Sanctions against Russia: The impact is greater to Europe

Zaher Baher

27/03/2022

Before entering the subject, I would like to start with three points:

Firstly, sanctions have no impact at all in the beginning. It is a long process and sometimes they create anger and resentment amongst the people in the countries where sanctions are imposed against the countries who are imposing the sanctions.  It is also a given that as soon as the first shot is launched in war, the warmongers and the merchants of the war inflate the price of almost everything.

Secondly, the impact of sanctions used against industrialised countries is different to those imposed on non-industrialised countries.

Thirdly, no matter who uses sanctions, the main losers are the working class, poor and exploited people in the country, and they are the ones who pay. The best examples are Iran, Iraq, Myanmar, North Korea, Zimbabwe and Libya.

In this article I go through the trade between United States and European countries with Russia and vice versa to see the impacts on each other.  It is important to recognise that sanctions against Russia are not the same as sanctions used against the countries listed above.  Russia is much more economically advanced and also has good relations with many countries. So the impact of sanctions here depends on the level of their advanced industry in each country and the level of trade between them.

To go into detail, let’s refer to the most recent data. The Russian Federal Customs Service (FCS) has released data that shows that for the first ten months of 2021, Russia’s total exports reached $388.4 billion. Some of Russia’s top trade partners are five countries which were responsible for 86.9% of all trade between January-October last year; China ($112.4bn), Germany ($46.1bn), Netherlands ($37bn), US ($28.8bn) ($25.7bn).

Russia mainly supplies these countries with fuel and energy, metals, and chemical products. About 13% of exports go to CIS countries*. More than half of Russia’s exports (53.8%) are fuel and energy products.

Apart from fuel and energy, Russia exports wheat and maize, sunflower oil, poultry meat, milk and cream, cheese and curd, fresh and frozen pork, electrical equipment, mechanical equipment, optical instruments and devices, and timber and pulp-and-paper production.

The Trades of United States and Europe with Russia:

United States’ trading of goods and services with Russia totalled an estimated $34.9bn in 2019. Exports were $10.9bn; imports were $24bn. The US’ goods and services trade deficit with Russia was $13.1bn in 2019. Russia is currently the US’s 26th largest goods trading partner, with $28bn in total goods trade during 2019. Russia was the United States’ 40th largest goods export market in 2019, and was the United States’ 20th largest supplier of goods imports in the same year. In relation to oil and energy, the US imports 5% of its requirement from Russia.

New York-based BlackRock, the world’s biggest asset management firm with more than $10tn in assets under management, has recorded $17bn in losses on Russian securities. It manages more than $18bn in Russian assets on behalf of clients – which were frozen on 28 February. The impact of western sanctions on markets, including the two-week shutdown of the Moscow stock exchange, has rendered the vast majority of those assets unsaleable.

With regards to Europe’s trade with Russia in 2021, the total trade in goods between the EU and Russia amounted to €257.5bn. The EU’s imports were worth €158.5bn and were dominated by fuel and mining products – especially mineral fuels (€98.9bn, 62%), wood (€3.16bn, 2.0%), iron and steel (€7.4bn, 4.7%), fertilisers (1.78bn, 1.1%). In 2021, Russia was the fifth largest partner for EU exports of goods (4.1%) and the third largest partner for EU imports of goods (7.5%). The EU’s exports in that year almost totalled €99bn. They were led by machinery and equipment (€19.5bn, 19.7%), motor vehicles (€8.95bn, 9%), pharmaceuticals (€8.1bn, 8.1%), electrical equipment and machinery (€7.57bn, 7.6%), as well as plastics (€4.38bn, 4.3%).

As for the United Kingdom (UK), it has imposed sanctions on more than 370 Russian individuals, including more than 50 oligarchs and their families, who have a combined net worth of £100bn. More than 1,000 individuals and entities have now been targeted with sanctions since the invasion of Ukraine. The government also blocked exports of luxury goods worth hundreds of millions of pounds. Last year, UK firms sold a total of £2.6bn worth of goods to Russia, the biggest slice of which was cars, at around £400m. Russia is relatively small market for UK car plants  it is thought that the UK exported fewer than 10,000 cars to Russia out of an annual production of 860,000 in 2021. The collapse of the rouble would also make it difficult for companies to price expensive cars at a high enough cost.

The impact of the war and sanctions are extremely hard. By February, the cost of food was 20% higher than a year earlier. Think-tanks warned that the cost of living for the UK’s poorest could be 10% higher by autumn and prices are likely to continue to be driven higher, pushing inflation to a “second peak” above 8% in the autumn. The New Economics Foundation (NEF), suggests that by April almost half of all children will be living in households that are unable to meet the cost of some basic necessities. NEF also said that 23.4 million people would have to cut back on some basics, such as food or heating, as their income falls short of what they would need.

The withdrawal of British Petroleum (BP) from the Russian market means losing money, and residents of the UK have to make up that loss.

Deficit is another problem in the UK’s budget. In 2000 it was £40bn, and by 2010 it had reached £98bn. Last year it went up to £140bn.  In contrast, Russia has relatively low debts and its financial system is less integrated with the rest of the world.

 When he was governor of the Bank of England, Mark Carney said: “The UK relied on the kindness of strangers to finance its trade deficit.” He may have been right, and that the deficit will go up much further during sanctions. In the meantime, in answer to all the problems UK citizens are facing, the government has vowed “to do everything we can to protect consumers and the public”.

Conclusion:

According to the statistics and figures shown above, oil and energy are the main resources that Russia exports to Europe and other countries, exporting 7% to the UK, 5% to the US and 31% to Germany. At the moment the price of oil is too high and benefits Russia. At present, the EU and the UK do not have any other alternative to replace Russia’s oil, so the bills for residents and businesses will go up and up. The same thing will happen when banning Russian fertiliser exports. This will have a direct impact on farmers in the UK and consequently the public.

How will the public in the UK and Europe react in such difficult situations? How will their rulers deal with the situation, especially if the war continues for longer, and consequences of the sanctions become more severe?

It is, in fact, very difficult for the UK and Europe to find a replacement for Russia’s oil and energy, while Russia has a great influence on some OPEC members like Iran, Libya and Venezuela. Supposing they agree to Europe and the UK’s demands, how much more oil can they put in the market? Even lifting sanctions on Iran are unlikely to help greatly.  This has become a small possibility after releasing Nazanin Zaghari-Ratcliff in return for £400m as well as Iran attempting to persuade the UK to take the Iranian Revolution Guards off the terror list, which is yet to be confirmed.  Does this really work to resolve problems and provide a balanced alternative to importing Russia oil and energy?

A very recent report by the International Energy Agency (IEA) underlined just how limited the options are for any economy seeking to replace Russian crude oil and other oil products. It says “global oil demand is projected to be nearly 10m barrels per day (bpd) this year”. With regards to Iran, the LAE says: “The IEA reckons Iran has about 1.2m bpd of spare capacity in theory but there are some serious caveats. Even then the LAE says, it is likely to take another six months at least before 1m bpd from Iran could be factored in.”

As for importing wheat from Russia and Ukraine, the two countries produce nearly 30% of the world’s wheat exports, 15% of the maize (corn) and 75% of the sunflower oil. Altogether, they generate about 12% of the calories traded internationally. Many countries still rely on importing wheat from them, and the Middle East and North Africa are highly reliant on Ukrainian and Russian grains. Almost 40% of Yemen’s wheat is grown in Russia and Ukraine. Already, millions there are close to starvation. Egypt, the world’s largest wheat importer, relies on the warring countries for roughly 70% of its imports.

There are a few questions here. Do Europe, the UK and the US let the above countries break sanctions so that they can survive? Or do they make an offer to compensate and to help them to pay the current price in the market? Or simply let thousands and thousands of people in these countries die in poverty? Also, how long can global firms like Apple, McDonald’s, Coca-Cola, Pepsi, Starbucks, Nestle, MasterCard and BlackRock wait and lose more and more money? BlackRock has already lost $17bn in a very short time.

In addition to the above, Russia plans to seize the assets of western companies that pull out. It is now proposing to do that and nationalise closed western factories and other western activities, free of charge. Speaking in a video link with members of his government a few days ago, Vladimir Putin said the Kremlin could find legally viable ways to seize international firms. The government would push to “introduce external management and then transfer these enterprises to those who actually want to work,” Putin said. He continued: “There are enough legal and market instruments for this.”  Dmitry Medvedev, the former Russian president, said it was using a “symmetrical response” to the sanctions imposed by the west, “including the seizure of foreign assets and their possible nationalisation”. He argued: “Whatever the reasons for the exodus, foreign companies must understand that it will not be easy to return to our market.”

In view of the above, I believe that Europe is more vulnerable and more dependent on Russia. Whether you agree or not is not important, but we should realise that we are the ones paying the price. That is why it is essential to organise ourselves outside of political parties in non-hierarchical organisations everywhere: at work, on the streets, in factories, universities, neighbourhoods, farms and shops.  We need our structures and communities so that they are resilient to the wars waged against us, and so that we are not reliant on whether there is peace between states.  Their peace and war more or less are the same but in different forms.

Enough is enough. The longer we stay and do nothing the more useless we get.  It is time to fight back, it is time to realise that right now here are a couple of wars going on against us: the current military war, and the sanctions that are imposed that will be more severe on us later. Wherever you live it will be unavoidable; whether you want it or not, you will still face both wars.  We need to turn this to a war against ruling states, their classes, and their system.

Zaheerbaher.com

* The Commonwealth of Independent States (CIS) was created in December 1991 by eleven countries from the ex-USSR: Armenia, Azerbaijan, Belarus, Kazakhstan, Kirghizstan, Moldavia, Uzbekistan, Russia, Tajikistan, Turkmenistan, Ukraine. Georgia joined it in 1993.