The annexation of Crimea by Russia after a referendum in March 2014 and the allegations about Russia’s support to the separatists in East Ukraine caused the tensions between Moscow and the West to increase at a towering rate. After 2014, western countries started to impose sanctions against Russia. It is a fact that sanctioning different countries exist in the EU’s foreign policies. However, the sanctions imposed against Russia is quite intensive as never seen before. Especially the economic sanctions brought difficult obstacles for the Russian economy.
These sanctions produced fluctuations in the markets, increased the financial instability and the outflow of the capital, and decreased the foreign investment inflow. The most severe damage was felt on the macroeconomic indicators, exchange rates, and inflation, and also oil and gas consumption, nuclear and military industry products, and banking sector. These sanctions affected deeply especially the countries which have ties with Russia and brought economic dilemmas. The area of the crisis expanded territorially.
Sanctions bring negative results for Russia
Aside from the aforesaid main reason, if we add the disagreement between Russia and Ukraine about the sovereign rights of Sea of Azov and Kerch Strait a few months ago, and the assassination attempt on the former Russian spy and her daughter on 4 March 2018 in the English town of Salisbury on top of this main reason, we will bring light to the sanctions against Russia. We can observe sanctions in different fields because of these incidents. According to the Diplomatic Sanctions imposed, European Union members temporarily suspended the negotiations about Russia’s desire to join the organizations such as the Organization for Economic Co-operation and Development (OECD), and International Energy Agency. Russia rejected the requests of the West about the incidents happened in Crimea and east Ukraine also caused the US to impose sanctions on Russia. The main purpose is to isolate Russia in the international arena and in this way, the EU and G-7 countries joined the sanctions together with the pressure of the US, which will cause further economic damages. At the request of the EU politicians, Russia was removed from the G-8 countries. NATO Secretary General Anders Rasmussen stated that they stopped cooperating with the Russian Federation throughout all of the organizations. European Investment Bank stopped financing new projects in Russia. Further decisions were taken towards new sanctions on Russian National Commercial Bank. Furthermore, sanctions were also imposed on Crimea and Sevastopol mainly on trade and investment fields; infrastructure, transportation, communication, and energy sectors faced with bans on investments. Bank accounts and visa processes of 155 people and 44 institutions are frozen because of the allegation “actions against Ukraine in order to disrupt the territorial integrity of Ukraine”. Products coming from this region but do not have documents which prove Ukraine origins are not allowed to enter the EU market. EU countries are banned from investing in and buying estate from Crimea. Travel companies stopped transporting passengers to Crimea by sea or air.
Also, similar sanctions have been imposed by the US against Russia as of 2014. The US bank accounts of the people, who are accused of “disrupting the peace, security, sovereignty, stability and territorial integrity”, are frozen. The US continues to impose broadening sanctions for the past 5 years on the energy and defense industry fields against Russia on top of the economic sanctions. Obama administration deported 35 Russian diplomats in December 2016 and terminated two diplomatic missions which belonged to Russia. The reason for these steps was the alleged intervention of Russia towards the presidential elections held in the US. Moscow denies any involvement.
It is a fact that the sanctions result in negative results for Russia in general. Visible results are declining living conditions, decreasing production, losing the foreign markets, technological regression, destabilization of the financial system, and limitations on the investments abroad. While Russia’s assets in the Western countries for oil, finance, technology, and armaments are frozen, there were also limitations imposed towards new activities.
Russia resists the West once again
However, it is important to point out that these reactions coming from Brussels and Washington did not cause Moscow to change its decision which had been taken in 2014. The purpose of international sanctions is to isolate the country partially or altogether. However, contrary to the purposes of the US and EU, isolating Russia altogether or imposing sanctions towards Russia apparently did not provide the expected results. It seems like all of their efforts against Russia resulted in Moscow to approach China, India, Iran, Latin America, and Africa. Furthermore, some of the European countries realized this, and they wanted to start capital support programs in order to support the banking system, provide financial stability, and prevent the dropping of the credit rating to relieve some of the impacts of the sanctions. Again, some of the European countries are concerned that the European companies invested in the Nord Stream pipeline, which will transport natural gas from Russia to Germany, will also suffer damages. Germany’s Foreign Minister Sigmar Gabriel and Austria’s Prime Minister Christian Kern explained that “energy supply of Europe is Europe’s matter, it is not a US matter”, and stated that new sanctions will have a negative impact on the US-EU relationships.
China’s Ministry of Commerce revealed that the trade volume between Russia and China exceeded 100 billion dollars last December, marking the date as a record in history. Ministry official Gao Fang, who reminded that Russia has the first place in terms of volume amongst their commercial partners, stated that China is on the 10th place in Russia’s list. Spokesperson of the ministry stated that Beijing strives to improve China-Russia relationships. On the other hand, the commercial relationship between Russia and India dates back to old times. India is a tremendous market for Russian-origin goods. Russian energy giant Gazprom and Indian energy company GAIL made an agreement for liquidated natural gas (LNG). On the other hand, Moscow appreciates the fact that India does not only purchase weapons from Russia but also requests to start a “Make in India” program in order to start a production phase in India. There are agreements on many joint projects such as Su-30MKI jets, T-72M1, T-90C tanks, and more products. I believe there is no need to go into details about Moscow’s dialogue with Ankara and Tehran after the sanctions of the West since it is widely known by everybody.
As part of the sanctions against the countries which have defense cooperation with Russia, the US received strong reactions from both countries after the US decided to impose sanctions on China due to the fact that they wanted to buy S-400 missile systems from Russia. Russia’s Deputy Foreign Minister Sergey Ryabkov stated that Washington “plays with fire”. And Beijing stated that if the US does not revoke their sanctions, “they will suffer the consequences”. The sanctions of the US Foreign Ministry include the Equipment Development Department of the Central Military Commission of China, which had purchased Su-35 fighter jets and S-400 air defense systems. The US officials stated that they might continue imposing the same sanctions for the other countries which also purchase fighter jets and missile systems from Russia. Turkey is amongst the countries that considers purchasing military equipment from Russia. Obviously, the countries are capable of establishing territorial cooperation in order to get out of the crises for their own interests. The sanctions imposed by the EU and US against Russia or China might result in Russia-China cooperation or Russia-Turkey cooperation. This situation brings new blocs.
Russian experts attribute the unbending stance of Kremlin towards international relations to the approach of the West towards Russia where they will consider any concession as a sign of weakness and their concerns about the requests to go up together with the concession. They also state that Russia will not make one-sided concessions, and will enforce their own conditions until the end, and explain that Russian people always supported Russia throughout history under similar circumstances.
Prescription indigenous to Russia
In an environment where oil prices go up and down because of the sanctions and global fluctuations, Russia sustains its economy with its own prescription. Despite the fact that Russia’s economy is just getting to diversify, it is obvious that oil and natural gas are the main axis for the country’s income. In fact, more than 50% of the income comes from oil and natural gas. Dr. Vitaliy Yermakov, Head of Centre for Energy Policy Research, National Research University, points out that Russia attributes the macroeconomic policy against the economic crises to some basic actions: Russia’s current anti-crisis policy is just the opposite of the policy they adopted which had been adopted in the recession of 2008-2009. Back then, Russia had tried to protect the value of Ruble by making the Russian Central Bank sell dollars, and suffered around 100-billion-dollar loss in their reserves.
Yermakov stated that Central Bank initiated the “depreciation management” at the end of 2014 when the economic recession had started after the oil prices were cruising at low rates between 2014 and 2015, and it also blocked full-scale interventions over the money markets in order to protect Ruble. While this situation stopped the large tendency from Ruble to USD, it also made speculations on Ruble eye-wateringly expensive. And the Russian government deliberately put weak currency policy into practice in 2018. Despite the price per barrel of oil increased to 70 dollars, Russia’s price for 40-50 dollars to put into reserve for bad days did not work as planned. While this policy relieved Russia’s budget, they had a surplus in the federal budget after the oil prices increased in 2018.
Stability with figures
According to the Moscow Stock Exchange data, the dollar currency, which had increased up to 75 one year ago, is stable between 63-65, and euro currency dropped from 85 to between 72 and 74. According to the report published by the Central Bank of Russia on 1 January, the external debt, including the state institutions, Central Bank, commercial banks and companies, decreased by 64.4 billion dollars (meaning 12.4%) to 453.75 billion dollars. In the fourth quarter of the year, the external debt again decreased by 3.5% and recorded as 16.5 billion dollars. According to the data of the Central Bank, the total external debt bottomed out since 1 April 2009. The external debt had hit the top in the middle of 2014 as 733 billion dollars. According to the data of the Russian Federal State Statistics Service (Rosstat), the Russian economy achieved the highest rate of growth since 2012. The rate of growth was 2.3% last year. Russia Ministry of Economy had estimated the growth rate as 2% according to prior calculations. World Bank had estimated the same rate. Russia was far beyond the expectations with a 2.3% growth rate. According to the data of Ekvifaks, a credit bureau in Russia, Russians received loans for 1.3 trillion Rubles in 2018 for a total of 576 thousand 500 residences, and this is a new record. Ekvifaks also revealed that the loan amount increased by 51% in 2018 compared to the previous year.
Demography, poverty, and missiles
Russian President Vladimir Putin made his annual speech addressing the nation in February in the Federal Assembly building. Prominent statements of Putin, who commented on declining population, economic data, poverty, and health services, out of his 1.5-hour speech is as follows: “Thanks to many years of our collective efforts, we are now capable of allocating a huge amount of financial resource for the development of our country. No one has handed them to us, we did not borrow them from anybody. These financial resources are created by millions of our citizens. These resources must be used, to increase the wellbeing of Russian families”. The Russian leader, who stated that one-time payment will be done in order to provide relief for the real estate loans, explained that the interest rates for the families which have many children should be lowered, and state assistance must be provided for such families. Putin also added that he expects 600.000 families to benefit from this opportunity.
Putin stated that he wishes to see the Russian economy to grow by 3% in 2021. He mentioned that the state reserves are capable of covering all of the external debt of the country for the first time in history. Putin also added that they will start spending the accumulative financial resources for investments without disturbing the economic stability. He said that he expected to see the investments in the Russian economy to be increased by 6-7% in 2020. Russian leader clarified that they also expected the total agricultural export to grow up to 45 billion dollars annually until 2024. He made the following statement about the military investments: “Russia will continue to develop new weapons. The first submarine armed with Poseidon type long-range nuclear torpedoes will be launched this spring. We also continue developing Tsirkon type anti-ship missiles and new warships”.
Low income and employment problem
In the same speech, Russian President Putin provided a list of things they need to work on and the targets which must be achieved. He explained that there were 40 million poor people once upon a time in Russia, and there are less now, however, there are still 19 million people who try to survive around the poverty line. Russian leader maintained a defensive stance and said “Pensions, and other additional aids should not depend on minimum subsistence level”.
According to the research conducted by Levada Center, an independent research facility in Russia, the rising expenses, low income, and the employment problem are amongst the main complaints targeting the government. 57% of the individuals who took part in the research stated that the government does not provide a solution against the rising expenses and the low income. 46% believe that the government will not provide employment to the people, and 43% thinks that the government does not pay attention to the social welfare of the people. More than 1/3 of the Russians (36%) believe that the current structure of the government could not cope with an economic crisis. According to the study, 30% of the participants state that a reasoned economic development plan does not exist for the cabinet. One way or another, 53% of the participants support the resignation of the current government, while 40% of them have the opposite opinion.
As a result
When we observe the sanctions imposed on Russia throughout the last five years, we can see that they did not have a very hard impact on the Russian economy, and the political expectations were also not met. Because we are witnessing that Russia does not only depend on oil in terms of external factors but also, they are capable of providing development in other fields. In an environment where the oil prices cruise around 70 dollars because of the geopolitical reasons, it is not expected for these sanctions to have any effects at all on the Russian economy because it seems that the economy was already prepared for bad days. Therefore, in case these sanctions continue for a while, they will not be able to have any damaging impact over Russia in terms of economic problems while the oil prices are relatively high, and cannot provide any political results neither. It seems that putting Russia in order or punishing them with such sanctions is a lost cause even today, just like it has been for centuries.