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Speaker 1: Bloomberg Audio Studios, podcasts, radio news. When Russia launched its

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Speaker 1: full scale invasion of Ukraine in twenty twenty two, the US,

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Speaker 1: the EU, and other G seven allies responded with an

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Speaker 1: attack of their own on Russia's economy. The US and

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Speaker 1: its allies in Europe and NATO countries have all come

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Speaker 1: together and basically blocked the Russian financial system from getting

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Speaker 1: any financing outside of Russia. That meant sanctions on Russia,

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Speaker 1: its companies, and its wealthiest citizens, the freezing of hundreds

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Speaker 1: of billions of dollars worth of assets, and strict restrictions

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Speaker 1: on trade between Russia and Western nations. But since taking office,

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Speaker 1: President Trump has been signaling a warmer relationship with Russia. Meanwhile,

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Speaker 1: yesterday's talks between the US and Ukraine and Saudi Arabia

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Speaker 1: yielded a proposal for a thirty day truce. Russia may

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Speaker 1: agree to a truce eventually, but Putin wants his own

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Speaker 1: conditions met first, which could drag out negotiations. Now the

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Speaker 1: world is watching to see whether the countries will be

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Speaker 1: able to broker peace, and so are investors.

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Speaker 2: A lot of analysts and a lot of investment cousies

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Speaker 2: are looking now to see whether the Russia market is

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Speaker 2: soon going to be tradeable again.

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Speaker 1: Bloomberg's Tony Halpin has been covering the Russia Ukraine conflict

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Speaker 1: and its economic ramifications from Dubai after leaving Moscow at

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Speaker 1: the start of the war. He says the US's about

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Speaker 1: face on Russia has set off speculation in the financial

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Speaker 1: world that Russia might soon be open for business, and

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Speaker 1: investors willing to take on the reputational and financial risks

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Speaker 1: are getting ready to take advantage.

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Speaker 2: There's an increasing level of optimism among traders, among clients

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Speaker 2: of traders who are looking for Russian assets, that perhaps

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Speaker 2: those sanctions will be eased by the Trump administration, may

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Speaker 2: be even removed entirely if there's a settlement to the

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Speaker 2: word war between Russia and Ukraine. But at the end

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Speaker 2: of the day, they're still dealing with a country whose

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Speaker 2: president Vladimir Putin is wanted by the International Criminal Court

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Speaker 2: as an alleged war criminal for crimes in Ukraine. It

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Speaker 2: remains the country that began the war. In Ukraine, hundreds

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Speaker 2: of thousands of people have been wounded or killed, millions

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Speaker 2: more have been made into refugees. The economy of Ukraine

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Speaker 2: has been devastated, and all of this was essentially the

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Speaker 2: consequences of one man's decision, which was Vladimir Putin's to

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Speaker 2: go to war in twenty twenty two.

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Speaker 1: I'm Sarah Holder, and this is the big tick from

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Speaker 1: Bloomberg News Today on the show, why some investors are

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Speaker 1: eager to start doing business with Russia again and what

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Speaker 1: taking that gamble could mean for Russia and Ukraine's economies.

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Speaker 1: Russia has been under some form of US and europe

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Speaker 1: sanctions since Russian troops illegally annexed Crimea in twenty fourteen,

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Speaker 1: But in the years before Russia launched its full scale

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Speaker 1: invasion of Ukraine in twenty twenty two, Bloomberg's Tony Happen

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Speaker 1: says it was still a major hub for international investment.

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Speaker 2: Russia was a hugely attractive story for international investment, and

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Speaker 2: the reason for that is simple. After the collapse of

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Speaker 2: the Soviet Union at the end of nineteen ninety one,

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Speaker 2: there was this enormous new consumer market opening up which

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Speaker 2: basically wanted everything it couldn't get its hands on, enough

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Speaker 2: Western products and enough Western brands, and there was a

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Speaker 2: lot of investment in Russia which was intended to meet

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Speaker 2: the domestic demand for goods anything from cars to perfumes,

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Speaker 2: and that was an enormous market to tap. So Russia

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Speaker 2: clearly was the destination where most of this investment went.

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Speaker 2: There were people there growing increasingly wealthy as Russia's oil

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Speaker 2: boom got underway in the beginning of this century. Vladimir

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Speaker 2: Putin seemed to be a leader who was modernizing the country,

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Speaker 2: who in many ways presenting a moderate face to the West,

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Speaker 2: who was welcoming to foreign business. It seemed very much

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Speaker 2: to many foreign investors that this was a story that

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Speaker 2: couldn't be missed and that they really should get in

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Speaker 2: on the ground floor. That meant there was enormous amounts

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Speaker 2: of investment in production facilities in Russia and in consumer brands.

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Speaker 1: Well, how did that investment picture change when Russia invaded

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Speaker 1: Ukraine in twenty twenty two and several countries, including the US,

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Speaker 1: put heavy sanctions on Russia.

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Speaker 2: If you think about the investment in Russia before the

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Speaker 2: war and from the period of the Soviet unions collapsed,

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Speaker 2: that's hundreds of billions of dollars, and practically overnight that

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Speaker 2: flow ceased and began to go into reverse. Many Western

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Speaker 2: multinationals were rushing for the exit. They were trying to

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Speaker 2: get out of Russia because the Group of Seven countries

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Speaker 2: led by the US and the European Union pretty immediately

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Speaker 2: imposed very heavy sanctions on Russia in an attempt to

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Speaker 2: bring its economy to the knees. Bankings and were particularly difficult.

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Speaker 2: Russia was kicked out of the Swift banking system, for example,

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Speaker 2: and companies were desperate to leave. They had to contend

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Speaker 2: with the Russian government, which didn't want them to go,

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Speaker 2: which made it very difficult, imposed quite tough restrictions, very

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Speaker 2: high level haircuts on the value of assets that were sold,

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Speaker 2: and that really disrupted the whole cycle of economic development

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Speaker 2: in Russia. Russia itself had become very heavily dependent on

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Speaker 2: trading with the European Union, for example, something like two

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Speaker 2: hundred and fifty eight billion euros worth of trade in

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Speaker 2: the year before the war began. It had to reorient

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Speaker 2: itself away from Europe when Europe turned away from, for example,

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Speaker 2: Russian gas and oil supplies, and it had to look

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Speaker 2: for new markets.

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Speaker 1: Talk about that reorientation. How did Russia adapt?

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Speaker 2: They already had very strong relations with China. Those relations

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Speaker 2: were intensified. China became an economic lifeline for Russia, not

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Speaker 2: only by purchasing increased amounts of energy, particularly gas, but

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Speaker 2: by being a supplier of goods that Russia could no

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Speaker 2: longer get from Europe, and it turned to other countries

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Speaker 2: like India and the Global South. India was a fairly

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Speaker 2: negligible importer of Russian oil before the war began. Last year,

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Speaker 2: something like thirty to forty percent of India's oil imports

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Speaker 2: came from Russia.

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Speaker 1: So Russia turned to China and India for imports and exports.

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Speaker 1: What about for investment?

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Speaker 2: This has been the big problem for Russia. Really, it's

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Speaker 2: replaced the foreign investment with an enormous domestic spending boom.

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Speaker 2: The government has just thrown money at the economy from

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Speaker 2: its reserves that had built up over many years. It's

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Speaker 2: used those reserves to support businesses that were affected by sanctions,

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Speaker 2: and it's used those reserves essentially to fund the defense

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Speaker 2: production that was needed to support the military. So Russia

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Speaker 2: increasingly became a war economy dependent on its own expenditures

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Speaker 2: on defense production and the military.

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Speaker 1: How would you characterize Russia's wartime economy? What are its

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Speaker 1: greatest strength and its greatest weaknesses.

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Speaker 2: Well, it's interesting. I think if you talk to many

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Speaker 2: Russians before the war, they would have said that their

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Speaker 2: army was strong, but their economy was weak, and therefore

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Speaker 2: they needed a quick victory because the economy wouldn't have

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Speaker 2: been strong enough to support the military. As it turned out,

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Speaker 2: it was the other way around. That the military had

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Speaker 2: a lot of weaknesses and flaws, but the economy proved

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Speaker 2: remarkably resilient. Russia has a very highly qualified group of

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Speaker 2: technocrats who are running their economy, both in the central

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Speaker 2: bank and in the government. So they have managed and

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Speaker 2: they have experience of managing economic crisis, and they managed

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Speaker 2: this crisis reasonably well. They avoided complete collapse, and they've managed,

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Speaker 2: in fact, to keep the economy growing. After an initial

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Speaker 2: dip in response to the sanctions. Last year, the economy

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Speaker 2: grew something like three point nine four percent. So this

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Speaker 2: year is going to be tougher because the sanctions are

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Speaker 2: having a cumulative impact on Russia and Russia's running out

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Speaker 2: of resources to support its economy. But what we learned

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Speaker 2: from investment houses and traders is that there's been a

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Speaker 2: blick of interest among people in getting some exposures to

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Speaker 2: Russian essets again and trying to understand how they can

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Speaker 2: do that in the current environment, and also how they

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Speaker 2: can jump in when they think the environment changes, when

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Speaker 2: they think the sanctions regime eases or is removed.

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Speaker 1: But just why are some Western investors eager to enter

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Speaker 1: Russian markets again? That's after the break three years after

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Speaker 1: Russia launched its full scale invasion of Ukraine. The US's

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Speaker 1: relationship with Russia is thawing. President Trump took a call

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Speaker 1: with Putin in February and is pushing for a swift

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Speaker 1: end to the war that Putin started, and Bloomberg's Tony

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Speaker 1: Halpin says some investors are looking for signs that the

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Speaker 1: US sanctions on Russia could soon be relaxed. Tony's been

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Speaker 1: covering the economic piece of this conflict for years, so

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Speaker 1: I asked him, how much does the US's changing position

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Speaker 1: on Russia have to do with the economic opportunities Trump

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Speaker 1: sees in the country.

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Speaker 2: I think that's an important element of it. To be honest,

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Speaker 2: that Trump views Russia as a potential partner on big

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Speaker 2: issues like energy, on development of the Arctic resources, on

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Speaker 2: development of trade routes, and he sees Russia also as

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Speaker 2: important in his China strategy. I think they want Russia

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Speaker 2: to reduce its dependence on China, to reduce its involvement

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Speaker 2: with China, and one way to do that is to

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Speaker 2: improve its partnership with the US. But of course, to

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Speaker 2: do that, the war has to end.

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Speaker 1: As the US continues its talks with Russia and with Ukraine,

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Speaker 1: how likely is it that sanctions would be fully removed

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Speaker 1: or partly removed And what are potential roadblocks too removing sanctions.

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Speaker 2: I think there are two elements here. Actually, we have

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Speaker 2: to remember that the US and the EU, while they've

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Speaker 2: been working in coordination to apply sanctions, are taking a

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Speaker 2: very different view to the way that negotiations are unfolding

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Speaker 2: currently between Russia and Ukraine. And so I think it's

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Speaker 2: quite likely that the Trump administration would like to ease

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Speaker 2: sanctions and maybe even remove them, because Trump takes a

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Speaker 2: different view of how this war started and who's responsible

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Speaker 2: for it than the Biden administration. But the European Union

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Speaker 2: is very much in support of Ukraine. They continue to

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Speaker 2: view Russia as an aggressor, and they have reached consensus

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Speaker 2: among twenty seven nations for applying sanctions and to undo

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Speaker 2: those sanctions will take a similar level of consensus, and

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Speaker 2: it's very difficult to do because every country has their

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Speaker 2: own national interests and those interests have to somehow be

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Speaker 2: brought together and resolved through consensus and a decision made.

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Speaker 2: Trump has much more power than the European Union to

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Speaker 2: lift sanctions quickly, and that leads to the prospect of

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Speaker 2: a situation where the US, for example, has eased or

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Speaker 2: removed sanctions, but the European Union has not, and that's

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Speaker 2: a nightmare scenario for many companies.

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Speaker 1: How are investors reacting to the possibility of a peace

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Speaker 1: deal and fewer sanctions.

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Speaker 2: We learn from analysts and investment companies that there's been

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Speaker 2: a spike in interest among clients looking for Russian assets.

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Speaker 2: It's very difficult to do, though, because you can't in

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Speaker 2: any way be associated with sanctioned entities, and not pretty

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Speaker 2: much every significant Russian bank is sanctioned. But the consensus

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Speaker 2: among many and this is that a lot of these

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Speaker 2: assets are underpriced because of the war and because of

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Speaker 2: the sanctions. That discount will disappear pretty rapidly if the

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Speaker 2: situation changed. Were you surprised to hear that at some

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Speaker 2: level yes, because I think there's a great deal of

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Speaker 2: excitement about the prospect of President Trump pulling off a

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Speaker 2: peace steal. But the hurdles are formidable, and it's not

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Speaker 2: clear so far that there'll be a successful deal reached.

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Speaker 2: And even if there is a successful deal reached to

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Speaker 2: halt the fighting, now how durable will that piece be?

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Speaker 2: And one of the risks for impressors, I think is

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Speaker 2: precisely that some sort of peace deal is reached, sanctions

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Speaker 2: that eased, investors pile in and then something happens to

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Speaker 2: resumption of hostilities, and then the question becomes our sanctions reimposed?

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Speaker 2: If they're not reimposed, do you want to be invested

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Speaker 2: in a country that is again a war. So there

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Speaker 2: are lots of medium term risks, and it's not yet

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Speaker 2: clear how those risks will be resolved.

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Speaker 1: What about reputational risks of investing in the ruble, investing

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Speaker 1: in Russian assets.

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Speaker 2: Yeah, it's clearly very high because of the fact that

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Speaker 2: Russia was the aggressor in this war, and the situation

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Speaker 2: has been muddied by the US essentially changing position. Before

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Speaker 2: the war it was on the side of Ukraine. Since

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Speaker 2: President Trump came to office, it's tried to present itself

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Speaker 2: much more as a mediator between two warring sides. Well politically,

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Speaker 2: of course, that's a position you can take, and it

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Speaker 2: may be controversial, it may attract criticism. But if you're

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Speaker 2: an investor and you're facing reputational risks, then you've got

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Speaker 2: to answer questions from shareholders. Russia was responsible for Europe's

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Speaker 2: biggest war since World War Two, and that may be

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Speaker 2: uncomfortable for many companies to answer. And I think they

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Speaker 2: may feel that there's safety in numbers, and many will

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Speaker 2: probably be waiting for a sign that one or two

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Speaker 2: significant investors return to Russia, and then they'll be a

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Speaker 2: kind of heard rush to get back in if they

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Speaker 2: think the waters are safer, or the Trump administration is

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Speaker 2: showing that it wants investors to go back to Russia.

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Speaker 1: If investors do return and trade with Europe and the

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Speaker 1: US starts to resume, that'll be a boost to Russia's

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Speaker 1: energy sector and its technology sector. But Tony also said

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Speaker 1: that Western companies might not be welcomed back to the

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Speaker 1: country with open arms.

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Speaker 2: Many Western multinationals have lost their business share in Russia,

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Speaker 2: and they've lost them to companies from China or India

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Speaker 2: or elsewhere. They may well try and impose conditions on

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Speaker 2: their return, both because they were unhappy that the fact

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Speaker 2: that these companies left Russia and because they think they

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Speaker 2: can that they think they can impose conditions that will

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Speaker 2: be favorable for Russia if Western companies come back.

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Speaker 1: We've been focusing on Russia in this conversation, but I'm

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Speaker 1: wondering where this all leaves Ukraine. What about the possibility

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Speaker 1: of more investment there. Our investor is expressing similar optimism

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Speaker 1: about Ukraine as a potential peace deal comes into focus.

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Speaker 2: Yeah, I mean potentially Ukraine needs to be rebuilt, right.

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Speaker 2: It's been the object of devastation for three years and

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Speaker 2: so much of the infrastructure needs to be repaired. Many

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Speaker 2: of the European partners of Ukraine have billions of dollars

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Speaker 2: to help it rebuild. So companies will be eager to

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Speaker 2: get in on that market and to find ways in

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Speaker 2: which they can contribute to the reconstruction as a way

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Speaker 2: to invest in the Ukrainian economy. The US and Ukraine

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Speaker 2: assigning this joint minerals deal which will set up a

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Speaker 2: fund for joint investment in Ukraine's future, So again there'll

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Speaker 2: be US companies eager to take part in that, both

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Speaker 2: in the exploitation of mineral resources and in servicing the

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Speaker 2: needs of the Ukrainian economy, but they need certainty that

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Speaker 2: the war has come to an end and that Ukraine

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Speaker 2: is investable again.

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Speaker 1: This is the Big Take from Bloomberg News. I'm Sarah Holder.

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Speaker 1: This episode was produced by Jessica Beck. It was edited

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Speaker 1: by Aaron Edwards and Edward Evans. It was fact checked

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Speaker 1: by Adriannatapia and mixed and sound designed by Alex Sugia.

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Speaker 1: Our senior producer is Naomi Shaven. Our senior editor is

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Speaker 1: Elizabeth Ponso. Our executive producer is Nicole beamsterborn Sage Bauman

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