Estimated cost of anti-Russia sanctions to Western firms revealed

Energy and utility groups account for more than half of the lost earnings, the FT’s analysis shows

Major European companies have incurred at least €100 billion ($110 billion) in direct losses from their Russia operations as a result of Western sanctions, the Financial Times reported on Sunday. 

The newspaper’s survey of 600 European groups’ annual reports and 2023 financial statements showed that 176 firms recorded asset impairments, foreign exchange-related charges, and other one-off expenses as a result of the sale, closure or reduction of Russia-based businesses.

The aggregate figure does not include indirect macroeconomic impacts from the Ukraine conflict such as higher energy and commodity costs, FT noted, adding that the situation has boosted profits for energy and defense firms.

The report noted that the biggest write-downs and charges were recorded in the energy sector, with three energy giants alone – BP, Shell and TotalEnergies – reporting combined charges of $45 billion.

“The losses were far outweighed by higher oil and gas prices, which helped these groups report bumper aggregate profits of about $104 billion last year,” the FT wrote, adding that defense companies’ shares have been buoyed by the Russia-Ukraine conflict.

According to the survey, utilities took a direct hit of $16 billion, while industrial companies, including carmakers, have suffered a $15 billion loss. Financial companies including banks, insurers and investment firms, have recorded over $19 billion in write-downs and other charges.

The report also cited data from the Kiev School of Economics showing that more than 50% of the 1,871 European-owned entities in Russia prior the conflict are still operating in the country. They include Italy’s UniCredit, Austria’s Raiffeisen, Switzerland’s Nestle and the UK’s Unilever.

The groups still operating in Russia are taking a high-risk gamble, claims KSE research fellow Anna Vlasyuk. She told the FT that the tighter exit rules introduced by Moscow have made “expropriation likely and extracting any dividends out of these businesses is almost impossible.” 

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After the start of Moscow’s military operation in Ukraine, over 1,000 Western firms quit the Russian market, pressured by sanctions, according to Yale University analysts. As a result, Russia was forced to reorient to non-Western partners, most notably China and India.

Statistics show that Chinese firms have been successfully filling the gaps left by Western brands. China has been competing with India as Russia’s biggest buyer of oil, and has overtaken the EU as the top importer of Russian agricultural products.

Russia-China trade grew by nearly a third in 2022, reaching $185 billion, making Moscow the leader among Beijing’s 20 largest partners in terms of trade growth. Officials from both countries have said the $200 billion turnover goal set by Moscow and Beijing for 2024 could be achieved earlier than expected.

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