A new arena in the economic conflict between Russia and the West emerges

The economic confrontation between Russia and the West has entered a dangerous new stage, according to a Non-Resident Scholar at the Carnegie Russia-Eurasian Center and Fellow of the Eastern European Center for International Affairs. Moscow has focused mainly on pressure on European energy markets, but after court rulings froze Russian assets in Europe, the Kremlin began creating a legal framework to temporarily nationalize foreign assets in the country. The author believes that the Russian government will take an individualized approach to all foreign interests, trying to provoke new divisions in the West while benefiting interest groups within Russia.

The Russian assets of two European energy companies, Finland’s Fortum and Germany’s Uniper, were recently placed under temporary control by Russian President Vladimir Putin’s decree. The Kremlin’s actions appear to have been provoked by federal executive authorities. A court in Leipzig dismissed the claims of the Russian state oil company Rosneft, which is headed by Putin’s longtime ally Igor Sechin. Germany’s decision in September to place its assets in Germany under the supervision of the National Energy Regulator partly led to Rosneft’s claims being dismissed.

New withdrawal rules for Western companies enacted last month are just part of Russia’s retaliatory strategy. Western companies can only sell their shares in projects with Russian partners at a 50% discount and must pay “voluntary donations” to Russian companies. War funds represent 5-10% of asset value. The siloviki, individuals with a background in the security services, police, or military, are the main driving force behind the growing nationalization movement in Russia. Among them are officials from the FSB, the Public Prosecutor’s Office, and Mr. Sechin.

Putin’s decree gave the Federal Property Administration the right to control Western countries. Assets were hit by the need to shut down operations in Russia. The agency’s mandate is to evaluate these assets and sell them to Russian buyers. Recent actions on Fortum and Uniper assets are just a taste of what’s to come, and new legal mechanisms make it unlikely that the Kremlin will adopt a one-size-fits-all approach to foreign investors. Instead, it will sign individual contracts with investors depending on its connections in Russia.

Western companies may find themselves in a dead end, stuck between public pressure to cut ties with Russia, but being prohibited from selling stakes to most Russian companies due to sanctions. On the other hand, complying with the Russian government’s demands could lead to being branded as Putin’s war enabler and result in losing investments in Russia altogether. Neither Russia nor Europe currently has a comprehensive strategy on how to deal with stranded assets.

With the Kremlin imposing sanctions and looking for ways to punish Europe for supporting Ukraine, relations with Russia are likely to worsen. The desire of Putin’s entourage to seize Western assets in Russia would add to the tension.

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