Russia’s economic reaction to confront Western sanctions


Essay, 2020

6 Pages, Grade: 1,0


Excerpt

The first sanctions because of Russia’s role in the Ukraine crisis were imposed in March 2014 by the US and the EU in a coordinated manner. This first sanction package included sanctions against financial, energy, mining, metals, engineering and defense services of Russia, which were extended in the summer of 2014 and 2015.1 With the Countering Russian Influence in Europe and Eurasia Act of 2017 the US set the path for further sanctions against Russia on their own without any coordination with the EU. This development reached its peak in December 2019, when the US Congress enacted extraterritorial sanctions which penalized European companies involved in the building of the Nord Stream 2 pipeline.2 According to Timofeev and Morozov the Western sanction policy can therefore be seen as a multi-speed model, in which the US imposes constantly additional sanctions for many other reasons than the conflict in the eastern Ukraine and the EU doesn't keep pace with this increase through to economic pragmatically reasons. Despite this upheavals currently 37 States have imposed sanctions against Russia.3

This Essay wants to evaluate the Russian counteractions to these Western measures. Therefor the Russian countersanctions will be analyzed briefly, however the focus will be on domestic policy shifts in the Russian economic policy concerning the Finance Sector, the Energy and Defense Industry as the general economy. The essay will conclude with a categorization of the applied measures, a summary and an outlook.

The most visible reaction of the Russian state to the Western sanctions was the imposition of counter sanctions in August 2015. The main measure was the prohibition of food imports from countries which sanctioned Russia. Those measures were mostly targeted on the EU countries as Russia is EUs second most important agricultural export country.4

For evaluating the secondary policy shifts of the Russian Federation hereinafter the Energy and Defense Industry as the Financial Sector will be analyzed separately. This method follows the results of the study of Connolly, who identified those sectors as the main industries targeted by Western sanctions.5

In the field of energy policy Russia tried to strengthen its energy trade with the Middle East and East Asia. The most important partner in the Middle East for this purpose seems to be Saudi Arabia with which Russia worked closely in 2016 to get a deal between OPEC and Non-OPEC countries to cut oil production to get higher profits. In East Asia Russia expanded the oil export to China enormously and is now Chinas most important oil supplier. In addition to that Russia identified India as important and growing new market for energy exports.6 Beside the increase of energy exports to non-western countries, the Russian government has driven a policy of trying to get stronger control over the Russian energy industry especially in the field of exploration, oil services and production. The most important reaction however was supposedly the stimulation of closer ties of Russian energy companies with non-western companies to get supply of investment and equipment.7 On behalf of that a financial measure connected to the energy industry was the government led reduction of the share of dollar and euro in energy trading exchange.8

In the field of the Defense Industry Russia tried to secure its military-industrial complex first of all by a strong commitment of the political leadership to strengthening the military through transfer of resources to this industry in huge amounts. Those were especially used to fund a substitution program to replace Western technological components with domestically produced ones. For that case domestic production facilities were upgraded. Like in the energy sector also the cooperation in the military industry was expanded with non-western countries, especially India and China.9

Concerning the financial sector the Russian government reacted to the Western sanctions by replacing the historically huge amount of Western lend capital and the quite intensive integration of the Russian Federation into the Western dominated global financial system by different measures. The missing investments in Russian companies through the sudden stop of inflow of Western capital was substituted by domestic and state-controlled sources of capital which was complemented by the recruitment of investments of non-western countries into the Russian economy. As long term measures the Russian government created a new national electronic payment system, removed financially risky banks and provided further capital to state-owned banks, through which the states influence over the banking system rose enormously.10

The general economy which only was hit indirect by the Western sanctions through less investments of Western companies was fostered by the Russian government through the expansion of state contracts to economically and politically important companies.11 For companies badly influenced by sanctions there was also adopted a government fund to support those businesses.12

After having shown Russia’s reaction to the Western sanctions in the different economic fields in the following an attempt will be made to characterize and categorize these reactions by three methods.

In all of the four examined economic industries above you can see a certain development to a so called securitization of economic policy. This means that the Russian economic policy was conducted by the leitmotif of a possible threat of the Russian economy by the Western allies. This securitization method was of course most present in the defense industry, but also reached the financial, energy and general economy. For example there were discussions in the Russian political sphere about the possible security impacts of Russia’s foreign exchange reserves, the import of agricultural products, machinery and technological supply. The chosen aim in these discussions was more and more the economic self-reliance of Russia and a degradation of the integration of the Russian economy in the global economy for security reasons. Those policy shifts were visible in the National Security Strategy 2015 and the Economic Security Strategy 2017.13

Moreover import substitution is another method which was used. Already applied before 2014 to tackle the economic slowdown, this policy intensified with the imposition of sanctions. In summer 2015 there was formed a Government Commission for Import Substitution which implemented programs between 2016 and 2020 in 19 branches with a budget of around 4.5 Billion $ straight from the federal accounts. In addition to that, public procurement procedures were modified, to increase the share of domestic products. Since 2016 there is however a slight change to this policy in direction to the buzzword of localization, which aims at the settlement of international companies in the Russian federation to increase the manufacturing capabilities of the Russian economy in sectors where no domestic companies are competitive.14

The last method used in all the above examined industries is the diversification of Russia’s foreign economic relations. Historically seen Russia’s most important trading partner in the 19th century, the soviet era and since 1991 has always been the West and especially the countries which make up the EU nowadays. In the two last decades however there is a shift to stronger economic ties with Eurasian countries, especially China, India, South Korea and Turkey. This tendency was picked up by the Russian political actors after the imposition of Western sanctions and it was emphasized, that the diversification of trade relations is of enormous geopolitical and geoeconomical importance for Russia.15

[...]


1 Bagheri and Akbarpour 2016, 92 f.

2 Congressional Research Service 2020, 2.

3 Timofeev and Morozov 2019, 4.

4 Bagheri and Akbarpour 2016, 93 f.

5 Connolly (Online) 2018, 5–11.

6 No Author: Western sanctions send Russia eastwards 2017, 3 f.

7 Connolly (Online) 2018, 6 f.

8 Bagheri and Akbarpour 2016, 94.

9 Connolly (Online) 2018, 6–9.

10 Connolly (Online) 2018, 9–10.

11 Prokopenko 2018.

12 Bagheri and Akbarpour 2016, 94.

13 Connolly (Printbook) 2018, 69 f.

14 Connolly (Printbook) 2018, 71–73.

15 Connolly (Printbook) 2018, 74–76.

Excerpt out of 6 pages

Details

Title
Russia’s economic reaction to confront Western sanctions
Grade
1,0
Author
Year
2020
Pages
6
Catalog Number
V1000717
ISBN (eBook)
9783346382986
Language
English
Tags
Sanction, Russia, European Union, US Economics, warfare, trade war
Quote paper
Florian Hertle (Author), 2020, Russia’s economic reaction to confront Western sanctions, Munich, GRIN Verlag, https://www.grin.com/document/1000717

Comments

  • No comments yet.
Read the ebook
Title: Russia’s economic reaction to confront Western sanctions



Upload papers

Your term paper / thesis:

- Publication as eBook and book
- High royalties for the sales
- Completely free - with ISBN
- It only takes five minutes
- Every paper finds readers

Publish now - it's free