Salisbury attack: new economic sanctions would be counterproductive

shutterstock_612777995 [Shevchenko Andrey/Shutterstock]

Sanctions introduced in 2014 following Russia’s annexation of Crimea have had a mixed impact on the country and have come at a cost for the EU. reports.

Fourteen member states including France announced the expulsion of Russian diplomats on 14 March, a few days after the EU decided to recall its representative from Moscow “for consultations”.

For Europe, “it is highly likely” that Russia is responsible for the attack in Salisbury, in which former spy Sergei Skripal and his daughter were poisoned with a nerve agent. However, the coordinated sanctions remain symbolic and there have been calls for new economic sanctions from those advocating a harder line on Russia. The assessment of current sanctions does not, however, argue in favour of this option.

Restrictions on access to European capital markets, to technologies used in the energy fields and an embargo on arms imposed since the violation of Ukrainian territory, have cost the EU dearly, even if the cost for Russia was higher.

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A diminishing impact

“The sanctions had an impact at the very beginning of the crisis, but in time their effect diminishes,” said Jean de Gliniasty, research director at the Institute of International and Strategic Relations. Following two years of recession in 2015 and 2016, Russian growth returned in 2017 at a rate of 1.5%, according to the statistics agency Rosstat.

For de Gliniasty, the Russian economy held on with the development of alternative circuits to bypass European sanctions and also with a strategy of substituting imports with domestic production.

This import substitution was put in place by the Russian government via counter-sanctions on European products, including an embargo on agri-food goods, and the results paid off as Russia became the world’s main wheat exporter in 2016, ahead of the US.

EU suffering collateral damage from sanctions?

For Renaud Bouchard, an economist at the School for Advanced Studies in the Social Sciences, “the missile missed its target” and the EU, affected by a decline in its market share, wound up sustaining “collateral damage”.

In a report published in October 2017, the European Parliament estimated the sanction-specific loss of EU exports to Russia at a total of $34.7 billion (€27.96 billion at the current exchange rate). In comparison, according to figures relayed by the Russian press Vedomosti in early 2016, the former Russian Deputy Minister of Economic Development, Alexey Likhachev, estimated at €40 billion Russia’s losses due to European sanctions in 2014, and at €50 billion in 2015.

Uncertainty in the long-term

If the short term, the effects of sanctions on Russia are losing their impact and concerns remain about the future. In the long run, limiting access of Russian firms and banks to the European capital market could impact their financing capacity and investments. The embargo on European technologies in the energy sector also raises questions about Russia’s ability to modernise its economy.

Technology transfers could also benefit from alternative circuits. With regard to financing capacity, Renaud Bouchard believes that “there will always be countries willing to lend to Russia”. The researcher put forward two sources of financing that can offset European capital, namely revenues from the sale of hydrocarbons (in the context of a rise in oil prices), and Chinese investments, as Russia turns more and more to its Asian neighbour.

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Salisbury attack in perspective

Despite their shortcomings, there is unlikely to be any change in sanctions in the near future, according to de Gliniasty.

“European sanctions were linked to the Minsk agreements,” concluded in 2015 by France, Germany, Russia and the Ukraine aimed at ending the fight in the Donbass region in eastern Ukraine. ”But these agreements have not worked so far as neither the Ukrainian government nor the people holding the Donbass want them to work.”

In response to the Salisbury attack, de Gliniasty believes that new sanctions would not be the appropriate answer.

“Russian public opinion would not understand these sanctions, particularly because of the persisting uncertainty about who carried out the poisoning,” he said, highlighting the “persecution complex”  and the “siege mentality”  produced by sanctions in Russia, which finally play into the hands of Vladimir Putin, who recently won his fourth mandate.

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