Facts about EU-US Sanctions on Russia (2014) and Latest Turn of Events

Facts about EU-US Sanctions on Russia

 

The international politics turned to a new phase as EU and US are trying to impose sanctions on Russia. Some experts are arguing that these sanctions on Russia may backfire where as some are in the favour of imposing the sanctions on Russia. Some may link this with the Syrian issue where Russian government supported the Syrian president when US wanted to remove him. Many speculations about these sanctions are trending in websites and in news discussions also and let’s have a deeper look at the whole issue.

Reasons for Sanctions – Russian Argument:

The main reason for sanctions on Russia is 2014 Crimean crisis. Crimea is an autonomous region ruled under the Ukraine’s People Republic until Russia tried annexation on this peninsular region. This happened in March 2014 and several countries viewed it as an objectionable gesture by Russia as it disrespected the sovereignty, unity and integrity of Ukraine. The entire story started when President Viktor Yanukovych tried to form a new government in Crimea region with the support EU and US regions as alleged by the Russia.  Then Russia tried to occupy that region by giving support to the Crimea self-defence forces. But in March 2014 UN General Assembly stated that the annexation of Russia (after a referendum) also illegal and in April 2014 Ukraine stated Crimean region as Russian occupied region. Because of this several counties (mainly UK and US) started to impose sanctions on Russia.

Impact on Russian Economy:

As per the expert’s analysis, these sanctions have severe effect on the income of rich businessman of Russia. Highly influential personal in the Russian political circle and businessman who are very close to Putin even tried to regulate the Russian government’s action on Crimea but all efforts became in vain as Russian government is stern on its position. Because of these sanctions Russia’s GDP may drop by 0.6% for the year 2014 and the GDP may drop by 1.1% for the next year as per BBC analysis. The revised estimated growth rates of Russia for the years 2014 and 2015 are 0.4% and 0.9% respectively. This itself shows the impact of sanctions of EU, if we consider the US and other countries sanctions also the growth rate may dip further. Experts from financial institutions like Barclays are expecting a zero growth rate for the year 2014 and they are projecting a negative 0.5% for the year 2015. Economically, this situation is not at all favourable for Russia.

Financial Sanctions:

  • Similar to any other country, final sanctions on Russia also increased the cost of borrowing in Russia and the country injected more than $6.3 billion dollars into its economy through banks to control the situation.
  • The European Bank, which gives low interest rate loans to five Russian banks, may increase the interest rate which would have direct effect on the loans of the small entrepreneurs of Russia. Getting loans becomes tougher for them.
  • The number of Russian goods banned in EU increased to 45 (which is 13 for the year 2013) and this seriously hampers the exports of Russian firms.
  • The EU and US firms which invested in Russia are withdrawing their funds now a days and Russia is going to lose $120 billion as capital outflow in the financial year 2014-15.

Other Impacts:

According to the BBC report, even EU also needs to suffer a bit because of the sanctions it imposed on Russia. But the impact on the Russia is huge as its growth rate and GDP will tend to decrease after the sanctions. These sanctions mainly impose restrictions on the weapon usage agreements between EU and Russia and the EU also targeted the critical energy (power) and financial sectors of Russia. Anyway the cooperation between the European Union and Russia in the space projects and technology, nuclear and gas related agreements will continue as sanctions are not imposed in these areas. State owned oil firms of Russia became the part of sanctions and Gazprom Neft of Russia will suffer the most whereas the two other oil firms Transneft and Rosneft will also get affected in a negative way and EU-US also imposed sanctions on the technology required to explore the oil reserves.

What Russia is Doing?

Russia is not taking care of these sanctions seriously. President Putin even in the recent August 2014 meeting said that the Russia Annexation into Crimean region is completely legal as people are very much accepted the Russian annexation through the referendum passed in March 2013 by the people of that region. He even clarified that the UN General Assembly convention is a non-binding one and the Russian views on Crimean region will not be reversed at any point of time under any circumstances. Russia really wants to use this opportunity to revive its earlier glory and if Russia can pass these sanctions without any difficulty then that will be the first step for its revival. Russians are really trying hard to get that past glory where as it is in the hands of Russian administration to solve this issue.

Opposition from the World

Though EU and US imposed sanctions on the Russia only, several other countries like Cyprus, Slovakia are expressing their concerns over the sanctions as these sanctions may hamper their economy badly. Recently Hungary also joined this list. Many countries not decided to comment on it as it the matter between two super power countries. China completely opposed the sanctions where as India decided not to support the sanctions. Several other Asian countries are closely watching the moves of Russian and EU-US groups. Some Gulf countries also expressed their opposition to the sanctions on Russia and there is an opinion that EU and US want to control the whole world and that is the main intention behind theses sanctions. Though most of them are gossips; one need to analyse the future incidents carefully to know the real intentions behind these sanctions.

Changes in the International Politics

Statements by Putin that sanctions don’t have a direct effect on Russia and even if EU and US deny any technical or manpower support, Russia will join with China etc. heated the issue further. For this china also responded positively and clear struggle for the power is seen between the Asian regions and the EU and American regions. EU is a powerful body comprising of representatives from more than 28 countries and considered as a powerful group of nations where as US is one and only super power as of now.

Dominance of EU and US on Asian Region

This dates back to the early 15 centuries and from then onwards EU region is trying to dominate the African and Asian region through colonization or neo-capitalism. This trend is not going to continue any more as historians say 19th century is ruled by the European region whereas the 20th century is of American region and the present 21st century will be favourable to Asian region. This seems to be true because many European countries like Germany, France are deeply in trade ties with Russia and these sanctions will also hamper the growth rate of those countries in the EU region which is not a good sign for EU region. EU is heavily dependent on the petroleum imports from Russia and it is hard to find alternative trade partner immediately. Even if they try it can give raise to stiff completion and increase in petroleum prices which is also not wanted by EU.

Other Important Factors

The sanctions imposed on Russia helped the Asian region in other way. China which always maintains silence about Russian issues gave complete support to Russia in this case and several Asian countries backed Russia resulting in tighter trade relations and improving the brotherhood, peace in the region. This will really help in emerging the nations of Asia as super powers.

Impacts on Currencies, Petrol and Gold

Financial sanctions are very much powerful these days and one can easily remember the 2/3rd loss to Iran’s Rial in less than a month after US imposed sanctions on it. The sanctions will hit the Russian currency (Russian Rube) badly in the international level when compared it to the dollar. So Russia is trying to make all its transactions through its currency only and it became partially success in doing so after it came to an agreement with china. If Russia gets ready to accept any currency for petroleum products than sanctions on it may backfire for USA, so USA is still using wait and watch approach in imposing tighter financial sanctions. Once the Russia accepts any other currency for petroleum trade then the gold prices will go up and the dollar value will start dipping which is not wanted by US.

What Can Be The Future?

Since March of this year (2014) EU and US are imposing sanctions on Russian government and restrictions on the Russian banks run by the government and several other public Russian firms. The key sanctions were imposed on Russia in the months of August and September of 2014 whose impact is already showing. In the opinion of international relations experts, by mid-2015 the total effect of all these sanctions can be seen.  Any way these sanctions can change the power politics in the international level and can even change the global super power equations also.

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