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article imageOp-Ed: Business worries about effects of sanctions on Russia

By Ken Hanly     Mar 17, 2014 in Business
Diplomatic efforts have failed to prevent the developing crisis in Ukraine . Plans by western countries to impose sanctions on Russia because of its actions worry politicians and business leaders.
Both the economies of western Europe and the Ukraine have significant trade relations with Russia, as well as depending upon it for energy supplies. Any retaliatory measures by Russia could create economic declines in both EU economies and the Ukraine. Some European economies are already in poor shape and the Ukraine is in urgent need of a bailout. Disruption of normal trade relations with Russia will simply exacerbate the situation. However, stock markets in Europe and the U.S. today (March 17) so far are up rather than down indicating right now markets are not reflecting the concern.
In 2013 45 percent or $523 billion in exports went to the EU. Two-thirds of the exports were oil and natural gas according to WTO statistics. Russia also imported $344 billion worth of products with machinery and vehicles being the biggest items.
In 2013 the Ukraine exported a total of $15.75 billion to Russia, the Ukraine's largest export market. Iron, steel and cereals are the largest exports. Russia is the largest exporter to Ukraine as well with a total of $25.6 billion last year. The U.S. trade with Ukraine was only $2.9 billion counting both imports and exports.
Jean-Guy Carrier, who is secretary general of the International Chamber of Commerce, warned that increasing sanctions could be quite damaging to world trade. In an interview he said: “An escalation would be economic madness,”
So far sanctions have been quite limited but subsequent to the Crimea referendum and Russia's planned annexation of the Crimea more are being planned. So far sanctions are limited to travel restrictions and other actions against specified individuals. Carrier said: “We don’t like sanctions on principle. They are a very disruptive instrument in dealing with political subjects, but if they come about, the type of sanctions should be as targeted as possible, If used, they should be on individuals. Across the board sanctions are quite disruptive to economies,”
A anonymous senior Russian official said that he had received no signs that the sanctions would cover trade and that he had been in contact with trading partners on the issue. However, an anonymous former U.S. official said that he expected Congress to demand tougher sanctions. There would be more pressure for such sanctions of Russia moves troops beyond the Crimea he said.
World Trade Organization rules allow the U.S. and EU to impose sanctions on Russia under a clause that allows members to restrict trade to protect essential security interests. The EU challenged the U.S. policy of restricting trade with Cuba but the challenge failed because of the essential security interests clause. It seems far fetched to claim that Russia's supporting Crimean rejection of the Ukraine government and its support for the referendum on joining Russia is somehow connected to any essential security interests of the U.S. but no doubt the claim will be recognized and that is all that counts. Cuba itself has not challenged the embargo at the WTO probably because it thinks it would lose.
Daily Telegraph columnist Liam Halligan said at a Russian Business Week forum at the London School of Economics: ".. I actually don't think any serious sanctions are going to be imposed. EU trade with Russia now is at about €350 billion, up from just €90 billion ten years ago. The Western world's exposure to Russian banks is much bigger than the Russian banks’ and individuals' exposure to the Western world, as well as all of the energy imperatives. I think on balance the West has made a pretty bad fist of the situation by threatening significant repercussions that we never (should) and could never have delivered. Having said that I think of course face needs to be saved and politicians need to posture so there will be some symbolic sanctions: probably asset freezes on a number of individuals that perhaps our security services both in Russia and the West are keen to keep an eye on. "
The Financial Post notes that the billionaire oligarchs in Russia and the Ukraine have lost billions due to declines in the Russian stock market since Feb. 28 when Crimea refused to recognize the Ukrainian government and asked for Russian protection. According to the Bloomberg Billionaires index that ranks the 300 richest people daily, the 19 richest Russians lost $18.3 billion since February 28. This is a loss on paper. Personally, I expect they saw what was coming and sold short and are actually buying now as western investors want to sell.
This opinion article was written by an independent writer. The opinions and views expressed herein are those of the author and are not necessarily intended to reflect those of
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