As the United States and European Union apply sanctions to penalize Russia for its operaion in Ukraine, European companies are bracing for the possibility that the punishment intended for Moscow may hurt them, too.
The sanctions, which include preventing the government and banks from borrowing in global financial markets, blocking technology imports and freezing assets of influential Russians, had been drawn up to maximize pain to the Russian economy while inflicting as little harm as possible within the European Union, the French finance minister, Bruno Le Maire, said Friday.
But thousands of foreign companies that have done business in Russia for years are bracing for an inevitable economic blowback, and the crisis in Ukraine threatens to disrupt supply chains and drag down Europe’s economy just as it was starting to recover from the lashing of COVID lockdowns.
“The situation in Ukraine represents a turning point in Europe,” Christian Bruch, the chief executive of Germany-based Siemens Energy, a major producer of turbines and generators, said this week. “We as a company now have to analyze exactly what this situation means for our business.”
The European Union is Russia’s largest trading partner, accounting for 37 percent of Russia’s global trade in 2020. Much of that is energy: About 70 percent of Russian gas exports and half of its oil exports go to Europe.
And while sales to Russia represent just around 5 percent of Europe’s total trade with the world, for decades it has been a key destination for European companies in a range of industries, including finance, agriculture and food, energy, automotive, aerospace and luxury goods.
Some European companies, especially in Germany, have had business ties to Russia for centuries. Deutsche Bank and Siemens, the massive conglomerate that is the parent company of Siemens Energy, have been doing business there since the late 19th century. During the Cold War, economic ties were seen as a way to maintain relations across the Iron Curtain.
After the fall of the Soviet Union, Western companies came to Russia for different reasons, whether to sell Renaults or Volkswagens to the country’s growing urban middle class, or to cater to a growing cadre of wealthy elites seeking Italian and French luxuries. Other wanted to sell German tractors to Russian farmers, or to acquire Russian titanium for airplanes.
Last month, 20 of Italy’s top executives organized a video call with Mr. Putin to talk about strengthening economic ties.
The chiefs of UniCredit bank, the Pirelli tire company, the state-owned utility Enel and others listened for over half an hour as Mr. Putin talked up Italian business investments and opportunities in Russia.
The call, held Jan. 25, riled European politicians and underscored the conflicting economic interests facing Europe as it now moves to punish Moscow with a barrage of sanctions. A similar call set for next week with German business leaders, including those from the energy company Uniper and the supermarket chain Metro, was called off only on Thursday.
But with huge economic assets at stake, European Union leaders have sought to walk a fine line in recent days over the scope of the sanctions, which fell short of the more sweeping economic clampdown that some supporters of Ukraine have demanded.
At one point during frenzied negotiations this week, Italy’s representatives sought to have goods produced by its luxury industry excluded from any sanctions package. They also argued for narrower sanctions that omit major crackdowns on Russian banks, as did Austria, whose Raiffeisen Bank International maintains hundreds of branches in Russia, diplomats said.
For France alone, 35 of the 40 biggest French companies listed on the country’s CAC 40 stock exchange have significant Russian investments, from Auchan supermarkets on the streets of Moscow, to the liquefied natural gas operations of the French energy giant TotalEnergies in the Yamal Peninsula, above the Arctic Circle. All but two of the 40 companies listed on the DAX index in Frankfurt have investments in Russia.
That problem has already hit Volkswagen, which said Friday that it would suspend operations for several days next week at two factories in Eastern Germany that make electric vehicles because deliveries of crucial parts from western Ukraine have been interrupted.
Volkswagen could also be hurt by sanctions against Russia, where since 2009 it has had a factory in Kaluga that employs about 4,000 people producing its Tiguan and Polo models, as well as the Audi Q8 and Q9, and the Skoda Rapid. Mercedes-Benz has a factory outside of Moscow, while BMW works with a local partner. All three have invested in the Russian market and a growing cadre of consumers that can afford its cars.
Germany were the main European powers pressing not to cut Russia off from the SWIFT global payment system. Cutting Russia out would make it hard for European creditors to receive money owed from Russian sources — or to pay for Russian gas, which those countries have come to rely on, especially in Europe’s current energy crunch.
Despite the efforts to minimize the pain to their own countries, European officials acknowledged the situation would probably get worse before it improves.
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