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The Observer: Russian row puts British firms on alert

Alex Brett
Sunday July 22, 2007

British companies in Russia are on high alert as Anglo-Russian relations plunge to their lowest point since the end of the Cold War amid the fallout from the murder of Alexander Litvinenko in London last year.

Analysts say high-profile newcomers to the Russian market, such as Kingfisher and Marks and Spencer, which have both opened stores in Moscow, could find themselves targeted by far-right groups in Russia as sections of the country’s media take an increasingly hostile attitude to the British.

They point out that British diplomatic staff in Moscow have been harassed by the pro-Putin group Nashi for attending demonstrations against the president.

The head of the Russian business lobby, Alexander Shokhin, warned that UK firms could expect more aggravation if the crisis in relations continued, and that the London Stock Exchange would ‘start losing ground’.

The current tension is just the latest of many problems British business has faced in Russia. Energy companies have been forced by Moscow to sell off stakes in oil and gas fields to state-owned enterprise Gazprom. BP’s Russian arm TNK-BP was made to sell its part of the highly lucrative Kavikta oil fields, and in 2006 Shell was forced to give up its controlling stake in the Sakhalin II project. Last week Imperial Energy was told by the Russian government that its estimates for the reserves of oil fields in Siberia were ‘inaccurate’.

Nevertheless, British businesses insist that the fallout from the tension has been confined to the political sphere. Gary Campkin of the CBI said the British government’s attitude was a ‘political response to a political issue’, and that he ‘did not expect any commercial impact’.

Despite the Russian foreign ministry’s insistence that the problems will not affect business, leading oil companies are keeping their heads down. Tony Hayward, chief executive of BP, said only: ‘When international companies throw their weight around the political arena, it is rightly resented.’

Chris Weafer, chief strategic analyst at Alfa Bank, said: ‘The Russian government would not take direct action against business as Russia needs newer technologies.’ He also said that the country would ‘be far more open to new foreign investment in 2008’.

Even though Russia is a relatively closed market, its trade with Britain was up 25 per cent on last year, according to Stephen Dalziel, executive director of the Russo-British Chamber of Commerce.

He said the climate for British business in Russia was still ‘very good’, pointing out that the country still required substantial investment from companies with newer technologies. Britain is the third largest investor in Russia: BP and Shell alone have invested an estimated £31 bn in the economy.,,2131854,00.html and its sister non-profit websites,,,,,, and are owned by John Donovan. There is also a Wikipedia feature.

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