Russia Retaliates Against Western Sanctions, Economy on the Brink

Banning cheap fruit and vegetables from Europe could push the Russian economy over the edge.

Russian president Vladimir Putin listens during a meeting in Voronezh, August 5, 2014
Russian president Vladimir Putin listens during a meeting in Voronezh, August 5, 2014 (Presidential Press and Information Office)

Russia on Wednesday suspended beef and cattle imports from Romania. While it cited an outbreak of mad cow disease in the former Soviet satellite state — first reported in July — the timing of the embargo suggests it was enacted in retaliations against Western sanctions.

A day earlier, Russia announced it would sue German defense contractor Rheinmetall after the company was forced to cancel a €100 million contract to export combat simulation and training equipment to the Russian army.

The Russian business daily Vedomosti reported the same day that the country may restrict or ban European airlines from flying over Siberia — which would make flights to Asia take longer and require more fuel.

Russia earlier banned dairy products and juice from Ukraine, vegetables from Poland and beef from Australia.

The bans came after Western countries imposed additional sanctions on Russia following the downing of a Malaysia Airlines jet over eastern Ukraine three weeks ago. Almost three hundred passengers and crew were killed when pro-Russian separatists apparently mistook the commercial airliner for an Ukrainian military transport aircraft. By far most passengers were Dutch; 27 were Australian nationals.

Although Russia has denied Western accusations that it backs the Ukrainian uprising, Russian weapons have found their way into country — possibly including the advanced missile launchers needed to intercept an airplane at high altitude.

Yet Russian president Vladimir Putin has cast the blame solely on Ukraine, saying it “bears responsibility” for the plane crash.

Western countries first imposed financial sanctions on Russia after it annexed Ukraine’s Crimean Peninsula in March. Several European countries, notably Germany, Italy and Spain, were seen as reluctant to threaten severing ties further, given their business relations with Russia.

The European Union as a whole gets roughly a third of its natural gas from Russia, giving Putin significant leverage over his western neighbors.

Russia also buys €2 billion worth of fruit and vegetables from the European Union every year. But for most countries, it is a small export market. 8.7 percent of Poland’s foreign trade was with Russia last year. For Germany, which is often seen as “soft” on Russia, the country made up only 3.7 percent of its trade in 2013.

While earlier sanctions accelerated Russian capital flight to $75 billion, business leaders who were affected by the punitive measures refused to speak out — perhaps fearing that criticizing Putin could cause more harm to their companies than the sanctions themselves.

The shooting down of the Malaysia Airlines jet — and Russia’s refusal to admit culpability — hardened European leaders’ resolve to expand the sanctions. They now include energy, which provides more than a half of Russia’s revenues, and banking, making it more difficult for Russian companies to borrow.

Russia’s economy is now teetering on the brink of recession. The retaliatory measures it has enacted could push it over the edge. Banning cheap import products from Europe could make it harder to control inflation, the Russian central bank warned on Tuesday.

The annual inflation rate fell to 7.5 percent in July, still well above the 6.5 percent increase seen in 2013.

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