People take to the streets of Vilnius, Lithuania, a former Soviet republic, to protest the war in Ukraine two days after Russia's invasion in February 2022. (Image: Dovile Ramoskaite/Unsplash)
When Russia launched an unprovoked attack on Ukraine in February of 2022, hundreds of high-profile U.S. and global corporations responded by voluntarily withdrawing their brands from Russia. The exodus added an important element of private-sector support to the international economic sanctions against Russia. That support has become all the more important as the war drags on to a second year.
The Barack Obama administration and the international community imposed initial sanctions on Russia in 2014 after the country was accused of fostering a separatist campaign in parts of Ukraine. However, the business community failed to take strong parallel measures against Russia. Without meaningful action from the private sector, Russian aggression in Ukraine did not make a strong impression on the public at large, here in the U.S. and elsewhere.
The situation was different after Russia launched an all-out invasion against Ukraine on February 24, 2022. Russian President Vladimir Putin has persistently portrayed the war as a limited “special military operation,” with the Russian economy conducting business as usual. However, that effort was quickly undercut by the hundreds of business leaders who withdrew their companies from Russia. Many left quietly, but the withdrawals were also publicized and amplified by researchers at the Yale School of Management and other organizations tracking the business response.
Among more recent evidence that the Russian economy is not functioning as normal, earlier this year the Russian government took over operations of two companies that failed to withdraw, the global French firm Danone and the Danish brewer Carlsberg.
Heineken was reportedly also facing a takeover, but last week it finally closed the sale of its operations for the symbolic price of just one euro. “The Dutch brewer is taking a €300 million loss, or roughly $325 million, by selling its business to Russian manufacturer Arnest Group, making Heineken one of the latest companies to pull out of Russia since the start of the war in Ukraine in February 2022,” CBS reported.
In recent months, some evidence emerged of cracks and loopholes in government sanctions against Russia, as well as shortcomings in the business response.
Alternative supply routes, for example, enabled global brands including Coca-Cola and Ikea to remain relatively accessible in Russia, even though their parent companies are no longer operating in the country. However, as Reuters reported earlier this year, the business boycott has had an impact on consumer prices and delivery schedules.
More importantly, when high-profile brands like McDonald’s, KFC and Starbucks disappear — and are replaced by the new names Rostics, Vkusno & Tochka, and Stars, respectively — it is impossible to pretend that an economy is functioning normally.
To be clear, impact of the business boycott has not turned the majority of the Russian public against the war. In fact, some Russia observers maintain that it has had the opposite effect.
“Putin’s unique selling point for the nation — a 'special operation' and the sharing of responsibility for the country’s isolation and regression — has turned out to be so atypical for the 21st century that the shock has reverberated through all of the normative models of behavior in modern consumer societies,” observed Andrei Kolesnikov, a senior fellow at the Carnegie Russia Eurasia Center, in an article published in April.
While activists in Russia continue to oppose the war, Kolesnikov argues that the overall effect of the Ukraine invasion has been to bend Russian society toward authoritarianism, not away from it. “Russian society is giving Putin carte blanche to continue both his war on the country’s borders and the repressive practices within it,” he concludes.
If observers like Kolesnikov are correct, there will be no internal opposition of sufficient strength to compel Russia to withdraw from Ukraine. Only international sanctions can do that, and the full impact of those sanctions is beginning to emerge.
“Since the start of the invasion of Ukraine, the EU has imposed 11 rounds of ever-tighter sanctions against Russia. Some people claim these sanctions have not worked. This is simply not true,” Josep Borrell, the Vice-President of the European Commission, wrote in a blog post last week.
“Within a year, [the sanctions] have already limited Moscow’s options considerably, causing financial strain, cutting the country from key markets, and significantly degrading Russia’s industrial and technological capacity,” Borrell concluded.
In particular, Borrell draws attention to Russia’s revenues from oil and gas exports. Oil and gas prices were high in 2022, boosting the Russian economy and partially shielding it from the impact of sanctions. But prices fell this year. Though the volume of exports has remained relatively steady, Borrell cites an estimated 27 percent drop in revenue in 2023, among other evidence of significant contraction in the Russian economy.
A steep drop in the value of the ruble earlier this month is another indication of Russia’s economic woes. Earlier this week, Reuters columnist Pierre Briancon also argued that Russia’s increasingly contorted attempts to avoid sanctions indicate that these sanctions are working, while also charting a roadmap for tightening up loopholes.
U.S. and global business leaders took a risk when they hastened to withdraw from Russia in 2022, and global sanctions supported that decision with concrete action. As Borrell notes, though, the sanctions are a process of increasing pressure, not a single point in time. Even those businesses that have cut ties with Russia need to stay informed about the progress of war, and advocate to keep the pressure up.
Tina writes frequently for TriplePundit and other websites, with a focus on military, government and corporate sustainability, clean tech research and emerging energy technologies. She is a former Deputy Director of Public Affairs of the New York City Department of Environmental Protection, and author of books and articles on recycling and other conservation themes. She is currently Deputy Director of Public Information for the County of Union, New Jersey. Views expressed here are her own and do not necessarily reflect agency policy.