OPINION: Russia – Blood Money

Markets, or at least the media, seems to be awash with stories about investors desperate to put money back to work in Russian markets. See, for example, this article in the Financial Times.

The assumption herein is that with Trump pushing for an early peace in Russia’s war on Ukraine and a normalization with the Kremlin, Western sanctions on Russia will soon be lifted. Putin seems to have buoyed this optimism by partially lifting restrictions on some Western institutional money stuck in Russian debt and equity – he seemed here to be trying to encourage Trump into a quid pro quo of lifting market restrictions.

I would still advise some caution on the part of investors:

First, the course of US-Russia peace talks over Ukraine might not run as smoothly as some are now predicting. Indeed, despite Trump suggesting that he could deliver an end to the war in Ukraine in days – 24 hours actually – two months into the Trump presidency and talks are proving much more difficult in practice.

Despite browbeating President Zelensky to accept a 30-day ceasefire pushed by the Trump administration – and temporarily pulling military and intelligence support until Zelensky relented – Putin is proving much more difficult to pin down.

Putin offered US envoy Steve Witkoff only a “yes-but-no answer” after his recent trip to Moscow and laced the response to President Trump with a long set of conditions. Likewise, despite Trump talking up his near two-hour call with President Putin this week, again Putin failed to sign on the dotted line to a 30-day ceasefire and while agreeing in principle to an immediate 30-day truce covering attacks in energy infrastructure that particular truce was broken in a matter of hours.

Other Topics of Interest

Putin Orders Ukrainians in Russia to Legalize or Leave, Expands Forced Passportization

The Russian President says all Ukrainians living in Russia have until Sept. 10 to legalize their status and is expanding forced passportization and deportations in Ukraine’s occupied territories.

The question is not only whether Trump can deliver sanctions moderation while Putin is failing to negotiate peace terms in good faith, but whether Trump will have to increase sanctions on Russia in the interim to ensure that Putin gets serious about negotiations. A new set of sanctions on Russia now would surely spoil the returns of those looking to be early to the next wave of trade with Russia.

Indeed, the above should have underlined to all that the two sides are still far apart in talks, each with hard red lines that they are very likely to be reluctant to give way on. On balance, the war looks set to continue.

And even if Trump still decides to go hell for leather in moderating sanctions on Russia, without any discernible progress on peace talks, he would need to jump through some significant congressional hurdles for much of the sanctions lodged on Russia by the Biden administration. And Putin’s foot-dragging on peace talks would likely harden attitudes in Congress to early sanctions moderation. At the least this will delay sanctions moderation, at least from the US.

Second, whatever Trump opts to do in terms of US sanctions on Russia, Europe appears in no mood to quickly loosen the sanctions noose on Russia. Three years of war, and a realization after the Zelensky Oval Office ambush, and then the Hegseth/Vance trips to Europe have made European nations realize that they are on their own against Russia, and the Russian threat is not going away even in the unlikely event of a peace deal on Ukraine. And therein whatever happens in Ukraine, they have an incentive on keeping the Russian economy weak and limiting Putin’s ability then to regenerate military capability lost in Ukraine. Many European countries will hence be loathed to ease sanctions on Russia, irrespective of what Trump does.

Questions then are: Will Trump try and force Europe to follow suit on sanctions moderation with Russia as part of any Russia-US deal? Can Europe resist? And then, if it can, how will international business navigate a sanctions landscape with different sanctions positions for the US and Europe with respect to Russia?

Imagine then a US bank with a large European-based subsidiary with some clients in the US wanting to trade with Russia, but risks therein of fines and secondary sanctions from European regulators still maintaining sanctions on Russia.

Third, irrespective of what Trump may or may not want to do in terms of sanctions moderation with Russia, international business I think will have major reputational risks to consider in moving early to go back to business as usual with Russia.

Do I need to remind them that Russia has broken international law by invading Ukraine, and has broken all norms of decency in its conduct of the war with ample evidence of war crimes – bombing civilian targets, including hospitals, killing POWs, and much to suggest genocide against Ukrainians as evidenced by events in Bucha and elsewhere? Is international business comfortable in going back to business as usual without due account for the above crimes? Does international business have any moral compass?

And even if it can perhaps try and consign these crimes to history can it be certain that Putin will change or adopt a different policy towards Ukraine or Europe? On this latter point, Putin has made it clear by his actions that he is at war not only with Ukraine but Europe – using WMDs twice on NATO soil (in the UK), attacking European energy and telecommunications infrastructure, attempting to assassinate European business leaders, and launching cyberattacks against European critical infrastructure.

Why would he stop his attacks on Europe? European leaders know he will not and hence are not changing their view of Putin and Russia, they are in fact hardening their positions. So are European companies, in particular, willing to go back to business as usual with Russia amid these continuing threats to Europe?

Actually, the risks are not just moral but business-related. In deciding to go back to business as usual with Russia these Western investors will have to make a call as to whether the direction of travel in terms of Russia – Western relations are improving, or not. If they decide to invest but we see an unravelling of the Trump peace effort, are they then risking again a situation where their assets in Russia will be stranded and subject to freezes and confiscation?

Are these Western investors good at predicting the state of geopolitical relations and risks? I would argue not given the number of Western businesses who continued investing in Russia right up to full-scale invasion. Even more remarkable therein is that many of these same investors remained invested or continued to invest in Russia through 2021 and early 2022 when their own governments were warning of an imminent invasion and the threat of aggressive sanctions being rolled out.

Why would these same investors be better now at qualifying the risks of investing in Russia when frankly they completely cocked up with their decision in 2021-2022, and indeed long before then? Imagine the egg (blood actually) on their faces if they rush to put money back to work in Russia, against a long track record of bad behavior by Russia and end up on the wrong side of the trade again. Titans of finance and industry – not.

Reprinted from the author’s tashecon blog. See the original here.

The views expressed in this opinion article are the author’s and not necessarily those of Kyiv Post.