U.S.-based companies are the largest source of foreign investment in Russia, primarily in technology and financial services, according to a 2013 report by Ernst & Young. Business interests in the country have been growing after the nation joined the World Trade Organization in 2012, the analysts said in their report.
General Electric Co., whose GE Capital Aviation Services unit is the world’s largest aircraft leasing company, has 54 airplanes in Russia and is tracking developments closely.
“Hopefully the industry can weather it out, avoid heavy sanctions,” said Norm Liu, chief executive officer of GECAS, General Electric Co.’s aircraft leasing unit in an interview Tuesday at an International Society of Transport Aircraft Trading conference in San Diego. “This is a unique situation for all Western businesses.”
If the conflict between President Vladimir Putin and the West is confined to diplomatic circles, he said he’s less concerned. “If it crosses beyond that, it’s a different story,” he said.
For corporations, additional restrictions present two risks: They could inadvertently punish U.S. interests, and the Russians could push back against American companies.
“They are worried about retaliation,” said William Reinsch, president of the National Foreign Trade Council, a Washington-based group that advocates on behalf of companies operating globally. “The Russians have been pretty clear that if we do something to them, they will hit back.”
Reinsch said he’s been getting calls from energy, technology and financial companies concerned about the prospects for their investments in or sales to Russia.
“The Russians have proven themselves very good at doing things that annoy us,” while not harming their economic interests, he said. Because of that, seizure of foreign assets, such as oil-production facilities, is unlikely, he said.
Exxon Mobil Corp. Chairman and Chief Executive Officer Rex Tillerson on March 5 said the Irving, Texas-based company wouldn’t take sides in the Russia-Ukraine conflict or any other geopolitical disputes.
Russia is Exxon’s largest exploration prospect outside the company’s home country and Exxon has also sought permission from Ukrainian authorities to drill beneath the Black Sea off the Crimean coast. Dick Keil, an Exxon spokesman, didn’t immediately return a telephone message left at his office.
Aerospace manufacturers and airlines are concerned about the effect on travel and demand for aircraft if tensions escalate to where global economic growth is stymied, said Kostya Zolotusky, managing director with Boeing Capital, the aircraft financing unit of Chicago-based Boeing Co.
“If last year we were concerned about Iran impacting global GDP, now we’re mindful of the situation between Russia and Ukraine and its potential macro-economic impact,” he said.
A U.S. Treasury official said the agency has heard from American businesses with operations in Russia. He said corporations operating should have known there would be risks investing in the country.
The U.S. and European Union imposed a round of sanctions against Russia on March 17 after Putin recognized Ukraine’s Crimea region as an independent state. Vice President Joe Biden told reporters in Poland Tuesday that Russia “will see additional sanctions” in response to its “land grab.”
Putin has called on the Russian parliament to ratify a treaty to annex Crimea, citing the March 16 referendum there that supported its secession from Ukraine. President Barack Obama imposed sanctions on seven Russian officials and four Ukrainians, and the EU imposed penalties on 21 Russians and Crimeans in the March 17 moves.
The U.S. Treasury official declined to comment on the next steps, saying only that there will be more coordination in the coming days between the EU and the U.S. on their lists of sanctioned Russian and Crimean officials.
Two Washington-based trade associations — the U.S. Chamber of Commerce, which represents 3 million businesses, and the National Association of Manufacturers — separately stressed the importance of multinational sanctions.
“A go-it-alone approach by the United States could be both economically damaging and ineffective in accomplishing its goals,” said Myron Brilliant, head of international affairs at the chamber. “We will continue to monitor action on this issue as it develops.”
The manufacturers’ group said they are pushing lawmakers for faster approvals of U.S. liquefied natural gas facilities, which could help make Western Europe less dependent on Russian gas. Russia, the world’s largest oil producer, exported $160 billion worth of crude, fuels and gas-based industrial feedstocks to Europe and the U.S. in 2012.
“With an expedited review, the administration would send a strong signal to the Russian Federation, our NATO allies, our trading partners and the rest of the world that energy exports matter and are a critical tool of American foreign policy,” said Jay Timmons, president of NAM.
The business community is also concerned that the U.S. will eventually impose sanctions, such as those applied to Iran, that limit Russian access to the global financial system, said Blake Marshall, managing director of PBN Hill+Knowlton Strategies in Washington, which represents companies working in Russia.
“If subsequent sanctions start to tie up the banking sector, then that’s a concern,” he said. “It starts to gum up the system.”
So far, because the U.S. sanctions have been limited, companies are expecting the Russian response to be targeted as well, Marshall said.
The Treasury Department isn’t aware of any moves by Russia to transfer holdings out of the U.S. in response to the sanctions, and any such moves would signal that Putin’s government is reacting to the pressure, the official said.
A liquidation of the Russian government’s U.S. Treasury bill holdings would have no impact on the American market, and would only reflect Russia’s weakness under mounting international pressure, the Treasury official said.
The stake in Treasuries held by investors outside the U.S. rose for a sixth month by 0.5 percent or by $30.7 billion in January, to a record $5.83 trillion, according to Treasury data. Overseas investors held 48.9 percent of the $11.83 trillion in publicly traded U.S. government debt outstanding in January.
China, the largest foreign lender to the U.S., increased its position in Treasuries by $3.5 billion or 0.3 percent to $1.27 trillion. Holdings in Japan, the second-largest overseas lender to the U.S., jumped by $18.9 billion, or 1.6 percent, to $1.2 trillion, Treasury data show.
Russia cut its stake in U.S. government debt by 4.9 percent or $6.8 billion to $131.8 billion, the smallest position since July, according to Treasury data. The country, whose investors have the ninth-largest position in the securities among foreign nations, has averaged $145.8 billion in holdings since 2009.
One business determined to stay out of the fray is Yum Brands Inc., which operates or licenses restaurants worldwide that include Taco Bell, Pizza Hut and KFC.
“Our business in Russia is strong and robust,” Virginia Ferguson, a spokeswoman for the Louisville, Ky.-based company. “We are focused on our customers, where there is high demand for KFC in Russia, not on the political situation.”