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Opinion
July 6, 2018 www.intellinews.com I Page 28
responding effectively to renewed US sanctions on Iran has shown the challenges inherent in trying to protect exposed companies. More widely though, EU policy will not only diverge from that of the US, but might invoke an old 1996 regulation to protect its commercial interests from the extraterritorial enforcement of US law.
Doves coming home to roost
Despite the differences of opinion, the EU has displayed surprising solidarity in renewing sanctions on Russia. However, the perspective of the doves is gaining traction and although the EU is likely to continue muddling through for the time being, there are numerous game-changers on the horizon in the 12-month outlook.
The Trump administration aside, the Ukrainian elections in 2019 could prompt a change in policy. In the likely event that President Petro Poroshenko is succeeded by a hardliner vis-à-vis Crimea and Donbas, such as Yulia Tymoshenko, Ukraine is likely to be blamed for any upsurge
in violence or tension. At this point, the EU will have the cover it needs to rethink its sanctions strategy as, currently, the sanctions are in force pending the complete implementation of the Minsk II agreements. Kurz has already led the doves in suggesting that a gradual lifting of sanctions, pegged to the implementation of certain provisions of the agreements, would be
more constructive. If in exchange Russia signs a ‘Code of Conduct’ – meaningless in practice but of symbolic value – the EU would be able save face over this row-back.
Trade and investment risks between the EU and Russia will nonetheless remain high on account of the fact that US sanctions are very likely to remain a geopolitical fixture. EU companies have three options, should they wish to engage with Russia, depending on their respective risk appetites and timeframes:
1. (High risk): Invest and expand – Use the low ruble to invest and set up new operations in Russia. Use the competitive advantage of a foreign currency. Risks of legal and financial losses are much higher.
2. (Medium risk): Wait and see – Keep operations in Russia at minimum level, do not invest more, but maintain the ability to scale up when business picks up or risks reduce.
3. (Low risk): Arm’s length – Handle Russia from the EU; sell through online channels or Russian distributors.
Marcus How and Adam Urosevic are risk analysts at ViennEast, a business risk analysis and advisory specialised in CEE and the Balkans.