European companies operating in Russia have suffered direct losses of at least €100 billion ($110 billion) due to Western sanctions, according to a report by the Financial Times on Sunday. The analysis, based on the annual reports and financial statements of 600 European firms, revealed that 176 of them experienced asset impairments, foreign exchange-related charges, and other expenses as a result of selling, closing, or reducing their businesses in Russia.
The report highlighted that these figures do not include the indirect macroeconomic impacts of the Ukraine conflict, such as higher energy and commodity costs. However, it did note that the situation has benefited energy and defense companies, leading to higher profits for these sectors.
The energy sector was especially hard-hit, with British Petroleum (BP), Shell, and TotalEnergies reporting combined charges of $45 billion. Despite these losses, the companies were able to offset them with higher oil and gas prices, resulting in bumper profits of approximately $104 billion last year.
In addition to the energy sector, utilities incurred direct losses of $16 billion, while industrial companies, including car manufacturers, faced a $15 billion loss. Financial companies, including banks, insurers, and investment firms, recorded over $19 billion in write-downs and charges.
The report also cited data from the Kiev School of Economics, which showed that more than 50% of the European-owned entities in Russia before the conflict are still operating in the country. Companies such as Italy’s UniCredit, Austria’s Raiffeisen, Switzerland’s Nestle, and the UK’s Unilever are among those still conducting business in Russia. However, there are concerns about the risks involved in continuing operations in Russia, as tighter exit rules in Moscow have made expropriation likely and extracting dividends from these businesses nearly impossible.
Since the start of Moscow’s military operation in Ukraine, over 1,000 Western companies have left the Russian market due to sanctions. This has led Russia to seek non-Western partners, particularly China and India. Chinese firms have successfully filled the gaps left by Western brands, with China becoming Russia’s largest buyer of oil and surpassing the EU as the top importer of Russian agricultural products. Trade between Russia and China grew by almost a third in 2022, reaching $185 billion. Officials from both countries have expressed confidence in achieving the $200 billion turnover goal set for 2024, possibly earlier than expected.
The European companies that have chosen to remain in Russia are taking a high-risk gamble. The impact of Western sanctions and the volatile geopolitical situation in the region continue to pose challenges for these companies. The long-term effects on their operations and profitability remain uncertain.