Economic Sanctions On Russia

The Russia’s annexation of Crimea, together with its military intervention in Ukraine provoked international sanctions against Russia by Western powers led by the US and the EU. Sanctions were imposed against both businesses and individuals in Russia and Ukraine. Russia retaliated with counter sanctions, including an embargo on food imports from the US, the EU, Norway, Canada and Australia. Similar to a trade war, sanctions too, have adverse effects on the global economy.

Sanctions Imposed against Russia

The US was the first to impose sanctions, including among others, a ban on the provision of technology and credits to Russian energy companies as well as financial institutions. In addition, travel restrictions and freezing of assets were also enacted on select Russian individuals closely associated with the Russian government.

This was followed by the EU and Canada. They introduced specifically targeted sanctions such as suspension of talks regarding military matters, space, investment and visa requirements. The Australian sanctions targeted financial dealings and travel bans on individuals. More countries joined in the international sanctions against Russia later and the participating countries expanded their sanctions to include more business sectors and individuals from Russia and Ukraine. In consultation with your economics tutor in economics tuition, discuss the economic implications of international sanctions against Russia.

Collapse of Russian Ruble and Russian Financial Crisis

Economic sanctions against Russia by the Western powers, coupled with the sharp fall in oil prices led to the collapse of Russian ruble from the second half of 2014. Russian ruble declined by 59 per cent against the greenback between June and December 2014. In the first quarter of 2015, Russia’s GDP growth was -2.2 per cent, as compared with a year earlier, officially entering a recession.

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Adverse Effects on Western Powers

The sanctions are not only costly to Russia, but also to the western powers. According to a research paper, exports to Russia by the four largest sanctioning states, namely the US, Japan, Germany and the UK in 2016 fell by 30 per cent as compared with pre-sanctions levels. As of 2015, the losses of EU were estimated at US$140 billion.  The sanctions had a negative impact on various European market sectors, in particular energy, agriculture and aviation.  By applying economics concept you have learnt in economics tuition from your economics tutor, explain why sanctions is a double-edged sword and may bring more harm than good to some economies.

Non-sanctioning countries such as Switzerland and Israel suffered too. The export losses of these two countries amount to US$2.3 billion and US$680 million, respectively. This is probably due to the increasing inter-connectivity among the world’s economies.

Scepticism About Sanctions

Suffering huge financial losses, some countries began to question the effectiveness of sanctions against Russia. The Hungarian Prime Minister Viktor Orban described it as “shot itself in the foot”. Italian Minister for Foreign Affairs said that the sanctions “are not the solution to the conflict.” Swiss Economics Minister also voiced his concerns about the sanctions’ negative impact. In addition, prominent business figures in France and Germany also opposed the sanctions.

The US itself was hesitant about additional sanctions. In April 2018, the US President Donald Trump put brakes on a preliminary plan to impose additional economic sanctions on Russia. It seems increasingly impossible in today’s inter-connected world to impose any punitive measures on others without hurting themselves.

Christopher Lau

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