Russia Direct asked a group of experts to discuss the potential impact of Russia’s food counter-sanctions, with a focus on how these recent retaliatory measures might change the relative bargaining positions of Russia and the West in the ongoing Ukraine crisis.
Russia’s counter-sanctions came as a big surprise for the EU leaders. Pictured: British Prime Minister David Cameron (left), French President Francois Hollande (center) and German Chancellor Angela Merkel (right). Photo: AP.
On August 6, President Vladimir Putin hit back hard at the countries that had introduced tougher sanctions against Russia, ordering a temporary trade ban on food and agricultural imports from these nations. The next day, a full list of products to be banned was released and Prime Minister Dmitry Medvedev officially confirmed that Russia has banned fruit, vegetables, meat, fish, milk and dairy imports from the U.S., the EU, Australia, Canada and Norway. He also stated that the ban was effective immediately and would last for one year. Russia may also introduce “supportive measures” for the car, shipping and aerospace industries, Medvedev said.
Our country is not afraid of any sanctions. This power game will have no success - #Medvedev— Government of Russia (@GovernmentRF) August 12, 2014
While the tit-for-tat sanctions move was greeted by the Russian media quite positively, White House officials dismissed Putin’s move. They pointed out that the counter-sanctions would be much more harmful to Russia than to the U.S. or Europe, hinting that they might result in greater inflationary pressure on Russian food prices. According to U.S. Treasury official David S. Cohen, the move amounts to a “cruel irony” and will limit Russians’ access to a substantial part of their food supply, given that Russia is the world’s 5th largest food importer, according to the WTO.
The EU also weighed in on the counter-sanctions. The European Commission issued a statement by European Agriculture Commissioner Dacian Ciolos, who emphasized that the EU would “react in a proportionate and rapid way should the situation arise.” As part of a broader strategy to “reorient rapidly towards new markets and opportunities,” Mr. Ciolos also announced a meeting of senior agricultural experts from all EU member states to take place on August 14.
These recent developments raise questions about what consequences the food sanctions might lead to in the long run. What are the implications of this policy move both for Russia and the West? Russia Direct asked Russian and foreign experts to share their views on how the situation will develop in the near future.
Gordon M. Hahn, Ph.D., Analyst and Advisory Board Member at Geostrategic Forecasting Corp. (Chicago), Analyst at Russia Strategic Ltd. (Prague), Senior Analyst at the Centre for Terrorism and Intelligence Studies (Akribus Group in California). He has taught at Boston, American, Stanford, San Jose State, and San Francisco State University.
I suspect this retaliatory measure will lead to greater profits for domestic food producers and retailers, but higher prices in the long run for Russian consumers, perhaps even shortages of certain products in Russian stores and even increased inflation.
This might also have an effect on the EU. I think that European and Ukrainian food producers will be hit hard, and this will compound the collateral damage to the European economy being caused by EU sanctions imposed on Russia. All in all, both Russia and Europe face the risk of a recession, which could feed a global recession.
Putin needed to respond to the harsh, third set of sanctions imposed by the West and the advance of Ukrainian troops into the Donbas region in order not to be vulnerable to any charges of weakness from nationalist supporters within Russia or the impression of failing leadership that might be emerging among some within the ruling elite.
Since he does not want to intervene militarily in eastern Ukraine and since the West is escalating the crisis, Putin needed to escalate in a non-military way. He may move to take military steps short of sending Russian troops into the Donbas region. This could include increasing the number of troops based in Crimea and in other regions covered under the Intermediate-Range Nuclear Forces Treaty (INF) restrictions and installing missiles in Kaliningrad as a response to impending moves to upgrade NATO's presence in Poland and the Baltics and step up military cooperation with Germany and support for Kiev. Escalation and a deepening of the crisis appear to be our destiny throughout the autumn.
Ivan Kapitonov, Deputy Head of the Department of State Regulation of the Economy at the International Institute of Public Service and Administration of the Russian Academy of the National Economy and Public Administration under the President of the Russian Federation. He also chairs the International Trade Institute of International Economic Relations. Since 2007, he has been a senior fellow at the Energy Policy Sector of the Institute of Economics of the Russian Academy of Sciences (RAS).
The question of retaliatory sanctions by Russia was discussed for quite some time now. It’s obvious for everyone that Russia was and will remain one of the main actors in the world economy. So, it’s not clear: Why can someone find it acceptable to punish a major partner like Russia with sanctions without having any objectively proven basis? We are considered to be responsible for something we have no relation to.
It seems that the irrational logic behind sanctions only conceals the real goals that our partners are trying to achieve here: First, to pressure Russia to change its principles according to which it’s carrying out its independent foreign and economic policy, and, second, to pave the way for Western companies in the world economic system.
All this time, Russia was patiently warning its Western partners that sanctions will only exacerbate the situation, harming all sides of the conflict. The Russian position was never seriously considered and the EU and the U.S. didn’t think that a retaliatory action could be possible.
However, the last round of sanctions showed that the U.S. and its EU allies will only continue to threaten Russia, notwithstanding how Russia reacts. So, the tit-for-tat sanctions move is a signal that Russia will not continue to calmly accept such policy steps any longer.
It’s worth noting that all possible sanctions from the Russian side will mainly affect the EU rather than the U.S. This fact should give an incentive to the EU states to realize that they will be the first to lose if the conflict continues.
For the Russian economy, the limit on imports means the shift toward the policy of import-substitution, a development that is undoubtedly beneficial for local food producers. Furthermore, it’ll promote development not only in Russia, but also in the Customs Union countries (Belarus, Kazakhstan, and Russia). This will surely require some state measures (additional investment into the national agriculture sector), but all resources for that are available. In any case, if there is something that Russia can’t produce, it can buy it from its BRICS partners.
A possible growth in consumer prices is expected, but it’s already being tackled by the state’s preemptive measures. To sum up, the Russian response to sanctions can be considered to be a timely, well-considered and balanced step.
Matthew Rojansky, Director, Kennan Institute, Woodrow Wilson International Center for Scholars. He is an expert on U.S. relations with the states of the former Soviet Union, especially Russia, Ukraine, Belarus and Moldova. He has advised governments, intergovernmental organizations, and major private actors on conflict resolution and efforts to enhance shared security throughout the Euro-Atlantic and Eurasian region.
The Russian sanctions response is an effort to make very clear to the West that pressure isn't going to result in Russian surrender. Quite the opposite. Putin is willing to go to the mat on Ukraine because it has become an issue of his own political credibility and survival at home. Thinking that a few more points of GDP decline will change his mind is just wrong, even if in the long-term, economics might actually bring down the whole Russian system (as it has in the past). To this end, of course, the additional sanctions and counter-sanctions add to Russia's economic isolation but they do not fundamentally change the equation.
The only smart solution on Ukraine is a ceasefire and negotiated settlement. The more Kiev, the separatists or Russia tries to change facts on the ground by force, and the more the West makes it clear that it will accept nothing less than Russia's full defeat in Ukraine, the more likely this is to end in disaster – not World War III, but we could easily be pulled into a situation of a proxy war where we are funding and arming the Ukrainians, and they are fighting directly against Russian troops.
I expect soon, maybe a few weeks or a month, to see either a disastrous bloodbath in the "siege of Donetsk" by Ukrainian forces or a possible Russian intervention under the guise of a humanitarian mission. Perhaps both. Probably not a full-scale ground war, but rather, a declaration of a no-fly zone enforced by artillery and air power. This would, in any case, constitute an escalation of the Russo-Ukrainian war and would bring the situation to an even more dangerous crisis phase.
Big picture, I can't emphasize enough what a mistake it would be to think the West can simply "defeat Putin" if we just apply enough pressure. That is likely to backfire into more counter-pressure from Russia, a worsening situation on the ground in Ukraine, and damage to the global credibility of the U.S. since if the Russians really do escalate, it's not clear we are prepared to invest the long-term resources to stand behind the tough rhetoric. The only sensible solution now is de-escalation, ceasefire and negotiations on a long-term settlement.
Nikolay Pakhomov, Political Scientist, Associate at the Institute for Democracy and Cooperation, Expert at the Russian International Affairs Council (RIAC). He is a commentator for a number of Russian and international media outlets, including Politcom.ru.
When analyzing sanctions against Russia, counter-sanctions and the reaction of Russian society towards them, it is important to understand an uncomfortable fact – currently, no matter which direction the situation turns, somebody is always going to lose. For the past few months, Moscow has been pressured to react to unilateral and hostile actions by the West and the new Ukrainian government. It should not come as a surprise that sooner or later, Moscow had to retaliate.
The Russian leaders needed to minimize the negative consequences of their actions and, overall, they were successful in achieving that. Russian retaliatory measures can be considered as proportionate. One should only imagine for a moment the rapid pace of escalation of the current crisis if Moscow had decided to undertake harsher steps, such as prohibiting Western airlines from flying over its territory, or banning the supply of titanium for Boeing, which would paralyze the entire company. After all, these were the type of ideas floated as a possibility for counter-sanctions.
The measures taken by Russia stand as a clear signal for the Western world, especially Europe (where there has already been a significant discontent from the side of business because of sanctions and now the counter-sanctions), that the course of actions taken by the West is not constructive, and further escalation of the crisis will not bring a solution to the severe Ukrainian crisis. On the other hand, domestically, Russian actions have an economic impact that might actually bring about some positive results. It is apparent that counter-sanctions may result in the advance of domestic agriculture and food producers.
Also, the nation’s foreign currency reserves, accumulated as a result of energy exports, will be spared. It is important to note that several countries that agreed to substitute sanctioned Western products with their own (among them Morocco, Egypt, Iran), are in need of Russian agricultural products, especially grain. A perspective barter deal with those countries can be done without spending additional euro or dollar reserves, which can, in turn, be used to import technology and other equipment. And finally, it is obvious that, if Western products can be substituted with those from other regions of the world, it will only contribute to the strengthening of Russia's relations with those regions. The geography of alternative product supplies is already very wide – from Chile to Uzbekistan, from Brazil to Serbia, from Morocco to Vietnam.
The ball is in the Western court now. One can only hope that a rational approach will prevail in preparing the next move, and instead of further escalation, we will see negotiations. Even more so, the tragic situation in Ukraine keeps proving that Moscow is far from being the first place to look for the reasons of the Ukrainian crisis.