The Return of the Cold War by J. L. Black & Michael JohnsAssisted by Alanda D. Theriault

Author:J. L. Black & Michael JohnsAssisted by Alanda D. Theriault
Language: eng
Format: epub
Publisher: Routledge

Part III

Economic and social conditions

7 Western economic sanctions and East–West economic orientation of Russia1

Vladimir Popov

Western sanctions and their impact

Western sanctions against Russia after incorporation of Crimea in March 2014 were pretty modest, in fact symbolic, rather than real (see Box 7.1), but Russian response in August 2014 – ban on food imports, totalling $9 billion annually from EU, US, Canada, Australia and Norway – was much harsher. If the scalpel was the instrument of Western sanctions, then Russia responded with an axe. Among the main victims were Polish fruits and vegetables, Norwegian salmon, Dutch cheese, and Spanish fruit and vegetables.

The impact of sanctions on Russian economy was controversial. On the one hand, there was a direct and mostly indirect (worsening of the investment climate) effect, leading to lower trade and greater outflow of capital from Russia. As Figure 7.1 suggests, the outflow of capital from Russia increased from the early 2014, well before the Crimean referendum of March 16. To add insult to injury, oil prices started to decline falling from about $100 a barrel in 2011–13 to $50 by the end of 2014–early 2015. The outflow of capital accelerated (Figure 7.1).

The decline in foreign exchange reserves started in 2013, but accelerated in 2014 – from February to September 2014 reserves fell by nearly $50 billion and from September 2014 to February 2015 by nearly another $100 billion (Figure 7.2). Not surprisingly, the Russian stock market fell for most of 2014, especially after the shooting down of the Malaysian airliner in July. These developments decreased aggregate demand and suppressed economic activity.

Box 7.1 Chronology of sanctions

From March 2014, after Crimea became part of Russia, the US, EC and most other OECD countries introduced a series of sanctions:

• freeze on assets and visa bans for several dozen high-ranking government officials;

• prohibition on doing business with a number of Russian companies and banks (some from Crimea), including a ban on Visa and MasterCard to deal with these banks;

• prohibition on some state-controlled oil companies (Rosneft, Novatek), banks (Gasprombank, Vnesheconombank, VTB) and defence sector companies from borrowing long-term in the US market (up to 90 days and fewer);

• ban on sales of defence-related technologies;

• ban on deep-water oil and gas-drilling equipment.

Ukraine and Russia introduced a number of sanctions against each other, in particular Ukraine prohibited exports of defence goods to Russia.

Russia responded with its own visa bans for Western officials right away (from March 2014), and on August 6 introduced a ban on food imports (meat and milk products, fish products, fruits and vegetables, nuts) from the US, EU, Norway, Canada, Australia (banning imports of about $9 billion a year from these countries).

In addition, it threatened to prohibit flights of Western companies over its territory.

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