The stakes are becoming increasingly high for the companies that have refused to pull out of Russia following its brutal invasion of Ukraine.
A quarter of the world’s 200 largest companies are at risk of having key assets seized by the Russian government, according to a new report from the Moral Rating agency, an organization focused on tracking companies’ response to Russia’s invasion of Ukraine.
These 47 multinationals, including gas giant BP and aircraft manufacturer Boeing, who have remained in Russia are now vulnerable to the Kremlin’s “expropriation blackmail” over assets that they still own in the country, according to Mark Dixon, the founder of Moral Rating.
As the Kremlin makes moves to seize Russian-based assets of foreign companies, firms are caught between staying and losing billions to expropriation or selling them off. According to the report, this may be Moscow’s attempt to force companies to make concessions and to put pressure on foreign governments.
On July 1, Russian dictator Vladimir Putin signed a decree seizing full control of the Sakhalin-2 gas and oil project in Russia’s Far East by creating a new firm that will take over the Sakhalin Energy Investment company, in which Shell and two Japanese trading companies Mitsui and Mitsubishi hold nearly 50%.
While the decree doesn’t seize assets per se, the move allows Moscow to decide whether or not the companies get to continue with the project, and gives the Kremlin the power to force the foreign entities to make concessions for staying on.
Russia has also been preparing a law, expected to pass soon, that will allow the state to seize assets of Western firms that have decided to leave.
Companies at risk
Unsurprisingly, most of the companies under high threat of expropriation are in the energy sector. With its natural wealth in oil and gas, Russia made a risky but attractive investment destination for international firms.
The list includes Mitsui, BP, TotalEnergies, China National Petroleum, Mitsubishi, Fortum, Sinopec, China National Offshore Oil, E.ON, Trafigura, Marubeni and Royal Dutch Shell.
Other companies are also at risk of having their assets seized, Moral Rating says, including PepsiCo, as well as LG Electronics, Nestle, Unilever, General Electric, Assicurazioni, Generali, Samsung Electronics, and Nissan.
To calculate the level of risk, the agency looks at Russian-based assets as a percentage of these companies' global businesses.
The corporations at risk are those that have either refused to leave Russia or made no comments, temporarily halted their local operations, have carved out activities to continue, or have promised to sell factories or businesses but failed to follow through, Moral Rating says.
There is evidence Russia’s blackmail is working.
After the July 1 decree seizing control of the Sakhalin-2 gas and oil project in Russia’s Far East, Shell, Mitsui, and Mitsubishi all saw their share prices decline by about 5%, suggesting the companies with existing assets in Russia may see their stock prices hit by similar moves.
Despite the drop in stock prices, the Japanese government response to the decree was lukewarm. With two of its major companies at stake in the Sakhalin 2 project, Japan’s Industry Minister Koichi Hagiuda said his country didn’t view Moscow’s move as a requisition.
“The result of the decree is that one country is already placating Putin,” Dixon said.
This is likely Putin’s end game: divide the West, pressure governments by obtaining concessions from individual companies, and eventually seize all foreign assets if he wants to, the report says.
“He will have his cake and eat it: the benefits of the blackmail and then the spoils of the assets themselves,” Dixon predicts.