BREAKINGVIEWS-EU firms’ barriers to Russia re-entry are sky-high

By Aimee Donnellan

LONDON, March 10 (Reuters Breakingviews) - Europe’s biggest companies are increasingly being obliged to think the unthinkable. U.S. President Donald Trump’s desire for a Ukraine peace deal raises the possibility that those groups who left sharply after the February 2022 Russian invasion – like $165 billion Zara owner Inditex ITX.MC, $17 billion Carlsberg CARLb.CO and $16 billion Renault RENA.PA – can return. The barriers to re-entry, however, look unassailably high.

Leaving Russia was painful. McDonald’s MCD.N, consultancy giants and hundreds of other businesses were forced to untangle complicated contracts and sell off manufacturing sites at breakneck pace. When Danone DANO.PA transferred control of its dairy business in Russia it sacrificed 5% of its global sales. Oil giant Shell SHEL.L exited joint ventures with Russian natural gas giant Gazprom which, as the $202 billion company said, would slash its quarterly post tax profit by up to $5 billion.

In theory, companies have a path back to what is after all a $2 trillion economy: some included so-called buyback clauses when they sold their Russian arms to domestic companies. Renault, for example, offloaded its majority stake in the country’s leading car manufacturer Avtovaz to the Kremlin for a nominal fee, but retained a six-year option to repurchase the stake. Mercedes included a similar stipulation when it agreed to sell its Russian assets to local car dealer chain Avtodom. And when Inditex sold its business to UAE-based Daher, it included the option to form a future franchise agreement with the acquirer.

It would be a surprise if these sorts of deals were exercised, though. If Renault activates its buyback option, it would need to pay at least $1.3 billion to cover investments made by Avtovaz since the sale, Reuters reported. That’s about half the net income it expects to deliver globally this year, per LSEG estimates.

Moreover, large European companies contacted by Breakingviews cite two practical barriers to heading back. There needs to be a lasting peace, and an end to U.S. and European sanctions that have cut Russia off from international markets. Both are problematic.

The U.S. may rescind its sanctions – in fact, that process may already be in train. But domestic support for Ukraine makes it unlikely the European Union or the UK will do the same. Companies will be wary of finding themselves in the same predicament as TotalEnergies did in Iran: following a thaw in Washington-Tehran relations the French energy group signed the first Western deal with the Islamic Republic in 2017, only to exit a year later when Trump took a different approach on sanctions.

The snapback risk in Russia looks even greater. Even if Ukraine agrees to a ceasefire, Europe is rapidly rearming to deal with the threat of Russia invading a European Union state. Meanwhile, the U.S. could elect a Democratic president in 2028, or just one that takes a different view. Any European board still keen to take the plunge will have to explain how they get comfortable with these risks.

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CONTEXT NEWS

The United States is drawing up a plan to potentially give Russia sanctions relief as President Donald Trump seeks to restore ties with Moscow and stop the war in Ukraine, a U.S. official and another person familiar with the matter told Reuters, according to a report published on March 3.

The White House has asked the State and Treasury departments to draft a list of sanctions that could be eased for U.S. officials to discuss with Russian representatives in the coming days as part of the administration’s broad talks with Moscow on improving diplomatic and economic relations, the sources said.

The sanctions offices are now drawing up a proposal for lifting sanctions on select entities and individuals, including some Russian oligarchs, according to the sources.