Project Syndicate : Stealing Russia Feb 7, 2023 ANDERS ÅSLUND

 Stealing Russia

Feb 7, 2023

ANDERS ÅSLUND

Owing to Vladimir Putin’s war in Ukraine and the West’s response, hundreds of billions of dollars’ worth of assets are up for grabs in Russia. As ownership changes hands, the country’s shrinking wealth will become even more concentrated among the kleptocrats who have remained.

STOCKHOLM – Wars and sanctions usually lead to major redistributions of property through nationalization, confiscation, and often criminalization. Russia today is no exception. Largely underreported, a radical redistribution of property is underway in the country. Just as the Kremlin’s war of aggression in Ukraine is increasing President Vladimir Putin’s control of society, it is severely damaging economic efficiency, with international sanctions hitting energy, banking, armaments, and other core industries with increasing force.

Before Russia invaded Ukraine last February, it boasted cumulative foreign direct investment of about $500 billion. But most of this was from Western companies that have since declared their intention to leave the country. According to Yale University’s Jeffrey A. Sonnenfeld, more than 1,000 firms have announced that they are cutting back operations in Russia beyond what is required by sanctions. Assets worth hundreds of billions of dollars are up for grabs, and though the changes of ownership will be gradual and non-transparent, the nature of the transformation is clear.

The biggest share of foreign ownership was in the hydrocarbons sector. Most of the industry’s major multinational players had a presence in the country through partnerships with state-owned companies like Rosneft and Gazprom. For example, BP owns a 19.75% share of Rosneft previously valued at $14 billion, and it remains unclear how it will unload this stake. Presumably, Rosneft will eventually acquire the shares for kopecks on the ruble.

Similarly, Exxon had a major joint venture with Rosneft in Sakhalin, but it appears to have had its ownership transferred to the Russian government. It previously valued its share of the company at more than $4 billion, and it has yet to clarify whether Rosneft offered any compensation. We know that Shell’s share in a Sakhalin project with Gazprom was effectively confiscated without compensation.

Then there is the French multinational TotalEnergies. Having invested in Novatek – which is controlled by two Putin cronies, Gennady Timchenko and Leonid Mikhelson – and its huge Yamal LNG plant on the Arctic Sea, TotalEnergies was the last big Western energy company to declare that it would leave the market. So far, it has not done so; but it has written off $3.7 billion of its investment in Novatek, and it is likely to settle on terms favorable to Timchenko and Mikhelson.

Meanwhile, two big energy service companies – Halliburton and Baker Hughes – say they have left Russia. They appear to have sold their local subsidiaries to those entities’ Russian top managers, which is a common practice. It is hard to say which, if any, of these deals could be reversed if Western sanctions were lifted. Schlumberger, however, decided to remain, only suspending new investments and technology deployment.

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