Despite pledging to withdraw from Russia following its invasion of Ukraine, many Western companies continue to operate in the country. Prominent names such as Mondelez International, Auchan, and Unilever have maintained their presence, as have numerous smaller firms like the UK’s Smiths Group. In 2023, many of these companies reported record profits: French home retailer Leroy Merlin achieved revenues of $5.3 billion, US-based PepsiCo exceeded $4 billion, and Mars reported over $2.7 billion in earnings.
However, the outlook for Western businesses in Russia appears increasingly precarious. Rising geopolitical tensions pose significant risks, including the potential for operations to be halted and assets seized by the Russian government, as seen with Danish brewer Carlsberg or the “temporary transfer of assets” experienced by Finland’s Fortum and Germany’s Uniper.
Initially, Western companies exited Russia due to moral, ethical, and reputational concerns. Over time, the list of reasons for departure has grown. Sanctions imposed by the US, EU, and UK have led to substantial legal compliance costs for companies. These sanctions, expected to become more stringent, may prompt many firms to leave rather than navigate complex regulations.
Sanctions have disrupted supply chains, restricted access to financial markets, and caused shortages of critical components and technology, further complicating business operations in Russia. Additionally, Russian authorities are considering labeling products made by companies from “unfriendly” Western countries with “the manufacturer of this product sponsors terrorism,” which could severely impact the sales of items like P&G detergents and Mars chocolates.
The Kyiv School of Economics reported that at least 40 international companies, including Exxon, HSBC, Bank of Cyprus, Vestas, Deezer, and Inditex (parent company of Zara and Bershka), have entirely withdrawn from Russia since the beginning of 2024. This list is expected to grow.
Raiffeisen, Unicredit, and Hadassah next to exit?
Recent US sanctions have stopped dollar and euro trading on the Moscow Exchange, raising questions about the future presence of European and American banks in Russia. Banks potentially affected include Austrian Raiffeisen Bank, Italian Unicredit Bank, and Hungarian OTP Bank, which collectively earned over $3 billion in Russia in 2023. European Central Bank Banking Supervision has already asked all banks with significant exposure to Russia to speed up their de-risking efforts by setting a clear roadmap for downsizing and exiting the Russian market.
Raiffeisen has faced particular scrutiny over its hefty Russia profits and ties to Moscow. The bank was warned by the U.S. Treasury in writing that its access to the U.S. financial system could be curbed, according to a person who has seen the correspondence. Raiffeisen Bank has already announced plans to reduce its lending activities in Russia by 65% to comply with the European Central Bank’s (ECB) directive. Additionally, the bank will stop paying interest on savings accounts in Russia starting from July 1.
The Israeli clinic Hadassah, which opened a branch in Moscow in 2018 with a $15 million investment, may close its doors soon, too. Hadassah Medical Moscow was initially designed to provide advanced medical treatments through experienced Israeli doctors, following international protocols and using top-tier international medicines, even not certified in Russia. However, recent developments indicate a departure from this model, with Israeli doctors visiting the clinic only sporadically for short periods. Hadassah Medical Moscow seems to no longer follow its original plan of providing cutting-edge medical care through continuous collaboration with Israeli medical professionals.
Due to worsening relations between Russia and Israel, Israeli media have already urged Hadassah to stop its operations in Moscow. Furthermore, it has been discovered that despite an official ban by the Israeli Ministry of Health on treating Hamas militants, a member of the group received treatment at Hadassah Medical Moscow. Many observers believe that the clinic is indeed in the process of leaving the Russian healthcare sector, deviating from its initial business model and reducing its presence there.
As Western companies grapple with these increasing pressures, the international business landscape in Russia remains unsettled. More departures are likely as firms evaluate the mounting costs against an increasingly aggressive geopolitical backdrop.
