Work in the tech industry? The Ukraine WAR is coming to YOU

The Russian trains run on time. Regardless.

UK BIS now faces a growing backlog of approvals from companies trying to export. The backlog is made worse as BIS is in the early days of trying to figure out products and customers on the banned category. That delay is a problem for western firms, because delays in approval can kill deals.

Denton told us: “Last week I had one big Japanese corporation facing an Indian competitor and they had to consider prior authorization but the Indian company said: ‘We don’t have any of this.’”

Making things more complicated for US firms is that US Treasury blacklist of 16 individuals and Bank Rossiya, Russia’s 17th largest bank. Transactions with anybody on this blacklist are “generally prohibited.”

The Treasury list includes Arkady and Boris Rotenberg - who won massive contracts for those Sochi Games - and the state controlled energy giant Gazprom. Arkady, incidentally, was a sparring partner of Putin at his St Petersburg judo club in the old days. Clearly, these are men of vast business interests, whose presence a tech exporter might find hard to avoid.

Also on the list is Vladimir Yakunin, not considered a member of Putin's inner circle but definitely a big wheel and somebody whose presence on the list will force those exporting to Russia to tread carefully.

Yakunin is chairman of the board of the Russian state-owned Russian Railways - a major systems customer of both IBM and Hewlett-Packard.

IBM in 2009 landed a contract to install a massive freight, passenger and financial management system in three new data centers running on IBM z10 servers and using DB2 and 15 Power6 systems by 2010. IBM is also providing ongoing maintenance services for the data centers.

In 2011, Russian Railways selected HP software to run the management and maintenance of the network’s IT systems, with HP thumping its chest to the line that this was world’s largest installation of HP Service Manager software.

Fortunately for HP and IBM, the restrictions apply to individuals' "personal assets" not companies they manage on behalf of the Russian state.

However, the complexity is in the definition and determining just how far somebody like Yakunin is benefiting personally from his work.

HP in a statement supplied to The Reg said it complies with the laws of countries where it does business. IBM did not respond for comment.

Baker McKenzie's Denton said he is now advising clients on the steps they can take to stay legal.

So much for existing sanctions; what happens when this week is over, if the ceasefire breaks down and Putin remains unbowed on Ukraine?

It's that scenario and the prospect sanctions could be ratcheted up by the EU and US that has tech firms concerned.

HP’s Stephen told us: “If you introduce complex sanctions or complications, that would become quite painful to us.”

One option could be to further target individuals. The US could move from targeting the assets of people like Yakunin and target any entity he’s involved in. That could mean trouble for IBM and HP on Russia Railways.

The complex affairs of oligarchs like Yakunin and the Rotenbergs will make it a tough to work out where their assets and their interests lie and how to avoid them. Others could be added to a blacklist - companies and individuals.

“It’s got complicated with respect to Russia... well-connected oligarch business people have business interests spread far and wide and are reasonably obscured,” Denton reckoned.

The EU could extend the oil and gas rules to include other sectors of the Russian economy such as heavy manufacturing, agriculture, pharmaceutical, transport and government. Exports could be reined in, requiring product-by-product signoff such as when the US State Department controlled computer exports to Russia’s immediate predecessor, the USSR. It's this kind of possible oversight that has HP's Stephen concerned.

Access to financing has already been restricted under the EU's Stage-3 rules in August, limiting western banks' ability to lend to Russian firms and - as a result - Russian firms' ability to finance projects based on western capital. Financing could be further restricted to something like the model for Iran, where official approval is needed for transfers.

There are, however, bigger threats.

One is that rather than damage Putin’s economy, firms lose their slice of the trade pie to companies from countries not bound by sanctions.

Russia matters, for its size and growth potential – the fact the nation’s IT is lagging means there is huge, pent-up demand for new systems.

The Sochi 2014 Winter Olympics was a prestige project for Putin that soaked up $20bn in facilities, road, rail and other infrastructure.

Now that the games are a memory tech firms are rubbing their hands because they believe both the state's and private sector's investment dollars can begin to be channeled elsewhere in the Russian economy.

Russia has so-far proved a decent market for consumers and business tech.

As consumers in the west have hoovered up devices so, too, have their selfie-snapping, Facebook-friendly cousins in the east - $3bn of tablets and $5bn of smart phones sold last year according to IDC. Straddling consumer and enterprise were PCs, which sold $5.7bn while IT services accounted for $7.7bn in the last year, making Russia the fifth largest IT market in Europe after the UK, Germany, France and Italy.

Russian might lag Italy, smaller in headcount and size, but it’s the scale of the customers that boggles the mind and the bottom line.

Russia accounts for just one per cent of the worldwide IT services market but half of the regional market for Central and Eastern Europe.

When it comes to scale, consider that example of Russia Railways.

Russia Railways isn’t just one of the largest railway companies in the world but one of the largest employers with 1.3 million staff. It has 85,000km of track, handles 80 per cent of Russia’s transportation and shipping and accounts for 3.6 per cent of Russia’s GDP.

Elsewhere, four of Russia’s service providers are responsible for 40 per cent of Russia’s telecoms traffic.

It's this market that could be jeopardised.

The risk, though, comes not just from the sanctions themselves but if Russia responds, as it did on food by launching a counter blockade. It might block imports of selected goods and services or it may raise import tariffs on goods and services coming from western firms while lowering import duties on firms for countries not in the sanctions gang. Or, Russian buyers may just give firms coming from outside the US or EU preferential treatment when it comes to bidding for new contracts.

That opens the door to competitors India or China. On the latter and in the field of telecoms, there’s already plenty of disquiet over Huawei from the People’s Republic, just over the Russian border. Western firms in telecoms and networking already view Huawei with a mix of suspicion and concern.

The European head of one major tech firm expressed his pessimism about Russia. “We were gearing ourselves up on the basis Russia would become a full member of the WTO [World Trade Organisation], operating the way other countries operate, but this is disappointing," he told us. “Long term investment requires confidence and this uncertainty destroys it".

Another risk is a patriotic backlash against buying from western firms - a real possibility, given Putin's personal approval ratings are going up in Russia.

According to HP's Stephen it will become a matter of how much western firms feel they can continue to visibly do business in Russia.

“Forget sanctions - people might just stop buying from American companies, there might be import duty, more preference to Chinese manufacturers and less preference to Western manufacturers. That impacts more because it’s a matter of whether you can work with it more,” HP's Stephen said.

If war is the continuation of politics by other means, sanctions are becoming the west’s expression of war through non-violent means. So far, the West's chosen merely to slap the Russian bear fairly mildly across its nose; where the EU and US hit next and how hard will be watched closely and with trepidation.

Regardless of any effect on Putin's regional aspirations, the casualties seem likely to include tech firms in the West. ®