The Russian President has so far been unimpressed by the sanctions imposed by the West.
(Photo: AP)
Düsseldorf, Berlin, Brussels In the EU there was talk of a “Big Bang” package of sanctions against Russia. However, the impact of the first round of punitive measures announced by the USA, EU, Great Britain, Japan and Canada on the Russian economy is very limited. This is also due to the fact that the West is initially only implementing a small part of the punitive measures it has imagined.
In the short term, the previous sanctions are unlikely to have a major impact on the Russian economy, according to Clay Lowery of the International Banking Federation (IIF). The Russian Foreign Ministry sneered at it as the 101st US sanctions against Moscow. The country has proven that it is able to minimize the damage. “And certainly the sanctions pressure is incapable of compromising the resolve to vigorously defend our interests.” The ministry announced counter-sanctions – “calibrated and sensitive to the US side”.
The economist Vladislav Inozemtsev, who is critical of the Kremlin, sees Russia in a macroeconomically stable state at the moment because of the high oil price and large budget surpluses. “Sanctions will not destroy our economy in the long term,” he says.
However, according to Lowery, the isolation of the Russian economy is a problem for the country, as the isolation weighs on long-term growth prospects. The sanctions are intended to reinforce this development. A look at the measures being imposed or discussed.
Top jobs of the day
Find the best jobs now and
be notified by email.
Trading ban on government bonds
The USA, Great Britain and the EU ban trading in Russian government bonds – and want to cut off Moscow’s access to the western capital markets. Last year, the US government had already banned US financial institutions from trading in government bonds on the primary market, i.e. when new issues are issued, but not on the important secondary market, where bonds that have already been issued are traded.
However, Vasily Astrov, Russia expert at the Vienna Institute for International Economic Comparisons (wiiw), doubts the effect of the extended trade ban. Russia is hardly dependent on funds from abroad. “The country has extremely low national debt.” Moscow can borrow the money it needs from its own banks or fall back on the national prosperity fund. According to the International Monetary Fund, national debt is around 18 percent of gross domestic product (GDP). “The country also has foreign exchange reserves of $640 billion.”
Sanctions against Russian banks
The US Treasury has imposed sanctions on two banks: the state development bank VEB and the PSB , which plays a central role in Russia’s defense industry. Both institutes are cut off from the US financial system, and assets under US jurisdiction are frozen. This makes it significantly more difficult for institutions to process transactions in dollars. Access to the world’s dominant dollar is one of the most powerful sanctions weapons in the US arsenal.
The UK also imposed sanctions on PSB and four other banks. However, Russia expert Astrov does not anticipate any direct impact on the banks: “State banks are protected by the government,” he says.
German economic relations with Russia and Ukraine
Russia: German-Russian trade in goods totaled almost 60 billion euros in 2021 – an increase of around a third, which reflects the recent significant rise in energy prices. The total corresponds to a good two percent of the total German exchange of goods with other countries. This puts Russia in 13th place among Germany’s most important trading partners. Goods worth around 33 billion euros were delivered from Russia, mainly raw materials such as natural gas and crude oil – the country is Germany’s largest supplier of energy. Goods worth almost 27 billion euros were exported to Russia, mainly machines, vehicles and electrical engineering.
Ukraine: Trade relations are developing positively again after the pandemic-related slump in 2020. In 2021, German exports there increased by 17.2 percent to 5.4 billion euros. German imports even grew by 22.9 percent to 3.1 billion euros. The trade volume was thus 8.5 billion euros, almost a fifth more than in 2020. Ukraine is currently ranked 41st among the most important German trading partners.
The larger institutes Sberbank and VTB have not yet been sanctioned in the current Ukraine crisis. This is what the Europeans and Americans plan to do if Russia starts a war of aggression against Ukraine. Banning big banks from trading in euros and dollars would be effective, they hope. “If we restrict access to the Western financial system, it will paralyze all trade relations,” says Guntram Wolff, director of the Brussels think tank Bruegel.
The tool for this is not the exclusion from the payment service provider Swift. Sanctions experts still regard this as the strongest threat against Russia because it would make all payments with other countries extremely difficult. The EU, on the other hand, aims more at “cutting off access to foreign capital”, as EU Commission President Ursula von der Leyen says.
sanctions against individuals
Sanctions against individuals make it harder for supporters of Russian President Putin and are a political signal. The EU plans to impose sanctions on hundreds of people and companies, including all members of the Duma who voted to recognize Ukraine’s separatist regions as a separate state. The sanctions list includes Russian Defense Minister Sergei Shoigu, but also Dmitri Grigorenko, Deputy Prime Minister and Chairman of the Supervisory Board of the state bank VTB, and Igor Shuvalov, head of the state development bank VEB. Shuvalov and his family have properties in London and elsewhere in Europe, according to the anti-corruption team led by jailed opposition leader Alexei Navalny.
Import bans on oil and gas supplies
The Kiel Institute for the World Economy has calculated that the West would have the greatest negative economic consequences if it were to order a ban on trading in gas from Russia. This would cause Russian economic output to collapse by 2.9 percent. A trading stop with oil would still cause a damper of 1.2 percent.
With maximum pressure, the West could “cause five to ten percent damage to Russia’s economic output,” says Bruegel director Wolff. However, that is theory: sanctions against Russian oil and gas exports are not included in the big bang package. The feared repercussions on Europe are too great. According to the Moscow energy expert Mikhail Krutykhin, the stop of the Nord Stream 2 gas pipeline does not mean any economic burden for Russia. There is enough other export capacity for Russian natural gas.
Export bans on technology goods
For the next level of escalation, the USA and the EU have comprehensive export bans on high-tech goods. The secret list is said to range from microchips to components for artificial intelligence systems to components for quantum computers. This is intended to prevent the modernization of the Russian economy, which is necessary if the country does not want to remain a mere supplier of raw materials in the long term.
With a chip embargo, the USA has succeeded in massively damaging the Chinese tech group Huawei, which Washington has identified as a security threat. However, Bruegel economist Wolff points out that a tech embargo will take two to three years before the consequences become apparent, since Russian companies have stocked up. Exports of aircraft goods – from Airbus and Boeing – could also hit Russia hard.
More: Russia lets the tanks roll – and Kiev declares a state of emergency