Will there be a 'tipping point' for Putin as businesses exit Russia? Experts doubt it

WATCH: Russia's economy is tanking as sanctions against the country multiply, and more companies stop doing business there. Eric Sorensen reports on the toll this is taking on everyday Russians, as their government tries to sanitize the reality of the situation.

A growing number of top Western brands and business interests are exiting Russia over its invasion of Ukraine, hoping to pressure Moscow — and specifically President Vladimir Putin — to reverse course.

But while the shuttering of shops and rising economic impact will lead to pain for the average Russian, experts say it’s unlikely that will change Putin’s mind in the short term. Only a sustained revolt, both in the streets and in the Kremlin, may have an effect, they say — and by then, plenty of damage will have been done.

“There’s so much destruction and death going on in Ukraine right now, and there’s going to be a lot more before anything like (a course correction) is going to happen,” said Lisa Sundstrom, a political science professor at the University of British Columbia.

“The same can certainly be said for the Russian people at home.”

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McDonald’s, Starbucks, Coca Cola and Pepsi announced on Tuesday they are temporarily suspending operations and sales in Russia because of the ongoing conflict, which has sparked a refugee crisis and accusations by Ukraine of war crimes.

Yum Brands, the parent company of KFC and Pizza Hut, said late Tuesday it planned to temporarily close 70 company-owned KFC restaurants in Russia and was in talks with franchise owners to do the same for all 50 Pizza Hut restaurants.

All of those closures, coupled with the plummeting value of the ruble and the halting of financial transactions by Visa and Mastercard, will hit the average Russian hard, said University of Washington law professor Anita Ramasastry.

“We’re really in uncharted waters here,” said Ramasastry, who also serves on the United Nations Working Group on Business and Human Rights.

“Before, when the sanctions were hitting financial institutions, there was this notion (from the Russian government) that there would still be food on the table. So there will be a stronger and greater impact more quickly on everyday people if we see those kinds of ordinary businesses pulling out.”

Other major brands like Apple, Prada and Ikea have already announced they are cutting ties with Russia. Car companies including Toyota, Volkswagen and Rolls-Royce have also stopped shipping vehicles there.

Early into the invasion nearly two weeks ago, Russia’s central bank raised its key interest rate to a staggering 20 per cent — an all-time high. The stock market has been closed for more than a week over fears of a crash. The ruble has lost 40 per cent of its value against the U.S. dollar, hitting a record low.

The West is now going after Russia’s energy economy, with the United States joining Canada in banning imports on Tuesday, while Britain and the European Union announced plans to shift away from their dependency on Russian oil. Shell and BP have also suspended operations in the increasingly isolated country.

Werner Antweiler, an economics professor at the University of British Columbia’s Sauder School of Business, said the combination of halted Western imports, the falling ruble and cuts to energy exports will have a “profound” impact on the Russian economy.

“All in all, the emerging economic scenario for ordinary Russians is bleak,” he told Global News in an email.

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Yet Antweiler said he doubts whether all that misery will lead to a “tipping point” that convinces Putin to stop the invasion. He said it remains to be seen if resentment against the war and its consequences will be able to cut through the disinformation being fed by the Kremlin, which seeks to paint the West as the aggressor.

“Putin only cares about his own power and not about the prosperity and well-being of the Russian citizenry,” he said. “As long as repression keeps opposition at bay, he will be able to continue the war in Ukraine.”

Ramasastry said it’s also too soon to say how long some of these companies will remain out of Russia, particularly those who said their moves were only temporary, like McDonald’s.

The fast-food giant, one of the first U.S. brands to enter Russia as the Soviet Union disintegrated, is among those to take the biggest financial hit.

Unlike Starbucks and other fast-food companies like KFC and Pizza Hut, whose Russian locations are owned by franchisees, McDonald’s owns 84 per cent of its Russian stores. The company said it will still pay employees of those stores, as well as workers at the 109 restaurants it owns in Ukraine that have also temporarily closed.

In a recent regulatory filing, McDonald’s said its restaurants in Russia and Ukraine contribute nine per cent of its annual revenue, or around US$2 billion last year.

“Companies need to strike this balancing act between its business interests and the human rights impact, and whether they’re contributing to the conflict,” Ramasastry said.

“These companies are clearly feeling pressure to leave in this case, but I imagine that they’re also weighing the human rights impact of their leaving — how will that affect consumers who no longer have this option to feed themselves?”

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The Russian government said last month that its economic stability fund — a domestic war chest meant to limit financial instability — has over 4.5 trillion rubles (US$53 billion) available to ward off the impact of sanctions.

But Sundstrom said that fund has the potential to run dry, even with allies like China and India vowing to help Russia economically.

Meanwhile, there are signs that anti-war protests in Russia, which are illegal and have faced swift crackdowns, are staying steady and even increasing, with thousands of arrests daily, according to Russian human rights group OVD-Info.

Despite new laws criminalizing “fake news” about the war and the closure of Facebook and Twitter, Sundstrom said the economic instability could lead to more widespread demonstrations, weakening Putin’s political position.

“This is what can happen when a regime is unravelling,” she said.

“The regime becomes more and more repressive, thinking, ‘We can quash this,’ but then eventually enough people are out on the street that they can’t.”

But Sundstrom also warned that it’s becoming harder and harder to guess what Putin will do next.

“I can see the possibility of there being cracks in the inner circle which then leads to a shift or even regime change,” she said.

“The other possibility is the terrible one, where he sticks with the hard-liners and they crack down, crack down, … and then we’re looking at Brezhnevism, at the very least, and maybe totalitarianism at the worst end of the spectrum.”

— with files from the Associated Press

© 2022 Global News, a division of Corus Entertainment Inc.

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