A sustained suspension of activity in Russia by Western companies,coupled with the sanctions,will undo three decades of integration between Russia and the West and return its economy to what has often,derisively,been described as just a big gas station. In future,however,it could also have far more limited markets for its oil and gas.

Vladimir Putin has conceded that the mass exodus of western companies is damaging and labelled it part of an effort by the West to “wreck” the Russian economy. He’s not,however,going to passively accept the corporate flight.

The Russian authoritieshave already seized 515 aircraft that had been leased to Russian carriers to prevent them being repossessed,although with the big US and European aircraft manufacturers having cut off parts,maintenance and tech support and Russia’s carriers now unable to fly to most developed world destinations,that’s more retaliation than a response that will protect Russia’s economy.

Putin has threatened to find “legal” responses that would allow Russia to nationalise the assets and operations of companies exiting Russia – to seize their assets – legalise patent and intellectual property theft and arrest any corporate executive in Russia who criticises the government.

He plans to take control of businesses with 25 per cent or more foreign ownership that close or suspend their operations and introduce “external management” (effectively administrators) to keep the businesses operating while they put together assessments of their assets and liabilities. The owners would have six months to sell their shares (in what would be a Russian and Chinese buyers’ market) or restart the business.

For some companies,loss of access to Western management expertise and supply chains would effectively make them worthless in Russian hands. Losing access to Ikea’s flat packs,or Porsche’s cars,for instance,would destroy their Russian businesses. Russian brewers might be able to steal Heineken’s branding,but would it still be Heineken beer?

Marks&Spencer and other retailers have a sizeable presence in Russia through Russian franchisees or others over whom they have no jurisdiction. They can’t stop them operating but they can,and Marks&Spencer has,cut off their supply of products.

Even some of the companies,like Unilever,Proctor&Gamble and Danone,that have pledged to keep operating to protect their employees and ensure essential goods are available to Russian consumers,have also foreshadowed a halt to new investment.

Expropriation of western companies’ assets might look like a rational response on paper but the effects of the withdrawal of the companies,their expertise and their capital and the supply chains supporting their businesses will be material.

Should Russia seize western companies’ assets and businesses or steal their intellectual property the West has the capacity to respond.

There is a lot of mutual destruction occurring from Russia’s invasion and the West’s response. There will be heavy costs for both sides from the sanctions and other efforts targeting Russia’s economy and financial system.

The sanctions on Russia’s central bank effectively froze more than half of Russia’s $US640 billion ($890 billion) of foreign exchange reserves. While only just over $US100 billion of those are in US dollars,when combined with euro and yen-denominated reserves there’s probably close to $US350 billion,at least,that Russia’s finance minister,Anton Siluanov,says Russia has lost access to.

Those reserves invested in assets offshore (other than,perhaps,the $US85 billion or denominated in China’s yuan) might be simply frozen today but they could be made available as compensation to companies whose assets have been expropriated or patents stolen in future.

The White House has said there would be “steps we would take” if the Russians did try to nationalise foreign companies. The foreign exchange reserves and any assets of Russian state-owned companies in the West would be obvious targets for retaliatory measures.

There is a lot of mutual destruction occurring from Russia’s invasion and the West’s response. There will be heavy costs for both sides from the sanctions and other effortstargeting Russia’s economy and financial system.

For the West,however,those costs – higher energy prices and inflation or the losses companies might suffer in Russia – are less direct and far more widely distributed thanthe economic pain Russia will experience from the massive hit to its economy and currency,the hyperinflation it appears likely to experience and the lost access to much of the war chest Putin thought would insulate his economy from any response by the US and its allies to the invasion.

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