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Global Economy

EU sanctions hit Russian economy

According to data from the EU Commission, which has been kept secret so far, the sanctions imposed on Russia are slowly but surely taking effect. As experts from the Brussels authority confirmed to the dpa news agency, targeted trade restrictions are now affecting Russian export business, which had a volume of more than 73 billion euros a year before the war. In percentage terms, it is about 48 percent of Russia's previous exports to the EU.

Added to this is the fact that within a period of around four months, Russian assets worth around 13.8 billion euros were frozen, for example by oligarchs and other supporters of President Vladimir Putin. Reserves of the Russian central bank worth billions can also no longer be accessed.

EU expects slump in Russian economic output

"The available data shows very clearly that the sanctions are working," said a senior EU official, who asked not to be identified. Despite the relatively short period of time so far, significant effects on the Russian economy have already been achieved. It is also clear that the effect will become even stronger over time.

Specifically, the EU is currently assuming that Russia's economic output will shrink by 10.4 percent this year. For comparison: In the EU, economic growth of 2.7 percent is still expected for European companies this year, despite the consequences of sanctions and war, for Germany the forecast is still plus 1.4 percent.

Export bans do not only affect the arms industry

According to EU experts, however, the sanctions will force Russia to change its economic model and continue to develop towards a self-sufficiency economy. At the same time, supply chain problems and lack of access to advanced foreign technologies would hamper domestic production, investment and productivity growth. It is considered unlikely that Russia will be able to meet the need for goods on the sanctions list itself or through exports from countries such as China.

After that, there will probably be problems with the procurement of machines, vehicle parts and data storage devices. However, Russian businessmen have long paved the way for more luxury cars to come into the country, for example via Russia's neighbor Kazakhstan. Kremlin chief Putin has always emphasized that everything will continue to exist, just at a higher price.

However, according to the EU, the EU export ban on so-called dual-use products is already crippling Russia's military capabilities. Important armaments factories, which produce air-to-air missiles and tanks, for example, had to be closed due to the lack of imported goods.

IT professionals are leaving the country

In addition, the EU export bans affect IT companies, mobile phone providers and the Russian car industry, according to Brussels. After the departure of western car manufacturers, Soviet brands such as the Moskvich are now being revived in Russia. The government wants to make cheap loans possible so that people buy more cars again. Nevertheless, many Russians lack the money.

According to EU information, Russia's civil aviation is suffering from the ban on flying into European airspace, but above all from the export restrictions on spare parts and services imposed by the EU and the USA. From an EU perspective, most Russian airlines are no longer able to meet international security requirements.

From the EU's point of view, the problems in Russia would be exacerbated by the fact that, according to estimates, around 70,000 IT specialists have recently left the country and another 100,000 are likely to follow.

The coal and oil embargo are only just beginning to take effect

The experts also expect significant effects from the implementation of the coal and oil embargo that has already been decided. The import ban on Russian coal will take full effect on August 10 and will affect a quarter of global Russian coal exports, worth around eight billion euros a year, according to the EU.

The value of Russian crude oil imports to the EU in 2021 was around EUR 48 billion and that of petroleum products EUR 23 billion. 90 percent of this is to be eliminated when the import of Russian crude oil by sea is banned from December 5 – and from February 5 of processed Russian petroleum products.

According to an expert, the disappearance of the EU market will result in considerable strategic problems for Russia because, according to EU figures, 45 percent of the national budget is fed by oil revenues. Markets are already avoiding trading in Russian oil. Russian oil was recently offered at a price discount of up to 35 euros per barrel (159 liters). According to Moscow, India is particularly pleased about the Russian deliveries.

EU economy itself also affected by the sanctions

But the EU economy itself is also being hit by the sanctions. According to the EU experts, the import bans on steel products from Russia had the greatest direct influence, as 21 percent of imports before the war came from the country. Brussels also sees crop prices as a negative consequence of the war for the EU. For example, the already relatively high prices for wheat rose again after the start of the Russian invasion by 35 percent, for corn by 15 to 25 percent and for sunflower seeds by around 33 percent.

The EU also considers further price increases to be conceivable because of the EU ban on imports of Russian wood and because of Russia's own export ban on noble gases. According to experts, the latter could cause additional delivery bottlenecks for chips, since noble gases are used to produce semiconductors.

A number also shows that the war is also costing the EU countries dearly: The EU Commission allowed state aid of more than 200 billion euros for companies up to mid-June alone, which were particularly affected by the conflict, for example due to high energy costs are met. Further approvals followed on Thursday: Germany is allowed to support energy-intensive companies with state aid of up to five billion euros.

Kremlin chief Putin speaks of "economic blitzkrieg"

Putin speaks of an "economic blitzkrieg" by the West against Russia. He admits that the damage to the Russian economy is great. However, the 69-year-old emphasizes that the West is also suffering and that Russia is coming through the crisis better than expected. The ruble is also stronger than it has been for years. Russian state media reports with malice about the exploding energy prices and the rising costs for consumers in the EU.

Many Russians, who are traditionally tried and tested in crises and considered capable of suffering, continue to react to the sanctions in a demonstratively relaxed manner. Nevertheless, surveys show that Russians are having trouble with rising prices and fears of a new scarcity economy. In Moscow, Europe's largest city, many Western chain stores have closed, and entire rows of shops are empty in shopping centers. Cinemas have to close because there are no more Hollywood films.

There is even a lack of color for colorful packaging, which prompted Kremlin chief Putin to ask at the economic forum in St. Petersburg in June whether that was more important than Russia's independence. He said that there was a price to be paid when he pushed through his policies against resistance from the West. The war against Ukraine is meant. The Kremlin stressed that the sanctions would never deter Russia from its course. Many Russians have long since come to terms with the situation – and watch blockbuster films from the USA on pirate websites on the Internet.

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