Wednesday

16th Jan 2019

EU sanctions hurting Russian firms, US says

  • Moscow's Gum shopping centre. Sanctions have had some effect, but US study notes Russia is not on the verge of a “systemic” crisis. (Photo: Martha de Jong-Lantink)

EU and US economic sanctions are draining money from some Russian companies and from its state aid fund, according to US research.

The sanctions have, over the past two years, wiped out one third of the operating profit, half of the assets, and one third of the staff in some targeted Russian firms, a new study by the US state department said.

Read and decide

Join EUobserver today

Support quality EU news

Get instant access to all articles — and 18 year's of archives. 30 days free trial.

... or join as a group

  • Russian oil firms, such as Rosneft have no access to short-term credit or high-end technology (Photo: rosneft.com)

Russia’s foreign reserve fund, which is being used to prop up affected companies, is due to run dry in early 2017 at the current rate of spending, it also found.

It said that low oil prices and shoddy management were bigger factors in Russia’s economic decline.

But it said sanctions also caused uncertainty, prompting some investors to “derisk” by abandoning Russia, even if their investments had had no direct link to Western blacklists.

The US briefed press in Brussels on Tuesday (27 September) in the run-up to an EU leaders’ debate on Russia next month.

The sanctions were imposed after Russia’s invasion of Ukraine in 2014.

The US vice-president, Joe Biden, recently voiced concern that five EU leaders had publicly criticised the measures.

The Cypriot president, the Greek prime minister (PM), the Hungarian PM, the Italian PM, and the Slovak PM, among others, have spoken out against the EU policy .

Biden's remarks aside, the US is quietly confident that the EU will roll over the measures before they expire in January. Its confidence comes from German chancellor Angela Merkel’s firm stance and from the fact that nothing has changed on the ground in Ukraine.

No 'systemic' crisis

Despite its alarming figures, the US study did not indicate that Russia is on the verge of a “systemic” crisis.

A senior US official told press that Moscow could tap pension funds or other assets to cover the foreign reserve fund.

The US study also said the likelihood of hard-hit firms being bankrupted was just 2 to 3 percent higher.

The worst damage was done to companies that were specifically named as being under embargo. Those affected indirectly by “sectoral sanctions” suffered less.

The sectoral sanctions block short-term credit on international markets to some Russian banks, arms makers, and oil companies. They also ban exports of high-end technology.

The US said firms that Russia has designated as being of “strategic” importance, such as Rostec, a defence conglomerate, were the least likely to collapse.

'Disinformation'

The US official said Russia’s “disinformation” campaign in Europe had claimed that sanctions backfired on EU economies and that they made no difference to Russia.

But the study found that the sanctions' “median” negative impact on all 28 EU economies was just 0.13 percent of GDP.

The official noted that EU states which suffered the most supported sanctions, while those that suffered least were among the critics.

Lithuania (-2.8% of GDP), a former Soviet state, for instance, is a staunch supporter, but Italy (-0.07%) is Russia-friendly.

The US official said that the impact on Russian GDP was hard to “disentangle” from oil prices and other factors.

The official said that Russian counter-measurers had a cost, however. "There's no such thing as a free lunch. The money [used for state aid] could have been spent on Russian taxpayers instead", the official said.

EU extends Russia blacklist by six months

Oligarchs, Kremlin aides, and security chiefs remain banned from EU until at least March next year, but Brexit could help Russia to get off the hook on economic sanctions.

France and Russia fall out over Syria

Russian president Vladimir Putin has "postponed" a visit to Paris, as French president wanted to talk about Russian strikes on Aleppo.

News in Brief

  1. Spanish PM calls for EU gender equality strategy
  2. Farage says bigger Brexit majority if second referendum
  3. Macron starts 'grand debate' tour after yellow vests protests
  4. Barnier: up to London to take Brexit forward
  5. Stimulus still needed, ECB's Draghi says in final report
  6. May's Brexit deal defeated by 230 votes
  7. German economy hit by global economic turbulence
  8. MEPs narrowly call for end to 'tampon tax'

Analysis

China's 2019 growth outlook

As China's growth seems to be slowing, some observers see the country amid what the New York Times called a "severe downturn". As they mistake China's secular deceleration with cyclical fluctuations, they miss the rapid increase in Chinese living standards.

Opinion

The Azov crisis will backfire

Vladimir Putin's nightmare of Petro Poroshenko's re-election will be even certain as Ukrainians rally around the flag. Next March's election is not just to elect a new president but also a commander-in-chief to deal with five more years of Putin.

Stakeholders' Highlights

  1. International Partnership For Human RightsKyrgyz authorities have to immediately release human rights defender Azimjon Askarov
  2. Nordic Council of MinistersSeminar on disability and user involvement
  3. Nordic Council of MinistersInternational appetite for Nordic food policies
  4. Nordic Council of MinistersNew Nordic Innovation House in Hong Kong
  5. Nordic Council of MinistersNordic Region has chance to become world leader when it comes to start-ups
  6. Nordic Council of MinistersTheresa May: “We will not be turning our backs on the Nordic region”
  7. International Partnership for Human RightsOpen letter to Emmanuel Macron ahead of Uzbek president's visit
  8. International Partnership for Human RightsRaising key human rights concerns during visit of Turkmenistan's foreign minister
  9. Nordic Council of MinistersState of the Nordic Region presented in Brussels
  10. Nordic Council of MinistersThe vital bioeconomy. New issue of “Sustainable Growth the Nordic Way” out now
  11. Nordic Council of MinistersThe Nordic gender effect goes international
  12. Nordic Council of MinistersPaula Lehtomaki from Finland elected as the Council's first female Secretary General

Latest News

  1. MEPs allow Draghi's membership of secretive bank group
  2. EU parliament backs Morocco deal despite row
  3. Barnier open to 'future relations' talks if UK red lines shift
  4. German spies to monitor far-right AfD party
  5. On Morocco, will the EU ignore its own court?
  6. UK parliament rejects May's Brexit deal in historic defeat
  7. EU suggests majority vote on digital tax by 2025
  8. MEPs redouble appeal on sexual harassment

Join EUobserver

Support quality EU news

Join us