SLB’s recent decision, formerly known as Schlumberger, to expand its operations in Russia despite the ongoing conflict in Ukraine and the withdrawal of its main competitors raises crucial questions for global investors. While oilfield service giants like Baker Hughes and Halliburton opted to sell their Russian businesses, SLB has taken a different path—one that, though controversial, could offer a short-term competitive advantage.
Expansion in Hostile Territory
Houston-based SLB has ramped up its operations in Russia, signing new contracts and hiring hundreds of employees following the exit of its Western rivals. This move, which can be seen as a bold gamble in a highly uncertain environment, led the company to sign a contract with the Russian Institute of Oil and Gas Vnigni, signaling its commitment to remain in the country.
The hiring of more than 1,000 employees in Russia since December, for roles ranging from drivers to chemists and geologists, underscores the scale of its expansion. Additionally, the company has registered new trademarks in Russia, suggesting that SLB is strengthening its presence in the Russian market for the long term.
Regulatory and Ethical Challenges
However, this expansion is not without challenges. SLB has publicly stated it has no plans to leave Russia, but in response to increasing international sanctions, it announced in July 2023 that it would halt the shipment of products and technology to Russia from its global facilities. This move seems to have had a limited impact, as imports slowed but did not immediately stop.
SLB’s imports from China and India, totaling $13 million and $3 million respectively, include equipment that could be subject to controls if exported from the EU. This strategy of sourcing from countries that do not enforce such controls could be seen as a way to circumvent international restrictions, raising the risk of regulatory scrutiny.
Geopolitical and Financial Risks
From an investment perspective, SLB’s decision to continue and expand its operations in Russia could provide substantial short-term financial benefits, given that its competition has exited the market. However, the long-term cost could be significant if geopolitical tensions escalate or regulatory frameworks shift in response to international pressure.
SLB’s work in Russia has also drawn the attention of human rights groups and the Ukrainian government, who argue that its operations may be contributing to the Kremlin’s war effort. This ethical scrutiny intensified when SLB was blacklisted as an “international sponsor of war” by Ukraine’s National Agency for Corruption Prevention.
Conclusion
For investors closely monitoring SLB’s moves, the key question is whether the company’s strategy in Russia will yield returns that justify the associated risks. While some may see this expansion as an opportunity to capitalize on a less competitive market, others may view the ethical, regulatory, and reputational risks as a significant deterrent.
In a world where business decisions are increasingly influenced by geopolitical and social responsibility considerations, SLB’s bet on Russia will be a decisive test of how far companies are willing to go to protect and expand their market share, even in the most challenging scenarios.
For WSV Research investors, this is a development that warrants close attention, as it could set important precedents at the intersection of global business and geopolitical conflict.
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