Essay: Russian sanctions and their impact

Sanctions are defined as a ‘collective action against a state considered to be violating international law’ designed ‘to compel that state to conform [to the law] (Daoudi and Dajani, 1983, pp. 5-8). Sanctions are used as a way to influence a country’s behaviour in either a positive or a negative manner; for example, it could be used as a way to forestall war or as a way to strengthen human rights such as Iran.
Sanctions could be either a small punishment or refusal to accept diplomatic validity, or even more extreme measures such as freezing assets of particular individuals from those nations such as Putin’s inner circle. Notwithstanding, most sanctions comes from restriction on trades (Daoudi &Dajani, pg5).
Sanctions do come at a cost, however. The punishing country/ies normally bears both the enforcement costs and economic burdens. The domestic companies of the nation’s imposing the sanctions are more than likely to lose sales, in both present and future sales; not only that but sanctions also increase uncertainty in both business and politics. For instance, according to Spectator, most of the countries in the Eurozone have lost billions of dollars in losses of sales.
Graph 1
Graph 1 shows how much some countries in the Eurozone, such as Germany, France, Austria, etc, has lost in billions of Euros since the sanctions have been implemented. Lance Davis & Stanley Engerman’s ‘History Lessons Sanctions: Neither War nor Peace’ is right; sanctions are not an effective tool to induce change especially in the case where the country in question has large resources and powerful allies. Russia is still in control of Crimea and there is still no ceasefire between Eastern & Western Ukraine. After the US & the EU imposed prohibitions of sales and loans on Russia for the annexation of Crimea & the succession of Eastern Ukraine from Ukraine, Russia will now have to rely less on its Western trading partners and form allies and new trading routes with other emerging markets such as BRICS ‘ Brasil, Russia, India, China and South Africa ‘ along with the MINT ‘ Malaysia, Indonesia, Nigeria and Turkey ‘ countries. These countries have long felt resentment towards Western nations from being exclude from the seats of power in the United Nations, WTO and other international organisations; a power structure that was formed after World War II and based on which country has nuclear bombs.
Background:
After the MH17, Malaysian airline, was shot down in the Eastern Ukraine territory, the US and the European Union, EU, imposed sanctions onto Russia. The US decided to expand export restrictions in Russia. According to the US Department of State, ”the US is implementing additional restrictive measures on defence exports to Russia’.Effective immediately, the Department’s Directorate of Defence Trade Controls (DDTC) will deny pending applications for export or re-export of any high technology defence articles or services regulated under the US Munitions List to Russia or occupied Crimea” (US Department of State: Diplomacy in action). In retaliation for Russia allegedly backing the separatists, the EU has also imposed sanctions on Russia in a three prong attack. In David Saha’s article, ‘Firstly, cutting a large share of the Russian banking sector from EU-based sources of financing forces the Russian government to either spend money on the banking system that then cannot be used for creating mischief ‘. the economy collapse as bank finance dries up. Secondly, the ban on arms trade is more effective by stopping imports of Russian-made equipment to the EU than by restricting EU Arms exports to Russia. Thirdly, the ban on EU exports of equipment used in deep-sea drilling, arctic exploration and shale oil extraction won’t put much pressure on the Russian economy in the short run but will divide the Russian elite.’ (Bruegel)
Present Repercussions:
The sanctions have a very strong impact on the Russian economy. The rouble’s value has fallen drastically. In Table 2b, the Russian’s inflation rate has grown at an exponential rate. In the table 2a, which was provided by ORAND, it shows how the rouble has decreased in value since May 2014 to December 2014.
Table 2a
Table 2 b
As the two tables have shown, ever since the sanctions have been taken into effect, the Russian economy has taken gone down.
There have been other repercussions to in the financial sector of the Russian economy. Any Russian bank that is owned by more than 50% by the government, no European nations can participate in it (Saha). There have been other restrictions put into place, according to the European Union Institute for Security Studies, such as
‘Asset freezes and visa bans on 132 persons and 28 companies or other entities in Russia/ Ukraine deemed responsible for the violation of Kiev’s territorial integrity. The suspension of preferential economic development loans to Russia by the European Bank for Reconstruction and Development (EBRD)’..30 days with some of Russia’s biggest state-controlled banks (including Sberbank and Gazprombank), three Russian energy companies, and three Russian defence companies. A ban on loans to five major Russian state-owned banks’. (EU Institute for Security)’
All of these restrictions have had an impact on the Russian economy, especially since it is the financial restrictions that will hurt Russia the most in the short-term.
Nevertheless, the Russian economy has been resilient.
How the Russians Manage to Beat the Sanctions:
Although the sanctions has a negative impact on the Russian economy, this has allowed Russia to find alternative ways to survive and undercut its competitors and to emerge stronger than before. When the Europeans cut off its food supplies to Russia, although this may have hurt the Russian consumer on a short-term basis, Russian suppliers have turned to BRIC nations for a way to find other sources on food and to sell its oil. Russia will continue to seek to find new allies in countries that have traditionally felt left out of the Western power structure such as India, China, Brasil, etc. Russia will also seek out countries that are not traditional allies of the US.
Russia and China have traditional ties that go all the way back to the Cold War. Although there has been a mutual distrust on both sides, the common saying, ‘the enemy of my enemy is my tentative ally’ is very applicable in this situation. In September 2014, President Putin and Chinese Vice Premier Zhang Gaoli have agreed to launch the construction of the first part of Gazprom’s pipeline ‘ which will deliver around 4 trillion cubic meters of gas to China and to other parts of Asia for the next 30 years (RT Business). Although Europe has been Russia’s biggest customer in oil, with the economic sanctions, Asia is poised to replace Europe as Russia’s biggest customer. Last year alone, China has consumed over 170 billion cubic meters of gas and is expected to consume over 400 billion meters of gas by 2020 (RT Business). With this pipeline, Russia will be able to find new customers in Southeast Asia such as South Korea ‘ traditionally a US ally, but who refused to engage in sanctions ‘ Vietnam, Cambodia, etc.
Russia has forged a deeper commitment with India especially in matters in regards to Europe. The Prime Minister of India, Narendra Modi, and President Vladimir Putin have just signed a series of large deals such as: ‘the state-owned Russian company Rosatom will build 12 nuclear reactors in India; Roseneft agreed to a 10-year, fixed price contract to provide oil to India; and the two countries will co-operate on the production of 400 KA-226 military helicopters’ (Kundnani). India has brought over 38 percent of Russia’s major weapons export from 2009 to 2013, yet at the same time, Russia has also supplied 75% of India’s imports on major weapons (Kundnani). This relationship will continue to evolve into joint-ventures to develop new technologies.
In addition to building greater ties with India & China, Russia has also been building larger ties with Brasil in terms of agricultural products. In 2012, Russia brought 41% of its beef from Brasil and in 2013, Brasil and Russia has reached a new agreement on long-standing pork issues and sanitary and quality requirements for Russian wheat (Sukhoparova). Brasil has also provided Russia with other numerous agricultural products such as Brasilian coffee, sugar, juices, alcohol and fertilisers. The total trade volume between Brasil and Russia has grown from $5.7 billion to $10 billion (Sukhoparova). .
Conclusion:
In conclusion, Western Nations seek to punish Russia for its imperialistic views, in reality, the Western Nations are actually strengthening Russia in the long term. Russia has been forming numerous ties with other BRIC nations because those nations have traditionally felt left out of the power vacuum that was established after World War II. In conclusion, the sanctions are detrimental to the Russian economy right now, but in the end, the penalties will strengthen the Russian economy and it will be the European economies that will lose out in the end.