European companies’ ties to Russia could complicate economic sanctions on the country

Europe is contemplating sanctions against Russia if it invades Ukraine, but the job is far from simple.

The punishments would seek to maximize pain for the Kremlin, in addition to its major banks and energy companies, but also avoid jeopardizing Russian energy supplies to the rest of the continent or inflicting too much damage on European companies with strong ties to Russia, including the German industrial manufacturer Siemens, the Italian tire manufacturer Pirelli and automakers such as Volkswagen and Mercedes-Benz.

Russia has ties to the world’s energy and financial markets and is home to major foreign investment hubs, so any measures will have repercussions outside the country. The question is how much.

Given what the measures would be, European companies are cautiously watching developments and limiting their comments to the hope of a diplomatic solution.

BMW said that “the policy sets out the rules within which we operate as a company” and that “if the framework conditions change, we will assess them and decide how to deal with them”.

Siemens AG, which derives about 1% of its revenue from Russia, is developing a new generation of high-speed trains with Russian partners to be built at a local factory. Siemens Energy, partially owned by Siemens, is building power plants and equipment for 57 wind farms in Russia.

European car manufacturers also have an extensive presence in the country. Volkswagen, Stellantis, Renault and Mercedes-Benz all have factories in Russia, while BMW makes cars there through Russian partner Avtotor.

The Kremlin has taken steps to reduce its economic dependence on other countries and external sources of funding. The country has low government debt and $630 billion in foreign currency and gold reserves. Russian companies have been pushing to source parts locally, even when working with European partners.