Using corporates as weapons to hurt Russia: Why this may backfire

Nine days since the Russian armed forces began the invasion of Ukraine, a number of multinational companies in the West have joined hands with the governments to cripple the Russian economy. They believe this is the best way the Putin administration can be forced to stop ravaging Ukraine. 

The United States and European nations have imposed a raft of sanction measures to tighten the screws on the Putin administration in Russia. Several energy companies, including BP, Shell and Norwegian Equinor have announced their exit from Moscow in the wake of a military onslaught against the Ukrainian government. 

The United States-led NATO cannot directly intervene in the war through military might. So they have now resorted to sending advanced weaponry and war material to Kyiv to fight the advancing Russian troops. 

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With sanctions intensified against Russia, the Russian Ruble sank to a record low of 135 per cent in just a month's time while its central bank has significantly raised the key interest rate. Stock and derivative markets have not been opened since the military operation was announced. 

Let us understand the multinational companies that have exited the Russian markets

Sabre

Sabre was the first of the main global distribution systems to announce axing its distribution with the Russian government majority-owned airline. The company terminated its contract with Russia's Aeroflot. To note, the company has not called off its agreement with Aeroflot for other flight management functions. 

Energy firms

The energy major announced that it would exit all its Russian operations. Russia's largest foreign investor BP has abandoned its 20 per cent stake in state-controlled Rosneft at a cost of up to $25 billion. Norway-controlled Equinor has also said that it has begun divesting its stakes in Russia.

Auto 

Auto and truck manufacturers, including General Motors and Daimler Truck, has also joined the same league. Volkswagen, Volvo and GM have suspended deliveries of cars to their distributors in Russia.

Tech companies 

Microsoft has excluded Russian media organisation RT's mobile apps from its Windows App store. It has also banned ads on Russian state-controlled media. Leading search engines Google, Facebook and Instagram have barred RT and other Russian channels from receiving money for ads on websites, apps and videos.

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What do experts have to say about it?

According to Barclays Vice President Shishu Ranjan, companies like Apple, Facebook YouTube and others imposing restrictions on Russia are more of an emotive issue likely to harm their own economic interest in the long run rather than harming Russian economic interests. 

In the short run, Russians will not be able to access products of these companies and that does not likely to harm Russian interest significantly as their products are only luxury in nature, he said. 

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In the long run, Russia may invest to create tech companies with similar products and we already have seen that model in China where counterfeit products of Apple are very popular or Chinese having their own version of Twitter or Google, a search engine, he added.

If Russia moves in that direction, this will create competition for these tech firms, which they do not like as we have seen in India where Koo -- a Twitter-like Indian company with similar features -- is making Twitter uncomfortable, Shishu Ranjan said.

According to Economic expert Prakash Chawla, "Will western sanctions on Russia bite and whom would they bite the most? Surely, the maximum impact would be felt by Russia and its oligarchs but sanctions are a double-edged sword that leaves cuts and bruises all over." 

"If Russia gets hurt, those imposing sanctions, more so in western Europe equally would feel the pain. Germany, for instance, is so much dependent on Russian energy that its citizens have been made to bear the brunt of a sharp increase in prices," he said. 

"As for India, Russia is our important trading and strategic partner. The military hardware has a critical aspect of service, spares and support. While the impact would not be immediate, the disruptions in shipping and financial channels would have to be factored in, the expert said.

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"Then, there are third-country implications in the sense that if the US and other western sanctions are made more widespread and lethal, our trading and financial channels may come under these restrictions. Businesses across different verticals like pharmaceuticals, semiconductors, energy, commodities would have to immediately work on their contingency plans. A sharp and unabated decline in the stock market would add to our woes; as it does to the rest of the world. There are reports that the mega LIC-IPO is being put on the backburner, for now. Inflows to mutual funds would be affected; so would be the fund-raising plans of the corporates. The collateral damage of the Russia-Ukraine war is all-pervasive," he added.