Russia's No. 1 Profit Pitfall

Much is the hoopla in Moscow these days, as President Obama and his corporate entourage part the Iron Curtain to try and "reset" our relationship with Russia. Accompanying the Prez on this week's voyage are executives of some of the biggest U.S. corporations:

• PepsiCo (NYSE:PEP) and Pepsi Bottling Group, which on Monday announced a billion-dollar expansion of their joint investment in the country.
• Boeing (NYSE:BA), which aims to set up a joint venture with titanium titan VSMPO-Avisma to churn out metal for its aircraft.
• John Deere (NYSE:DE), which will reportedly invest $500 million in production of agricultural machinery.
• And ConocoPhilips (NYSE:COP), angling to get some investment moving the other way as it negotiates a (U.S.) East Coast refinery partnership with Russia's LUKOIL.

… not to mention ExxonMobil (NYSE:XOM), Chevron (NYSE:CVX), and a cast of supporting players. They're all headed to Moscow with aims of opening the door to profit. But Russian-sourced profits depend less on the amount of investment that goes into the country, and much more on the price of one commodity that comes out: Black gold. Oil. Russian tea.

I see a red door and I want to paint it black … gold
Trade delegations and their direct-investment talk make for good newspaper copy. But as far as profit goes, oil drives the Russian stock market -- and the Russian markets in general.

Witness Pepsi's arch-local-rival in Russia, Wimm-Bill-Dann (NYSE:WBD). As a juice and milk manufacturer, you might think its business has little in common with oil, but Wimm's financials tell a different tale. As the price of oil soared in recent years, Wimm's sales soared with them -- posting a string of double-digit percent increases. But when oil's bull run first slowed, then stalled last year, Wimm's sales fell with it. They slowed in Q2, decelerating further in Q3, then deepened into what was, by this year's Q1, a full-scale rout, with sales down 29% year over year. But when oil dives low, look out below.

Oil's recent resurgence has sparked a revival in Wimm's stock price, and it could be that investors expect similarly great things for all the firms rush-ing to Russ-ia. But to my Foolish eye, it just confirms the point that all profits in Russia flow from a single wellspring. When that well's a gushin', riches may flow to Russia investors.

Or not. Ikea learned the hard way how tricky investing in Russia can be. Companies looking to do business there shouldn't overlook the risks -- economic or political.

Pepsi and Coca-Cola battle over Russia -- and the world:

• Coke's Russian Drinking Binge
• Pepsi's Bigger, but Coke's Smarter
• Pepsi Confronts Coke Back in the (Former) USSR