Davos has trouble getting used to a world without Russia

In the old days, the world’s top businessmen drank vodka with ice in the Russia House, the country’s unofficial embassy at the forum, and rushed to make deals with Russia’s oligarchs and financial leaders – from energy magnates to pharmaceutical giants.

Despite the sanctions imposed by the US and Europe in 2014, Russia has managed to attract foreign investment to the country. Kirill Dmitriev, the head of the Russian Direct Investment Fund, one of the country’s sovereign wealth funds, used his position to convince companies and governments that while sanctions limited their interaction, business could still move forward. And some companies struck gold by joining joint ventures and other projects.

But now Western sanctions enacted following Russia’s invasion of Ukraine — some of the harshest ever imposed against Moscow — shut out the country’s top power brokers. And Russia’s absence from Davos has officials and business leaders here behind the scenes asking questions about how long global business can ignore Moscow while finding new markets for energy, metals and food.

“At this point, there are still questions about whether there are good long-term substitutes for Russian oil and gas,” said a Western official in Davos who was given anonymity to hold private conversations.

In addition, “they turned themselves into one of the largest exporters of grain… director for Russia on the National Security Council during the George W. Bush administration. Russia began to establish its agricultural sector before sanctions came into effect, Graham said. But after the West began imposing those financial measures, Russia invested heavily in producing wheat domestically, rather than relying on imports, to feed its people.

Over the past eight months, Moscow has weathered the sanctions to some extent and found alternative import routes through partners such as China and countries in the South.

“The sanctions didn’t have the kind of immediate impact that people in the West thought they might have,” said Angela Stent, a fellow at the Brookings Institution think tank in Washington.

Russia also did not attend last year’s meeting, which took place in May, three months after the invasion. Experts and officials believed the sanctions would devastate Russia’s economy. A month later, the Russian government defaulted on its foreign debt for the first time in decades. But as the months passed, the country’s economy began to adjust to a new normal.

Today, supermarket shelves are still stocked and life, for the most part, goes on as usual for people living in rural areas. Chinese brands now account for nearly a third of Russia’s car market after Western companies flee the country due to sanctions, according to data collected by Reuters.

That has raised fears among Moscow’s former business partners that the international business order is changing – perhaps for the long haul. With sanctions not easily reversed, those companies risk missing out on potential lucrative opportunities – at least in the short term. That doesn’t matter to some companies that see divestment from Russia as a moral necessity. Others, however, are struggling to rethink their global business strategies.

“Russia is largely isolated from the West, but of course it is not isolated from the rest of the world. The global South has not condemned or sanctioned Russia,” Stent said, referring to a group of countries often described as having some of the poorest and least industrialized economies. “You have a country like India, which is an American partner, which is known for purchasing large amounts of Russian oil.”

Russia is reinvesting in diplomatic relations in Africa, where it has expanded its business opportunities in recent years. Russia hosted its first Russia-Africa Economic Forum in Sochi in 2019. Moscow also relies on the Wagner Group, a paramilitary organization with ties to the Kremlin, to expand Russian influence on the continent. Wagner helps governments in Mali, Libya and Madagascar through security contracts.

Yet sanctions weaken Russia as a world power. Major Western companies, including Starbucks, Coca-Cola and McDonald’s, have moved their businesses out of the country. Others have stopped working with unsanctioned entities for fear of future sanctions. Behind the scenes in Davos, executives say they have almost written off Moscow. As Russia continues to throw missiles at apartment buildings and target civilians in Ukraine, it seems increasingly unpalatable to revisit those decisions.

And the financial constraints have hurt Russia’s ability to conduct military operations. Moscow is struggling to get semiconductors it needs for its weapons programs. With its stockpiling efforts falling behind, Moscow is now forging new defense partnerships with Iran and North Korea to help its fight in Ukraine.

Back on the boulevard, the main thoroughfare in Davos, there is no sign of a Russian presence. In recent years, leaders of Russian sovereign wealth funds and banks often flocked to the CNBC live recording space, pontificating about the importance of continuing to invest in the country. And the old Russia House – a shophouse once occupied by the Russian delegation – has been taken over by the team from Ukraine. The delegation from Kiev will have breakfast there this week – an opportunity for MPs to continue calling for more guns from Western supporters.

The topic of protracted support for Ukraine and a protracted war here this week is likely to raise uncomfortable questions for Western officials, particularly about sanctions and their potential to disrupt economies, especially in Europe, by 2023.

For months, US officials have been working behind the scenes to convince their European allies not only to stay on board with arms shipments to Ukraine, but also to keep abreast of the sanctions. The talking points: the sanctions are working. Russia is suffering and will continue to lose in the long run.

At least for now, despite the resentment of some Davos attendees, the coalition is holding out.

“The estrangement with the West is almost total at this point,” Graham said. “And it’s hard to see the circumstances under which it would be revived in any significant way in the near future.”