What do the russia sanctions bring?

The EU sanctions against Russia have been in force for five years. More and more demands are made to abolish them. How sensible are the punitive measures?

By Silvia Stober, https://westwallboats.com

"Russia is a strategically important partner, for a better relationship we need an end to the sanctions," wrote Saxony’s Prime Minister Michael Kretschmer at the beginning of June after a conversation with President Vladimir Putin at an economic forum in St. Petersburg. The sanctions are a major problem, especially for the Saxon and East German economies.

Other politicians and entrepreneurs make similar statements. What kind of punitive measures and for what reason is hardly discussed. It plays a role in the question of the meaning and possible end of the sanctions.

Business with the Crimea is prohibited

The first package of punitive measures relates to economic activities on the Ukrainian peninsula of Crimea – in response to the annexation by Russia in March 2014. Specifically, it concerns the ban on purchasing products from there, making investments, and equipment and services for some infrastructure areas as well Deliver raw material exploration. In addition, travel companies are not allowed to offer services in Crimea and cruise ships are only allowed to moor in an emergency.

A second group of sanctions is linked to the full implementation of the Minsk Agreement for Ukraine. It is an arms embargo and restrictions on goods that can be used in whole or in part for military purposes.

There are restrictions on access to the EU capital market for three defense companies, three energy companies and five Russian banks. There are also restrictions on goods for use in oil exploration and production in the deep sea and the Arctic, as well as in shale oil projects.

In addition, a list of persons, institutions and organizations was drawn up that are accused of acting against the territorial integrity, sovereignty and independence of Ukraine. They are subject to entry restrictions and their assets in the EU are frozen.

Punctual sanctions

The demands for the abolition of the sanctions are justified mainly with the damage to the economy. The Eastern Committee of the German Economy wrote in 2017 of a "very high double-digit, if not already three-digit" billion amount.

However, it is difficult to measure the damage independently of other factors. In 2017, after reviewing numerous publications, the scientific service of the Bundestag came to the conclusion that the decline in exports to Russia was largely due to a recessive economic development there.

The Russia director of the business development agency GTAI, Gerit Schulze, points to the slow growth in investments, stagnating consumption and the decline in real disposable income for the last six years. Added to this is the rise in the price of German goods due to the devaluation of the ruble and, in the case of public procurement, the preference for local over foreign industrial goods. The problems of German companies on the Russian market were therefore less related to the very selective EU sanctions.

Russia not the main trading partner

Saxony’s Minister of Economic Affairs, Martin Dulig, sees the sanctions of 2014 only as a catalyst for the already shrinking business in Russia. Saxony’s companies could have compensated for this breakaway "relatively well" through other markets, he said, according to Chemnitz’s "Freie Presse". On the list of Saxony’s trading partners, Russia only ranks 17th. The EU is also the most important sales market for the other eastern German states, according to Moscow-based GTAI boss Schulze.

Russian and US sanctions are causing problems

One problem, however, is the US’s punitive measures, which can also be imposed on companies in third countries if they cooperate with Russia. The uncertainty about this third party effect caused problems in particular for East German companies, which are usually smaller than West German companies, said Schulze. Often they could not afford the high level of testing required. The Russian import bans on food and agricultural products, which Putin had imposed in response, are a problem for East German and West German companies alike.

Nevertheless, according to the German Chamber of Commerce in Moscow, business is going well. For example, German companies invested 3.2 billion euros in Russia in 2018. That is the highest sum in the past ten years.

Violations of the ceasefire remain unpunished

The question remains whether the measures will contribute to pacifying the conflict in Ukraine. A change in the status of Crimea is not in sight, and fighting continues in eastern Ukraine. The demilitarization of a town between the Ukrainian army and separatists is already considered an "encouraging sign". The Minsk agreements provide for a complete demilitarization of the front line.

The former Deputy Chief of the OSCE Mission, Alexander Hug, explained that the fighting was still going on, saying that the regular ceasefire violations went unpunished. Impunity is an incentive for further violations. A lack of trust between the conflicting parties and a lack of political pressure at the international level also contribute to this. This means that the sanctions are not specific enough or are not adequately accompanied by reactions to the specific situation on site.

The question remains whether alternative means should be used. "It is good that we do not deal violently with such questions in a completely different way than in the past. But it is good and important and right that we react decisively and cohesively," said the German Ambassador Rudiger von Fritsch at the end of June when he left Moscow.

The sanctions have increased the costs of aggressive behavior for Russia, write experts Janis Kluge and Sabine Fischer from the Foundation for Science and Politics. The collective action of the EU prevented further escalation. A dismantling of the sanctions without implementation of the Minsk agreements could, however, have a disinhibiting effect on the conflicting parties, warn the experts.

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