One-year Anniversary

Russian Sanctions Bite Both Sides

putin-painting-Reuters
A Ukrainian artist working on a portrait of Russian President Vladimir Putin.
  • Why it matters

    Why it matters

    Russian sanctions have hurt its German trade partners who are adapting to the situation.

  • Facts

    Facts

    • German exports to Russia declined by 34 percent from January to May of this year.
    • Russia is Germany’s 16th largest trading partner, compared to 11th in 2013.
    • The sanctions against Russia are especially directed against the country’s energy, finance and military sectors.
  • Audio

    Audio

  • Pdf

Friday marks the one-year anniversary of European Union sanctions against Russia, over its annexation of Crimea and its support for separatists in Ukraine, and the current figures show how tough the sanctions have been on the German economy in particular.

German exports to Russia declined by 34 percent from January to May of this year. A German lobby group, the Committee on Eastern European Economic Relations, predicts that trade with Russia will amount to only €20 billion, or $22 billion, in all of 2015, or only about half as much as in 2012.

In 2014, despite the sanctions, German companies managed to deliver goods worth €30 billion to Russia.

“Unfortunately, we have to assume that we still have to live for a while with the sanctions,” Eckhard Cordes, head of the committee, told Handelsblatt. “But at the moment, it is clear that neither the European Union nor Russia is interested in an escalation of the situation and all parties, including Ukraine, are suffering from the situation. We hope a way out of this impasse can be found soon.”

Before December, there had been great confusion among companies over what was actually allowed and what was prohibited.

The Russian market is increasingly losing its importance to the German economy. Carmakers and machine builders are especially hard-hit.

The sanctions proved too much for Opel, for instance. Chief executive Karl-Thomas Neumann has closed the automaker’s plant in St. Petersburg, withdrawing from a market the company once had high hopes for. So far, Opel has been an exception.

Russia has slipped from being Germany’s 11th largest foreign trade partner in 2013 to 16th today, and now accounts for less than 2 percent of German exports. The Russian market was already ailing before the sanctions, and the decline of the ruble and in oil prices only exacerbated the crisis. The Russian central bank expects the country’s gross domestic product to shrink by 3.2 percent this year.

The E.U. sanctions against Russia are directed, in particular, against the energy, finance and military sectors. For example, technology can no longer be exported to Russia that enables the country to exploit deep sea, Arctic or shale oil deposits.

In addition to military goods, the export ban applies to many dual-use goods, such as industrial pumps, which are not intended exclusively for the military.

The sanctions were defined more precisely in December. Before that, there had been great confusion among companies over what was actually allowed and what was prohibited. Experts see it as unlikely that the trade restrictions will be lifted in the near future. The ceasefire agreed to in the Minsk II Agreement is constantly being violated.

“So far, the sanctions have not yet led to Russia withdrawing from Ukraine.”

Elmar Brok, chairman of the Committee on Foreign Affairs in the European Parliament

Mr. Cordes has called for an end to the sanctions. “Sanctions can only work if everyone participates,” he said. “China, India, Korea, Latin America and even the Swiss are not participating, which is why the sanctions are full of holes.”

The political impact of the trade restrictions also appear to be meager, some experts say. “So far, the sanctions have not yet led to Russia withdrawing from Ukraine,” said Elmar Brok, a member of Germany’s center-right Christian Democratic Union and chairman of the Committee on Foreign Affairs in the European Parliament.

Still, Mr. Brok believes they prevented the Russian separatists from advancing to Mariupol or Odessa, and argues that there is no alternative to the trade restrictions. “International law is more important than business interests,” he said.

The lawmaker is not completely unbiased, however. In May, Mr. Brok was made an adviser to Ukrainian President Petro Poroshenko.

German companies are not giving up hope and are keeping their Russian facilities open, albeit with less personnel. In a current poll by the German Engineering Association VDMA, only 2 percent of companies indicated they would completely withdraw from the market.

 

Dana Heide is a Berlin-based correspondent for Handelsblatt and writes about energy policies, small and medium-sized companies and innovation. Daniel Delhaes reports on politics, transport and airlines from Handelsblatt’s Berlin office. Matthias Streit is a trainee at Handelsblatt. To contact the authors: heide@handelsblatt.com and delhaes@handelsblatt.com

We hope you enjoyed this article

Make sure to sign up for our free newsletters too!