Do these companies have operations in Russia (e.g., the Sakhalin gas project)? How is geopolitical risk managed?

Business Operations of Buffett-Invested Trading Houses in Russia

Warren Buffett's Berkshire Hathaway has invested in Japan's five major trading houses: Mitsubishi Corp., Mitsui & Co., Itochu Corp., Sumitomo Corp., and Marubeni Corp. As global trading and investment enterprises, these companies have extensive operations in energy, resources, and other sectors. Below is an analysis of their Russian business activities (using the Sakhalin gas project as an example) and geopolitical risk management strategies. Data is based on public information as of late 2023 and may adjust due to geopolitical shifts.

1. Overview of Their Russian Operations

The five trading houses primarily focus on energy and resource projects in Russia, especially oil and gas. Following the 2022 Russia-Ukraine conflict, many international companies exited Russia, but Japanese firms partially retained operations due to government energy security policies. Key projects include Sakhalin-1 (oil/gas) and Sakhalin-2 (LNG), located on Russia’s Far Eastern Sakhalin Island, which are vital energy sources for Japan.

• Mitsubishi Corp.:

  • Russian operations: Yes. Holds 10% in Sakhalin-2 (via a joint venture).
  • Other: Involved in Russian metals, coal, and infrastructure projects, partially scaled back post-conflict.
  • Current status: Retains Sakhalin-2 stake under government encouragement (covers ~9% of Japan’s LNG imports).

• Mitsui & Co.:

  • Russian operations: Yes. Holds 12.5% in Sakhalin-2.
  • Other: Engaged in Russian oil, gas, and mineral trading.
  • Current status: Retains stake amid sanctions pressure but reduced new investments.

• Itochu Corp.:

  • Russian operations: Limited. Primarily trades commodities (e.g., agriculture, energy) without direct large-scale projects like Sakhalin.
  • Current status: Significantly reduced Russian exposure post-conflict; exited some joint ventures.

• Sumitomo Corp.:

  • Russian operations: Limited. Historically traded metals and energy; no direct Sakhalin involvement.
  • Current status: Largely exited Russia, diversifying to other regions.

• Marubeni Corp.:

  • Russian operations: Yes. Participates in Sakhalin-1 (holds ~22% indirect stake via JV) and other energy trading.
  • Current status: Sakhalin-1 operations disrupted post-ExxonMobil exit; assessing risks but retains assets under policy support.

Overall, Mitsubishi, Mitsui, and Marubeni have significant stakes in Sakhalin projects, providing Japan with stable energy amid geopolitical uncertainty. Itochu and Sumitomo have minimal Russian exposure and substantially downsized operations.

2. Geopolitical Risk Management Strategies

As seasoned global players, the five trading houses employ multi-layered strategies to manage geopolitical risks (e.g., sanctions, conflicts, supply chain disruptions), combining internal mechanisms and external support, particularly in energy. Key approaches include:

• Portfolio Diversification:

  • Avoid single-market reliance: Operations span globally (e.g., energy projects in Australia, U.S., Middle East). Russian business typically contributes <5% of revenue. Example: Mitsubishi’s Australian LNG projects serve as alternatives.

• Risk Assessment & Monitoring:

  • Dedicated risk teams: Conduct regular geopolitical scenario analyses using AI tools and external advisors to track sanctions.
  • Compliance: Strictly adhere to international sanctions (e.g., EU/U.S. restrictions) while coordinating with Japan’s government (no full ban on Russian energy investment).

• Insurance & Financial Hedging:

  • Political risk insurance: Covers asset seizure/disruption via insurers (e.g., Lloyd’s).
  • Financial instruments: Hedge currency and commodity volatility (e.g., gas price spikes) using derivatives.

• Exit & Flexibility:

  • Gradual exits: Sold non-core Russian assets post-conflict (e.g., Itochu exited auto JVs).
  • Partnerships: Collaborate with local firms (e.g., Gazprom) to share risks; negotiate equity adjustments (e.g., Sakhalin-2 transitioned to Russian control with retained Japanese stakes).

• ESG Integration:

  • Embed geopolitical risks in ESG frameworks: Prioritize energy transition (e.g., renewables) to reduce high-risk dependencies. Buffett’s investment emphasizes their long-term risk management.

These strategies ensured stability during the 2022 conflict, despite write-downs (e.g., Mitsui reported ~$1 billion potential impact). Moving forward, they may further reduce Russian exposure and pivot to stable markets. Investors like Buffett value such resilience as part of long-term worth.