As part of the economic war that the U.S. and Europe have been waging against the Kremlin over the invasion of Ukraine, around 1,500 Western companies have come under intense pressure to pull their operations out of Russia. Some 200 are believed to have done so.

Among the best-known large companies that are known to have joined the exodus are BP, McDonald’s, Starbucks and IKEA. They have sold off their Russia-based assets, in some cases incurring big losses.  

Meanwhile, Putin-favored Russian businesspeople have been snapping up these plum assets at ultra-low prices. This raises the question: Who’s being sanctioned here? 

One of the most curious beneficiaries of the fire-sale of Western assets is a rapper called Timati. He is now the proud co-owner of what was the Starbucks chain of 130 coffee shops in Russia, it seems largely resulting from his political connections. His unashamedly sycophantic song entitled “My best friend is President Putin“ clearly endeared him to the Kremlin and made him a frontrunner to acquire Starbucks’ Russian assets.

“You’d expect insiders to have a fast track. If they’re well in with the government, they’re the people that tend to get their hands on these things,” said Mike Taylor of risk analysis firm Oxford Analytica.  

The rapper snapped up the Russian Starbucks chain, now renamed Stars, for a reported sum of around $5.75 million.

That is clearly less than the market price, and typical of what divesting Western companies have been facing, according to Maria Snegovaya of the Center for Strategic and International Studies in Washington.

“They are often forced to sell those assets at a significant discount — maybe 50% below the market price. And there’s a 10% tax on top of that,” she said. “As you can imagine, that’s certainly highly problematic for the companies — really painful.”

McDonald’s is writing off around $1.2 billion after selling its Russian restaurants last year, and the French auto company Renault has suffered an even bigger hit.

“They sold their assets, which they had valued at 2 billion euros — Renault had valued them. They sold them for 1 ruble. That’s about a cent,” said Jason Bush, a Russia expert with the Eurasia Group consulting firm.

The oil giant BP faces a $25 billion loss from abandoning its stake in the Russian energy giant Rosneft.

This is reminiscent of the looting of state-owned assets after the collapse of communism 30 years ago, a process that enriched the oligarchs and impoverished the Russian state. This time, the target of the plundering, said Bush, has been Western business.

“Russia is reaping the benefit of the foreign investment it has received over many years — you know, the technology, the products, the quality — and it’s now been able to acquire that on the cheap,” he said.  

But, as Tim Ash of BlueBay Asset Management pointed out, this is a short-term gain: “Longer term, I think the Russian economy will suffer because of less interaction with Western business, Western capital, loss of Western finance. It’s another cost of the war in Ukraine.”

So far, according to a recent report by the Russian central bank, only around 200 or so of the international companies in Russia, less than 15% of the total, have sold their assets and pulled out. No doubt the huge cost of divestment at the moment is deterring many from departing.

But staying put may not be risk-free. The Financial Times has reported that President Putin has drawn up a secret decree allowing him to nationalize foreign-owned assets located in Russia. 

“They’re basically keeping the Western assets hostage,” observed Jason Bush. “They’re basically sending a signal that if you confiscate our assets in the West, we will retaliate by confiscating your assets in Russia.”

This is, apparently, Putin’s response to suggestions that Russia’s assets — frozen under Western sanctions — might be funneled into the reconstruction of Ukraine.

For Western business, the bottom line is clear: Russia seems likely to remain a hostile environment for decades to come.