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Sanctions on Russia: What Europe cannot afford to lose

By Satyajit Mishra

The Russian annexation of Crimea has put several EU countries in a tough spot.  They are increasing their aid to Ukraine while imposing sanctions on Russia.  Europe is imposing visa restrictions and freezing the assets of Russians connected to the regime. Their most lethal weapon would be to ban Russian energy exports.  However, as much as Europe would like to target the backbone of the Russian economy, there exits one inescapable fact: Europe needs Russia’s oil and gas.  Their dependence on Russia extends to the luxury goods market, a purchaser of warships, a place for European companies to expand and grow, and clients of major British banks and London real estate agents.

Energy does remain the dominant factor as the EU weighs their sanctions against Russia.

If the sanctions are imposed it would be a devastating blow for the Russian economy, as the Russian energy sector, accounts for more than 50% of government revenues.  Russia supplies 30 percent of EU’s oil and gas needs – running everything from fuel for the vehicles and factories and gas to heat their homes – making an economic war against Russia a painful proposition for Europe.  The most dependant European nation on Russian energy is Germany.  A shutoff of Russian gas to Germany would cripple the Germany economy, and create ripples across global markets.

Germany maintains very close business relations with Russia and has the greatest capacity to exert pressure.  However, any sanctions against Russia would make German companies liable to retaliatory measures by Russia.  Germany exports medicines, engineering products, trains and automobiles to Russia. More than 6000 German companies are registered in Russia, and they have a cumulative investment of 27.5 Billion USD.  Over 3,00,000 German jobs depend directly on the German-Russian trade.

France stands to lose a 1.4 Billion USD contract to sell two warships to Russia, on which 1000 French jobs directly depend on. Russians have bought up villas in the South of France and Luxembourg, seizing these villas would send real estate prices in a downward spiral. Luxury companies also lean very heavily into the Russian market, France may not stand to lose as much as Germany but they do stand to lose a lot.

British banks would have to seize the assets of wealthy Russians, and major London investment banks would have to forgo the contracts of Russian companies. Over the past two years, merger and acquisition activity involving Russian companies has totalled 181 Billion USD.  There are over 2000 Russian children studying in UK boarding schools, around 100 million USD a year in fees comes from Russia alone.  Even the British law industry stands to lose a lot as over 60% of their international deals come from Russia. London has a good deal to lose because of the Russian money that is laundered through London. Russia’s elite are London’s cash cows. If Russians start selling off their houses, they will damage the high-end London property prices and in turn the city of London.

Europe needs to be willing to harm themselves to hurt Russia. Their inability to influence Putin simply goes to show commercial interests take priority over security. Any union wide measures requires the agreement of all 28 members, many of whom are reluctant to take any risks that would cause long term damage with Moscow.

Currently in 3rd year of B.Com under Calcutta University  specializing in accounting and finance. Also pursuing Chartered Accountancy. Reading research and analysis of the global economy, political matters that influence our economic decisions, game theory and strategies in war, strategy formulation and implementation and contemporary issues in marketing interest him a lot.

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