Menu

Putin, Political Risk and the Fall-Out for Business

​For executives looking to get a better grip on political risk, Russia is always a good place to start.
Paul Lewis
Feb 19, 2018

Over the past quarter century, the country’s twists and turns provide plenty of useful risk lessons. Perhaps the greatest shock to foreign investors—from the biggest banks to the smallest importers—came in August 1998. It was the moment when the chaotic reforms of the immediate post-communist period led to an economic crash, bond default, and a 75% rouble devaluation, paving the way for authoritarian rule.

The rise of President Vladimir Putin, whose 18 years in power now exceed that of any Soviet leader except Joseph Stalin, has created a new set of political risks. The President’s assertion of domestic control has inevitably led to political projection abroad. Rising tension regarding Russian influence in the West, especially following the recent spy poisoning scandal in the UK, could lead to another important inflection point, that should give investors pause for thought.

Many of the issues are covered in the FT Collections ‘How do you solve a problem like Russia?’ Philip Stephens, the FT’s chief political commentator writes: ‘The attempted murder of Mr Skripal cannot be seen in isolation. It is part of the pattern that includes fostering corruption in the former communist states of eastern and central Europe, fomenting instability in the Balkans, the spread of fake news and disinformation, and financial support for populist extremists.’

Gideon Rachman, the FT’s Chief Foreign Affairs commentator, notes that ‘much stronger measures aimed at Russian business and finance’ will affect the many ‘rich Kremlin-connected individuals who use London for both business and pleasure.’ But he asks how Brexit might affect the UK’s willingness to take a tough stance against an important non-EU trading partner, and whether the UK’s western allies will come to her defence?

Lex columnists argue that ‘London is the main overseas capital-raising venue for Russia, but other financial centres could be used. For now, financial markets regard the threat as minor; Russia is busy planning a new eurobond sale.…Similarly, the appetite for trade sanctions is limited. The UK is one of Russia’s smaller trading partners and estimates that less than 1 per cent of its gas comes from the country.’ It adds that ‘the UK can do more by targeting individuals.’

Retaliation against UK investors in Russia might follow. Political risk strategists will have to consider how, when and why they might be affected as the latest international spat plays out.

Paul Lewis

Editorial Director at Headspring