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This Month in Business History: Russia’s Invasion of Ukraine and the West’s Economic Warfare

March 22, 2022 • Sam Grabel

Disclaimer: The sanctions levied against Russia by the United States, European Union and allies are in constant flux, with new measures announced daily. We have done our best to capture all the sanctions adopted at the time of writing; however, by the time this article is published, they may no longer be current.

Too often we think of history through the lens of what happened years, decades or centuries ago. This month we’re going to take an approach based on we call “Real-Time History”: the notion that the very moment we’re living through is historically significant and we should thus take steps to record and comment on it.

On the morning of February 24, 2022, Russia’s President Vladimir Putin announced in no uncertain terms a Russian invasion of Ukraine. Shortly afterward, the Russian military began to pour into and launch airstrikes on Ukraine’s sovereign territory. Despite holding a clear military and economic advantage over its neighbor, as of the publication of this piece, Russia has yet to defeat Ukrainian resistance. As the invasion has stalled in its early stages, the United States, European Union and allies around the world have begun to unleash warfare of their own—some of the most comprehensive and debilitating economic sanctions the world has ever seen.

Not only have intergovernmental organizations taken swift and cohesive action, but the private sector too has adopted retaliatory measures in the quest to force an end to the conflict.

From Oil to Oligarchs: Multi-Lateral Economic Sanctions

Getting a group of countries to agree on anything can be tough work. That’s what makes the EU’s nearly uniform agreement on and adoption of sanctions nothing short of miraculous. In short order, the EU implemented sweeping measures targeting the Russian central bank, hamstringing the Russian economy and sending the ruble into free-fall.

Following Russia’s 2014 annexation of Crimea, the value of the ruble decreased by nearly half against the dollar. Since then, the Russian central bank has built up its foreign currency reserves to insulate the ruble against any potential economic sanctions imposed by the West. Since 2014, those reserves have jumped from $368 billion to more than $630 billion. In theory, this strategy should have worked to protect Russia’s economy, but it had one fatal flaw: the reserve money is held in offshore accounts.

Once Russia invaded Ukraine, the West and its allies—including the U.S., EU and Japan—froze access to many of Russia’s offshore accounts, tanking the value of the ruble, sparking inflation and prompting runs on banks. Along with freezing Russian assets held overseas, as of the first week of March, the U.S., U.K., EU and Canada have blocked numerous Russian banks from using SWIFT, a network that processes international electronic payments.

The EU has also banned top credit agencies from issuing ratings for Russian companies and, along with the U.S., has moved to tax and ban certain Russian goods such as vodka. Additionally, the U.S. and EU have revoked Russia’s “most favored nation” trade status. The sum effect of these measures is to make it all but impossible for Russian businesses to participate in the global economy.

In addition, the U.K. and U.S. have implemented sanctions against Russian oligarchs, their families and their associates to freeze bank accounts and assets such as soccer teams, yachts and private jets and impose visa restrictions. The idea is to penalize those who are close to Putin and may be able to exert influence on him.

One final piece of the puzzle, which President Joe Biden announced on March 8, is a U.S. embargo on imported Russian oil. The Russian economy is overwhelmingly reliant on oil production, and Russia is the world’s second-biggest exporter of crude oil behind Saudi Arabia. Though Russia accounted for only 8 percent of U.S. oil imports in 2021, the ban is an important symbolic step.

The U.K. has pledged to wind down imports from Russia by the end of the year, but EU states have yet to agree to a unified approach to Russian oil imports. One reason for their reluctance is the EU’s heavy reliance on Russian gas, which accounts for 40 percent of its total supply. At the time of writing, the EU has just announced a new round of sanctions curbing European investment into the Russian oil sector, but there is still no agreement in place on stopping the flow of Russian oil into the European Union.

Private Sector Penalties

Russia’s unprovoked attack on Ukraine has met with near-universal condemnation and additional punitive measures from the private sector. According to inside sources, these “self-sanctions” from private companies across industries have surprised Putin, who only expected state-imposed sanctions.

In finance, major credit cards including Visa, Mastercard and American Express and digital wallets such as Apple Pay and Google Pay have suspended service in Russia. Citigroup, the largest U.S.-based bank in Russia, said it will begin to unwind its Russian consumer division and will “expand the scope of that exit process to include other lines of business.”

Professional services networks such as KPMG, PwC, EY and Deloitte have all announced that they will sever ties with local firms in Russia. While the local firms can still operate, they will lose the resources associated with these larger membership networks. All told, this will affect nearly 16,000 Russians collectively employed by these firms.

We’ve also seen an increasing number of consumer brands scaling back operations in Russian markets. The most recent U.S. brands to do so include KFC, Pizza Hut, McDonald’s, Starbucks, Coca-Cola and Pepsi, which have all announced that they will close stores or curtail investments in Russia.

In the entertainment industry, Netflix has suspended streaming in Russia, and major studios such as Disney and Warner Bros. have postponed releases of new movies. Major sporting organizations have also moved to bar Russian athletes and teams from international and federated competitions. The most notable of these have been FIFA and UEFA, which have kicked Russia out of the upcoming World Cup in Qatar this summer and announced that they will move the Champions League final in May from St. Petersburg to Paris.

Beyond causing inconvenience for Russian citizens, oil and gas companies have also imposed self-sanctions to hurt the Russian economy at its core. Even before Biden announced the full U.S. embargo of Russian oil and gas, BP, ExxonMobil and Shell all announced that they do not intend to buy any more Russian exports and are seeking to divest from the country entirely.

The private sector response continues to become more and more comprehensive. While most companies have pulled out of Russia entirely, the ones that have only partially curtailed business in the country are facing increasing public pressure to break entirely. By the time this is published, no doubt even more companies will have announced actions against Russia in order to increase pressure and force Putin’s hand.

The Bottom Line

Russia’s invasion of Ukraine and continued campaign against military and now civilian targets in the country have drawn nearly universal condemnation from the international community. State-sponsored economic sanctions have been swift and unified from the U.S., U.K., EU, NATO member states and other allies. In addition, the private sector’s response has targeted not only businesses and organizations but nearly every aspect of everyday life.

The decisions that have been made behind boardroom doors and that are recorded in email exchanges between executives may give us insight into the actions of these major international companies. How they will affect Russia’s continued aggression toward its neighbor remains to be seen, but one thing is for certain: we’re living through a historical moment that may shape the international balance of power for decades to come. Having a framework in place to record “real-time history” will prevent the context around these key decisions from being lost forever.

History Factory Plugged In · S2 E1: The Invasion of Ukraine and the Art of Persuasion with Alan Kelly
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