- The Washington Times - Tuesday, May 13, 2014

The Obama administration claims it can use economic sanctions to punish Russian aggression in Eastern Europe, but the strategy has quickly run into problems, say analysts, who note that too aggressive a move by the White House could result in blowback on major American companies with close ties to the Russian economy.

The White House is walking a tightrope between America’s corporate and national interests by sanctioning Russian individuals who head companies with ties to such U.S. corporate giants as Boeing Co., Exxon Mobil Corp., Intel Corp., General Motors Co. and General Electric Co.

If the administration targets entire sectors of the Russian economy, those companies may be forced to swallow sudden and serious losses. Analysts say that prospect exposes the paradoxical limits of relying on sanctions to project American power.

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The tense situation is being watched closely by American executives, including those at J.P. MorganChase & Co., which earned $56 million in investment banking fees in Russia last year, and PepsiCo Inc., which has been the largest food and beverage company operating in Russia since 2011.

“I’m talking to enough folks in the private sector to know that folks are worried, or at least trying to figure it out,” said Juan Zarate, a former top Treasury Department official now with the Center for Strategic International Studies.

“There is a wide swath of U.S. companies that have significant investment in Russia,” he said, and the pursuit of more biting sanctions will require Washington to strike a “difficult balance.”

“The reality is we can use sanctions to impose serious costs on the Russian economy,” said Mr. Zarate. “But officials are still trying to figure out how to nuance those measures so that we’re not cutting off our nose to spite our face.”

It’s not just U.S. companies facing crossfire. The Pentagon is engaged in a deal to pay more than $1 billion to Russia’s main government-owned weapons export firm, Rosoboronexport, to provide a fleet of helicopters to the U.S.-trained military of Afghanistan.

The Obama administration has sanctioned more than a dozen Russian entities, several of them in Russia’s energy and construction sectors. But the White House has been reticent to go after key players such as Rosoboronexport’s parent company, Rostec, whose other subsidiaries have close ties to several major U.S. companies.

The White House also has steered clear of directly targeting Rosneft, which has extensive dealings with Exxon. Instead, the administration has targeted Russian business executives such as Rostec’s Sergei Chemezov and Rosneft’s Igor Sechin — a strategy that has allowed U.S. companies to continue doing business with the Russian firms.

Deep corporate ties

Russia appears to have ample confidence that Washington is unwilling to seriously jeopardize business relationships created after the Cold War.

After sanctions were announced last month, a spokesman for Mr. Chemezov told The Washington Times that, despite disagreements, “all previously reached agreements with foreign partners will be successfully implemented.”

“Cooperation between the world’s largest companies is very complex and deep,” a spokesman for London-based public relations firm Bell Pottinger said, adding that “the lives of millions of people worldwide depend on it.” The spokesman said a 2013-2018 contract with Boeing would bring Rostec subsidiary VSMPO-AVISMA Corp. $1.5 billion to $2 billion.

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