Jun 16, 1:26 PM EDT

Western leaders, CEOs visit Russia amid sanctions fatigue


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ST. PETERSBURG, Russia (AP) -- The European Union needs to engage with Russia despite the painful sanctions exchanged over the past two years, a top EU official said Thursday during a rare visit that included Western oil executives eager to re-establish relations and sign new deals.

Jean-Claude Juncker, the president of the EU's executive Commission, is the highest ranking EU official to visit Russia since the country annexed Ukraine's Crimean peninsula in March 2014, triggering sanctions from the U.S. and EU. Moscow retaliated by banning imports of meat, vegetable and dairy products from the EU, a blow to many of the bloc's members.

He and the chief executives of top multinationals were attending Russia's top economic forum after a two-year break that felt more like a boycott. The CEO of American companies, including ExxonMobil, showed up against the direct recommendation of the U.S. government.

In his address to the forum, Juncker dismissed criticism in Europe that his visit to Russia could signal that the EU was ready to compromise on sanctions while Russia is still not willing to help advance the peace process in Ukraine.

"I take the view that we must talk with Russia, the leadership, its people: for some it must be a radical idea; for me it's common sense," he said, drawing applause.

Russia's takeover of Crimea in March 2014 and its support for separatist rebels in eastern Ukraine landed President Vladimir Putin in international isolation, triggered sanctions and cost Russia its seat at the Group of Eight leading industrialized nations.

Juncker said the relationship between Russia and the EU is "not broken beyond repair. We need to mend it and I believe we can."

However, he made a point of confirming the EU's stance that it does not accept Russia's annexation of Crimea because it has "shaken the very principles of European security." He still views the Minsk peace accords for Ukraine as the only conditions for the sanctions to be lifted.

"The next step is clear: the full implementation of the agreement, no more, not less. This is the only way to lift the economic sanctions," he said.

Russian Foreign Minister Sergey Lavrov argued that said the U.S. and EU should instead encourage Ukraine to comply with the Minsk deal by speaking to the rebel regions on holding elections in the region.

Once a showcase of Russia's geopolitical weight and economic attractiveness, the St. Petersburg Economic Forum - dubbed Russia's Davos - was a sore sight the past two years. European leaders and executives who once had lucrative long-term projects in Russia were nowhere to be seen.

This year's gathering, however, signals what could be an emerging movement within the EU to ease the sanctions. The measures didn't only affect the Russian economy by closing long-term EU lending to Russian companies but also triggered a Russian import ban on produce from the EU, hurting big food exporting nations such as Greece and Italy. Italy's premier, Matteo Renzi, was due to attend the forum on Friday.

Moscow has been keen to spin the attendance as a sign that European politicians have failed to convince businesses to break ties with Russia.

Chief executives of major European and U.S. companies that are either engaged in long-term projects in Russia or whose projects were affected by the sanctions were among the most vocal attendees.

At a panel, the CEOs of energy giants like BP, Total and ExxonMobil were full of praise for the Russian energy sector and their business partners.

When asked about the impact of sanctions on his business, ExxonMobil's CEO Rex Tillerson said "it's a question for the government - if there's any U.S. government official who would like to respond..." His reply was interrupted by the roaring laughter of the audience.

U.S. authorities have explicitly advised businesses against attending the forum and the State Department on Wednesday dismissed the participation of ExxonMobil, a pillar of the American economy, as an exception.

"We've been very clear on our engagements with U.S. companies that we believe there are clear risks, both economic and reputational, associated with top-level engagement with a government that is flouting the most fundamental principles of international rule of law by intervening military in a neighboring country," U.S. State Department spokesman John Kirby said on Wednesday.

Despite the sanctions imposed on Russia in 2014, energy companies have been able to keep up some activities. The sanctions did not affect existing projects and non-drilling projects like prospecting. There were also reports that Western companies were able to skirt the sanctions by registering Russian subsidiaries that would sell equipment to Russia which would have otherwise been banned.

On Thursday, Russia's state-owned Rosneft and London-based BP, which swapped shares in each other in 2011, announced Thursday they will invest $300 million in prospecting and geological data analysis. Following a meeting with Putin, Royal Dutch Shell's CEO Ben van Beurden and state-owned gas giant Gazprom announced plans to build an LNG plant in Russia together. France's Total is working with Russia's largely private gas producer on a liquefied natural gas project.

The fact that the CEOs of top American companies have in a sense defied their government shows that they put their business interests before any political considerations, analysts say.

"Two years ago, there was political pressure on companies not to attend (the forum), not to come to Russia and show interest," said Charles Robertson, global chief economist at Renaissance Capital. "I think that's changed. The one thing that is really important that has changed is that the economy has stopped its free-fall."

Since the price of oil, the backbone of the Russian economy, has rallied in the past few months, inflation has eased in Russia and the economy is forecast this year to shrink by a less severe 0.5 percent.

"Those companies are not prepared to sacrifice their ten, 20, 30-year projects for political problems of one to two years," Robertson said.

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Bradley Klapper in Washington, D.C. and Vladimir Isachenkov in Moscow contributed to this report.

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