Index trend
Previous Quarterly Editions
Expropriation Risk: 80 74 75 75 ►Political Violence Risk:60 66 66 66 ►Terrorism Risk:60 60 63 66 ▲Exchange Transfer and Trade Sanction Risk: 82 73 73 73 ►Sovereign Default Risk:74 82 82 82 ►
Overall Risk Temperature: 74 (Medium high) TREND ►
Special topic: Relationship with the 'global rules-based order'
Contemporary Russia’s attempts to undermine the global rules-based order can be traced back to Vladimir Putin’s first term as president. An early example is the poisoning of Alexander Litvinenko, a former Federal Security Service (FSB) agent exiled in London, with plutonium in 2006. Putin’s bellicose speech at the 2007 Munich Security Conference marked a turning point in Russia’s relationship with the West. It led to a series of provocations by Moscow in the spirit of an unannounced new Cold War. A brief period of “reset” in U.S.-Russian relations during the Obama presidency ended abruptly with an anti-Western campaign unleashed by the Kremlin in the wake of protests in 2011-2012 against the rigged elections to the Russian State Duma.
The annexation of Crimea and the destabilization of eastern Ukraine in 2014 entailed further deterioration of the already-strained relationship with the West. The Kremlin interfered in the 2016 U.S. presidential election to undermine public trust in the electoral process by spreading disinformation. The incident shined a spotlight on a St. Petersburg, Russia-based troll farm funded by Yevgeny Prigozhin. A successful restaurateur known as Putin’s “chef,” Prigozhin was the head of the Wagner Group until his death in mid-2023. The Wagner Group is a government-backed paramilitary organization that sowed terror and propped up dictatorial regimes across Africa and the Middle East.
Russia’s full-scale invasion of Ukraine in February 2022 has reinforced Moscow’s international reputation as a rogue actor whose leadership is bent on undermining Western values and influence globally. By March 2023, the country had withdrawn from 21 international agreements concluded under the auspices of the Council of Europe, from which it was expelled in March 2022. Russian authorities also vowed to no longer recognize, and execute, decisions made by the European Court of Human Rights in favor of its own citizens.
In November 2023, Russia formally withdrew from the 1990 Treaty on Conventional Armed Forces in Europe, having suspended its application in 2007. This occurred against the backdrop of increasingly closer ties to both Iran and North Korea. Russia’s military cooperation with the Kim Jong Un regime in Pyongyang violates United Nations Security Council sanctions that the Putin administration actively supported in the past.
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Since the invasion of Ukraine, over 1,000 foreign brands have withdrawn from the Russian market, both voluntarily and under pressure from sanctions. In response, Russian authorities began to create obstacles for future withdrawals.
All limited liability companies owned by non-residents from “unfriendly nations” are prohibited from disposing of their stakes in banks and energy firms without prior governmental authorization. The sale of Russian-based assets by such non-residents is contingent on a 50% or higher discount to the fair market value of the assets and the payment of an exit tax.
In April 2023, Putin ordered the Russian assets of Germany’s Uniper and Finland’s Fortum to be placed under “temporary administration.” This was largely seen both inside and outside Russia as de facto nationalization. The move was justified by the earlier government takeover of Gazprom and Rosneft assets in Germany, officially in the name of energy security. In July, Putin ordered similar measures against France’s Danone and Denmark’s Carlsberg.
The risk of outright expropriation of Russian assets remains high for all companies headquartered in any of the “unfriendly” jurisdictions.
The Russian invasion initially led to a wave of anti-war protests, resulting in the arrests of more than 12,000 people between the launch of the military campaign and March 13, 2022, when the protest movement fizzled amid a severe crackdown. On March 4, 2022, Putin signed into law a bill criminalizing spreading “fake news” about the war and the Russian armed forces, with a maximum penalty of 15 years of imprisonment.
The authorities were taken by surprise in mid-January 2024 when several thousand people took to the streets in the southeastern territory of Bashkortostan to oppose the arrest of a civil society activist who had been leading opposition to a local mining project. Detentions and criminal prosecutions ended the protest abruptly. Overall, the intensity of protest activity nationwide will remain low so long as the Putin regime keeps a firm grip on the sprawling security apparatus.
The government has continued to expand its foreign agents list, designating both natural and legal persons for allegedly receiving funding from abroad. It has also launched a direct attack on domestic opposition and Western media, including social media platforms. Both Facebook and Instagram have been banned, and their parent company Meta has been designated an extremist organization.
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On March 22, a group of heavily armed terrorists rampaged through the Crocus City Hall in the Moscow suburb of Krasnogorsk. The concert hall, the largest in Moscow Oblast, was set on fire and quickly burned down. Over 140 people died and more than 550 were injured. The attack, which was claimed by the Islamic State group, became the second-deadliest in contemporary Russian history. Only the 2004 attack on a school in Beslan had more casualties. Despite a lack of evidence, Putin has blamed Ukraine, and the FSB has since repeatedly validated this apparently false lead. An official investigation is still ongoing.
There have been regular acts of sabotage and guerrilla warfare in the European part of Russia and the Crimea. This is in addition to the shelling of the neighboring Russian regions by the armed forces of Ukraine and recurring sorties into the same territories by the anti-regime, Kyiv-backed Russian Volunteer Corps. On July 17, 2023, the Kerch Strait bridge was damaged by a Ukrainian seaborne drone, following previous damage in a major explosion in October 2022.
The invasion of Ukraine has led to the imposition of unprecedented economic sanctions on Russia. These include multi-jurisdictional freezes of the central bank’s overseas assets, restrictions on sovereign debt trading and bans on the sale of certain currencies to Russia.
Faced with an impending liquidity crisis, the authorities have enacted drastic capital controls. Withdrawals from foreign currency bank accounts above a $10,000 limit are frozen; the transfer of foreign currency exceeding regularly updated thresholds is prohibited, and both sovereign and corporate debt is paid in rubles. Since March 2022, the government has been collecting revenue from the sale of natural gas by Gazprom in Europe in rubles only.
Other Western restrictions include the disconnection of a dozen Russian banks — including the largest, Sberbank, and second largest, VTB — from the Society for Worldwide Interbank Financial Telecommunications messaging system; U.S., European Union (EU), and U.K. asset freezes on Alfa Bank, the largest private bank; and an ever-expanding range of export controls, especially in relation to military technology and dual-use goods that Russia could use for its weapons programs.
Since February 2022, the U.K., EU, U.S., Canada and Japan have frozen the Russian central bank’s foreign currency reserves held within their jurisdictions. Russia’s finance ministry estimates that some $300 billion has been immobilized out of the-then total of $634 billion.
These freezes, in addition to the U.S., EU and U.K. prohibitions on the transfer of U.S. dollars, euros and pounds sterling to Russia, prompted Putin to install stringent capital controls and to allow paying down both sovereign and corporate debts in rubles.
Although all three key credit rating agencies (Standard & Poor’s, Fitch and Moody’s) withdrew their Russia ratings in March – April 2022 because of Western sanctions, Moody’s declared Russia to be in default on its foreign currency sovereign debt on June 27, 2022, for the first time since 1918.
