Written by Martin Russell,
Four years after Russia’s illegal annexation of Crimea, the issue of sanctions against Moscow is more topical than ever. Relations between Russia and the West have continued to deteriorate to a level not seen since the end of the Cold War, with revelations of the Kremlin’s interference in the United States elections and elsewhere – for example, in the United Kingdom’s EU referendum. Then in March 2018 came the attempted assassination on UK territory of former Russian spy Sergey Skripal, with the likely involvement of Russian security services. Against this tense backdrop, the European Union is expected during the next few weeks to reach a decision on whether or not to extend its economic sanctions against Russia, due to expire in July 2018, for another six months. On the other side of the Atlantic, the US adopted its Countering America’s Adversaries Through Sanctions Act in August 2017, and on the basis of this new legislation, has adopted a range of new sanctions. Among other things, these strengthen existing restrictions on cooperation with Russian defence and energy companies, and penalise individuals and businesses not previously targeted, such as oligarch Oleg Deripaska and aluminium producer Rusal. Further US sanctions are expected over the coming months.
With sanctions very much in the news, there was particularly strong attendance at the EPRS roundtable discussion on the topic of ‘EU sanctions against Russia: What next’, held in the European Parliament library on 16 May 2016. EPRS Director General Anthony Teasdale delivered a welcoming speech, while the event was moderated by Monika Nogaj, acting head of the EPRS External Policies unit. First to speak was Sandra Kalniete (European People’s Party, Latvia), a prominent Member of the European Parliament’s Foreign Affairs Committee with a long-standing interest in Russia that goes back to her time as Latvian Foreign Affairs Minister. Sandra Kalniete pointed out that Moscow’s aggression in Ukraine, as well as its support for the Syrian regime, highlighted the need for the EU to have a policy of credible deterrence vis-à-vis Russia. She felt that sanctions targeted at Russia’s political leaders and allied oligarchs were particularly important, as they raised the personal cost of Russia’s unacceptable foreign policy actions for members of Vladimir Putin’s inner circle. She also called for the EU to follow the example of the United States and some EU Member States in adopting Magnitsky-type sanctions against individuals involved in human rights violations in Russia.
The next two panellists outlined the economic impacts of EU sanctions against Russia. EPRS policy analyst Martin Russell began with an overview of the various sanctions regimes currently in place against Russia, before going on to describe the effects of EU and US measures targeted at the Russian defence, energy and financial sectors. In the longer term, restrictions on cooperation between EU and Russian companies on projects to develop new oil reserves were expected to seriously undermine Russia’s capacity to maintain production of oil, its number one export; however, in the short term the most immediate impact had come from financial sector sanctions cutting off Russian banks and businesses from access to western finance. Sanctions were not the only cause of Russia’s 2015-2016 economic recession, but they had significantly aggravated it, and were continuing to dampen growth. A muted economic recovery meant that Russia was increasingly falling behind the rest of the world as its share of the global economy continued to decline.
By contrast, Eric Peters, Fulbright Scholar at the Hungarian think tank Antall József Knowledge Centre, focused on the economic effects of sanctions on the EU, above all on the four Visegrád countries (Czech Republic, Hungary, Poland and Slovakia). Agrifood exports to Russia had been particularly hard hit, with Poland and Slovakia the worst affected. Nevertheless, the agrifood sector had successfully adapted, thanks to EU payments compensating farmers for lost exports, and to efforts to diversify into new markets. With three of the four countries relying on Russia for over half of their gas supplies, energy sanctions also had a potential impact; at the same time, several initiatives had been taken at both EU and Visegrád country level to reduce dependence on Russian gas. In the defence sector, even before sanctions, Russia had only had a very small share in weapons supplies to Visegrád countries, which were increasingly turning to fellow NATO countries for their armament needs. Peters therefore concluded that the economic costs for EU countries had been limited, and recommended that sanctions be continued.
Professor Irina Busygina from the Higher School of Economics discussed the political effects of sanctions in Russia. According to her, Russia’s leadership had initially miscalculated that EU countries would not be able to reach consensus on restrictive measures. After the adoption of sanctions, expectations that they would soon be lifted again had given way to acceptance of the situation as the ‘new normal’. Russia’s leaders had attempted to present sanctions to the public in a positive light, arguing that they reflected western fears of a strong Russia, and that they could stimulate economic reforms. In reality though, far from encouraging beneficial reforms, sanctions were widening inequalities between Russia’s regions, leading to more state intervention in the economy, and isolating Russia from global markets. Meanwhile there had been a ‘rally round the flag’ effect, illustrated by Vladimir Putin’s overwhelming victory in the March 2018 presidential election.
Fernando Andresen Guimarães, Head of Division for Russia in the European External Action Service emphasised that the sanctions had been adopted in response to Russian actions in violation of international law and the European security order: its illegal annexation of the Crimean peninsula, and its destabilisation of eastern Ukraine. Regarding the latter, the duration of the EU’s restrictive measures had been linked by the European Council to the complete implementation of the Minsk agreements, and although this had not yet happened, it could be argued that sanctions had helped to avoid further escalation of the conflict in eastern Ukraine. Furthermore, EU sanctions were carefully targeted not to cause damage to the broader economy and the Russian people. Due to the way in which sanctions worked and in light of the pressure that they evidently created, it was important to show patience and keep them in place until the desired outcome was achieved. Sanctions were a tool in support of a broader EU policy towards Russia, based on the five principles expressed unanimously by EU foreign ministers in March 2016, and recently reaffirmed in the April 2018 Foreign Affairs Council, which stressed firmness on Ukraine and principles of international law, such as sovereignty and territorial integrity, while keeping communication channels open, engaging on foreign and security policy and global issues, and continuing to strengthen bridges between Russian and EU citizens. An example of the latter was the EU’s Erasmus Plus programme of educational exchanges, with Russian students and teachers the largest non-EU group of participants.
The roundtable discussion was followed by a lively Q&A session.