Previous Quarterly Editions
Expropriation Risk: 58 78 79 80 ►Political Violence Risk:74 59 85 60 ▼Terrorism Risk:50 48 58 60 ▲Exchange Transfer and Trade Sanction Risk: 55 73 64 73 ▲Sovereign Default Risk:47 75 66 66 ►
TREND ▼
Geopolitical alignmentEast 1 2 3 4 5 West
Alignment five years agoEast 1 2 3 4 5 West
Degree of contestationSettled 1 2 3 Contested
The end of Dmitry Medvedev’s single term as president in 2012 coincided with a rapid unravelling of the ‘reset’ in the U.S./Russian relationship against the backdrop of mass street protests in the wake of the rigged elections to the State Duma in December 2011. Russian President Vladimir Putin, who returned to the Kremlin in May 2012 and has since been re-elected in 2018, blamed the West and in particular the U.S. for a direct challenge to his rule. Since then, Russian/Western relations have been deteriorating. Now, the February 2022 invasion of Ukraine by Russia has prompted the West to kick-start large-scale deliveries of lethal weaponry to Ukraine.
The content of this document is believed to be accurate at the time of publishing but due to the rapidly evolving situation, changes are occurring frequently and this information may have been superseded. Coverage may vary depending on the jurisdiction and circumstances. For global client programs it is critical to consider all local operations and how policies may or may not include coverage relating to the Ukraine crisis. WTW is not in a position to provide any advice in relation to sanctions. Please ensure you taking advise from you own legal and/or other professional advisors before taking any action. The views expressed in the section are the opinion of Oxford Analytica and do not necessarily reflect those of WTW.
To break out of its international isolation due to the sanctions and to its exclusion from multiple international fora, since March 2022, Russia has been seeking to forge closer ties with China. Moscow also counts on the non-adherence of such important regional players as Turkey and India to the Western sanctions narrative, although such calculus has been met with considerable scepticism. Russia’s weakening economy means that, even if China, which remains fearful of an open confrontation with the U.S, upholds the notion of strategic partnership, Moscow cannot expect more than the role of a junior partner in its unequal marriage with Beijing.
Putin’s 2022 Russia is still projecting itself as a great power and has ambitions stretching across the entire former Soviet Union space, except for the Baltics, which are firmly anchored within the European Union and NATO. Russia will continue, as much as its dwindling resources allow, to meddle in its neighbours’ domestic affairs, namely by wielding the energy ‘stick’ against the likes of Moldova, Belarus, and Armenia.
In Central Asia, Moscow is at the centre of a regional military alliance and has a base in Tajikistan. However, Russia’s ability to exercise influence is coming under strain from the accumulating effect of Western sanctions and a succession of military setbacks on the Ukrainian battlefield.
Russia’s pitched anti-Western rhetoric is far from unanimously accepted, even though most of the population is politically passive and reluctant to challenge Putin’s increasingly radical authoritarianism. A change of course is unlikely in the short term, but it cannot be ruled out in a scenario in which the Putin regime crumbles under its own weight. Yet, there is a significant risk of post-Putin revanchism, especially if Ukraine regains control over Crimea with Western support.
TREND ►
Following the invasion of Ukraine, over 1,000 foreign brands have withdrawn from the Russian market, both voluntarily and under pressure from sanctions. Although the Russian government has not gone so far as yet to nationalise foreign-owned assets, according to one possibility floated publicly early on, it did create obstacles for definitive withdrawals.
For example, in August, Putin prohibited foreign investors from disposing of their stakes in banks and energy firms without prior governmental authorisation. In September, the prohibition was extended to all limited liability companies owned by non-residents from so-called ‘unfriendly nations’, potentially negatively affecting many good-faith small investors. The risk of expropriation remains high as Russian/Western tensions simmer.
The ongoing 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, when the protest movement fizzled amid a severe crackdown. On March 4, Putin signed into law a bill criminalising the spreading of ‘fake news’ about the Russia/Ukraine crisis and Russian armed forces, with the maximum penalty of 15 years of imprisonment. The likelihood of new protests will be low while the Putin regime keeps a firm grip on the sprawling security apparatus.
While the authorities have continued to expand their foreign agents list, designating both natural and legal persons for allegedly receiving funding from abroad, they have also launched a head-on assault on domestic opposition and Western media including social media, for instance banning Facebook, which has been labelled an extremist organisation. In September, the Russian Supreme Court ordered the closure of Novaya Gazeta, a leading opposition newspaper which suspended its activities in March and has been led for a total of 25 years by the 2021 Nobel Peace Prize laureate Dmitry Muratov.
TREND ▲
There have been no significant terrorist incidents in a major Russian city since 2017, when a suicide bomber attacked an underground train in St. Petersburg. Nonetheless, law enforcement regularly reports the arrests of presumed terrorist group members and terrorist attacks that have been prevented.
Since the start of the Russia/Ukraine crisis, the Federal Security Service has arrested several groups of Ukrainian nationalists allegedly plotting attacks against Russia.
In a major departure from the self-defence tactics used by Ukraine’s armed forces until 2022, the Russian-occupied Crimea and the Russian regions of Kursk, Belgorod, and Rostov, which neighbour on Ukraine, have been regularly shot at this year from drones and land artillery on the Ukrainian side.
The Russia/Ukraine crisis has led to the imposition of unprecedented economic sanctions on Russia, including multi-jurisdictional freezes of the Russian central bank’s overseas assets, restrictions on sovereign debt trading, and the U.S. and EU bans on the sale of their currencies to Russia.
Faced with an impending liquidity crisis, the authorities have enacted drastic capital controls, for example freezing until March 2023 (as renewed) withdrawals from foreign currency bank accounts above a USD10,000 limit, prohibiting the transfer of foreign currency exceeding regularly updated thresholds, and allowing both sovereign and corporate debt to be paid in rubles. In March, Putin instructed the government to start 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 country’s largest, Sberbank, and second largest, VTB, from the SWIFT messaging system; US and UK asset freezes on Alfa Bank, the largest private bank; and a wide range of export controls, such as the ban on the sale of Boeing and Airbus aircraft, spare parts, (re)insurance, leasing, and other services.
Since late February, the U.K, European Union, U.S., Canadian, and Japanese governments have frozen the Russian central bank’s foreign currency reserves held within their jurisdictions. Russia’s finance ministry estimates that some USD300 billion has been immobilised out of USD634 billion as of mid-February.
These freezes, in addition to the U.S. and EU decisions to ban the transfer of U.S. dollars and euros to Russia, have prompted Putin to install stringent capital controls, which will be in force until at least next spring, and to allow paying down both sovereign and corporate debts in rubles.
Although all three key credit rating agencies, S&P, Fitch, and Moody’s, withdrew their Russia ratings between March 25 and April 8 because of Western sanctions, Moody’s declared Russia to be in default on its foreign-currency sovereign debt on June 27, for the first time since 1918. Despite billions in both available and frozen reserves, the government had been unable to wire USD100 million worth of interest in dollars to investors.
Return to contents Next Chapter
