it is welcome back to the world economy According to his public comments, will make money for American investors and stabilize Moscow’s relations with Ukraine and Europe People are aware of his thinking.
He is not the first American businessman to see Russia as a generous land – nor the first to advocate peace through profits.
But many veterans of its shaky economy doubt the country will reward American capital handsomely, or that many American investors will flock to Vladimir Putin’s rule as soon as Washington lifts sanctions.
“Russia is not the Emerald City or El Dorado,” said Charles Hecker, a geopolitical risk analyst who spent four decades working in the Soviet Union and Russia. “The size of the prize is smaller than some people think.”
Economists say Russia’s $2.5 trillion economy – about the size of Italy – suffers from weak long-term growth prospects, a shrinking population, diminishing reserves of easily extractable oil and a lack of growth drivers beyond energy.
What’s worse, say experienced American investors in Russia, is the risk of losing your assets – and even ending up in prison – to the increasingly autocratic and nationalist regime, which lacks the rule of law, rewrites the terms of deals, seizes assets and views the West with deep suspicion.
Hecker, who also wrote “Zero Sum: The Arc of International Business in Russia,” said that even an agreement in Ukraine would not break the cycle of hostility toward the West that has left foreign companies grappling with constant geopolitical uncertainty.
“Russia’s general hostility toward the West will persist as long as Putin is in the Kremlin, and perhaps even longer,” he said. “It is naïve to believe that now, suddenly, the red carpet will be rolled out for Western companies.”
Kremlin spokesman Dmitry Peskov suggested as much this fall. “Everyone should be allowed to come back,” he said at an economic forum. “But it would be too expensive for them to come back here.”
risky business
Alexandra Prokopenko, a former Russian central bank official who is now a fellow at the Carnegie Russia Eurasia Center in Berlin, said the notion of companies coming back to Russia is hollow. “For any ordinary foreign investor, Russia is still not investable,” he said.
If restrictions are lifted, exporters who can sell goods in Russia without much investment will likely return – although many will find themselves up against the Chinese imports that now dominate many Russian markets in everything from vehicles to smartphones.
Investors whose assets were seized following Russia’s full-scale invasion of Ukraine may seek to get some of their money back. Exxon Mobil has held talks with Russian energy officials Return to Sakhalin Oil and Gas ProjectWhere there was a write-down of $4.6 billion after Russia started its war in 2022.
“If there are unique assets like extraordinary gas fields in the Arctic, I wouldn’t be surprised if companies moved to secure the option to access them,” said Michael Calvey, chairman of private-equity firm Baring Ventures, who worked as a financier in Russia for three decades.
“But I would be surprised if someone started sinking billions of dollars into real investments over the years,” he said.
One deterrent measure, Calvey said, is that sanctions could return because of the renewed war in Ukraine and Russia’s hybrid war with Europe. Then there are the personal risks of doing business in Russia.
Calvey was one of the most prominent American business people in Russia. His firm Baring Vostok financed technology companies like Yandex, Russia’s answer to Google. In 2019, after becoming embroiled in a business dispute with Kremlin-linked investors, Calvey found himself arrested and jailed by the FSB, Russia’s internal intelligence agency.
His court conviction for misappropriation of funds, widely believed to be fabricated, was later overturned, but he left Russia after the invasion of Ukraine and said he had no plans to return.
Russia has valuable natural resources, Calvey said, as well as talented tech entrepreneurs. “But it also has the kind of systemic risks that I was a victim of,” he said.
Since starting the war, the Kremlin has tightened its grip on Russia’s economy, seizing the assets of foreign and domestic investors and turning them over to business people loyal to Putin. About $49 billion of assets have been seized this summer, according to Moscow-based law firm Nektorov, Savelyev & Partners. The pace of nationalization is increasing.
Pavel Khodorkovsky, a US-based non-profit executive and son of Russia’s richest oligarch Mikhail, said any deal struck by Putin involving US investors could only be sustained as long as President Trump remained in power, until he was arrested and jailed in 2003 after a confrontation with Putin. “Putin will honor his word only to the person to whom he gives it,” he said.
Capital-intensive foreign investments in the Russian Arctic or elsewhere would involve huge initial costs and returns would come only years later, he said. Investors need to be assured of the Kremlin’s long-term friendly behavior.
“Anything that involves infrastructure, physical property — I don’t think that would be an acceptable level of risk,” he said.
Others say there is a possibility of earning money. “The question is whether you should do business with them at this time,” said Alan Bigman, a Houston-based energy executive who for years was finance director of Russian oil producer TNK.
“Of course, Russia should eventually be reintegrated into the world economy. If you have a non-aggressive Russia, that economic linkup makes a lot of sense. But not at a time when they are aggressing and threatening their neighbors,” Bigman said. He said Putin used past trade with the West to build up his military. Most Russian experts predict he will do so again.
history of hope
As communism was collapsing, American brands stepped in to satisfy Russians wanting a taste of the American lifestyle – such as the first McDonald’s restaurant, which opened on Moscow’s Pushkin Square in 1990.
But Russia adopted capitalism without the institutions that make it work in the West, like working rules or protections for property rights, and anarchy arose.
“I thought we could make money if this place went from bad to worse,” said Bill Browder, an Anglo-American financier whose firm Hermitage Capital Management runs the largest foreign investment fund in Russia. “You could lose all your money or increase it 20 times – and the chances were fifty-fifty,” he said.
Browder was expelled from Russia in 2005 after clashing with officials over corruption. His lawyer Sergei Magnitsky died in a Russian police cell, leading to the US passing the Magnitsky Act, which sanctioned the Russian officials involved.
As Putin’s rule became more autocratic, the forecast for Russia’s business environment “went from bad to terrible, and it’s been terrible ever since,” Browder said.
Despite rising tensions, Western Europe, led by Germany, clung to its belief that trade and investment could eventually overcome Russia’s repression at home and hostility toward its neighbors.
Germany’s principle of “Wandel durch Handel”, or change through trade, survived Russia’s annexation of Crimea in 2014 and its covert invasion of eastern Ukraine. Only a full-scale invasion about four years ago led to widespread Western sanctions and a mass exodus by Western companies.
frozen possibilities
To woo the White House, Moscow has talked up joint venture opportunities in the Arctic, which has largely untapped energy resources, as well as Russia’s reserves of rare-earth metals. But many of Russia’s reserves are in remote, inaccessible environments.
Russia is one of the world’s top three oil producers, along with the US and Saudi Arabia. But even before the war, many of Russia’s main oil fields in Western Siberia and the Volga-Ural were being depleted, forcing producers to move to more complex and expensive oil fields in the far north and east.
According to Russia’s Energy Ministry, the share of Russia’s oil reserves classified as difficult-to-recover is expected to increase to 80% by 2030, from 59% today. As a result, some estimates predict a decline in production of at least 10% by the end of the decade.
Russia’s best years of growth came between 2000 and 2008, when global oil prices were rising steadily. It was one of the original BRICS – an acronym championed by Goldman Sachs to highlight the promise of fast-growing emerging economies along with Brazil, India and China. Since then its performance has been poor. “The motor broke down after commodity prices stopped rising,” said Elena Rybakova, an economist at the Peterson Institute for International Economics in Washington.
The US shale gas boom contributed to Russia’s stability, he said. Faced with falling popular support, Putin shifted the narrative toward nationalism.
As a foreign investor, Rybakova said, “You are coming to a medium-sized European economy that is slowing down and dependent on arms spending. Why?”
Write to Marcus Walker Marcus.Walker@wsj.com and georgy kanchev georgi.kantchev@wsj.com
