Sanctions on Russia Raise Questions

The EU is in a fix about the economic sanctions.

The US imposing sanctions on Russia’s energy sector may not be new. However, the EU getting affected by them has been news. Russia’s energy sector, the major market segment constitutes atleast 50 percent of the country’s GDP. The sanctions prohibit US oil producing companies from partnering with Russia and selling the technology thereof, for accessing and drilling oil and gas reserves. Accordingly, US banks are not allowed to offer long-term loans to energy-oriented Russian businesses. Since the EU has sanctioned Moscow on financial grounds, European banks are prohibited from having financial involvement with Russia – forcing Russian businesses to turn to Beijing for rescue, although for relatively lower amounts.

Responding to the Ukrainian crisis, EU sanctions were prolonged, targeting primary business sectors in the Russian economy, until 31st January, 2018. The renewal of the sanctions came after President Macron’s and Chancellor Merkel’s 22nd – 23rd June 2017 update to the EU Council about the implementation of the Minsk Agreements. The targeted sectors include energy, finance, and defence as well as the dual-use goods. The extension has partly been made possible by the failure to implement the Minsk Agreements projected to be complete by 31st December 2015.

The trade sanctions curtail Russia from accessing services and technologies for oil exploration and production; impose import and export ban on arm trade; ban export of dual-use goods for military use; and restrict 5 major Russian financial institutions from accessing EU primary and secondary capital markets. Various EU measures were enacted to respond to the Russia-Ukraine crisis. These include a visa ban and an asset freeze; and limiting access to Crimea and Sevastopol following Russia’s illegal annexation of the territories – until 15th September 2017 and 23rd June 2018 respectively.

All the trade sanctions imposed against Russia are targeted at key sectors of the economy. The aim is to weaken the Russian economy in an attempt to entice Putin to reverse his decision to annex Crimea, and thence withdraw his troops and supporting rebels in Ukraine. Back in history, the Obama administration imposed economic sanctions to punish Moscow without escalating the need for armed conflict with the U.S forces. Succeeding Obama is Trump’s presidency, upon which the impact of the sanctions depends.

Since there are no universal measures to determine the effectiveness of sanctions, whether they work or not depends on the imposter’s objectives. For instance, imposing sanctions on Russian economy is primarily aimed at hitting her energy sector, which is the stronghold of the country’s economy. Since Russia’s economy is not blended, exerting even a slight disruption on the energy sector would cause chaos on the market. In 2015, Russia’s GDP dropped by a 3.7 percent margin due to low oil prices and economic sanctions. This phenomenon pushed Moscow to consider cutting down. This can partly be attributed to the low amounts Beijing, currently the biggest lender to Russian businesses, has been lending out compared to U.S’s and E.U’s typical lending.

If the objective of the sanctions was to hit the Russian economy, then they are working. However, for changing Moscow’s behaviour, they are yet to effect the change. This is because the Russian troops are in Crimea while the rebels are embattling the Ukrainian forces, drawing substantial support from the Russian military. With sanctions, real changes can only be witnessed in the long run. For example, it lasted atleast three decades of sanctioning before Obama’s administration pinned down Iran through the disputed Iran Deal. In the case of Russia, the sanctioning will only be effective when it will withdraw its assistance to the rebels in eastern Ukraine. This could result into significant lifting of the sanctions, only time will tell till when.

Nevertheless, lifting sanctions on Russia would have several implications. First, Putin would regard U.S as weak, with an assurance of getting away with anything. This is in light of the President Trump’s isolationist mindset about the world than Barack Obama. Also, it will send a signal to Ukraine, underlining U.S as a don’t-carer rather than an acclaimed partner.

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