Davos is struggling to get used to a world without Russia

In the old days, the world’s top CEOs would sip vodka over ice at Russia House, the country’s unofficial embassy at the Forum, and rush to strike deals with Russian oligarchs and financial leaders — from energy tycoons to pharmaceutical giants.

Even in the midst of sanctions imposed by the United States and Europe in 2014, Russia has managed to attract foreign investment into the country. Kirill Dmitriev, head of the Russian Direct Investment Fund, one of the country’s sovereign wealth funds, has used his position to convince businesses and governments that even though sanctions have limited how they interact, business can still move forward. And some companies found gold by signing joint ventures and other ventures.

Now, though, Western sanctions imposed after Russia’s invasion of Ukraine — some of the harshest ever imposed on Moscow — are working to alienate the country’s key power brokers. Russia’s absence in Davos has left officials and business leaders here raising questions behind the scenes about how long the global business community can ignore Moscow while finding new markets for energy, minerals and food.

“For now, there are still questions about whether there are any good long-term alternatives to Russian oil and gas,” said a Western official in Davos who obtained anonymity to discuss the private talks.

In addition, said Thomas Graham, who served as Special Assistant to the President and Senior Director for Russia on the National Security Council during the George W. Bush administration. Graham said Russia had begun establishing its agricultural sector before the sanctions took effect. But after the West began imposing those financial measures, Russia invested heavily in producing wheat domestically, rather than relying on imports, in order to feed its people.

Over the past eight months, Moscow has somewhat bypassed sanctions, finding alternative routes for imports through partners such as China and countries in the Global South.

“The sanctions didn’t have the kind of immediate impact that people in the West thought they might,” said Angela Stent, a fellow at the Brookings Institution think tank in Washington.

Nor did Russia attend last year’s meeting, which took place in May, three months after the invasion. Experts and officials believe that the sanctions will destroy the Russian economy. A month later, the Russian government defaulted on foreign debt for the first time in decades. But as the months went by, the country’s economy began adjusting to the new normal.

Today, grocery store shelves are still stocked, and life has gone on, for the most part, as usual for people living in the country. Chinese brands now account for nearly a third of Russia’s auto market after Western firms fled the country due to sanctions, according to data compiled by Reuters.

This has raised fears among Moscow’s former business partners here that the international business order is changing – perhaps in the long term. With sanctions in place and not easily reversible, these companies stand to miss out on potentially profitable opportunities—at least in the short term. This does not matter to some companies that see divestment from Russia as a moral imperative. However, others are scrambling to rethink their global business strategies.

“Russia is largely isolated from the West, but of course it is not isolated from the rest of the world. The Global South has neither condemned Russia nor punished Russia,” said Stent, referring to a group of countries often described as having some of the poorest and least industrialized economies. “You have a country like India, which is a partner of the United States, which is known to buy large amounts of Russian oil.”

Russia is reinvesting in diplomatic relations in Africa as it has worked to expand its business opportunities over the past several years. Russia hosted the first Russia-Africa Economic Forum in 2019 in Sochi. Moscow also relies on the Wagner Group, a paramilitary organization with ties to the Kremlin, to expand Russia’s influence on the continent. Wagner assists the governments in Mali, Libya and Madagascar with security contracts.

However, the sanctions weaken Russia as a world power. Major Western corporations, including Starbucks, Coca-Cola and McDonald’s, have pulled their businesses out of the country. Others have closed business with non-sanctioned entities for fear of future sanctions. Behind the scenes at Davos, executives say they have written off Moscow. Russia also continues Bombing residential buildings with missiles and the targeting of civilians in Ukraine, the reconsideration of those decisions seems increasingly unpalatable.

Financial constraints also hurt Russia’s ability to conduct military operations. Moscow is struggling to get the semiconductors it needs for its weapons programmes. With stockpiling efforts behind, Moscow is now working to forge new defense partnerships with Iran and North Korea to help its fight in Ukraine.

Back at the park, the main obstacle in Davos, there is no sign of Russia. In past years, the leaders of Russian sovereign wealth funds and banks used to frequent the CNBC live filming space, to express the importance of continuing to invest in the country. And the Old Russian House – a storefront that was once occupied by the Russian delegation – was taken over from Ukraine by the team. The delegation from Kyiv will hold a breakfast there this week – an opportunity for MPs to continue to demand more weapons from Western backers.

The topic of prolonged support for Ukraine and a protracted war is likely to raise uncomfortable questions for Western officials here this week, particularly about sanctions and their potential for disruption to economies, especially in Europe, in 2023.

For months, U.S. officials worked behind the scenes to persuade their European allies to stay on board not only with arms shipments to Ukraine but also to stay abreast of the sanctions. Talking points: Sanctions pay off. Russia is suffering and will continue to lose in the long run.

For now, at least, despite the grudges of some of those present at Davos, the alliance is holding out.

“The isolation with the West is almost complete at this point,” Graham said. “And it’s hard to see conditions that will be revived in a significant way in the near future.”

Leave a Comment