Why sanctions against Russia just won’t work

The European Union are thinking of imposing sanctions on the Russian Federation as a response to Russia’s activities in Georgia. It is a curious idea, because it seems to me that the EU has more to lose if there were economic sanctions than does Russia.

There are always two sides to every story, and the Russian activity in Georgia is not a clear cut well defined issue. Even if it were, the purpose of sanctions would be to impose economic hardship on Russia as a means of bring them into line with what the European Union thinks they should do.

Now i do not suppose that for a moment the sanctions would be one sided and bring about any change of behaviour by Russia. The sanctions would be reciprocated, I have no doubt, by the Russian Federation. As far as the EU is concerned the Russian federation would have to do without the goods and services that the EU sells to Russia. Russia can probably find other suppliers for these goods and services.

The value of what the EU would stop going to Russia by sanctions is considerably less than the value of items that Russia exports to the EU. Russia exports large amounts of oil and natural gas to the EU. Much of the oil flows through the Druzhba pipeline, which connects Russia to Germany and central parts of the EU through Poland.

In July when the Czech Republic agreed to install an anti-missile shield supplies to the Czech Republic through the Druzhba pipe line fell by 40%, ostensibly for technical and commercial reasons. In May 2007 Estonia suffered a loss of Russian fuel supplies after it removed Red Army memorials against the wishes of Russia. Also in 2007 supplies to Belarus were cut off for three days, causing disruption in supplies in Germany and Poland.

If supplies of oil were cut off to the EU the oil price would rise as a simple but inevitable reaction. Russian oil would then become more valuable because even without the EU the price rise would probably more than compensate for the loss of market. More significantly the EU buys 62% of its natural gas from Russia. I cannot understand where EU would be able to replace this gas if sanctions with Russia resulted in Russia turning off the gas tap. I can see, however, that Russian natural gas may well be able to find a ready market at enhanced prices for some of this.

Even if it does not, the gas is not going anywhere, so as to speak, but can remain in reserve.

Russia provides around 26% of the EU oil requirement and 29% of its natural gas requirement. France, with its substantial nuclear energy, may see sanctions against Russia as an option but I doubt if Germany or Poland would agree, and thinking things through the rest of the EU would also be disadvantage by the very policy promoted to disadvantage Russia.

2 Responses

  1. I agree. We do not need any more price increases in the present economic climate, hopefully the EU will come up with a better idea.

  2. The EU seems to have waved a big stick and then put it away. Using it might well have casued them more daamge than they could inflict

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