Soft on Putin? Blame Big Oil

The latest sanctions against Russian officials, provoked by Russia’s ongoing violation of Ukraine’s territory, have sparked much criticism because of their perceived weakness. The U.S. is currently targeting wealthy and well-connected individuals, such as Igor Sechin, a crony of Russian President Vladimir Putin, but not companies such as the state-owned energy giant Rosneft, which is the source of Sechin’s wealth. This means that Sechin and other select members of Putin’s inner circle can’t personally travel to or invest in the U.S., but the companies they run can continue business as usual.

The Wall Street Journal has accused President Barack Obama of watering down the sanctions, a claim echoed by The Washington Post and by hawkish members of congress such as Sen. John McCain. Russia has responded with mockery. As Sechin himself put it, “I consider Washington's latest steps as high assessment of the effectiveness of our work.” While the longer-term effect of the sanctions remains to be seen, so far investors have shrugged and Russian stocks have rallied.

But for all the ire directed at Obama and his European counterparts, far less attention has been paid to the multinational corporations most responsible for limiting the penalties. These include BP, which owns 20 percent of Rosneft; Exxon Mobil, which has a lucrative deal with Rosneft allowing access to Arctic oil fields; Shell, which cooperates with Rosneft on the world’s largest liquefied natural gas project in Sakhalin; and many other major Western energy firms. All of these companies intend to continue doing business in Russia, Ukraine be damned. Along with companies in other sectors, including PepsiCo, GE and Ford, they have lobbied to ensure continued access to Russian markets during the Ukraine crisis, and for this they’ve received little to none of the scorn directed at the White House. 

The U.S. economy ought, in theory, to be able to cut off trade relations with Russia if American politicians were committed to the task: U.S. trade with Russia is worth about $38 billion, a tiny percentage of U.S. GDP. But for certain well-placed companies, especially in the energy sector, the consequences could be drastic. Exxon’s deal with Rosneft, for example, could eventually be worth as much as $500 billion. That’s why the energy industry has made extensive donations to politicians in both parties, including the president.

The European Union does more than 10 times more business with Russia than the U.S. does, so the impact of sanctions would be more severe in Europe; it makes sense, then, that the EU has been even more cautious than the U.S. But this creates a domino effect: European reticence gives way to an even softer approach to sanctions from the American business community when companies become nervous about losing trade opportunities to their European competitors. The U.S. Chamber of Commerce has expressed opposition to unilateral sanctions against Russia, leaving the ball in Europe’s even less favorable court. In other words, business lobbies on both sides of the Atlantic are determined not to lose the profitable relationships they’ve developed with Russia’s notoriously corrupt elite, and their governments are happy to oblige them.

Free trade and globalized markets weren’t supposed to prop up autocrats and tyrants: In the 1990s, the idea that globalization would bring about world peace and liberal democracy was widely held among business leaders and politicians. In a 1998 speech welcoming China into the World Trade Organization, then-President Bill Clinton declared that “increasing interdependence among nations enhances peace and security for all” and that it would “advance the free flow of ideas, information and people that are the lifeblood of democracy and prosperity.” New York Times columnist Thomas Friedman, whose “Golden Arches Theory of Conflict Prevention” hypothesized that no two countries with McDonald’s would ever go to war, spouted similar theories; in "The End of History," political scientist Francis Fukuyama proclaimed the ultimate triumph of both global capitalism and liberal democracy.

Fast-forward to 2014, and the link between global trade and political freedom seems far weaker. China is every bit as authoritarian as it was in 1998, and civil liberties in Russia have steadily regressed according to Freedom House rankings, even as both countries have gotten much richer and significantly integrated into the global economy. When Russia was finally granted WTO membership in 2011, the U.S. muted talk of democracy in favor of a narrow focus on trade benefits and shared strategic interests. As for the Golden Arches Theory, it has been disproved several times over, including during Russia’s brief 2008 war with Georgia. In fact, McDonald’s, which operates restaurants in both Russia and Ukraine, recently pulled out of Crimea in response to Russian annexation, and rival Burger King immediately filled the vacuum.

Still, in one sense, the Golden Arches Theory is holding up. While nuclear weapons and a general lack of public support may be sufficient to keep major powers such as the U.S., Russia and China from ever going to war, it’s also apparent that multinationals exert significant pressure to keep all the world’s major economies not only at peace but trading robustly. When war does break out, it tends to be in countries of marginal significance to global trade, where great powers can exert their will with impunity. Exhibit A: Ukraine. 

When hawks criticize the U.S. and European governments for not doing enough to contain Russia, they’re often accused of trying to revive the Cold War. At the height of that conflict, the Soviet Union was a largely closed and self-sufficient economy whose trade relations with the West were negligible (indeed, autarky was one of Joseph Stalin’s goals for the Soviet Union). Cold War leaders were able to make decisions almost entirely in strategic, geopolitical terms. U.S. businesses had little interest in the internal workings of the Soviet system, and exerted correspondingly less influence over foreign policy. As much as any other factor, this might explain Secretary of State John Kerry’s recent bout of nostalgia for the “simpler” challenges faced by Cold War diplomats.

This kind of Cold War nostalgia is not only misplaced, but it has made U.S. leaders complacent about confronting the 21st century’s new realities. The past two decades of globalization have enriched Russia’s authoritarian regime, strengthened its crackdown on civil society and implicated many of the West’s leading corporations in the process. Global trade has reinforced peace among the great powers, but at the cost of further enmeshing Western businesses in some of the world’s most corrupt and illiberal regimes. Meanwhile, Western governments are increasingly as constrained by business lobbies in foreign policy as in all other areas of policy.

Part of the problem is a lack of incentive for businesses to do the right thing geopolitically: what value should Exxon Mobil place on Ukraine’s territorial integrity when what matters to them isn’t Ukrainian national identity but their shareholders and bottom line? Is the principle that Russia should not have staged an illegal referendum in Crimea, should not be backing separatist militias in Donetsk, and, for that matter, should not be cracking down on LGBT rights at home, worth risking tens of billions of dollars in investments? The 20th century showed the grave costs of a foreign policy based on ideological confrontation, which should never be romanticized. But in a globalized economy, principles of sovereignty, international law and human rights all have to be weighed against the value of a complex web of trade ties, which is to say, the value some of the world’s most powerful corporations place on stability. The issue isn’t so much that the U.S. has been unable to stop Russia’s incursions into Ukraine, but that by pursuing increased trade ties to Russian state-owned businesses, the U.S. ends up inadvertently financing the Kremlin, while U.S. companies profit.

Recent polls show Americans support sanctioning Russia, oppose arming Ukraine and by large margins believe the White House should focus more on domestic issues. But for Americans who are concerned about Russia’s aggressive foreign policy and horrendous human rights record, there are plenty of worthy targets for criticism closer to home. Activists and pundits could focus attention on the American companies most directly tied to the Russian elite. While the chances of a successful boycott of any of these companies may be remote, it should at least be possible to hold Americans who continue to profit off corruption in Russia to public account. The U.S. government’s weakness in the face of Russia is just a reflection of its weakness at home in the face of the private sector. After all, the Cold War is over — and capitalism won.