#Sanctions against #Russia. Where will it lead to?

By Elisabeth Hellenbroich

 On July 31 a new round of sanctions against Russia was approved by the European Council. These sanctions which have been agreed upon July 29 by the 28 member countries of the EU are much harsher than the previous ones (March 2014). The effect will be destructive in respect to the Russia-EU relations and particularly harmful for those medium-sized German firms which in their business with Russia have specialized on the supply of machine tool production and equipment of Russia. The net political effect will be a deep split in EU –Russian relations.

The joint communique of the EU leaders issued July 29 states that the aim of the sanctions is to “limit access to EU capital markets for Russian state owned financial institutions, impose an embargo on trade in arms, establish an export ban for dual use of goods for military and end users and curtail Russian access to sensitive technologies particularly in the field of the oil sector.” These measures, which will last for 12 months and which are supposed to be reviewed every three months, are implemented by the EU “in view of Russia’s actions destabilizing the situation in eastern Ukraine.”

In a move to restrict Russia’s access to EU capital markets, the new sanctions ban EU nationals and companies to buy or sell new bonds or equity or similar financial instruments with a maturity exceeding 90 days, issued by state owned Russian banks, development banks, their subsidiaries and those acting on their behalf.

The sanctions also include the agreement on banning of exports of “certain energy –related equipment and technology to Russia are to become subject to prior authorization by competent authorities of member states” and “export licenses will be denied if products are destined for deep water oil exploration and production, arctic oil exploration or production and shale oil projects in Russia.”

EU cutting its own flesh

With the new sanctions the EU is however only doing what the US government has previously imposed as new sanctions: excluding 6 major Russian banks (this includes Gazprom Bank which is 36% owned by the energy company Gazprom, VTB –Vneshetorgbank- which is 60% state owned, the Moscow Russian Agricultural Bank as well as the VEB Vneschenekonbank- i.e. banks, which together represent 30% of the Russian bank sector – from doing financial business in the US, including medium and long term financing with US credit institutions.

According to the German Weekly “Der Spiegel” (Nr 31) the European chairwoman of Heather Conley -an influential think tank of the “Center for Strategic Studies” (CSIS) in Washington -recently stated that if the Europeans don’t keep in line with US sanctions, they could be forced upon them through the backdoor. US authorities could impose penalties upon those European institutions, if they try to cooperate with penalized Russian financial institutes. This would provoke new tensions between the US and Europe.”

Damage for German Economy

According to an article in the German Daily FAZ July 31, German business is predicting a significant effect on the German- Russian business, as result of the new sanctions. Medium sized companies in Germany which have developed special trade relations with Russia in the field of new technologies “ will pay the price for the political escalation.”

The paper quotes a leading manager from the machine tool producer association VDMA, Hannes Hesse, who points out that as result of the Ukraine crisis and the German truck and machine building producer MAN registered its orders in Russia shrinking by 25% in the second quarter of this year. Also the chairman of the Ost- Ausschuss of the German BDI (Committee on Eastern European Economic Relations of the Federation of German Industry), Eckard Cordes, is quoted saying that he estimates that right now 25.000 work places are in danger in the German export industry: In the long run this will have an effect on the growth of the German GDP.

Economic warfare by IMF and World Bank in Ukraine, says US think tank

What may shed an additional light on the ongoing “economic warfare” against Russia is a brief study which was recently issued by the “Oakland Institute” (an independent US think tank) under the title “The World Bank and the IMF in the Ukraine Conflict”. The study essentially exposes the complicit role of leading Western financial institutions such as IMF and World Bank in the Ukraine conflict.

What led to the ousting of President Yanukovych according to the study was his refusal to sign the association agreement with the EU in November 2013 and instead choose a Russian aid package with 35% discount of Russian natural gas. In the aftermath of the ousting of the Victor Yanukovych regime and the installment of the new pro EU government, the government of Ukraine under President Arseniy Yatsenyuk was promised a $ 17 Billion loan from the IMF and a $ 3,5 Billion aid package by World Bank – both of which require significant economic reforms and austerity measures that will have disastrous effects within the nation. The package of measures signed by the banks with the Ukraine government, according to the study, includes reforming public provision of water and energy but more importantly aims at “addressing what the World Bank identified as ‘the structural roots’ of the current economic crisis in the Ukraine, including the high cost of doing business in the country.”

The allegiance to the West of Ukraine was not only about geopolitics and democracy, the study notes, but “Western interests are pressing for change and big multinationals have expressed tentative interest in Ukraine’s agriculture.”

The East West competition over Ukraine involves the control of natural resources, including uranium and other minerals as well as geopolitical issues such as Ukraine’s membership in NATO. But as the study emphasizest the stakes around Ukraine’s vast agricultural sector – the world largest exporter of corn and fifth largest exporter of wheat – constitute a critical factor that has been often overlooked. In the Ukraine, often referred to as bread basket of Europe, the presence of foreign corporations in the agricultural sector and the size of agro holdings have grown quickly in recent years, the study reports. More than 1.6 Mio Hectares have been signed over to foreign companies for agricultural purposes, including a couple of European, but also Chinese and Russian companies. The study concludes that Yatsenyuk’s deal with the IMF was based on his promise to implement austerity measures, which ultimately will lead to significant price increases of essential consumer goods, a 47 to 66% increase in personal income tax rates and a 50% increase in gas bills and that as consequence these structural adjustment programs will increase the foreign control of the economy as well as increase poverty and inequality.