A Market in Decline: Why Business as Usual No Longer Works with Russia

Maksym Chebotarov, Anna-Mariia Mandzii, Karyna Leonenko, Kateryna Volkova

Key Takeaways:

• Russia is no longer a viable market for long-term foreign investment due to sanctions, legal unpredictability, and economic deterioration.
• Geopolitical and legal risks are escalating, including asset seizures, exit penalties, secondary sanctions, and reputational damage for companies that remain in Russia.
• The Kremlin’s economic strategy has shifted toward militarization and economic nationalism, creating a hostile business environment marked by forced nationalizations and expropriations.
• Western sanctions have deeply impacted Russia’s financial and technological capabilities, resulting in capital flight, currency depreciation, and structural economic weaknesses.
• Corporate responsibility is now central to global business strategy—companies must align with human rights standards and international law, not just financial goals.
• Continued operations in Russia undermine ESG commitments and international credibility, as foreign firms indirectly contribute to the Kremlin’s war economy.
• The economic realignment is irreversible—returning to “business as usual” in Russia is no longer a realistic or ethical option for Western firms.
• Ukraine is positioned as a future destination for ethical investment, especially in post-war reconstruction and resilient supply chains.

Russia’s full-scale invasion of Ukraine has fundamentally reshaped the global business environment, making it clear that business as usual no longer works in Russia. Once considered a strategic market, Russia has become a country where sanctions, state intervention, and economic instability have made long-term investment unsustainable. The war has forced businesses to rethink not only financial risks but also the legal, ethical, and reputational consequences of maintaining operations in a country increasingly isolated from global markets.

Beyond sanctions, Russia’s economic trajectory is deteriorating, with capital flight, workforce shortages, and technological isolation threatening its long-term stability. The Kremlin’s countermeasures–asset seizures, forced nationalizations, and restrictions–have further eroded business confidence. Meanwhile, companies that continue to operate in Russia face mounting pressure from Western governments, investors, and consumers, who see their presence as an enabler of the war effort.

Looking beyond 2025, Russia’s economic model is reaching its limits. While official indicators such as GDP growth and low unemployment create the illusion of stability, this fragile equilibrium is built on unsustainable wartime spending and deep structural weaknesses. The country is already grappling with a shrinking labor force, depleted production capacities, and stagnating export revenues due to sanctions. The Russian government has attempted to compensate through increased military expenditures and economic nationalism, but these measures fail to address the deeper economic fractures. As transactional costs rise and market conditions worsen, businesses must recognize that the old approach of operating in Russia is no longer viable. The risks now outweigh the rewards, and the notion of “business as usual” in Russia has become an outdated and dangerous illusion.

Geopolitical Risks and the Weight of Sanctions

The sanctions imposed on Russia have created one of the most restrictive economic environments in modern history. To date, Western nations have implemented over 24,300 individual and entity sanctions, making Russia the most sanctioned country globally – surpassing Iran, Syria, North Korea, Belarus, Venezuela and Myanmar combined (14,199). The European Union, the United States, the United Kingdom, and allied nations have targeted key sectors, including finance, energy, technology, and defense, severely limiting Russia’s ability to engage in international trade.

The financial sector has been particularly affected, with more than 80% of Russian banking assets under sanctions and major Russian banks, including Sberbank and VTB, cut off from the SWIFT international payment system. As a result, foreign direct investment (FDI) has fallen to its lowest level in 15 years, with the total volume declining to $235 billion by October 2024. In the first three quarters of 2024, foreign investors withdrew an additional $44 billion from Russia’s real economy, following losses of $80 billion in 2023 and $138 billion in 2022. Moreover, Russian foreign currency reserves declined by $290 billion following the freezing of Russian central bank assets. ​

Russia has experienced significant capital outflows that reflect declining business confidence due to geopolitical tensions and economic sanctions. In response, the Russian central bank extended restrictions on transferring funds abroad until March 31, 2025, aiming to mitigate capital flight. These measures prohibit companies from “unfriendly countries”–those that have imposed sanctions against Russia–from transferring money abroad while allowing Russian citizens and residents from “friendly countries” to transfer up to $1 million per month to foreign bank accounts.

Sanctions have also crippled Russia’s high-tech and energy industries. The country has lost access to critical Western technologies, including semiconductors, industrial equipment, and aviation parts, forcing businesses to rely on lower-quality alternatives from China and Iran. Oil revenues, which account for nearly 40% of the Russian budget, have also suffered, with price caps and embargoes reducing Russia’s earnings, prompting the Kremlin to redirect funds from social programs to military spending.

With over 1,500 multinational corporations exiting Russia, the business environment has become increasingly volatile. The remaining firms now face legal risks from Western regulators and pressure from shareholders and consumers, who view continued operations in Russia as complicity in funding the war. The weight of these geopolitical risks, coupled with growing economic uncertainty, underscores why Russia is no longer a viable market for sustainable long-term investment.

The Russian Government’s Hostile Business Climate

As Western sanctions and corporate withdrawals have reshaped Russia’s economy, the Kremlin has responded with increasingly aggressive policies toward foreign businesses, creating an unpredictable and hostile investment environment.

In 2023, Russia introduced a set of new legal measures, justifying them by the need to protect Russian national interests. More specifically, the newly introduced Russian legislation gave regional governments the right to seize company assets from the U.S. and other “unfriendly” countries (without any clear or logical reasoning as to how certain countries were included in this list). Furthermore, the legislation also prohibits dividend payments, fund transfers, and sales of interests in the fuel and energy sectors for businesses affiliated with those “unfriendly states.”

The growing state intervention extends beyond direct expropriations. Russian authorities have imposed forced nationalization laws, making it difficult for Western firms to sell or exit the market without government approval. Companies that wish to divest must sell at a 50% discount and contribute a mandatory “exit tax” of at least 10% of the sale value to the Russian state. This effectively traps businesses in a lose-lose scenario: stay and risk expropriation or exit with massive financial losses.

High-profile cases, such as the state takeover of Carlsberg’s Baltika Breweries and the seizure of Danone’s Russian subsidiary, demonstrate the Kremlin’s willingness to expropriate foreign-owned businesses without due process. Danone Rossiya, a subsidiary of France’s Danone, is the largest dairy producer in Russia. Danone previously operated 13 businesses in Russia, employing more than 100,000 workers. This clearly demonstrates the Russian government’s hostility toward foreign investors, who have brought billions of dollars to Russia since the 1990s.

Western businesses expropriated by the government are now controlled by Putin’s loyalists, who share profits with the state, officially remaining privately owned. Danone Rossiya is now managed by a close associate of Ramzan Kadyrov, Chechnya’s leader, while Taimuraz Bolloev, a personal friend of Putin, now oversees Carlberg’s operations. Essentially, the Kremlin uses foreign assets to maintain the support of Russian oligarchs for the regime and Putin himself.

Companies targeted by the Russian government due to geopolitical tensions may alternatively advocate for compensation from the Russian Central Bank’s frozen assets in the West.

Since 2022, 200 court rulings have been identified that nationalized foreign property. These decisions were mostly justified by the claim that the owners of foreign companies belonged to the countries deemed “unfriendly” to Russia. Additionally, the government has not set explicit criteria for determining which companies are at risk of nationalization, leaving their Western owners in even greater uncertainty. It often depends on whether an interested buyer inside Russia, deemed suitable by the government or the Kremlin, is available.

For those willing to leave the Russian market, another problem arises: finding a “clean” and non-sanctioned buyer is difficult. While smaller Russian companies that have not fallen under Western sanctions are unlikely to have sufficient funds, larger players are either under sanctions themselves or are clients of Russian banks targeted by the sanctioning policy.

Another critical point to consider is that, in light of Russia’s growing economic dependence on Beijing, an increasing number of international payments are being made in yuan, signaling the gradual yuanization of the Russian economy. Furthermore, the country’s partial isolation from global financial markets has resulted in its deeper economic integration with its few remaining partners, including India, Iran, Central Asian countries, and others. Western sanctions against Russian banks have led to a decrease in transactions, further complicating the operations of Western companies in Russia. They have also affected Russia’s exports and imports.

Notably, as a result of U.S.-Russia talks regarding the war against Ukraine, the Kremlin has initiated the drafting of legislation for the return of Western companies to Russia. However, the expropriation cases demonstrate that, regardless of the significance of FDI in the Russian economy, the government has not hesitated to nationalize foreign-owned assets and prohibit their withdrawal from the Russian market.

Economic Decline and Market Instability

Pyongyang has heavily benefited from its alliance with the Kremlin, and the deployment of troops to the frontline has, for now, been worth it for Kim. In exchange for several thousand human lives, North Korea has received an immense amount of weapons and technology that it previously couldn’t get its hands on. This will allow the rogue state to exert pressure on its enemies in the Pacific, especially South Korea, a relationship with which has seen a drastic decline in recent months.

As the tensions in the Pacific rise (not without direct involvement from Pyongyang), North Korea is interested in strengthening its military to prepare for the potential conflict. Sending troops to Ukraine is seen as the perfect opportunity for soldiers to get hands-on experience in modern warfare and the usage of new technologies and weapons. Collaboration with Russia and the mutual defense agreement would potentially allow Kim to request Russian backup should the situation in the Pacific escalate toward military conflict. Moreover, with Moscow’s help, North Korea will gain an opportunity to advance its nuclear program and become an even more influential state on the regional level.

Indicator / Year	2013	2014	2015	2016	2017	2018	2019	2020	2021	2022	2023	2024	Mar. 2025
Nominal GDP (trillion RUB)	73	79	83.1	85.6	91.8	103.9	109.6	107.7	134.7	156.9	176.4	200	–
Nominal GDP  (billion USD)	2288	2047	1355	1281	1575	1651	1696	1486	1829	2296	2056	2159	–
GDP Growth Rate (%)	–	-10,53%	-33,81%	-5,46%	22,95%	4,83%	2,73%	-12,38%	23,08%	25,53%	-10,45%	5,01%	–
GDP Per Capita (USD)	15.9	14.0	9.2	8.7	10.7	11.2	11.5	10.1	12.4	15.6	14.1	14.8	–
Consumer Price Index (Inflation, %)	6.47	11.35	11	5.4	2.5	4	3	4	8.39	11.94	7.42	9.52	9.92
Public Debt  (billion RUB)	728,864	599,901	518,489	511,752	518,445	455,073	491,452	467,605	488,415	385,081	317,893	290,400	–
Budget Deficit  (% of GDP)	0,50%	-0,70%	-2,60%	-3,40%	-1,50%	2,60%	1,80%	-3,80%	0,40%	-2,30%	-2%	-1,70%	-0,50%
Indicator / Year	2013	2014	2015	2016	2017	2018	2019	2020	2021	2022	2023	2024	Mar. 2025
Budget Deficit   (trillion Rub)	0,32	-0,5	-1,95	-2,97	-1,33	2,74	1,96	-4,1	0,52	-3,35	-3,3	-3,49	1,7
Key Interest Rate	5.5	17	11	10	8.25	7.75	6.25	4.25	7.5	7.5	16	21	21
Exchange Rate (RUB/USD)	31.8	38,5	61,00	67,00	58,30	62,74	64,72	72,18	73,66	68,54	85,30	92,62	87,15
Gold and Foreign Exchange Reserves (billion USD)	509	385	368	378	433	468	554	583	631	582	599	609	632
Liquid Portion of the National Wealth Fund (trillion RUB)	–	–	–	–	–	–	2.36	6.14	8.66	8.43	6.13	05.01	3.39
Unemployment Rate (%)	5.2	5.5	5.8	5.3	5.1	4.8	4.6	5.9	4.3	3.7	3	2.3	–
Minimum Wage (thousand RUB  per month)	5.2	5.5	5.9	6.2	7.5	9.5	11.3	12.1	12.8	13.9	16.2	19.2	22.4
Minimum Wage in USD	163.52	142,86	96,72	92,54	128,64	151,42	174,61	167,64	173,78	202,81	189,92	207,29	257,03

Additional Notes:

• The table provides an overview of Russia’s key economic indicators from 2013 to March 2025, highlighting trends in GDP, inflation, exchange rates, budget deficits, and monetary policy.
• The economic data reflect the impact of Western sanctions, the war against Ukraine, and Russia’s shift toward a militarized economy.
• The sharp decline in GDP in USD terms (from $2.28 trillion in 2013 to $1.35 trillion in 2015) illustrates the effects of financial isolation, while the ruble’s depreciation (from 31.8 to 92.6 per USD) signals ongoing economic instability.
• Unemployment remains artificially low, likely due to conscription and state-directed employment in war-related industries, as well as an overheated economy driven by military production, which in turn highlights the issue of labor shortages.
• Budget deficits and high inflation highlight long-term financial pressures, with interest rates being raised to 21% in 2024, likely in an attempt to stabilize the currency.

Russia’s economic trajectory since 2014 has been heavily shaped by sanctions, geopolitical shifts, and the prioritization of military expenditures. Following the annexation of Crimea, GDP in USD terms plummeted from $2.28 trillion in 2013 to $1.35 trillion in 2015 (-33.8 %), largely due to Western financial restrictions and a drop in oil prices. The economy partially recovered in the late 2010s, but the full-scale invasion of Ukraine in 2022 triggered a second wave of even harsher sanctions, cutting off Russia from global markets and restricting access to critical technologies. In 2023, GDP declined by another 10.45%, reflecting the combined effects of war-related economic distortions, capital flight, and constrained access to Western financial systems. The depreciation of the ruble, from 31.8 per USD in 2013 to 92.6 in 2024, underscores the increasing external pressure and the challenges of sustaining foreign exchange reserves despite Russia’s continued oil and gas exports.

The militarization of Russia’s economy is evident in its rising budget deficit and high inflation, both driven by excessive war-related spending. The budget deficit has fluctuated sharply, reaching -3.4% of GDP in 2022 and -2% in 2023, despite efforts to control spending. Inflation surged to 11.94% in 2022 as sanctions disrupted supply chains and forced Russia into costly import substitution. The Central Bank responded with aggressive interest rate hikes (21% in 2024), aiming to curb inflation and stabilize the ruble. However, this also constraints private sector investment, making long-term economic growth increasingly dependent on state intervention. The liquid portion of Russia’s National Wealth Fund (ФНБ) has shrunk from 8.66 trillion rubles in 2021 to just 3.39 trillion in 2025, reflecting the strain of financing war expenditures while maintaining social stability.

Despite attempts to project economic resilience, Russia faces deep structural weaknesses that limit its ability to sustain long-term growth. The loss of access to Western markets, investment, and technology makes economic diversification nearly impossible, reinforcing Russia’s dependence on commodity exports to China, India, and non-aligned countries. While minimum wages have increased to 22,400 rubles ($257) in 2025, real incomes remain eroded by inflation and currency depreciation. The sustained weak ruble and high interest rates create a stagflationary environment, where growth remains sluggish despite large-scale state spending. As the war drags on and the Russian economy becomes more isolated, the Kremlin is increasingly shifting toward a command economy model, prioritizing military production and state-controlled industries at the expense of broader economic development.

Reputational Risks and the Cost of Staying/Leaving

For multinational corporations, the decision to remain in or exit Russia is no longer just a business calculation but a reputational and ethical dilemma. Companies that continue operating in Russia face growing backlash from Western governments, investors, and consumers, who see their presence as enabling the Kremlin’s war effort. High-profile brands such as Nestlé, Leroy Merlin, METRO and others have been widely criticized for maintaining a Russian footprint, with calls for consumer boycotts and shareholder divestment campaigns gaining traction. In contrast, firms that have exited Russia–such as McDonald’s, BP, and Ford–have largely preserved their reputations and avoided legal and financial entanglements with Western sanctions.

The legal and compliance risks of staying in Russia are also rising. U.S. and European governments have expanded secondary sanctions, targeting entities that do business with Russian firms linked to military production. This means that companies still operating in Russia may jeopardize their access to Western markets, financial services, and supply chains. Moreover, firms that comply with Russian regulations–such as the mandatory transfer of data to Russian servers or new laws criminalizing anti-war statements–risk legal action under Western human rights and corporate accountability laws.

For instance, in 2024, the U.S. imposed additional secondary sanctions on any foreign financial institutions (FFIs) that provide services to sanctioned Russian businesses and individuals.

Notably, in January 2025, a Russian court ordered Austria’s Raiffeisen Bank International, the largest Western bank still operating in Russia, to pay over $2.1 billion in compensation for its decision to scale down its business operations in Russia in 2024. Consequently, RBI has reported a drop in annual profits for the first time in nine years. Having faced significant reputational damage since 2022, Raiffeisen Bank is considering selling the Russian business to facilitate its exit from the Russian market.

At the same time, the cost of leaving Russia can be significant, as the Kremlin has imposed punitive exit taxes, forced asset sales, and restrictions on capital repatriation. Some firms have had to sell their assets at a 90% discount, while others have seen their assets outright seized. Despite these financial losses, companies that have exited are increasingly viewed as making a strategic, long-term decision – avoiding entanglement in an unstable market while maintaining credibility in Western markets.

Corporate Responsibility and the Role of Ethical Business Practices

The Russian invasion of Ukraine has fundamentally altered the global expectations of corporate responsibility, particularly for businesses operating in high-risk environments. Multinational corporations can no longer afford to remain neutral in conflicts where their economic activities directly or indirectly sustain an aggressor state. Companies that continue operations in Russia face increasing scrutiny from governments, investors, and civil society, as their tax contributions and economic presence provide financial and logistical support to a regime engaged in violations of international law. Compliance with sanctions alone is no longer sufficient – firms must assess their broader role in a war-driven economy, where their presence is seen as enabling the Kremlin’s war effort.

The contradiction between corporate social responsibility (CSR) commitments and continued operations in Russia is becoming increasingly evident. While many firms publicly endorse Environmental, Social, and Governance (ESG) principles, their activities in Russia contradict these values. A 2023 study by the Yale Chief Executive Leadership Institute found that multinational corporations still operating in Russia contribute billions of dollars annually to state revenues, indirectly financing military expenditures. International frameworks, such as the UN Guiding Principles on Business and Human Rights and the OECD Guidelines for Multinational Enterprises, emphasize that companies must prevent and mitigate human rights risks, even if they are not directly complicit. As regulatory scrutiny tightens, firms that fail to disengage from Russia risk reputational damage, legal liabilities, and potential secondary sanctions that could impact their access to Western markets.

A strategic shift is now imperative – not only in exiting Russia but in aligning business operations with a rules-based international order. Companies that proactively disengage from the Russian market and reallocate investments toward more stable and ethical environments will be better positioned for long-term growth. Ukraine, in particular, presents emerging opportunities for responsible investment in reconstruction and supply chain realignment, reinforcing a commitment to democratic resilience and international law. As corporate responsibility evolves into a core element of risk management and global strategy, businesses must recognize that remaining in Russia is no longer just a financial calculation but a direct challenge to their credibility and long-term sustainability.

Conclusion

The decision to do business in Russia is no longer just an economic calculation but a complex mix of geopolitical, legal, and ethical considerations. The Russian invasion of Ukraine has fundamentally reshaped the business environment, making Russia an increasingly risky and unstable market due to sanctions, state intervention, and economic decline. Companies that remain face mounting legal, reputational, and financial risks, while those that exit must navigate immediate losses but ultimately benefit from long-term stability and credibility.

As economic realignment accelerates, businesses are shifting toward rule-of-law-based markets, with Ukraine emerging as a potential investment destination, particularly in reconstruction and supply chains. Moreover, corporate responsibility is becoming a decisive factor in business strategy, as firms are expected to align with human rights and ethical governance standards. Ultimately, as Russia’s isolation deepens, companies must recognize that business as usual is no longer viable and that staying in Russia poses more risks than rewards.

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