Notice on Commercial Service Operations in Russia
In April 2021, the Russian government announced a ban on locally employed staff at U.S. diplomatic facilities in Russia, to come into force August 1, 2021. As a result of this ban, the U.S. Commercial Service (CS) Russia suspended operations in Russia on July 15, 2021.
Limited updates have been made to the Country Commercial Guide to reflect the current Commercial Service suspension of operations in Russia, the ongoing Russian war against Ukraine, and continued Commercial Service coverage for the Russian market from Washington, D.C. and Eurasia. Additionally, trade policy information has been refreshed when possible. Updates to other parts of the guide will be made when normal Commercial Service operations have resumed in Russia.
Overview
Russia’s full-scale invasion of Ukraine on February 24, 2022 has led to a sea change in both the perceptions and reality of the Russian market for U.S. exporters. Before the invasion, Russia was ranked as a top forty U.S. export destination, and while business in certain industries (energy, defense, financial services) was proscribed to varying degrees by U.S. and international sanctions, over 1,100 U.S. firms of varying sizes conducted business in Russia, often using Russia as a regional base to work across Eurasia. U.S. companies cited Russia’s 144 million consumers, $29k+ GDP per capita (as measured in purchasing power parity), growing middle class, and highly educated and trained workforce as attractive features of its business environment.
Russia also integrated itself into international supply chains as a major supplier of raw materials and commodities such as titanium, uranium, fertilizer, wood & wood products, platinum and platinum group metals (PGMs), and hydrocarbons.
Post-February 2022, many U.S. and international companies have determined that the legal and reputational risks involved in operating under the authority of the Russian government are too high to justify continued operations. To date, many U.S. companies have either departed Russia entirely or are winding down operations. The U.S. government has implemented new measures following the invasion, including new export controls administered by the Department of Commerce’s Bureau of Industry and Security (BIS), and economic sanctions imposed on Russian entities, individuals, and industries administered by the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC). In addition, the Russian government has passed restrictive new laws that harm the business environment, threatened and harassed staff at international companies, and prosecuted foreign businesspersons on politically motivated grounds.
The Russian economy contracted by 3.1% in 2020 due to the international pandemic, less than expected by both Russian and international experts, and the IMF projected 3.8% economic growth in 2021. GDP projections for 2022 are pessimistic, with the World Bank anticipating that sanctions will help drive Russia’s GDP down by 11.2% in 2022, while the Russian Ministry of Economic Development predicts a 2022 GDP contraction of roughly 8%.
There are three broad factors that merit consideration when assessing business prospects in Russia: geopolitics, market dynamics, and rule of law. The situation with regard to all three factors worsened considerablyUkraine led to a substantial international reaction, including sanctions, export controls, and other measures that far eclipsed previous trade restrictions.
U.S. and European economic sanctions imposed in 2014 in response to U.S. election interference, cyberattacks, use of chemical weapons, and disagreements on global security challenges such as Syria, Libya, and Venezuela remain in place and are unlikely to be lifted in the near future. Sectoral restrictions on the energy sector (offshore, Arctic and shale oil and gas projects), the financial sector, and the defense industry remain and have been expanded in scope and severity. Additionally, a substantially increased number of Russian entities and individuals are subject to a range of sanctions, requiring U.S. firms to conduct careful due diligence on potential business partners.
Since 2014, U.S. agricultural exporters have been hit with Russian countersanctions among a number of protectionists, import-substitution policies designed to provide Russian firms implicit or explicit advantages over international competitors. In 2018, the Russian Duma passed legislation endorsing further restrictions on Western imports in the event of the expansion of existing Western sanctions.
Political & Economic Environment: State Department’s website for background on the country’s political environment
U.S. State Department 2021-2025 Russia Business Advisory.