The Impact of EU Sanctions on the Russian Economy
Abstract
Did the imposition of the European Union (EU) sanction impact the Russian Economy? Some researchers contend that sanctions are expensive tools that are applied to attain the goals of foreign policy. In contrast, others contend that they are comparatively costless tools that leaders use to generate domestic political back-up. These arguments cannot be true simultaneously. This research proposal assesses the impact of the sanctions imposed by the European Union on the Russian Economy. The EU sanctions led to the depreciation of the Russian rouble against the Euro in January 2014 because of the ongoing conflict between Russia and Ukraine. Other researchers contended that the increase in demand in industrial nations and low growth perceptions in established markets contributed to the depreciation of the Russian rouble against the Euro. The EU sanctions on Russia contributed to declining Gross Domestic Product (GDP). The Russian GDP has survived the combined pressure of the global economy and sanctions drastically well during the second and fourth quarters of 2014. The EU sanctions on Russia resulted in an increase in the rates of inflation. They stressed that inflation is significant in breaching the trust of the central government and its capability to achieve the fiscal obligation. The study will choose a mixed-methods approach to the study. The research setting for the study will be the Russian Embassy in Ukraine. The primary and secondary data will be used in the study. The descriptive analysis will be used to understand the impact of EU sanctions on the Russian economy. This research proposal provides a methodological approach in providing solutions conflicts that occurred between Russia and the European Union
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Table of Contents
Determinants of Sanctions’ Success. 6
Impact of Sanctions on oil prices. 6
Impact of Sanctions on Exchange Rate on the domestic currency. 7
Impact of sanctions on Inflation. 7
Economic Decisions made by the Russian Government. 7
Contribution to Theory and Practice. 9
Personal Competencies and Feasibility. 9
Introduction
Introduction
The Ukraine crisis highlights a power struggle between the European Union (EU) and Russia. Ukraine contributed significantly to the economy of the Soviet Union (presently Russia) between 1920 and 1991. Thus, it is globally acclaimed as one of the founding states of the Soviet Union. In March 2014, the present crisis emanated when the Russian Special Forces invaded the Crimean peninsula of Ukraine. Russia contended that it was safeguarding its access of the port to the Black Sea. Initially, Ukraine had partnered with American firms and planned to develop the natural gas reserves in Crimea. The attainment of the project would have deprived Russia of one of its significant clients. For four years, the Russian-backed separatists and soldiers from Ukraine fought each other in eastern Ukraine. As a result of the war, more than 10, 000 individuals lost their lives (Keukeleire & Delreux, 2014). On 25th November 2018, the Russian ships attacked and boarded three Ukrainian vessels in the Crimean port of Azov. The Russian-backed separatists placed a freighter to block the port, articulating that Ukraine had breached the Russian waters though the two parties had earlier signed an agreement to allow free passage via the strait. The European Union imposed sanctions on Russia after its intervention in Ukraine. In summer 2014, the EU tightened its sanctions in two phases. During July 2014, the EU started imposing sanctions against individuals and institutions. After sometimes, the EU extended placing sanctions on the decision-makers and individuals supporting the intervention of Russia in Ukraine. The EU implemented these measures after the escalation of the military conflict of the war amidst engaging in peace intervention. The EU made these decisions before shooting the Malaysian airliner MH17 on 17th July 2014. Ultimately, the third phase of the sanctions mechanism was enforced at the end of July 2014 (Haukkala, 2015). It entailed the imposition of an arms embargo and limitations of ‘dualuse’ products and equipment necessitated for exploring and producing oil. The embargo was earlier in place till 31st July 2015, though it has been extended frequently.
Rationale and Motivation
There has been more research on the imposition of EU sanctions on Russia. However, little research has been conducted on the actual reason behind the imposition of sanctions on the European nation. This research, therefore, aims to establish at what extend was the Russian economy affected by the sanctions imposed by the European Union. Therefore, carrying out this research would provide answers to this question.
Problem Statement
The question of the extent to which the EU sanctions negatively affected Russia has been central for the students of sanctions policy. The students have instead been skeptical about the effectiveness of the policy. Russia is experiencing a decrease in oil prices, depreciation of its rouble against the Euro, a decline of the commodity prices, and an increase of inflation rates. Early research by Hufbauer et al. (1990) acknowledged that only one-third of sanctions programs impacted the norm of a targeted state. Ukraine has been previously navigating for many years between the European Union and Russia. As a result, the nation is always in a power struggle between the two parties (Haukkala, 2015). Russia and EU became competitors in the nation with Russia regarding Ukraine as its ‘Near Abroad’ and simultaneously the belonging of Ukraine of the EU. This clash developed as Russia considers the former Soviet Union nation as part of its exclusive sphere of influence and, on the contrary, the impact of the EU in Ukraine (Keukeleire & Delreux, 2014). The tensions in EU-Russia relations are mounting because of the continuous crisis in Ukraine in which the Crimean peninsula is included in the Russian Federation.
Research Questions
- Why did the EU decide to implement sanctions against Russia?
- What is the impact of the EU sanctions on the Russian Economy?
Aim and Objectives
The study aimed to explore the impact of EU sanctions on the Russian economy. The objectives were derived from the research questions. The research objectives of the study will be:
- Understand the effect of the EU sanctions on the Russian Economy
- Understand the motive of EU sanctions against Russia
Literature Review
Empirical Framework
Definition of sanctions
Ćwiek-Karpowicz & Secrieru (2015) defined sanctions as a form of trade non-tariff barrier that strives at attaining the political goals at the expense of undesirable economic losses. The introduction of sanctions in major nations has resulted in negative impacts. Sanctions are imposed on the target nations to maintain and restore security and peace. Crozet & Hinz (2016) believe that sanctions are tools of foreign policy that strive to the negative impact of the economy of the target nations. The limitations or prohibition on the trade of particular products and services, embargo, and financial ties are examples of sanctions that are imposed on the target region. Ćwiek-Karpowicz & Secrieru (2016) define sanctions as economic instruments that help in managing the global crisis. They believed that sanctions keep impacting the state of the development of a crisis through the prosperity of another nation. Veebel & Markus (2015) defines sanctions as a kind of negative conditionality where the imposer is motivating the target nation with threats to alter its political, economic, or military deeds. Therefore, pressure is anticipated to happen in distinct forms and timeframes. They believe that the fascinating thing about sanctions is that they involve the demands and criteria that need to be attained to terminate the sanctions. The motive of these sanctions is to slow the process of ongoing politics or military rearmament.
Giumelli (2013) conducted a study on the working of the EU sanctions. He highlighted that sanctions present a coercion tool that aims to change the norm of a target nation and aims at presenting the undesirable activities. The behavioral change of a target country can be explained by the increase of direct material expenses caused to them whereby could be eluded after changing the behavior. Therefore, the target nation is knowledgeable of the action to take to meet the demands of the sanctioning party and are encouraged to enforce the policies that are emphasized by the sanctioning party to elude extra expenses. Leenders (2014) explains that the target nation is anticipated to perform it voluntarily without risking political suicide. The change in the behavior of the target nation is preceded by the weakening of the political support of its leaders and regime. Simultaneously, the imposing party should make reasonable demands that could be met by a target nation without depriving them of anything. Groves (2007) clarifies that sanctions need to have a sound prospect of success. However, in many instances, a ‘hidden agenda’ exists that constitutes the aims that are not appropriate for official framework or not entirely supported by the members of a multilateral coalition.
Determinants of Sanctions’ Success
The earlier studies on the success of sanctions offered disappointing outcomes inquiring the utility of sanctions as a mode of resolving disputes (Hufbauer et al., 1990; Hart Jr 1990). The documented low success rates motivated further research to be carried out on the aspects that induce compliance, thereby determining a successful sanctions episode. The coexisting literature on the effectiveness of sanctions was focused on the prevailing economic environment of the target nation and those attributing special attention to the facets of sanction episode.
There is a rising consensus on the significance of the domestic institutional setting in the sanctions success rate. Cox & Drury (2006) offer proof for the argument by Hufbauer et al. (1990) that democratic leaders are less probable to implement the demands of the sender. The greater legitimacy contributes to the higher resilience of the democratic target. This offers a better likelihood of a democratic government to unify its citizens against the requests of the sender and defending the policies of the domestic policy.
The relationship that exists between the structure of the target economy and the decision to comply is addressed. The extent of trade openness of the target nation is characterized by vague implications. A considerable section of sanctions’ literature contends that the external trade linkages between the sanctioning party and the target nation positively contribute to the success of the sanctions (Hufbauer et al., 1990; van Bergeijk, 1994). The underpinning assumption is that the higher the initial volume of trade, the greater the disutility that is placed when the trade pacts are suspended because of sanctions. On the other hand, trade openness portrays a more integrated economy. Furthermore, higher global integration allows sanctioned economies to replace income losses because of the imposed efforts. Such an impact significantly decreases the likelihood of compliance and, therefore, the likelihood of a thriving sanctions episode.
Impact of Sanctions on Oil Prices
Veebel & Markus (2015) carried out a study on the lessons that can be derived sanctions imposed on Russia due to its intervention in Ukraine. They claimed that in spite of a stringent negative influence on the Russian economy, the sanctions were not enough to instigate substantial political change. Kholodilin & Wittenberg (2015) contend that the economic crisis facing Russia can be explained by the decreasing oil and gas sales. Dreger et al. (2014) showed that the Russian rouble lost nearly half of its value against the American dollar as the conflict between Ukraine and Russia started in January 2014. However, similar scholars have emphasized the fact that the decrease of the oil prices began in summer 2014 as a result of the “the modest expansion of demand in main industrial countries and lower growth perspectives in huge emerging markets, such as China and Brazil. These authors clarified that the Western sanctions offered extra attrition in a manner that limited the national banks to refund their external debts. In addition, the incapacity of Russia to purchase the unavailable drilling and other industrial technologies poses a risk to the ability of the corporations to explore the oil fields and extend the production essential for the recovery of the Russian economy.
Impact of Sanctions on GDP
Veebel & Markus (2015) argued that the EU sanction on Russia contributed to declining Gross Domestic Product (GDP). The Russian GDP has survived the integrated pressure of the worldwide economy and sanctions drastic well during the second and fourth quarters of 2014 by demonstrating a mean of 0.6% growth reaching the mean GDP growth in the Europe Continent. The negative impacts appeared initially in the first quarter of 2015 when the Russian economy deteriorated by 2.2%. The declining GDP growth was alarming in the second quarter of 2015 when the GDP decreased by 4.6%. The negative impact is evident when drawing a comparison between the decreases of Russia GDP in the second quarter of 2015 with the GDP growth of the Eurozone of 0.4%.
Impact of Sanctions on Exchange Rate on the Domestic Currency
Veebel & Markus (2015) contended that the imposition of sanctions by the EU led to a negative impact on the domestic exchange rate against the major global currencies. During the start of 2014, the Russian rouble began at 46RUB/EUR and depreciated to 85 RUB/EUR in December 2014. In July 2015, the domestic currency restored itself to 60RUB/EUR, having depreciated significantly against the Euro in just one year.
Impact of sanctions on Inflation
Veebel & Markus (2015) argued that the EU sanctions on Russia led to inflation. They emphasized that inflation is instrumental in breaching the trust of the central government and its capability to attain the fiscal obligation. Russia’s inflation was below 10% in the entire months of 2014. From June to December 2014, an average of 8% was recorded. In 2015, the country recorded inflation of over 10% throughout the months, garnering a mean of 16% when comparing it with the earlier year.
Economic Decisions made by the Russian Government
The economic impact of the imposed sanctions entailed the changes in the prices of commodities. Between March and December 2014, the sanctions against Russia were imposed. The restrictions measures implemented in December can be categorized as more stringent. In August, Russia responded by imposing an embargo of agricultural products from nations that had implemented restrictive measures against it.
Theoretical Framework
The game theory has been used to explain the effectiveness of the economic impact of sanctions on the target nation. Shidiqi & Pradiptyo (2011) say that Tsebelis contended that economic sanctions are analyzed well-using game theory on the basis that the interactions of sound players impact the likelihoods of failure and success in infringing. He uses a two-player game that demonstrates that under particular conditions, the size of the punishment does not impact the norm of the target nation. Lacy & Niou (2004) perceive economic sanctions as a multi-stage game of two-sided incomplete information between a coercer and a target. Drezner (1998) developed a two-player game-theoretic model of economic coercion to demonstrate that both ‘targets’ and ‘senders’ of economic coercion integrate the anticipations of future conflict and the short-term opportunity costs of intimidation into their norm. Basu, K. (1986) presents a study of three-party nonsymmetrical interactions. He gave a perfect example of a laborer, landlord, and merchant, and he described how the landlord could push the laborer into approving the wage by blackmailing the merchant not to carry any form of business with the laborer under the condition that the laborer approves it.
Conceptual Framework
Methodology
Research Strategy
General strategic plans are essential to answer the research questions effectively and help to select the appropriate research methodology. The study will apply a mixed-methods approach that entails the quantitative and qualitative methodology because it will strive to develop the many theories that are ingrained on the collected data. A study is regarded as qualitative because it defines a particular state of activities and can form a perfect way to link these theories that are explained and examined.
Research Setting
The research setting for the study will be the Russian Embassy in Ukraine.
Data Collection
The data that will be used in the study will be the primary and secondary data. In terms of primary data, I will rely on in-depth one-on-one interviews with the official of Embassy officials in Ukraine. Full anonymity will be granted to those who will be interviewed. The structured questionnaires will constitute the close-ended questions and coded responses. During the interviews, I will make use of the field notes, interview transcripts, policy documents, video footage, and photographs.
The secondary data will be collected from academic papers, scholarly books, and academic working papers. Most of the sources will be from the research databases. The academic working papers will be retrieved from Google Scholar. The gathering of the data on the tested variables will review the European Union sanction reports, freedom reports in Russia, European Union Council decisions, and economic prosperity reports. The majority of the data collection emanates from secondary literature though particular computations and analysis come from the primary literature. These forms of data collection will be found in parts of the project, including the budget and the dependence mechanisms whereby aspects such as GDP and trade, will be assessed.
Purposive sampling is the sampling plan that will be taken into account in this study. It is a judgmental form of sampling whereby the scholar chooses certain individuals for their relevance to their issue that will be studied. The study will use the approach to select academics in the field of global relations in foreign policy. The measures that will be used will be GDP, oil prices, and exchange rates.
Data Analysis
Various data analysis techniques will be applied in the research as the data will be gathered using an integration of qualitative and quantitative research designs. The quantitative data will be gathered from the documented records in Russia will be analyzed using the descriptive analysis process. The technique will entail the computation of medians, means, and modes that allow more understanding of the impact of EU sanctions on the Russian economy. In addition, the research will apply the descriptive statistics to obtain the many frequencies and percentages that will vital in understanding the impact of EU sanctions.
Contribution to Theory and Practice
This research proposal provides a methodological approach in resolving conflicts that emerged between Russia and the European Union. It combines the application of sanctions mechanisms in different stages to motivate the target nation to change its economic and military action. The study has shown that economic sanctions are effective in solving conflicts in the case of Ukraine.
Personal Competencies and Feasibility
I believe that I am the most appropriate person to complete the project because I have a diversity of individual competencies. For instance, I am competent at time management and planning. I intend to draw a gannt chart that will show the tasks, time needed to complete them and the date. In addition, I have good oral and communication skills that will be vital to interview the respondents and obtain the primary data.
References
Basu, K. (1986). One kind of power. Oxford Economic Papers, 38(2), 259-282.
Cox, D. G., & Drury, A. C. (2006). Democratic sanctions: Connecting the democratic peace and economic sanctions. Journal of Peace Research, 43(6), 709-722.
Crozet, M., & Hinz, J. (2016). Friendly fire-the trade impact of the Russia sanctions and counter-sanctions (No. 2059). Kiel Working Paper.
Ćwiek-Karpowicz, J., & Secrieru, S. (Eds.). (2015). Sanctions and Russia. Polski Instytut Spraw Międzynarodowych.
Ćwiek-Karpowicz, J., & Secrieru, S. (Eds.). (2015). Sanctions and Russia. Polski Instytut Spraw Międzynarodowych.
Dreyer, I., & Popescu, N. (2014). Do sanctions against Russia work. European Union Institute for Security Studies, 35(2).
Drezner, D. W. (1998). Conflict expectations and the paradox of economic coercion. International Studies Quarterly, 42(4), 709-731.
Giumelli, F. (2013). How EU sanctions work: A new narrative. EU Institute for Security Studies.
Groves, A. (2007). Are Santions an Appropriate Tool for Coercion in International Politics? Why.
Hart Jr, R. A. (2000). Democracy and the successful use of economic sanctions. Political Research Quarterly, 53(2), 267-284.
Haukkala, H. (2015). From cooperative to contested Europe? The conflict in Ukraine as a culmination of a long-term crisis in EU–Russia relations. Journal of Contemporary European Studies, 23(1), 25-40.
Hufbauer, G. C., Schott, J. J., & Elliott, K. A. (1990). Economic sanctions reconsidered: History and current policy (Vol. 1). Peterson Institute.
Keukeleire, S., & Delreux, T. (2015). Competing structural powers and challenges for the EU’s structural foreign policy. Global Affairs, 1(1), 43-50.
Kholodilin, K., & Wittenberg, E. (2015). ” The price of oil is having a stronger impact on the Ruble’s exchange rate than are the sanctions”: Seven questions to Konstantin Kholodilin. DIW Economic Bulletin, 5(44), 592-592.
Leenders, L. (2014). EU Sanctions: A Relevant Foreign Policy Tool? EU Diplomacy Paper No. 3, May 2014.
Shidiqi, K. A., & Pradiptyo, R. (2011). A game theoretical analysis of economic sanction. University Library of Munich, Germany.
Van Bergeijk, P. A. (1994). Economic diplomacy, trade and commercial policy. Books.
Veebel, V., & Markus, R. (2015). Lessons from the EU-Russia sanctions 2014-2015. Baltic Journal of Law & Politics, 8(1), 165-194.
Appendix
Institutions: _____________________________________________________
Interviewee (Title and Name): ______________________________________
Interviewer: _____________________________________________________
Survey Section Used:
_____ A: Interview Background
_____ B: Institutional Perspective
_____ C: Assessment
_____ D: Department and Discipline
_____ E: Teaching and Learning
_____ F: Demographics (no specific questions)
Other Topics Discussed:____________________________________________
________________________________________________________________
Documents Obtained: _____________________________________________
________________________________________________________________
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Post Interview Comments or Leads:
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