Sanctions over Ukraine: Impact on Russia

Written by | Tuesday, April 26th, 2016
European Values

Martin Russell (The European Parliamentary Research Service)

In early 2014, Russia violated international law by annexing Crimea and by allegedly inciting separatist insurgency in eastern Ukraine. In March 2014, the EU, US and other Western countries reacted in a diplomatic manner, for example by suspending cooperation and preparations for trade and other agreements. Eventually, they proceeded by penalizing individuals and organizations that had publicly supported the violation of Ukraine’s sovereignty. These were, specifically, asset freezes and visa bans, along with other implemented measures. In July, the first economic sanctions in the energy, defense and finance sectors were introduced. In the spring 2015, the European Council linked the duration of economic sanctions to the full compliance with the Minsk Protocol.

However, the introduced measures have not changed the mind of the Russian public, which still supports the Kremlin’s activities in Ukraine. On the contrary, the approval rate for the steps undertaken by the EU and the US has fallen even more. The diplomatic impact on Russia, in the form of its exclusion from international negotiations and problem-solving, has been recently limited due to its military intervention in Syria and its involvement in the negotiations over the Iranian nuclear program. Moreover, Moscow has sought to develop cooperation with other countries, notably China, thereby partially breaking out of its diplomatic isolation. As to the situation in Ukraine, it is difficult to determine the degree to which the measures imposed by Western countries affected the situation on the ground. It is, however, possible to say that the sanctions have dissuaded Kremlin from supporting the separatists to gain more territory.

By contrast, the impact of economic sanctions on individual sectors has been pronounced, since these have further deepened the economic downturn triggered by the fall in oil prices. The sanctions affect the Russian economy in different ways. The most significant short-term impact is visible in the restrictions on Western lending and investment in Russia. In the long term, Russia is likely to suffer in the production of oil and natural gas, which has so far not been affected by the sanctions. The sanctions also touch upon the availability of technologies that would make access to or enable an effective exploitation of new deposits of fossil fuels.

The unavailability of state-of-the-art technology will likely hit the Russian army and the rearmament program is also jeopardized. However, the agricultural sector has so far benefited from the current situation and Moscow’s countermeasures due to its effort to replace the shortfall in supplies from other countries. As a result, the agricultural sector in Russia has experienced some growth. In spite of this, consumers often feel the change as prices have increased while the choice of products and their quality have decreased. Ultimately, the real consequences of Western sanctions have been Russia’s partial isolation from the global economy and the slowdown in the modernization of its economy.

(The study can be downloaded here:http://www.europarl.europa.eu/thinktank/en/document.html?reference=EPRS_BRI(2016)579084)

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