As the Trump administration seeks to reset relations with Russia as part of a peace process to end the war in Ukraine, Moscow is pushing for greater economic cooperation. During landmark bilateral talks in Saudi Arabia earlier this week, the Russian delegation included the Kremlin’s top investment manager, Kirill Dmitriev, who heads Russia’s sovereign wealth fund. Dmitriev explained that American companies have lost more than $300 billion since 2022 by leaving the Russian market. Meanwhile, Russian Foreign Minister Sergei Lavrov reported “great interest” among participants “in eliminating artificial barriers to the development of mutually beneficial economic cooperation.”
The approach appears tailor-made to please U.S. President Donald Trump, who has since spoken positively about the potential economic boost from a thaw in relations with Russia. But it remains to be seen whether foreign companies will be willing to return to Russia, given the experience of the past three years. Since Russia’s full-scale invasion of Ukraine began in February 2022, more than 1,000 international companies have pulled out of the Russian market. Others have had their assets confiscated. Companies considering reopening Russia will have to weigh potential profits, the lack of ownership, and other risks that could ultimately prove costly for shareholders.
With rare exceptions, the international companies that left Russia after the full-scale invasion gave up subsidiaries worth millions or billions of dollars. It is safe to assume that most had to write off much, if not all, of the value of their investments in Russia. Some managed to sell assets, often to Kremlin cronies at bargain prices. A few held on to equity stakes in the hope of a possible market rebound. Almost none emerged unscathed.
Companies left Russia after the invasion for a variety of reasons. To their credit, some simply found it morally unacceptable to remain there while Russian tanks were crossing international borders and its troops were committing war crimes in Ukraine. Many companies were less concerned about the morality of continuing to operate in Russia, but were nonetheless sensitive to guilt by association and potential damage to their reputations. Others weighed the benefits of staying in Russia against the costs of complying with international sanctions.
Companies that left Russia for moral reasons are unlikely to return anytime soon. The same goes for companies seeking to protect their brand reputation. However, when the spoils seem rich, some may seize the opportunity or pursue cheap assets. If another reset in U.S.-Russia relations occurs, the U.S. government could provide incentives to renew bilateral business ties, such as export credit guarantees, political risk insurance, and official support for equity participation in major projects.
Another chance in Russia may be appealing to some. After all, memories can be short in the business world. It’s easy to imagine a new wave of corporate titans missing the lessons that the previous generation of expat CEOs learned during the last period of enthusiasm for expansion into Russia. Before they move on, however, they would do well to examine the current reality. Today’s Russia is not the country of Boris Yeltsin, who saw the West as a partner. It’s not even the Russia of the early 2000s, before Vladimir Putin fully consolidated his power and completed the transition from a fledgling democracy to an authoritarian regime. After twenty-five years of Putin’s rule, the Kremlin now dominates every aspect of Russian life, including the country’s business climate.
As a diplomat and business executive in Moscow in the 1990s and 2000s, and later as head of the U.S.-Russia Business Council, I had a front-row seat to Russia’s evolution from a centralized, state-controlled economy to a free market with a vibrant private sector, followed by its decline into an oligarch-controlled system that resembled an organized crime syndicate more than a developed economy. During this period, I encountered a wide range of investors seeking advice or support in combating predatory behavior by Russian business partners or the Russian state.
At the time, there was a tendency to attribute most of the problems facing international companies in Russia to the growing pains of an economy emerging from communism. But signs of institutionalized corruption gradually became undeniable, including the jailing of business leaders and the takeover of companies by state-owned groups. These problems did not go away; in many cases, the problems became worse.
If a peace agreement is reached, executives in Europe and North America will have to assess whether the potential rewards of reopening Russia are worth the many risks it entails. Will the major international oil and gas companies that have previously invested in Russia want to return to a country where the state must have a controlling stake in any project, and where they are obliged to sell their gas to a state monopoly? Will any investor want to be at the mercy of the Russian judicial system?
Non-Russian employees of international companies may also not be entirely safe living and working in Putin’s Russia. In recent years, the Kremlin has been accused of arresting numerous foreign nationals on dubious charges in order to use them as bargaining chips in negotiations to free Russian criminals and spies held in Europe and the United States. Any companies that decide to send staff to Russia will be well aware that they cannot expect the rule of law to be respected if their employees become pawns in Moscow’s geopolitical games.
The Kremlin’s efforts to woo Trump with the prospect of mutually beneficial business cooperation make sense. Russia certainly has much to offer, including a huge domestic market and access to unrivaled natural resources. But it would be naive to expect individual companies to immediately rush back to Russia in light of the very real concerns that exist about the rule of law and the Kremlin’s overwhelming influence over the country’s business environment.
Edward Verona is a senior fellow at the Atlantic Council's Eurasia Center, focusing on Russia, Ukraine, and Eastern Europe.
Source: euractiv.com
