Some Multi-National Companies Ignoring Western Sanctions Against Russia

Mil Arcega
April 21,2014

Western sanctions are hurting Russia’s economy. That’s according to the country’s economic minister, who says Russia’s economic output is shrinking as investors take their money elsewhere. But some western companies are bucking that trend - expanding business interests in Russia - even as the U.S. and European allies consider wider sanctions to punish Moscow for annexing Crimea and destabilizing eastern Ukraine.

He remains a unifying figure among Russian patriots, but analysts say President Vladimir Putin’s popularity could sour if the economy continues to deteriorate.

Speaking to Russian lawmakers, Economic Development Minister Alexei Ulyukayev said worried investors have already pulled more than $70 billion out of the country.

“We also have a high level of uncertainty in the global financial markets, serious capital flight, the situation when investors are not ready to make investment decisions in the tense international situation we’ve had for the past two months. The economic situation is not stable," said Ulyukayev.

Russian stocks have lost more than ten percent since the start of the Ukraine crisis - and the ruble sits close to a five-year low against the dollar.

But even as Europe threatens wider sanctions - not all investors are prepared to abandon Russia.

At a recent meeting with Putin, Royal Dutch Shell CEO Ben Van Beurden announced the company's commitment to expand its operations in Russia.

“This is a special occasion for me to visit because indeed today is our 20th anniversary of the partnership that we have in Sakhalin Energy, a partnership that we are exceptionally proud of," said Van Beurden.

It’s no surprise to investment analyst Ben Kumar who says Shell is not the only multi-national with entrenched business interests in Russia’s economy.

“You have this globalization now which means that everyone is linked to everyone else. Companies like BP - all of the other major energy companies - are so multi-national that if you start to threaten to shut down trade links they will kick up a fuss," said Kumar.

Reuters' European editor Pierre Brancon says Western powers must be careful not to push the Russian bear to hard.

“You don’t wage economic war without inflicting suffering on yourself - we know that European companies are going to suffer if they go to full-blown sanctions," said Brancon.

That’s because Russia produces a third of the natural gas Europe needs, much of it transported through Ukrainian pipelines.

Diplomatically, it’s a delicate balancing act, one with the potential to provoke a trade war, and higher energy prices around the world.