Crimea Crisis: Cooperation as a Reputational Risk?

Between Iran, Syria, the Israeli-Palestinian negotiations, and now the Crimea, the question of Israel strategic defense ties to Moscow is thought-provokingly important. Does the Crimea crisis hold a looming reputational risk for Israeli defense industries?

Benjamin Netanyahu and Vladimir Putin (Photo: AP)

As NATO decides to suspend "all practical civilian and military cooperation" with Russia because of its annexation of the Crimea, the tensions between the west and Russian President Vladimir Putin have thrown a spotlight on the close links between the EU's business community and its ties to Russia.

Among the notables with business links in Russia is Germany's Rheinmetall Defence. On 19th March, the German government responded to the Putinization of the Crimea by suspending Rheinmetall's estimated €120 million program to build an avant-garde simulation, land forces training centre in Mulino, Russia.

Scrambling to deal with the crisis in the Crimea, a spokesperson of the Federal Ministry for Economic Affairs and Energy, which is responsible for approving German defence exports, said that "The German government considers the export of the centre under the current circumstances as unjustifiable." Contrastingly, Siemens's CEO Joe Kaeser provided headlines as he was 'greenlighted' by German Chancellor Angela Merkel to commit Siemens to long term investment in Russia by dismissing the crisis as “short-term turmoil”.

While the angst of broader sanctions and NATO's recent moves are bewildering decision-makers in the EU - whether it is German dependence on Russian gas, France’s €1.2bn worth of navy contracts with Moscow or London's role as a financial hub - the situation in Israel is momentarily clearer. 

The swift takeover of the Crimea has been greeted with disguised silence by the Israeli government. Israeli Prime Minister Benjamin Netanyahu understands that this is not the cold war, in which Israeli Prime Ministers were called upon to stand tall by the west, in an epic struggle with the Soviet Bloc. But between Iran, Syria, the Israeli-Palestinian negotiations, and now the Crimea, the question of Israel strategic defense ties to Moscow is thought-provokingly important.

The Crimean crisis is a test to Netanyahu's foreign policy adaptability in a globalized era. Yet NATO's rhetoric towards Russia – bringing the Kremlin to the verge of 'an adversary' – may pose a problem, not a challenge, to Israel's strategic ties both protagonists. Growing Russian power, and growing western resentment of that power, are now the main themes in international affairs.

Russia's renaissance as a player in Middle Eastern diplomacy has become a welcome development in Jerusalem albeit while sustaining the Kremlin's paradoxical diplomacy with Iran, Israel and Syria. In Sochi in 2010, Russia and Israel signed a framework military cooperation deal that has led to further purchases of Israeli weapons and technology. Just over three years ago, Russia signed a major deal for the acquisition of military UAVs from Israel Aerospace Industries (IAI).

These converging technological, tactical and diplomatic trends have created a certain swagger in the corridors of power in Jerusalem. Yet, the real lessons here lie not in the comfortable  silence in Jerusalem, rather in the reputation risks Israeli business might face in responding to this fast-moving political crisis or alternatively to a 'frozen conflict' in Europe like Abkhazia, an internationally (apart from Russia) unrecognized breakaway part of Georgia.

Since a company’s reputation is one of its most valuable assets, being able to evaluate and manage its reputational risk could attain a competitive edge. Still, as long as economic sanctions are not imposed by the US and the EU, Israel's defense industries are supposed to be free to do business with Russia. Nevertheless, NATO's decision to suspend 'all military ties' with Russia might prove to be a public-relations migraine for major Israeli defense industries.

With deepening defense ties with Russia over the last few years, these industries will decide on any response given the circumstances at the time, the reasons given for any sanctions, until and unless Jerusalem decides otherwise. By the same token, any big company planning further engagement with Russia will surely exhibit signs of sensitivity to light and noise to use medical metaphors. Whether this will be a wise investment, is up to CEOs to consider.

Israeli senior business figures should not worry yet about a full-scale re-pivot of Israeli foreign and defense policy in response to the Crimea. Whether the west 'tacitly accept' Russia's annexation of the Crimea, or spur further economic sanctions, Israeli corporate chiefs would need to generate risk mitigation suggestions that facilitate trend analysis of daily political and human rights risks in the region vis-à-vis Russia, the US, the EU and NATO.

Guy Cohen is a Compliance Analyst at ELIEL Security Technologies, based in Munich, Germany.

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