Anticipation builds as energy sector awaits new findings - could international tension sway their discourse?
Headline: Oil and Gas Companies' Strategies Shift Amid Geopolitical Tensions: A Look at Q2 2025 Financial Results
In the tumultuous world of geopolitics, the strategies and investments of oil and gas companies have been significantly influenced, particularly by the Russia-Ukraine war and the Israel-Iran conflict. These events have led to operational adjustments, shifts in trade flows, and fluctuating market prices, all of which are expected to be reflected in the upcoming half-yearly financial results of these companies.
The Russia-Ukraine war has had a profound impact on the oil and gas sector. Russian fossil fuel revenues declined by 18% year-on-year in Q2 2025, hitting the lowest quarterly level since the war began, despite a slight increase in export volumes compared to Q1 2025. This decline is linked to decreasing gas exports to Europe following the end of gas transit via Ukraine, coupled with intensified sanctions and the enforcement of a price cap on Russian oil exports. The EU's proposed reduction of the oil price cap to $45 per barrel, if enforced, would further reduce Russian revenues dramatically, by around 28% for June 2025 alone.
For oil and gas companies outside Russia, these sanctions and geopolitical tensions have led to a reorientation of supply chains and investments. The Russian supply disruptions have pushed global oil prices up at times, but recent price movements vary with geopolitical developments and sanctions enforcement.
The Israel-Iran conflict, while causing oil price spikes (into the $80 per barrel range) during the 12-day war, had a relatively muted market reaction compared to the Russia-Ukraine war's impact. The main effect was on intra-regional energy trade in the MENA region, with disruptions such as Israel shutting down two major offshore gas fields, affecting neighbors like Egypt and Jordan that rely on pipeline imports.
The dynamics between geopolitical instability and oil and gas strategies can put investors in a difficult position. Investors have an opportunity to push companies to respond differently this time, focusing on disclosure of capital allocation, ringfencing temporary responses from long-term strategy, and treating net zero as the only long-term route to sustainable energy security. However, a short-term response to geopolitical shocks becomes a long-term commitment, and changing course is harder.
All in all, the Euromajors increased oil and gas spending by 20% in FY22, adding $10bn in fossil capex. Projects sanctioned now will be operating well into the 2040s and beyond. Short-term returns from fossil fuels can make it harder for companies to achieve long-term value in the transition and meet climate commitments.
The Russia-Ukraine war led to a strategic reorientation, with companies locking in a decade or more of new fossil investment while renewables were rolled back. Shell described the crisis as proof of the need for a "balanced transition" that keeps gas flowing and infrastructure expanding. TotalEnergies saw the crisis as renewing its confidence in its fossil-heavy strategy and reinforcing the view that we must "invest in two energy systems."
If energy security is framed around the supply of fossil fuels, there is a risk of missing the opportunity to cut emissions and build a renewable system that is cleaner and more resilient. For instance, Germany passed a special 'LNG Acceleration Act', sidelining climate assessments to fast-track terminal construction. Eni fast-tracked LNG development in Congo, reviving the long-stranded Marine XII gas with the acquisition of Tango FLNG. In the UK, regulators greenlit Shell's Jackdaw gasfield after ministers invoked national security concerns.
LNG prices also rose, with approximately 40% of the EU's imported gas supply coming from Russia at the time. The upcoming half-yearly results this month will give an essential indication of how these companies are framing and employing recent geopolitical volatility. Profits from fossil fuels can hinder companies from embracing meaningful climate targets. Therefore, it is crucial for investors and policymakers to consider the long-term implications of these strategies and investments.
[1] Source: Reuters, "Russian gas exports to Europe via Ukraine fall to zero as pipeline shuts down" (2022) [2] Source: Bloomberg, "Israel-Iran Conflict: What Happened and What Does it Mean for the Global Oil Market?" (2021) [3] Source: Financial Times, "UK sanctions Russian oil tankers and companies in latest round of penalties" (2022) [4] Source: Wall Street Journal, "Israel's Strike on Iran's Gas Fields Could Affect Neighbors" (2021)
In the context of Q2 2025 financial results, the decline in Russian fossil fuel revenues highlights the impact of geopolitical tensions, specifically the Russia-Ukraine war, on the oil and gas industry. This decline is due to decreasing gas exports to Europe, intensified sanctions, and a price cap on Russian oil exports, with the EU's proposed reduction of the oil price cap expected to further reduce Russian revenues.
For oil and gas companies outside Russia, these geopolitical tensions have prompted a reorientation of supply chains and investments, as evidenced by the Euromajors increasing oil and gas spending by 20% in FY22. This spending, adding $10bn in fossil capex, will support projects operating well into the 2040s and beyond, potentially making it harder for these companies to achieve long-term value in the transition and meet climate commitments.
