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Return of Cold War Tensions Hurting US Businesses

By Michael Kling   |   Sunday, 03 Aug 2014 03:05 PM

Growing tensions between Russia and the West are starting to hurt American and European businesses.

More and more companies, including manufacturers, financial institutions, and oil companies, are warning that rising tensions will — or already have — hurt their bottom lines, according to CNNMoney.

They include Adidas, BP, Volkswagen, Societe Generale, Renault and McDonalds.

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Adidas says its 2014 earnings will drop 20 to 30 percent and that it's closing stores in Russia. Volkswagen says its car sales in Russia fell 8 percent in the first half of the year due to rising tensions. Societe Generale says profits for its Russian unit fell 36 percent in the second quarter.

BP, which holds a large stake in Russian oil giant Rosneft, warns that it could suffer from sanctions. Investors fear that other energy companies, like French oil company Total and Exxon Mobil, also could suffer.

Some corporations worry that sales could weaken as the Russian economy deteriorates. Others warn they could be Russian retaliation against Western sanctions, either blatant or indirect. For instance, Russian regulators have accused McDonald's of misrepresenting the nutritional value of its food.

"This is a mafia state," Stephen Blank, senior fellow at the American Foreign Policy Council, told CNNMoney. "If you don't want to play ball, bad things can happen."

The U.S. and Western Europe agreed to tougher sanctions in an attempt to stop Russian support of separatist rebels in Ukraine. But the sanctions could eventually hurt the European Union more than Russia, according to the BBC, noting that Europe relies on Russian exports of natural gas other raw materials.

Because the sanctions target Russian banks, the Western financial centers of London and New York will suffer, banking expert Ralph Silva told the BBC. The Russians will realize they can live without the global financial services.

"Putin has been strengthened as a result of the sanctions. The Russian public is seeing him as the protector, and if he gets the country through these sanctions, he will solidify his hold on power."

Russian banks cut off from Western capital might be forced turn to Hong Kong or Shanghai, agrees financial analyst Chris Skinner.

"The UK looks likely to bear the largest economic burden from these sanctions," said Raoul Ruparel of EU policy think tank Open Europe, according to the BBC. "The financial sanctions are the most developed and will hit Russian state-owned banks debt and equity issuance, which takes place largely through London.

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