Shell is moving to dissolve a joint venture with Russia's Rosneftthat currently holds a portion of the London-listed energy group's interest in the Caspian Pipeline Consortium (CPC), a vital route for exporting crude oil, primarily from Kazakhstan, to the global market.

A source with direct knowledge of the matter told Reuters on Wednesday that the decision comes after the United States imposed sanctions on Rosneft in October in response to Russia's ongoing war in Ukraine. 

The sanctions have also pushed Lukoil, another Russian oil company, with Chevron, a major U.S. oil company, to explore the options to acquire the firm’s global stake to ensure future operations of the CPC pipeline. 

The specific vehicle Shell is targeting for dissolution is Rosneft-Shell Caspian Ventures, through which Shell holds approximately 7.4% total stake in the Caspian Pipeline through three separate entities. 

Rosneft-Shell Caspian Ventures holds a 7.5% interest in the CPC, and Shell owns about half of that joint venture, which translates to roughly 3.7% of the overall CPC stake.

Shell’s aim is to maintain the size of its overall stake in the consortium. This suggests that the company is seeking a way to transfer its portion of the joint venture’s stake into a wholly-owned entity to continue its involvement in the major oil export route while severing its direct commercial ties with the sanctioned Russian state oil major, Rosneft. 

Earlier this week, Russian President Vladimir Putin signed a decree that specifically cleared the way for potential deals involving Rosneft and Shell's stake in the CPC joint venture, effectively green-lighting the required corporate restructuring. 

The CPC pipeline is a vital export route for the Republic of Kazakhstan— one of the world’s largest oil producers, exporting up to 1.4 million barrels per day (bpd) at its peak. 

Being an international venture with Russia, Kazakhstan, and Western energy giants like Chevron, Shell, ExxonMobil, and Eni, the pipeline’s operations have become a critical point of interest for many global energy players, making it vulnerable to geopolitical shifts. 

In the past, the pipeline has been subject to disruptions, including Russia’s court orders as it runs through Russia to a marine terminal near the Russian Black Sea port of Novorossiysk. Most recently, it was also a target of a Ukrainian drone strike, which damaged its terminal's mooring points near Novorossiysk. 

Due to its significance in the global energy market, even a temporary reduction in export capacity could result in palpable shifts in global oil prices. Meanwhile, both Rosneft and Shell are yet to give an official statement concerning the venture’s dissolution.