Italian Corporate Executives Upset EU By Holding Trade & Investment Discussions With Russia

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EU business lobby unhappy with lost export values into hundreds of billions of Euros should sanctions be imposed for supporting non-EU corporate interests

The divide between EU business and US influenced political issues manifested itself again yesterday (Wednesday, January 26) as Russian President Vladimir Putin held a long-planned video call with leading Italian CEOs. The discussion sparked concern in Italy and across Europe, as it comes at a time when the EU is trying to finalize a package of economic sanctions to slap on Moscow in the event it escalates aggression against Ukraine. Business leaders however see this as political interference in their ability to access overseas markets, and especially as no move has been made concerning Ukraine by Moscow. The event had been planned by and was held by the Italian-Russia Chamber of Commerce.

Putin stated, concerning Russia-Italian business and trade ties, that

“I would like to emphasize that we consider Italy to be one of Russia’s leading economic partners … and we see serious prospects for expanding the Russian-Italian business partnership.”  according to a transcript of opening remarks published by the Kremlin.

Italian media reported that the government in Rome had put pressure on the companies to scrap the call, fearful it could highlight split opinion in Europe over how to deal with Russia. Three attendees did pull out of the meeting in the hours before, Kremlin spokesperson Dmitry Peskov said Wednesday, citing illness and scheduling conflicts. Some 16 figures, including Russian executives, ultimately attended.

Around 500 Italian businesses have operations in Russia, Putin said, with about US$8 billion in bilateral investments between the two countries. “​​During the first 11 months of last year, bilateral trade grew by 54% to US$27.5 billion. At the final count for the year, it will probably pass US$30 billion,” Putin said.

Enel, Pirelli and Generali were among the firms whose executives were reported to have attended Wednesday’s online meeting, which was

The Russian leader underlined Italian firms’ role in Russia’s vital energy sector and hailed a long-term gas supply contract between Italy and Gazprom which has allowed Italian energy consumers to get gas “significantly cheaper than market rates,” Putin said.

Italy has previously expressed opposition to EU sanctions imposed on Moscow following the 2014 annexation of Crimea and is seen within some European capitals as having a softer approach toward Russia.

Italian entrepreneur and Italian-Russian Chamber of Commerce head Vincenzo Trani during the meeting hailed Russia’s economic potential and called for dialogue between Russia and the West.

“Sometimes dialogue is needed even more when there are difficulties. We have always overcome the many difficult situations and difficult moments with the help of dialogue — this is our main tool,” he said in a statement.

“The best investments — and of course, the best businesses — are always created in these moments of difficulty. Therefore, I am supporting and advising many other businesses who look at Russia as a country of opportunity, and I’m encouraging them to look at the potential of Russia.”

A schism is forming between EU businesses and EU Governments over what is starting to be perceived as strongly US-influenced policies towards Russia that are designed to benefit US investors at the expense of EU export markets, involving support for a third country (Ukraine) that is not an EU member. Washington is being perceived in EU business circles as attempting to create frictions between Russia and the EU in order for it, not Russia, to control and sell to the EU gas supplies instead of the current and planned Russian energy pipelines.

US businesses have minimal trade with Russia, with bilateral trade in 2021 reaching just US$33.65 billion, of which US exports to Russia amounted to US$5.84 billion. This means that the imposition of sanctions has limited impact on US corporates. But this is not the same in the EU, where total bilateral import and export trade with Russia amounted to US$219.77 billion between January-October 2021, an increase of 37.6% year-on-year. According to Eurostat, EU exports to Russia rose 11.9% during the same ten months of last year with a value of US$79.58 billion.

As of mid-2019, the previous round of sanctions placed upon Russia due to the Crimea situation is estimated to have cost EU exporters some US$240 billion in lost trade.

Imposing sanctions on Russia would see EU manufacturing businesses take a huge hit, leaving investors and financial plans with huge fiscal income and profitability gaps to fill. Smaller businesses more historically reliant on the Russian markets would face severe economic problems with closure and likely loss of employment. This would further impact negatively upon the EU economy.

Clearly, a component part of EU sanctions upon Russia will become compensation of loss of export markets for EU manufacturers. How much the United States is prepared to support them will be an issue now up for discussion in EU debates weighing the trade and political impacts – and whether this is wholly appropriate given the Ukraine is not part of the European Union in any event – its historical roots for the past 300 years have almost always been with Moscow. 

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Russia Briefing is written by Dezan Shira & Associates. The firm has 28 offices throughout Eurasia, including China, Russia, India, and the ASEAN nations, assisting foreign investors into the Eurasian region. Please contact Maria Kotova at russia@dezshira.com for Russian investment advisory or assistance with market intelligence, legal, tax and compliance issues throughout Asia.

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