Three years have passed since the US and EU imposed sectoral sanctions on Russia after its annexation of Crimea and in the context of its intervention in Eastern Ukraine. Since July 2014, the Western countries have prolonged and even strengthened economic sanctions in unanimous votes a few times. The Western sanctions target some state-owned companies in the banking, energy, and defense sectors, officials involved in Ukraine’s conflict, Russia’s exports of high-technology oil exploration and production equipment as well as exports of designated military and dual-use goods. In response, Russia imposed a ban on food imports from Western nations in August 2014. That food embargo still remains in force until the end of 2018.
After three years of these retaliatory measures, what impacts can we see on both the Russian and European economies? For the Russian economy, the overall effect of the sanctions amid a slump in oil prices caused significant depreciation of the ruble’s value and increased capital flight. Struggling with the outside headwinds, the Russian economy plunged into recession in 2015-16. Russia’s ban on Western food imports led to accelerating consumer inflation. But have these sanctions triggered painful fallout to their initiators? The EU economies have been affected by the Russian sanctions mainly through trade, in particular by losses in export revenues. Interestingly, Russia’s importance as a destination market is quite limited for most European countries. The EU countries with the biggest exposure to the Russian market were the Baltic States, Poland, Finland, the Czech Republic, Greece, and Spain. However, European businesses have been able to find new markets for their products, both within Europe and beyond. This phenomenon is termed by economists as trade diversion. Recent fundamentals prove that the eurozone has shown resilience to the loss of the Russian export market. Moreover, most EU countries remain on robust growth trajectory in 2016/17 thanks to strong domestic demand and a recovery of the global trade.
