05.06.2025.

Western companies will not return to Russia

The oft-vaunted Russian-Chinese “partnership without limits” has proven to be an inadequate substitute for Russia’s largely severed ties with the West. The Kremlin’s recent attempts to lure Western investors back are unlikely to succeed, as most companies have neither the desire nor the need for another Russian adventure.

Russian officials have recently begun to promote the idea that, immediately after the war in Ukraine ends, Western companies - especially American ones - will be happy to do business in Russia again. The Trump administration has responded with interest. But how realistic is such a prospect? Will Western investments and joint ventures really return?

The Greek philosopher Heraclitus once remarked that “a man cannot step into the same river twice, for it will no longer be the same river, nor the same man.” The same can be said for Russia. In the 1990s, after the collapse of the USSR, Western business poured into the country. Over the next 30 years, Western companies invested hundreds of billions of dollars in Russia; they brought with them not only capital, but also knowledge, experience, institutional connections. It was they who helped to a large extent to integrate Russia into the world economy.

That legacy has largely been destroyed. On paper, several thousand Western companies still operate in Russia, but most of them are mere letterbox or front companies for Russian commercial structures. The few Western companies that still have significant activity are effectively trapped: either unable to leave the market or forced (usually at huge losses) to sell their assets to Russians with close ties to the government.

The result is that networks, carefully built over thirty years, have unraveled. Russia’s financial ties with the West have largely been destroyed, while Western sanctions are stifling strategic exports, including oil and gas. While trade in “dual-use” raw materials and technologies continues through third-country intermediaries, it is taking place without the direct transfer of knowledge and experience from Western firms – which was often the real driver of value creation in the past.

Even if the war in Ukraine ends and sanctions are lifted, the return of Western business remains unlikely. Russia is no longer “the same river.” The void in the post-Soviet economy, which after seventy years of isolation and a planned economy was filled by Western companies in the 1990s and 2000s, is now occupied by Russians themselves.

Today, the doors of Moscow offices no longer bear the names of Western international experts, but rather the names of their former Russian partners, many of whom studied in the West or were trained by Western professionals. Foreign banks have been replaced by Russian ones, and the same is happening in other sectors - from retail to online services. In these areas, Russia now functions as a fully developed market country and is no longer dependent on Western participation.

However, the war in Ukraine has set the Russian economy back and brought it back to Soviet times: an overblown military-industrial complex with chronic underinvestment and stagnation in almost the entire rest of the economy. In some sectors, especially in industry, Western skills, technologies, and capital could still play an important role.

A striking example was the oil industry. During the 1990s, Western companies came to Russia en masse with a full range of oilfield services. With the help of capital and modern management methods, they helped revive failed Soviet oil regions, launched new projects within the framework of joint ventures with Russian partners, and implemented business models that were new to post-Soviet Russia.

Then there's China. Its economic growth is slowing, which is why Chinese companies are aggressively increasing exports, especially to Russia. However, they prefer the delivery of finished products to investment and technology transfer.

Chinese banks are also cautious about placing capital, and the so-called “yuanization” of the Russian economy (replacing dollars and euros with the Chinese yuan) has proven to be a bad deal for Russia, as China (for internal reasons) is actively devaluing its currency. In practice, the often-vaunted Russian-Chinese “partnership without limits” has proven to be an inadequate substitute for severed financial ties with the West.

In this context, it is easy to understand why Russia is trying to appear attractive, trying to attract Western business and investment again. It is unlikely, however, that Western companies will respond to this call with the same missionary zeal as they did 30 years ago. The former gaps left by the collapse of the Soviet economy are now filled by Russians themselves, while Western companies, taught by their bitter experience, are looking for more promising projects in other countries. Russia is no longer the same - and the West is no longer the same.

The author is a professor of political science at Georgetown University.