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  Western sanctions against Russia: a closer look

Vaidotas Ðernius
2014 07 15

On 22-24 May an International Economic Forum was held in St.Petersburg; the 21st World Petroleum Congress was organised in Moscow on 15-19 June. The analysis of the two events reveals the attitude of Western world toward sanctions against Russian Federation.

The St.Petersburg Forum is one of the major international economic forums. Usually it attracts top-level business and political leaders, yet, they didn‘t participate in this Forum. Due to the tension between Russia and the West, the leaders of companies like Goldman Sachs, Morgan Stanley, Citigroup, Caterpillar, Pepsi and heads of other large international companies refused to attend the above event.

Despite various remarks from abroad, the attitude of Russian and Western representatives toward Moscow was positive. Russian president Vladimir Putin said: „This is an economic forum but there is no avoiding a few words on politics. Economic sanctions used as an instrument of political pressure have a boomerang effect that ultimately has consequences for the economy in the countries that impose them.“

Michael Harms, Chairman of the Board of the Russian-German Chamber of Commerce, shared the same opinion: „99 percent of all business deals between Germany and Russia are done without any political influence. [...]. Therefore I think that we exaggerate the sanctions.“  

Sergey Chernovolenka, Managing Director of the Russian Branch at Cisco Systems (the United States) in Russia, highlighted that „American companies develop their strategies for operations in Russia, since Russia has its own business culture. Sanctions are effective but not because the U.S. business is interested in them, but because the U.S. authorities force the national business to dissociate from Russian market.“

The above statement could also be heard on 15-19 June in Moscow during the 21st World Petroleum Congress aimed to discuss oil and gas industry problems.  Traditionally a country hosting the congress is a key focus of attention, thus, this year the focus was given to Russian oil and gas companies.

Although Western countries imposed sanctions to certain Russian officials and companies, this didn‘t prevent the top managers of companies like BP, Statoil, Total, Shell and ExxonMobil from participating in the congress. Russia was among other organisers of the congress in Moscow, therefore, differently from the forum in St.Petersburg, it attracted more than 5 thousand participants, 500 companies and 50 ministers.

During the Moscow Forum, Stephen Greenlee, President of ExxonMobil Exploration Company said that ExxonMobil will proceed to work with the Russian company Rosneft.I think ExxonMobil is very pleased to be working with Rosneft in this joint venture. Besides, we have invested a lot of money and we provide the Russians high-paying jobs“, said Stephen Greenlee.

BP Chief Bob Dudley was of the same opinion. He said that BP holds a 19.75 percent stake in Rosneft, and, being the 2nd largest shareholder of this company, continues its activity in Russia. „In 2013, Russia was the world‘s largest producer of oil and gas combined and the largest energy exporter. BPwill proceed to work in Russia and, through joint ventures of Rosneft and Exxon, will continue exploring the Arctic Kara Sea“, sad the Chief ofBP.

The analysis of the outcomes of the above two events revealed that direct sanctions of the West have no major influence on Russian business. In order to retain relatively easily earned profits, Western companies don‘t want to leave Russian oil and gas sector.  According to Bob Dudley, „BP (in Russia) will continue to work and do business as usual.“ The words of BP Chief demonstrate that business of Western states is not ready to show solidarity with own governments and that it doesn‘t care about the sanctions against Russia.

On the other hand, besides Western sanctions, Russia is under enourmous pressure of international financial markets. According to Alexey Ulyukayev, the minister of economic development, during five months of this year net capital outflow in Russia totalled about 80 billion US$; last year – 60 billion US$. Thus, the sanctions imposed against Russia by Western states have indirect effect (through increasing overall investment risk and capital outflow from the country).

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