and

Sberbank,

said one of the officials. Sberbank, which accounts for 30% of net assets in Russia’s financial system, may not get hit in the first round of sanctions to hold a potent option in reserve, according to former officials.

VTB, Gazprombank and Sberbank didn’t respond to requests for comment.

The possible blacklisting technically prohibits U.S. banks and other American entities from doing business with the targeted banks, and the administration may grant exceptions. But the risk of violators being punished by the U.S. usually encourages foreign banks to comply.

“Banks in Paris and London aren’t going to be doing what U.S. banks aren’t doing,” said Brian O’Toole, a former top Treasury sanctions official in the Obama administration and now a senior fellow at the Atlantic Council, a nonpartisan Washington think tank.

Government-owned companies are also targets of similar sanctions, the U.S. officials said. Though the officials didn’t specify which companies, some financial analysts said blacklisting firms like Russian insurance giant Sogaz, which insures companies tied to the Kremlin, and

Sovcomflot,

a large energy-shipping company, would hurt the Kremlin and, longer term, the economy.

An oil tanker operated by Sovcomflot is moored at the Primorsk Commercial Seaport, the end point of the Baltic Pipeline System, three years ago.



Photo:

Alexander Ryumin/Zuma Press

Sovcomflot’s chief financial officer,

Nikolay Kolesnikov,

said his company has no indication it would be targeted. Given that half his firm’s business is outside the country, a blacklisting would likely disrupt petroleum exports and hit global tanker rates, he said.

Sogaz didn’t respond to a request for comment.

Some former officials and critics of the Biden administration are skeptical that its approach will work or prove different from past efforts. Aside from a more robust Russian economy, they said, Mr. Putin is counting on Germany and other EU leaders to block measures that would have financial repercussions for Europe.

“Putin has concluded that the Biden administration, which is full of the same people who mounted a feeble response to his first invasion of Ukraine back in 2014, would impose pinprick financial costs at best, certainly measures that he thinks Russia can weather,” said Marshall Billingslea, the Treasury Department’s sanctions deputy in the Trump administration and now at the Hudson Institute, a right-leaning think tank.

Previous sanctions haven’t undermined Mr. Putin’s domestic popularity enough to loosen his grip on power or fundamentally alter his foreign policies, said some analysts. New sanctions, they said, may bolster Mr. Putin’s position, affect Western-facing companies and drive Russia further toward China.

New sanctions will “hit the most pro-Western part of the business elite and the economically Western-oriented population the most,” said Mikhail Barabanov, a fellow at the Center for Analysis of Strategies and Technologies, a private Moscow think tank.

“Politically, it’s not painful. It’s destructive,” Kremlin spokesman Dmitry Peskov said this week.

Mr. Barabanov predicted that sanctions would inspire a restructuring of the Russian banking market, which, after an initial shock, would tap Chinese intermediary banks for financing.

Sanctions “are not a magic bullet,” said Daniel Fried, a senior State Department official in the Obama administration involved in sanctions policy who is also currently at the Atlantic Council

“Even the stronger recommended sanctions won’t cause Putin to reverse course overnight,” he said. On the other hand, governments and analysts “often underestimate what can be achieved in the long run,” he said.

Write to Ian Talley at ian.talley@wsj.com and Brett Forrest at brett.forrest@wsj.com

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World

Europe Struggles to Meet China’s Trade Challenge

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BRUSSELS—China’s economic pushback against the European Union over Lithuania’s outreach to Taiwan has sparked divisions in the EU and raised fresh doubts about its ability to shield its giant market from Beijing’s pressure.

China in recent weeks has effectively blocked Lithuanian firms from its market and started pressing European and U.S. firms with Lithuanian suppliers to cut those ties or risk being frozen out, according to U.S. and European officials.

The Chinese pressure came after Taiwan in November opened a representative office under the island’s name in Lithuania’s capital, a move Beijing called an “egregious precedent” and vowed to retaliate. Most Taiwanese offices abroad use the name of Taiwan’s capital, Taipei.

Lithium prices are rising as demand for the key ingredient in electric car batteries grows, amid a broader push to move away from oil and gas. But extraction of the metal is time consuming and potentially harmful to the environment, and plans to produce more have prompted protests. Photo: STR/Getty Images, Oliver Bunic/AFP/Getty Images

China’s economic measures, which were never officially announced, show Beijing remains able to sidestep growing EU moves to defend its market from China’s economic behavior. The EU holds authority over member states’ trade policy.

Since 2019, the bloc has announced policies aimed at helping its companies compete with Chinese rivals and to gain leverage for European firms in China.

Yet the response from European capitals to China’s pressure on Lithuania has been muted. Some diplomats have been critical of the Baltic country’s decision to challenge Beijing over Taiwan, a politically charged issue for President

Xi Jinping.

Others have sought to avoid escalating the face-off with China.

U.S. officials have been louder in condemning China’s pressure tactics.

On Tuesday, Lithuanian President

Gitanas Nausėda

said the government had erred in allowing the Taiwanese office to carry the name of the island.  Last year, Lithuania, a U.S. ally in the North Atlantic Treaty Organization, also became the first country to quit the 17+1 grouping, a forum for political and economic ties between China and a number of, mainly smaller, European countries.

“I think it was not the opening of the Taiwanese office that was a mistake, but the name, which was not coordinated with me,” Mr. Nauseda told a Lithuanian radio station.

“Now we have to deal with the consequences, which are that unconventional measures have started to be taken against Lithuania, and we have to be very active and signal very clearly to the EU that this is an attack, a kind of pressure on one of the EU countries,” he said.

Lithuanian officials have raised the issue at the highest level, including the bloc’s leaders summit in December. On Tuesday evening, European Commission President

Ursula von der Leyen

discussed the situation with Lithuania’s prime minister. Ms. von der Leyen said in a tweet afterward that she had offered her full support to Lithuania “in addressing current trade irritants with China.”

Beijing regards Taiwan as part of China and has vowed to take control of the democratically self-governing island of 24 million people.

At the start of December, Lithuania stopped being included on the Chinese customs authorities’ country list, effectively preventing its companies from doing business there, officials say. Lithuanian diplomats left China in mid-December after being ordered to hand in their diplomatic papers.

EU efforts to mediate have failed so far. The bloc has warned it could refer Beijing to the World Trade Organization, although any action there is likely to take years.

“Now we start to hear complaints from other member states of blockages of their exports if there are goods of Lithuanian origin in their supply chains,” said the EU’s trade chief,

Valdis Dombrovskis

in a recent interview. “Clearly, we are aware that WTO challenges take time, so therefore we are looking at what are other ways to address the situation.”

On Monday, U.S. Secretary of State

Antony Blinken

discussed China’s steps against Lithuania with counterparts from nine Eastern European countries. The State Department said in late December that U.S. firms with suppliers from Lithuania were starting to be affected by what it called “escalating political pressure and economic coercion” by China.

China’s steps are a reality check for the bloc. Officials had felt confident they were increasing their economic leverage with Beijing.

In October 2020, the Commission launched a screening mechanism for foreign investments. In its first year, 8% of the 265 transactions referred for deeper screening came from China.

The Commission is tightening rules to prevent firms receiving foreign grants, loans, tax credits or other forms of state aid from acquiring European companies or competing with them for certain EU contracts. It is also close to agreeing an international procurement instrument that would allow the bloc to lock out companies from countries that exclude European firms from their government contracts.

The Commission has also proposed an anti-coercion instrument that would allow them to impose tariffs or block exports from countries using economic arm-twisting against the EU.

Yet faced with what officials acknowledge is Chinese coercion, the EU has appeared powerless despite economic links that generate 1 billion euros daily, equivalent to $1.13 billion, in trade and hefty European investment in China.

Lithuanian officials have raised the issue at the highest level, including the bloc’s leaders summit in December.

Yet EU and Lithuanian officials say that some of the bloc’s larger member states, including France and Germany, with deep economic ties to China, have sought to avoid escalating tensions with Beijing. In his first call with President Xi, new German Chancellor

Olaf Scholz

vowed to pursue deeper economic ties last month.

Lithuanian diplomats say the response from some European capitals has been to treat it as a bilateral problem which requires compromise.

Alicia García-Herrero,

senior fellow at European economic think tank Bruegel, warns that if the EU fails now to exert its collective economic weight as one of China’s largest export markets, Beijing could step up pressure.

Ultimately, she said, the EU’s authority over trade policy will erode if it can’t protect its smaller members.

The EU “could at least say that Lithuanian exports are European exports and that any action against Lithuanian exports is action against European exports” said

Ms. García-Herrero.

“No such thing has been uttered.”

—Daniel Michaels contributed to this article.

Write to Laurence Norman at laurence.norman@wsj.com

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Business

Business Groups Call on Biden to Restart Trade Talks With China

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WASHINGTON—Nearly three dozen of the nation’s most influential business groups—representing retailers, chip makers, farmers and others—are calling on the Biden administration to restart negotiations with China and cut tariffs on imports, saying they are a drag on the U.S. economy.

The tariffs on electronics, apparel and other Chinese goods, which are paid by U.S. importers, were kept in place in part to ensure that China fulfills its obligations under its 2020 Phase One trade pact with the U.S.

In a Thursday letter to U.S. Trade Representative Katherine Tai and Treasury Secretary Janet Yellen, the business groups contend that Beijing had met “important benchmarks and commitments” in the agreement, including opening markets to U.S. financial institutions and reducing some regulatory barriers to U.S. agricultural exports to China.

“A worker-centered trade agenda should account for the costs that U.S. and Chinese tariffs impose on Americans here and at home and remove tariffs that harm U.S. interests,” the letter said, referring to the administration’s policy to make worker interests a priority.

Spokesmen for the U.S. trade representative’s office and Treasury didn’t immediately respond to requests for comments.

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