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Russia: EU Sanctions And Their Outcome

Published On October 27, 2015 | Europe

Even if sometimes only for symbolic purposes, and therefore mainly declaratory, but most often aimed at exercising a form of civilian deterrence by other means, EU sanctions have recently increased in frequency and intensity. Every time Western countries are confronted with an international security crisis in which they want to follow a non-aggressive approach, considering various types of restrictive measures has proved to be a way of showing a willingness to react and to influence developments – that impact the present and future.

EU’s role as an international sanctions ‘user’ is now comparable to that of the United States, the world’s biggest sanctioning power. The increased levels of EU’s activity in the field of sanctions has enhanced its visibility as a foreign policy actor on the international stage, serving the Union’s endeavor to become an increasingly active security provider. The EU used the imposition of sanctions as a way to address security issues within and beyond its neighborhood: a signal that the cases of Iran, Russia and Syria are situations that constitute a threat to international security. Amid significant financial constraints, EU sanctions have emerged as cost-effective security policy instruments. Currently constituting a relatively minor drain on the EU budget, they represent an attractive option in the absence of alternative means of coercion. Lacking significant military capabilities of its own, the EU has a comparative advantage in the use of economic sanctions as a form of coercive diplomacy.

Sanctions come in different forms: asset freezes; travel, visa and investment bans; withdrawal of financial aid; arms, commodities and trade embargoes; restrictions on banking transactions and many more.  It’s sanctions goals vary and aim to address various objectives which include:

– conflict management (Afghanistan in 1996, Libya and Syria in 2011);

– democracy and human rights promotion (Belarus in 2006, Syria in 2011);

– post-conflict institutional consolidation (Guinea in 2009);

– nuclear non-proliferation (Libya in 1994, Iran since 2006);

– countering international terrorism (Libya in 1999 and terrorist organisations on the EU list);

– condemning and containing the violation of a sovereign state’s territorial integrity (Russia 2014).

As a general fact, sanctions pursue multiple goals and that their effectiveness needs to be assessed against how they achieve three main goals:

  1. Coercing — the extent to which sanctions modify the target’s cost-benefit calculation of pursuing its proscribed policy;
  2. Constraining — the extent to which sanctions reduce a target’s ability to pursue its objectionable actions;
  3. Signalling — the extent to which the threat of future sanctions allows the sender to notify targets of its intended actions and likely course of action for the foreseeable future.

In the context of Russia’s annexation of the Crimean Peninsula in March 2014 and its involvement in the conflict in Eastern Ukraine, the EU, the US and their allies imposed a series of sanctions on Russia. Western sanctions were targeted at three main sectors – energy, defence and finance, while Russian counter-sanctions resulted in a one-year ban on imports of fruit, vegetables, meat, fish, milk and dairy products from all EU countries, as well as additional Western countries, including the USA.

The outcome of the sanctions cannot be precisely measured, at the moment being available a range of varying estimates of the economic impact. The structural slowdown in economic growth in Russia and the decline in the price of oil both make it difficult to isolate the impact of sanctions. In November 2014, Russia’s Finance Minister, Anton Siluanov, suggested that sanctions had cost Russia USD 140 billion and President Putin stated recently that sanctions have costed Russia USD 160 billion. Numerous non-russian politicians have also assigned great importance to the effect of sanctions on the performance of the Russian economy.

The aggregate effect of the arms embargo on Russia was so far modest because the arms export between Russia and EU countries was at a low level before also. As a result, despite the imposition of sanctions, Russia recorded well over USD 13 billion worth of arms exports in 2014, making Russia the world’s second-largest exporter of armaments.

The impact of sanctions on current oil production has been negligible, with post-Soviet countries record levels of oil production registered in 2014. This evolution turned out this way because Western sanctions target projects oriented to future rather than current production, by the imposing restrictions on technologies related to Arctic and deep-water exploration, as well as onshore tight oil extraction.

Financial sanctions have exerted the most observable influence over the Russian economy. Access to Western capital markets has been effectively closed to a large number of Russian corporations, and not only to those directly targeted by sanctions. Firms in sectors directly targeted by sanctions – such as those in the energy, defence and construction industries – have suffered, but so have firms not directly sanctioned, as lenders became reluctant to lend to Russian firms because of fears that sanctions may be extended in the future. Also, the reduction in imports from Western countries, and the costs associated with seeking new suppliers, has resulted in food prices rising above the average rate of consumer price inflation and impacting the population as well.

The economic policy climate in Russia has changed its approach since the imposition of sanctions,  emphasizing support for those industries that are targeted by sanctions.  The interruption of supply chains has prompted a reallocation of resources to domestic industries through import-substitution programs. Over the past year, extra resources have been allocated to the oil and gas equipment industry, the pharmaceutical industry, the agricultural machinery and production industries, and, of course, the military-industrial complex. Sanctions have made Crimea’s absorption more expensive for Moscow, prompting Russia to divert state funds earmarked for other projects. The peninsula has turned out to be the region most dependent on federal budget transfers, along with the North Caucasus republics. As Russia confronted the substantial costs of its annexation of Crimea, the EU’s direct financial support and mobilisation of international funds such as IMF and the World Bank saved Ukraine from economic collapse.

The EU’s sanctions have not altered and are unlikely to modify Russia’s strategic objectives in Ukraine over the mid-term. Nonetheless, EU sanctions have been part of a cumulative set of factors that have prevented Russia’s strategic objectives from being fully accomplished at times when Ukraine’s state was too weak to resist a multi-dimensional (military and non-military) attack. In this regard, sanctions have provided a minimum of deterrence against Russia. The EU’s decision to extend sectoral sanctions against Russia until January 2016 has been an investment in its reputation as a credible sanctioning actor and coherent foreign policy player.

Sources:

http://www.iss.europa.eu/uploads/media/Alert_10_sanctions.pdf

http://www.iss.europa.eu/uploads/media/Report_25_EU_Sanctions.pdf

http://www.bbc.co.uk/news/world-europe-28400218

http://www.bbc.co.uk/news/world-europe-26672800

http://www.bbc.co.uk/news/business-26680182

http://europeansanctions.com/eu-sanctions-in-force/russia/

http://edition.cnn.com/2014/07/29/politics/us-eu-russia-sanctions/index.html

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