A nation must think before it acts.
Soon after the fall of the Soviet Union, Moscow sought to reassert its influence in Europe with calls for a “Slavic union” between Russia and parts of Eastern Europe.[1] A few countries were initially receptive. But in the end, only Belarus was willing to forgo stronger ties with the West for ones with Russia, which was hardly a magnet for others at the time. Its economy was in tatters, and its government had just defaulted on its sovereign debt.
But a few years later, Russia put its financial house back in order, and Moscow again looked to exert influence in Europe. This time, it changed its strategy. Rather than a narrow appeal to Slavic identity, Russia would pursue a “new algorithm of commercial-and-economic cooperation,” as then-Russian Deputy Foreign Minister Sergei Razov described it in 2002. Russia would seek economic ties with European countries “on a pragmatic, mutually advantageous basis.”[2] Those ties, in turn, would create new incentives for the elites of those countries to favor Russian interests, enabling Moscow to influence Europe from within.
Russia pushed its banks and energy companies to become more engaged in Europe. Russia’s two biggest banks, Sberbank and VTB Bank, acquired over a dozen smaller banks from the British Isles to the Caucasus. Both Russian banks were especially active in the swath of Europe between France and Ukraine. At the same time, Russian energy companies angled for stakes in European refineries and energy distribution networks.
Moscow also leveraged European interest in its markets and natural resources. With little growth at home, many European businesses viewed Russia as a tremendous opportunity—a huge market in need of German heavy machinery and motor vehicles, Italian agricultural products and pharmaceuticals, and so on. Meanwhile, European energy and steel companies were attracted to Russia’s abundant reserves of oil, natural gas, and metals. But access to Russian markets and natural resources often required Moscow’s favor, either directly through approvals and licenses or indirectly through state-controlled enterprises in Russia’s energy and mining sectors.
Over the years, Russia’s “new algorithm” enjoyed some success. With easier loan terms than their Western counterparts, Russian banks made inroads into several European countries.[3] They were most successful in Central and Eastern Europe where many had become disenchanted with euro-denominated loans during the 2008 financial crisis. The French National Front even borrowed €11 million from Russian-owned banks in 2014.
However, growing concerns over Russia’s motives led some European countries, like Poland, to restrict Russian companies from outright acquisitions of their energy assets. Ultimately, Russian energy firms were able to acquire stakes in only a handful of refineries and power plants. And after 2014, the West’s economic sanctions, imposed on Russia for its role in the Ukraine crisis, made it more difficult for Russian businesses to conduct financial transactions or buy needed equipment and technology from Europe.
Since then, Russia’s markets and natural resources have been Moscow’s best levers of influence in Europe. Indeed, executives of Germany’s leading companies, after having heavily invested in Russia, have been among the loudest critics of the West’s economic sanctions. Some executives have publicly argued that open engagement with Russia would have been a better strategy for all. Such reasoning echoes Germany’s tradition of Ostpolitik (eastern policy) and may give comfort to prominent Germans working for Russian state-controlled enterprises. The most notable is former German Chancellor Gerhard Schröder, who accepted a lucrative invitation to serve as a board member (and eventually chairman) of Nord Stream AG, a Russian-led consortium that built a controversial natural gas pipeline from Russia to Germany. In 2017, Schröder tightened his embrace of Russia by also becoming a board member of Rosneft, Russia’s biggest oil producer. It is also a company whose chief executive is close friends with Russian President Vladimir Putin and under international sanctions.
Russia has also courted Italian elites through various energy supply contracts. Former Italian Prime Minister Silvio Berlusconi is the best-known case. Even members of his own political party suspected him of “profiting personally and handsomely from many of the energy deals between Italy and Russia.” During his tenure as prime minister, Berlusconi cozied up to Putin. Now as part of Italy’s new government, Berlusconi’s political allies endorsed a policy goal of lifting the West’s economic sanctions against Russia as part of their governing agreement.
Berlusconi is hardly an aberration in Italy. Emma Marcegaglia—chairwoman of Marcegaglia Holding, an Italian steel concern, and ENI, Italy’s largest energy company—has opposed the sanctions, too. Both her companies actively do business in Russia. In fact, ENI and its Russian partner, Rosneft, began drilling for oil in the Black Sea in January 2018. In the same month, Intesa Sanpaolo, Italy’s biggest bank, provided $5.8 billion in financing for the Independent Petroleum Company, a Russian firm under U.S. sanctions. The bank’s Russia president, Antonio Fallico, had no qualms. He has helped many Russian firms. In 2016, Putin personally awarded him with state honors for arranging a €5.2-billion loan to finance the sale of Rosneft shares. And, if he can get the European Commission to go along, Fallico says Intesa is ready to provide financing for Nord Stream’s second pipeline to Germany. Unsurprisingly, he believes the “sanctions [against Russia] are illegal and have been imposed due to ideological reasons.”
All that said, Moscow’s economic influence in Europe has not been strong enough to prevent the West from imposing or maintaining sanctions on Russia. But it has been strong enough to help Russia skirt them. In spite of the sanctions, European trade with Russia actually climbed 17.9 percent between 2016 and 2017. German trade with Russia grew slightly faster at 19.5 percent. Meanwhile, French investment in Russia rose to $2 billion in 2016, and German investment there doubled to $512 million during 2017.[4] When the United States imposed new economic sanctions against Russia in early 2018, worried German business leaders pressed German Chancellor Angela Merkel to seek waivers for their ongoing deals in Russia.
And what ever became of Sergei Razov? He is now Russia’s ambassador to Italy.[5]
[1] Thomas Ambrosio, Challenging America’s Global Preeminence: Russia’s Quest for Multipolarity (Burlington, VT: Ashgate Publishing, 2005).
[2] “Russian Federation Deputy Foreign Minister Sergei Razov Answers a Question from Interfax News Agency about Russian Relations with the Central and Eastern European Countries,” Embassy of the Russian Federation to the Czech Republic press release, Apr. 3, 2002.
[3] Andrew E. Kramer, “Russia’s Biggest Bank Shops in Former Soviet Bloc,” New Yok Times, Apr. 14, 2012, p. B1.
[4] Central Bank of Russia, Russian Federation: Inward Foreign Direct Investment, May 22, 2018.
[5] Sergei Razov was also Russia’s ambassador to China from 2005 to 2013.