Russia failed to win the backing of the World Trade Organization (WTO) this week, after an attempt to contest the 2014 sanctions imposed by the US and EU. The sanctions came in response to the takeover of Crimea and the alleged participation in the Ukraine conflict.
Putin has claimed that WTO principles have been violated, citing Russia’s national sovereignty, and the United Nations authority, have been undermined. The EU financial sanctions imposed affect some of the larger businesses in Russia, including oil giant, Rosneft. But they aren’t the only consequences. Other distresses land on the Crimean citizens, who now find they are unable to obtain visas from the Schengen member countries. Furthermore, Russian companies are unable to obtain credit in Europe.
Consequently, the financial sanctions indirectly affect other nations in Europe. Germany is facing a loss of up to 25,000 jobs if they continue. Their GDP threatens to fall 0.5 percent in an already unstable economic climate, and with a looming recession. But the EU financial sanctions imposed are only one cause of Russia’s retaliation.
The US unilateral sanctions are more pressing in nature, affecting American players using the US dollar as a form of payment. These sanctions effectively sweep over a mass population – anyone who wants to deal with Russia using the US dollar faces penalization. It’s a reach that goes beyond international sanctions, goes beyond the United Nations framework, and one that contradicts the United Nations charter.[1]
The growing angst over the sanctions comes at a time when the Russian army is set to acquire another 40 ICBMs. This will help them reach their goal of expanding the army capabilities within the next 5 years, Putin says. “The share of modern types of weapon should increase to 70 percent by 2020, and in some cases to 100 percent.” It’s a concern that everyone needs to heed. “It is obvious that the efficiency of our defense industry is an important growth resource for our entire economy.” [2] Sanctions—first the travel bans and asset freezes, now the financial, energy and military sanctions—are pushing an already coiled Russia into defensive mode.
According to economists, money hasn’t flowed into Russia since July 16, 2014. Regardless of the perfect credit rating that Russia has, and a public debt of only 10 percent of its GDP (the US is hovering at 61 percent and we won’t mention Greece -180 percent, or Italy at 109), their financial woes are set to provoke. [3] With China now refusing to provide finance to Russia – afraid of the American financers – what steps will Putin take to ensure Russia’s future? [4]
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[1] Lossan, A. (June 2015). Russia fails to win WTO backing in fight to contest Western sanctions. Retrieved from http://asia.rbth.com/business/2015/06/01/russia_fails_to_win_wto_backing_in_fight_to_contest_western_sanction_46525.html
[2] (June 2015). Russian army to acquire 40 more powerful ICBMs in 2015 – Putin. Retrieved from http://asia.rbth.com/news/2015/06/16/russian_army_to_acquire_40_more_powerful_icbms_in_2015_-_putin_46936.html
[3] Dorfman, J. (2014). Forget Debt As A Percent Of GDP, It’s Really Much Worse [Forbes]. Retrieved from http://www.forbes.com/sites/jeffreydorfman/2014/07/12/forget-debt-as-a-percent-of-gdp-its-really-much-worse/
[4] Boghani, P. (January 2015). What’s Been the Effect of Western Sanctions on Russia? Retrieved from http://www.pbs.org/wgbh/pages/frontline/foreign-affairs-defense/putins-way/whats-been-the-effect-of-western-sanctions-on-russia/
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