Russia Scores Contracts with Major Corporations Despite Western Sanctions

June 12, 2014.

Kyiv, June 12, 2014. Russia continues to maintain strong business relations with Western corporations, particularly in the energy field. Following Russia’s seizure of Crimea in March, the European Union, the United States, and other states have largely avoided broader-based sanctions that might more effectively limit Russia’s ability to conclude business deals with the West. Instead, Western sanctions have targeted individuals in the political and economic arenas who are perceived to be part of or close to Putin’s inner circle, and seem to be powerful enablers of his regime.

Despite American and European promises of a third round of sanctions against Russia if violence in eastern Ukraine continues unabated, businesses have largely failed to heed discouragements and warnings from Western governments about doing business with Russia. This seems strange in an environment where the risk of new sanctions and Russia’s uncertain economic future are rather obvious.

International businesses have continued to stress the importance of their close cooperation with the Russian Federation despite the country’s international dealings. Just last month, Coca-Cola Hellenic opened a new production plant in the outskirts of Moscow, which cost the company almost USD 14 million. According to company statements, Coca-Cola Hellenic is interested in the Russian market because of its continued growth potential, as well as the company’s relationships with the Russian government.

ExxonMobil, the American oil giant, is another example of a Western company that is still in the process of deepening relations with the Russian Federation. The Obama Administration warned American companies not to attend the annual St. Petersburg International Economic Forum.  ExxonMobil only allowed token acquiescence to the American president’s demands, sending the company’s exploration chief to St. Petersburg instead of ExxonMobil CEO Rex W. Tillerson. During the forum, ExxonMobil and Rosneft, the Russian state-owned oil company, signed a significant agreement that extends the companies’ cooperation in energy exploration in Russia’s north and Far East. ExxonMobil and Rosneft will cooperate in oil drilling in the Arctic Sea, as well as in the liquification of natural gas. This agreement occurred despite American and EU personal sanctions on the Rosneft CEO Igor Sechin, who is a former Soviet intelligence officer and Putin’s confidant. The agreement strengthens ExxonMobil’s business in Russia, and further expands the company’s investment in oil production in the Russian Far East.

Total S.A., the French oil and gas conglomerate, also signed a USD 100 million shale oil exploration deal with Rosneft during the forum. Total S.A. CEO, Christophe de Margerie, who attended the conference despite discouragement from the European Union and United States, tried to placate the concerns of his Russian partners about his company’s cooperation with the country. “My message to Russia is simple – business as usual,” he said during the St. Petersburg event. Russia is particularly important for Total’s business, considering that it is the company’s third biggest energy supplier.

In the face of relatively weak sanctions, Russian international economic cooperation with Western businesses remains almost unimpeded. It is difficult to imagine that companies will respond to scolding and moralizing from their political leaders, rather than to concrete economic incentives or increased risk. Western governments cannot naively hope that morality trumps economic interests or profit for businesses that are engaged in Russia. Sanctions may be effective if legally enforced, otherwise, it looks like the West is just paying lip service instead of honoring and following up on its own treaties and moral values.

Granted, countries do need to protect their economic interests and corporations have to earn profit for their shareholders. However, it may be time for the international community to decide whether laws, regulations and agreements are still applicable in the current environment and whether democratic society really exists or whether it is just business as usual.

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