IX Международная студенческая научная конференция Студенческий научный форум - 2017

The purpose of this article is to raise the issue of launching economic sanctions against Russia. Firstly, we’ll look at the background, secondly, we’ll consider the reasons, then, we’ll analyze the consequences of imposing particular sanctions and try to understand to who benefits from them.

The Ukrainian crisis prompted a number of governments to apply sanctions against individuals, businesses and officials from Russia and Ukraine starting from March 2014. Sanctions were approved by the United States, the European Union and other countries and international organisations. Russia has responded with sanctions against a number of countries, including a total ban on food imports from the EU, United States, Norway, Canada and Australia. Both these sanctions applied to Russia and Russia's import bans in response have contributed to the collapse of the ruble and the 2014–15 Russian financial crisis [2].

The first round of specifically targeted sanctions included travel bans and freezing of their U.S. assets, against not yet specified individuals. Japan, Australia, Albania, Iceland, Montenegro, Moldova imposed sanctions against Russia after annexation of Crimea from Ukraine as well. In response to the sanctions introduced by the United States and the EU, the State Duma unanimously passed a resolution asking for all members of the Duma to be included on the sanctions list [2].

The second round involved a ban on business transactions within its territory on seven Russian officials and seventeen Russian companies.

The third round of sanctions covered certain sectors of Russia's economy, including the financial sector, trade restrictions relating to the Russian energy and defence industries, additional individuals and entities designated under the EU asset freezing provisions.

According to the deputy premier Rogozin, the real cause of imposing sanctions was the assumed course towards the independent development of our country, the course towards the independent political policy, the course towards the restoration of the economic might of our country. The United States and its President Barack Obama personally as well as the European Union are using the events in Ukraine as a tool to exert pressure on Russia [4].

Andrey Kostin, the VTB bank chairman and CEO, has described the anti-Russian sanctions as an "economic war" against Russia.

Kostin noted, that the economic war would certainly produce a negative impact on the Russian economy, but would be much more damaging to a political dialogue and security in Europe [3].

Kostin added, that the path of imposing sanctions on Russia was wrong and would eventually decrease stability in Europe.

The third round of sanctions was faced with criticism by numerous EU politicians, businesspeople and officials, who saw them as counterproductive and/or harmful to the European economy [3].

Sanctions and responses had a serious impact on the economy through three channels.

Firstly, they have caused increased volatility in the foreign exchange market and a significant depreciation of the national currency. Large-scale capital outflows led to a deterioration of the capital account and financial instruments and the reduction of net international reserves [5].

Devaluation of the ruble led to accelerating inflation. A ban on food imports in August 2014 resulted in raising food prices. By February 2015, food inflation reached 23.3%. In response, Bank of Russia has significantly tightened monetary policy in the second half of 2014.

The second channel includes restrictions on Russia's access to international financial markets.

Tighter credit conditions in the domestic and foreign markets had a negative impact on investment and consumption decisions, that led to postponing plans and cuts. After imposing sanctions, very few foreign financial institutions provided financing to Russia, and most of the Western financial markets remained closed for Russian banks and companies. In this case, the cost of borrowing for Russian companies remained high, but began to decline in recent months.

Thirdly, sanctions have affected the turnover. There has been a sharp decline in imports due to the depreciation of the ruble and the adoption of Russian response to the ban on importing food from Western countries [5].

Although the impact of sanctions on Russia's economy is likely to persist, the global economy will not benefit from this new economic war in the long term, economic analysts polled by The Moscow Times said. “The sanctions are not a zero-sum game. Everybody stands to lose in this scenario,” said Vyacheslav Smolyaninov, chief strategist at UralSib Capital [1].

But in the shorter term, some economic players stand to gain, including Hong Kong lenders, Turkish borrowers, Chinese drill rig makers and, possibly, at a later point, even certain domestic enterprises in Russia, the analysts said [1].

1. Banking

Sanctions: Five Russian state-owned banks – including the country’s three biggest banks, Sberbank, VTB and Gazprombank, as well as Rosselkhozbank and Vneshekonombank, or VEB – were cut off from access to European capital markets. While all five said their clients would not be affected, the banking sanctions are widely expected to stifle investment and lending in Russia.

Who benefits: Hong Kong; Turkey.

Russian companies such as MegaFon and Norilsk Nickel are reported to be snapping up Hong Kong dollars. The currency is not subject to Western regulations and is pegged to the U.S. dollar, which makes it an attractive currency to keep assets in during political turmoil.

2. Oil & Gas

Sanctions: Europe and the U.S. banned sales without special authorization of energy-related equipment to Russia. Exports of equipment for Arctic and offshore drilling and shale gas projects are banned outright, which could affect Russia’s Napoleonic – though mostly tentative – plans for offshore drilling, including in the Arctic, to compensate for the gradual depletion of Siberian oil fields.

Who benefits: China; domestic producers.

Chinese companies are capable of providing equipment for the Russian oil industry’s current needs, but not innovative designs, said Andrei Polishchuk, an oil and gas analyst with RaiffeisenBank [1].

3. Food

Sanctions: banning many European, American and Ukrainian food imports, including dairy products, fruits, vegetables and beef.

Who benefits: Most of the world – but just a little.

Argentina and Brazil can step up to supply beef, Belarus can take up Ukraine’s share of the Russian market of dairy products, and Georgia, Central Asia and Middle Eastern countries can provide fruits and vegetables, Klyagin said [1].

4. Military technology

Sanctions: The carefully worded EU ban prohibits exports to Russia of dual-use technologies that can be used for military purposes. This covers, among other things, lasers, avionics, advanced materials and electronics for satellites.

Who benefits: Domestic producers – eventually.

Russia has no way of supplanting Western dual-use imports through other trade partners, including trusted ally China, whose technologies are just not up to par, said Alexander Khramchikhin, an analyst with the Institute for Political and Military Analysis[1].

The only way out is domestic manufacturing, Khramchikhin said.

5. Space

Sanctions: While space technologies are exempt from the dual-use tech ban, NASA has spoken of curbing contacts with its Russian counterpart, Roscosmos, and called to end dependency on Russian spacecraft for flights to the International Space Station, or ISS. Roscosmos, meanwhile, has indicated that it is ready to pull out of the ISS project after 2020.

Who benefits: Things stay as they are.

Roscosmos’ ties to NASA and the European Space Agency, or ESA, are too many and close to be destroyed by the sanctions, said Igor Marinin, editor-in-chief of aerospace magazine Novosti Kosmonavtiki (“Aeronautics News”) [1].

Thus, sanctions are not so devastating to our state, although they brought us a lot of damage & problems. Introducing sanctions means nothing more, but an indicator. We have to identify our weaknesses and eliminate them. Russia does need domestic producers to become economically independent as much as possible.

References:

1. Новостной Сайт [Электронный ресурс] — Режим доступа. — URL: http://www.themoscowtimes.com/business/article/who-is-benefiting-from-west-russia-sanctions-war/504634.html

2.Свободная интернет-энциклопедия [Электронный ресурс] — Режим доступа.URL:

http://en.wikipedia.org/wiki/International_sanctions_during_the_Ukrainian_crisis

3. Anti-Russian sanctions are nothing else but 'economic war' against Russia — VTB bank’s CEO. — [Электронный ресурс] — Режим доступа. —

URL: http://tass.ru/en/economy/774507

4. Russia’s independent political course real cause for Western sanctions — Russian deputy PM. — [Электронный ресурс] — Режим доступа. —

URL: http://tass.ru/en/russia/773254

5. Kabanova Е. А. Economic sanctions against Russia. Consequences. — [Электронный ресурс] — Режим доступа. —

http://scienceproblems.ru/images/PDF/Economics%201%20(2).pdf

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