Sunday

25th Feb 2018

Opinion

EU-Russia trade bouncing back despite sanctions

  • After three years in decline due to sanctions, EU-Russia trade relations have picked up 20 percent so far in 2017 (Photo: kremlin.ru)

Earlier this year, I published an academic research paper on EU-Russia trade relations after sanctions were imposed in July 2014.

The article showed a drastic decline in both import and export in sectors affected by sanctions as well as other economic sectors that were suffering from the uncertainties created by the crises in Crimea and Ukraine.

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In September, the EU Parliament published a report confirming that this decline continued in 2016 and this news was also reported by EUobserver.

However, the trend has changed in 2017.

Eurostat data from the first seven months of the year shows that this decline has stopped and, in fact, the trend was reversed with an expected increase of 20 percent by the end of the year compared to 2016.

EU-Russia trade was up to €285 billion in 2014. In 2016, this number dropped to €181 billion. In only three years, EU members imported €64 billion less from Russia and exported to it €31 billion less. This decline affected Germany, Italy, Austria and Lithuania above all, which constitute €14.5 billion less in export towards Russia.

However, Austria, Ireland and Lithuania are the three members that suffered the most in relative terms with declines in export of 51, 50 and 40 percent respectively in two years only. Interestingly, Luxembourg is the only country that increased its exports to Russia from 2014 to 2016.

The average decline for EU members was 34 percent in import and 29 percent in export with Russia. The trend was reversed starting in January 2016 when trade with most of EU member states started to recover.

Granular data

This is evident if we look at data for the half-year period. When we compare the first six months of 2016 with the same period of 2017, we notice that the volume of EU-Russia trade increased by €27 billion. The lion's share is for Germany with an expansion by €6 billion and the Netherlands with €4 billion. The only country that reduced its trade is Malta with a decrease of €400,000.

If we look at the exports only in the first six months of 2017 compared to last year, then the leading countries are Germany (plus €2.6 billion), Italy (plus €739 million) and the Netherlands (plus €707 million). The only countries decreasing their exports are Malta, Cyprus and the United Kingdom.

Winners...and losers

However, there are specific countries that have scored very positive results in relative terms. For instance, Bulgaria has almost doubled its export to Russia (plus 96 percent), Ireland experienced a 43 percent increase and Latvia by 37 percent.

Instead, Malta lost almost its entire export to Russia (minus 85 percent), while Cyprus limited the loss to 25 percent of its exports. On average, EU-wide exports to Russia increased by 25 percent compared to the first six months of 2016, which equals to more exports for €8 billion.

The projection for 2017 based on the first six months of the year indicates that the EU-Russia trade has been recovering since the lowest point of 2016 with an overall expected trade volume of €230 billion. While this is still far from the 2014 level, it is well above the levels reached in 2015 and 2016.

The behaviour of trading partners may be an indication that the Crimea crisis has been discounted already and that politics will, slowly, adjust.

One of the signals was the critical stand of some EU members to the recent round of secondary sanctions imposed by US Congress on Russia, which could create problems for companies involved in the construction of Nord Stream II.

While it is hard to predict the direction of trade flows in the future, we can state that the positive trend seems to lead towards a normalisation of EU-Russia trade in the coming future despite the unresolved crises in Crimea and Ukraine.

Francesco Giumelli is assistant professor in international relations at Groningen University and the author of "The Redistributive Impact of Restrictive Measures on EU Members: Winners and Losers from Imposing Sanctions on Russia"

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