Research (Insikt)

Russia Creates No-Win Situation for Western Companies

Posted: 19th October 2023
By: Insikt Group


Western companies operating in Russia are facing an increased risk of asset seizure or nationalization due to escalating geopolitical tensions between Moscow and the West, particularly related to Russia's war against Ukraine. Russia has been working on legislation to target Western corporations designated as "unfriendly" or "naughty" without publicly articulating specific criteria for this designation, in response to Western sanctions freezing Russian assets in Western financial institutions. Moscow aims to establish economic soft power parity with the West and inflict financial damage on Western corporate entities, as it lacks the capacity to freeze or seize Western government funds. Russia is aware of the corporate dilemma, where Western companies must decide whether to stay in Russia and risk potential targeting or leave and face asset loss but gain Western praise.

Litigation is an option for Western corporations, but it's costly and uncertain. Companies suffering financial losses from leaving Russia could negotiate with Western governments to obtain compensation using frozen Russian funds or seized assets. In the long term, Russia's actions could deter Western businesses from investing in the Russian market, potentially leading to economic balkanization. Countries at risk of Western sanctions may restrict Western corporate access to their economies to defend against economic destabilization.

Geopolitical escalation between Russia and the West heightens the risk of Moscow targeting Western corporations in Russia, and the Kremlin's legislative actions reflect Moscow's anticipation of Western corporations departing the Russian market and the need for legal measures to prevent economic damage. Russia's legislative actions also indicate the need for enhanced legislative tools to target Western companies in response to Western sanctions. Western corporations that support Ukraine or condemn Russia may be framed as "unfriendly" or "naughty" by Russia, justifying the seizure of their assets. This leaves Western companies in a conundrum, as Moscow exploits their position, believing they will prioritize access to Russian economic markets and corporate profits over alignment with the Western collective geopolitical stance towards Russia. Western corporations remaining in Russia have limited options to protect themselves or seek compensation for seized assets, necessitating support from Western governments to address potential fiscal losses. Ongoing economic escalation between Russia and the West threatens to fragment the global economic market, forcing corporations to choose between Western and Russian markets based on their perceived support for Ukraine or Russia.

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