Since Russia’s annexation of Crimea in March the EU and the US have ratcheted up sanctions several times, tightening restrictions on major Russian state banks and corporations. They have blacklisted dozens of senior Russian officials, separatist commanders and Russian firms accused of undermining Ukrainian sovereignty. The EU sanctions announced on 12th September targeted Russia’s state finances, energy and arms sectors. These sectors are managed by the powerful elite around President Vladimir Putin. The targets are those considered “materially or financially supporting actions undermining or threatening Ukraine’s sovereignty, territorial integrity and independence”. Hence, Russian state banks are now excluded from raising long-term loans in the EU, exports of dual-use equipment for military use in Russia are banned, future EU-Russia arms deals are at stake and the EU will not export a wide range of oil industry technology to Russia.
Sanctions against Russia are undoubtedly having a negative effect on the Russian economy and on the political climate in the country. But they are also negatively affecting both the US and the EU economies which â€” particularly the latter â€” are only now showing some signs of improvement.
Among those affected are those individuals and companies in the United States, which are barred from doing business in Russia, particularly with members of President Vladimir Putin’s closest circle of friends and associates.
According to Kimberly Marten, a professor at Barnard College, Columbia University in New York, â€œBy exerting pressure on Putin’s friends and associates, the West hopes that it will convince Putin to change his course of action. But that thinking ignores an important element in the relationship between Putin and his friends: the pact of KGB loyalty.â€
This is pertinent because many of the individuals targeted by sanctions have past employment or connections with the KGB or its follow-up organization, called the Federal Security Service (FSB). As a former KGB career officer and former head of the FSB, Putin knows well how to harass his opponents, such as by using sensitive materials that may lead to their prosecution.
At the same time, the West’s sanctions on Russia’s key industries have aggravated Russia’s economic downturn. This is complicated by the West banning cooperation with Russian oil firms by companies such as Exxon Mobil Corp. and British Petroleum.
In 2013, $63 billion left Russia, a figure that is expected to double this year due to the political upheaval caused by the climate of instability created by the sanctions. US exports of food and agricultural products to Russia totalled $1.3 billion in 2013. Among those affected are American poultry producers, who exported 267,000 metric tonnes of chicken, valued at $303 million to Russia in 2013.
In addition, if Russia stops its delivery of sophisticated Russian rocket technology, NASA’s rocket programmes will be seriously affected.
The European Central Bank recently stated that â€œheightened political risksâ€ could hinder European countries’ efforts to overcome the devastating debt crisis. EU exports totalled â‚¬15.8 billion in 2013. Because Russia has become a key market for thousands of European companies, sanctions by the West put those companies at risk.
â€œSanctions against Russia are de facto sanctions against European business,â€ said Philippe Pegorier, Chairman of the Association of European Business in Russia (AEB), which is the largest business association in that country. According to Pegorier, â€œSanctions against Russia could cause 300,000 layoffs in Germany and at least 100,000 in France.â€
Putin imposed a one-year embargo on imports of several agricultural products from any country or region that had adopted sanctions against Russia. That ban includes the EU, Norway, the US, Canada and Australia. Those food exports banned by Russia were worth $6.5 billion in 2013, equivalent to 4.2 per cent of the bloc’s agricultural shipments, according to estimates of the European Commission.
The resulting glut is worsening Europe’s already delicate economic situation. Speaking recently on Hungary’s Kossuth Radio, Hungary’s conservative Prime Minister Viktor Orban said, â€œThe sanctions policy pursued by the West causes more harm to us than to Russia. In politics, this is called shooting oneself in the foot.â€
He also said that the entire sanctions policy should be reconsidered.
Orban was joined in that criticism by his Slovak counterpart, Robert Fico, who stated, â€œWhy should we jeopardize the EU economy that begins to grow? If there is a crisis situation, it should be solved by other means than meaningless sanctions.â€
As things stand now, Russia, the US and the EU are being hurt by the West’s sanctions on Russia. It is a truly no-win situation for all those involved. At a time of enormous strains in international relations, one would assume that it is not too late to try a different, less confrontational course of action.