Flow-Through Capital Despite Sanctions: Russian Investments in Austria Continue to Flow

PeopleOther ♦ Published: April 22, 2024; 21:10 ♦ (Vindobona)

While international tensions and the war in Ukraine, which has been going on for more than two years, are putting a heavy strain on relations between Russia and the West, Austria remains a remarkably robust magnet for Russian investment. Contrary to expectations that the extensive international sanctions against Russia would curb capital flows, the latest data from the Austrian Ministry of Economic Affairs' investment control report shows a different reality: Russian investments in Austria rose by 14% to EUR 25.5 billion in the first half of 2022.

Russian investments in Austria are not decreasing despite Moscow's war of aggression against Ukraine, which has been going on for more than two years. / Picture: © RIA Novosti archive, image #978876 / Alexey Kudenko / CC-BY-SA 3.0

This increase in Russian direct investment is particularly noteworthy as it occurred at a time when relations between Russia and the West were particularly tense. Austria has established itself as the second most important target country for Russian foreign investment after Cyprus, as reported by ORF. Experts at the Austrian National Bank (OeNB) attribute this position to the strategic use of Vienna as a European center by major Russian companies. It is assumed that a significant proportion of these investments act as pass-through capital: Money that flows to Austria in the short term before being transferred further afield to other parts of Europe.

This practice raises complex questions: On the one hand, Austria is an important hub in the European economic network; on the other, it raises questions about the sustainability and ethical acceptability of these investment flows. Especially at a time when European solidarity is being put to the test by Russia's aggression against Ukraine.

Russian oil companies at the forefront

A more detailed look at Russian investments shows that large Russian companies such as Lukoil and the former Gazprom Austria are channeling significant sums through their Austrian subsidiaries, as reported by DerStandard. These cash flows, although officially registered as investments in Austria, could involve a significant amount of capital that is ultimately destined for operations outside Austria. This mechanism, often referred to as "round-tripping", where capital is briefly shifted abroad only to return, complicates economic analysis and makes it difficult to assess the actual economic contributions.

The situation is also sensitive because it shows how global geopolitical conflicts can affect local economies. On the one hand, Austria's economy benefits from these investments, but on the other hand, it faces the challenge of fulfilling international sanctions and diplomatic obligations. This dynamic could prove problematic, especially if the political landscape continues to change and pressure grows on countries like Austria to rethink their economic relationship with Russia.

The ongoing debates surrounding Raiffeisen Bank International (RBI), which continues to operate significantly in Russia despite announcing its intention to scale back its business in the country, underlining the complexity of the situation. The European Central Bank (ECB) has announced that it will reprimand RBI for the slow reduction of its activities in Russia, indicating possible regulatory consequences.

In summary, it can be said that the Austrian economy and politics are facing a difficult balancing act: on the one hand, the need to remain an attractive and open investment location and, on the other, the need to comply with international legal norms and sanctions. How Austria will manage this balance in the future remains an open and urgent question in European economic and foreign policy.