As talk of Russia sanctions heats up, business draws a cautionary line

As the crisis in Ukraine reaches Cold War proportions, here's what chief correspondent Dan Balz, senior national security correspondent Karen DeYoung, foreign editor Douglas Jehl and chief White House correspondent Scott Wilson have to say about what it all means. (Jason Aldag, Jonathan Elker and Kate M. Tobey/The Washington Post)

Business groups are pushing to ensure that any economic sanctions imposed on Russia by the United States are joined by as much of the rest of the world as possible, warning Congress and the Obama administration that unilateral U.S. action would put tens of billions of dollars of American investment and trade at risk of retaliation.

Company officials say they are caught between fast-moving U.S. foreign policy and their interests in a market many have been courting — both in the key energy sector and beyond.

Top U.S. companies such as PepsiCo, General Electric and others have touted their involvement in Russia as central to their global strategy. That has involved aggressive investing — PepsiCo is now the largest food and beverage company in Russia, earning $4.8 billion in the country in 2012 — and joint ventures such as GE’s with two Russian firms to manufacture gas turbines in Rybinsk. Ford Motor Co. recently announced a partnership with the Sollers car company. Aerospace giants such as Boeing are among the top U.S. exporters to Russia.

Relations built in an often difficult environment are now at risk if the crisis escalates or if the administration makes good on threats to steadily tighten the screws on Russia’s economy.

“What we’ve been hearing from our members is a lot of concern that there are two ways America gets hurt in a game like this. One is by American sanctions, that put them out of business, and the other is by Russian retaliation, regardless of what we do,” said William Reinsch, president of the National Foreign Trade Council. In meetings with the administration and members of Congress, “we have not been shy about telling them . . . if it is not multilateral, it is not going to work,” he said.

The response from business groups comes as administration officials and lawmakers consider what, if any, economic levers to use to try to reverse Russia’s move last week into Ukraine.

The White House took an initial step Thursday, freezing assets and denying visas to some Russian officials, while the House Foreign Affairs Committee approved a nonbinding resolution that condemns Russia’s intervention and calls for sanctions on senior Russian Federation officials, state-owned banks and other state agencies. The resolution also calls on the United States to promote increased natural gas exports to Ukraine. That approach — seen as a way to help free the country from reliance on Russian gas — has drawn increased attention this week, but environmentalists and U.S. firms that depend on the inexpensive fuel supply oppose the idea.

The Senate Foreign Relations Committee plans to consider its own Ukraine legislation next week, said Sen. Robert Menendez (D-N.J.), the panel’s chairman.

Broad sanctions face not only pushback from U.S. business but also practical problems, given Russia’s deepening connections to world energy and financial markets. Sanctions that target the energy sector, for example, might damage Russia the most, but they could also drive up global prices and undermine an already weak global economic recovery. Targeting the financial sector, similarly, could damage U.S. and European banks with hundreds of billions of dollars in Russian loans and investments on the line — and even then prove ineffective unless major Asian financial centers also abide by sanctions.

For companies that trade with or invest in Russia, recent events are a shock that comes only a year after top business leaders lobbied intensively for Congress to lift the last Cold War-era trade restrictions on the country — a step they wanted in order to take advantage of Russia’s new membership in the World Trade Organization.

Former U.S. ambassador to Moscow Michael McFaul, in a conference call Friday, mentioned companies vulnerable to sanctions. He said for Severstal, “a well-respected [Russian] steel company with lots of investments in the U.S. and Europe, this can’t be good news for you.” And he noted that Exxon Mobil “has just signed up for what would be the biggest venture in the history of capitalism” with Russia’s Rosneft and said the company has “got to be very nervous.” But, McFaul added, “having said all that, I also think that Putin will be ready to make those economic sacrifices if he wants to go forward with this annexation strategy.”

U.S.-Russia Business Council representatives met with White House national security staff Wednesday, while the NFTC and individual companies have been meeting with other agencies and members of Congress to lay out their concerns., document their interests in Russia and sound out the administration on its plans.

Several business officials said there is a sense that broad sanctions will not be imposed, if only because U.S. allies in Europe will probably resist it. Europe’s economic interests in Russia are far larger than those of the United States, from a reliance on Russian gas and oil to the nearly $200 bil-­
lion in Russian loans and investments carried on the books of Western European banks.

The steps announced Wednesday by the White House were narrowly targeted at those who “undermine democratic processes and institutions in Ukraine.”

An official with a company that trades with Russia, who agreed to discuss a sensitive subject on the condition of anonymity, said he thought the administration would stick to incremental steps that could cause economic problems in Russia but limit risks to U.S. economic interests.

The mere threat of sanctions has arguably taken a toll, forcing the Russian central bank to spend $10 billion in foreign reserves to prop up the value of the ruble in the days since the military move into Crimea. Russia is heavily dependent on international oil and gas sales, and the country’s ability to rebound from current anemic economic growth hinges on its ability to attract foreign investment.

But the country is important to U.S. firms as well, beyond their
$11 billion in annual exports and $14 billion in direct investment in manufacturing plants and offices.

“If we are unable to expand our businesses in emerging market and developing markets . . . as a result of our investments, particularly in Russia, as a result of economic and political conditions . . . our financial performance could be adversely affected,” PepsiCo said in its 2012 annual report.

Karen DeYoung contributed to this report.

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