The global trading map and locations have undergone drastic changes since the Ukraine-Russia war. Various reasons have been driving the decisions of many energy and commodity participants to move or expand their presence and trading entities to new pastures. Amid persisting geopolitical and macroeconomic uncertainty, the dispersion of some companies to various geographies is likely to continue in 2023 and is having repercussions on the talent supply and demand, compensation and team structures across various locations.
The UAE calling
In one early sign of this relocation trend, some Russian entities decided in the first half of 2022 to relocate to more neutral locations like the United Arab Emirates to avoid sanctions imposed by western powers against Russia. Considering the growth and proximity of the UAE as a key trading hub, this is hardly surprising. As explored by HC Insider, Dubai and Abu Dhabi are especially positioning themselves to rival London, Geneva, and even Singapore which has suffered from a talent exodus due to stricter measures on foreign workers following the global coronavirus pandemic.
More recently, decisions to relocate to the UAE have been especially accelerated by the sixth package of European sanctions (including against Swiss-based entities), which prohibited the purchase of Russian oil from 5 December and of Russian refined products from 5 February 2023.
Litasco, the trading arm of Russia’s Lukoil, moved part of its operations to Dubai over the past few months. Initially based in Switzerland, Litasco is reported to have moved 15 employees to Dubai (trading and chartering members) where it only had one representative before the war. Russia’s state oil producer Rosneft and Gazprom Neft, Russia’s third largest oil producer, were also reported to have expansion plans in the UAE.
Volatility in Europe
Beyond the immediate impact of the sanctions, the war has had multiple effects on markets with record breaking price and volatility rates that were partly exacerbated by supply concerns for key fuels. Europe’s transition away from Russian gas is offering more trading opportunities with alternative gas and LNG suppliers, as well as other fuels like coal.
The European market has also fuelled the appetite of banks, hedge funds and other financial institutions as they have made a comeback to commodity trading over the past two years. For instance, in a widely publicized move, Houston-based hedge fund Skylar decided in 2022 to expand its presence in London to tap opportunities from volatility in the European energy market.
Supply gap
In the current financial climate, setting up an office in European hubs like Geneva remains an important condition imposed by European banks on non-European entities to be able to do business.
Others are purely driven by market fundamentals and supply and demand dynamics. The latest batch of sanctions coming up in February against Russian refined products has revived fears of a supply shock. Europe has been running low on oil products inventories which are a strategic flexibility tool for buyers. As western leaders were discussing this week the details of the upcoming sanctions, market experts anticipate a bigger impact on global supplies of refined products than has been the case for crude supplies following the sanction in early December 2022.
These sanctions led by Western powers may also bring new opportunities for other companies, including those from North America. For instance, US-based fuel maker Marathon Petroleum has opened a small office in London, with the aim to expand its global trading activity to the refined products segment (including diesel). If confirmed, the move was seen as an attempt to boost US exports of oil products to Europe and fill the gap in diesel supplies.
Talent challenge
HC Group expects more companies from North America to be eyeing a presence in Europe. From the need to avoid legal sanctions in the context of the war to ambitions to take advantage of price volatility and fill supply gaps in new market, these relocations are driven by different companies’ strategies. For example, some have been considering various risks associated with currency exchanges and different regulations from one location to another.
However, they are faced with similar challenges. HC Group is seeing ripple effects on the talent front, especially with regards to gas, LNG, power and refined products. This is triggering increased demand for specific talent in new locations. In some cases, companies must offer attractive terms to incentivize the mobility of existing and desired talent. Crucially, employers also need to develop a deeper understanding of talent supply and demand, and of compensation and team structures required in the current market. Against the current market uncertainty, HC Group’s unique position in the global commodities talent landscape allows it to provide expert insights and advisory services to address such needs.
For queries related to HC Group’s advisory services into talent needs and compensation and team structure in various locations, please contact:
Laura Berger, Portfolio Director at HC Group’s Liquid Fuels practice in EMEA
Jamie Tranter, Portfolio Director at HC Group’s Liquid Fuels practice in North America
Doug Ferguson, Portfolio Director at HC Group’s Liquid Fuels practice in APAC.