Despite the increased economic sanctions imposed upon Russia by Europe and America, Russia has responded alike, implicating businesses on both sides of the conflict.
A fresh round of economic sanctions imposed against the Russian Federation, enforced by the members of the European Union (EU) and the United States (US), suggests the emergence of a cold war between dominant world powers.
The sanctions rhetoric was heightened by the EU and the US authorities as a direct result of the downing of the Malaysian Airlines flight last month, where the passenger plane was shot down allegedly by pro-Russian separatist rebels using Russian-supplied anti-aircraft missiles. Since the pro-Russian separatists fighting their opposites in Ukraine are publicly backed by the Russian government led by Vladimir Putin, Russia’s supposed intervention has resulted in EU/US attempts to harm the Russian economy.
The imposition of the economic sanctions are to directly affect a number of businesses owned and operated by Russians. The US has specifically targeted two Russian energy firms, two prominent banking institutions, a wide range of military arms producers, and clarifying asset freezes on government officials. The EU’s sanctions have mirrored the actions of the Americans, in particular by banning Russian financial organisations from gaining access to European capital markets and the City of London.
The rationale behind the sanctions are to adversely affect numerous elite Russian citizens regarded within the highest echelons of society; those closest to Putin have been targeted since these citizens are the individuals who own the wealthy international energy companies, arms dealers and finance firms. Thus it is assumed that by halting the wealth flows of certain citizens, the Russian President shall be forced to remove Russian presence from the Ukrainian conflict, in turn negating the effects of civil war.
Arguably Russian businesses have been implicated by the round of sanctions, however evidence suggests collateral damage in the form of western companies bearing the brunt of economic impositions. Various European firms including BP, Renault and Volksvagen have experienced declines in share values and have issued profit warnings, since a number of organisations possess business interests in Russian companies and markets. For example, British energy firm BP owns a 20% stake in Russian energy group Rosneft, a company in part owned by the Russian government. Since Rosneft is under threat from sanctions, arguably BP’s interests are also under concern.
Additional implications may be felt within the City of London, since the global financial capital of the world receives significant finance inflows from Russian sources. Consequently sanctions shall impact said flows of capital, adversely affecting the profitability of British banks.
Despite the implications for both Russian and western businesses however, recent retaliations by the Russian authorities may perhaps be of greater concern to those less well-off in society.
Announced this week by the Kremlin, Russia has imposed an import embargo upon agricultural products from the EU, America and a range of other western countries, enforced immediately and for one year. Dimitry Medvedev, the Russian Prime Minister, stated that goods within the dairy, meat, fruit and vegetable category would be banned for import, however Russian citizens would be allowed to import products purchased from abroad within customs limits.
The retaliatory sanctions against the west poses serious implications for agricultural producers, since Russia is the second-largest buyer of European food products after the US. According to European Commission statistics, the EU sold £9 billion worth of food goods to Russia in 2013 alone. Therefore the substantial loss of Russian demand may severely harm the business of European firms, in turn putting jobs at risk. However since the Russian population imports an estimated 60% of its food products, it may be conceivable that the majority of Russian citizens oppose the new sanctions in the near future.
It is clear that businesses originating from both sides of the political conflict have experienced adverse effects of economic sanctions. Thus perhaps the west and Russia are playing a sanctioning game of cat and mouse, awaiting for one political authority to succumb to the adversities of embargoes and fold their respective reaches for power. Business as usual.
– Angus McCarter, Editor (Business)
Image Courtesy: Kaster, Released into the public domain | Wikimedia Commons