War, sanctions, and foreign direct investment to and from Russia

Author: Kálmán Kalotay

In: Међународна политика, 74(1189), 133-153.

DOI: https://doi.org/10.18485/iipe_mp.2023.74.1189.6

Abstract

Russia’s full-fledged war on Ukraine, which started in February 2022, added major uncertainties to foreign direct investment (FDI) to and from Russia and affected it negatively in the short, medium, and long run. The degree of the hit would depend on the exact contents of sanctions and countersanctions in constant development. However, the severe consequences of some of them were already visible early on, adding to the financial strain caused by the war. FDI to and from Russia fell drastically in 2022 and, depending on the length and depth of the conflict, would remain sluggish in the subsequent years if no exit strategy is found to stop the conflict and its eventual escalation. This article concludes that the fall in FDI would, in the end, hurt the economic capacities of Russia, already affected by a previous round of sanctions imposed in 2014. If it works, decoupling the Russian economy from FDI partners by applying sanctions would be effective only partially and at a relatively high cost. That, in turn, could thwart the very economic fundamentals of the war effort.