The European Union’s sanctions against Russia will build over time and will have a growing long-term impact on Moscow’s economy.
(Bloomberg) — The European Union’s sanctions against Russia will build over time and will have a growing long-term impact on Moscow’s economy.
An impact assessment prepared by the European Commission and seen by Bloomberg outlines the effects on Moscow due to the bloc’s sanctions, which have cut off around €91 billion ($99.1 billion) in imports from Russia and which cover €48 billion of EU exports.
The sanctions have “significantly degraded Russia’s industrial and technological capacity,” according to the report. “These effects will further intensify over time, as the measures have a structural, long-term impact on Russia’s budget, financial markets, foreign investment and its industrial and technological base.”
The EU has sanctioned almost 1,500 people and 250 entities since Russia’s attacks on Ukraine, starting with its annexation of Crimea in 2014 and followed by its invasion of Ukraine in February last year. With the the measures designed to minimize the effects on member states, the impact on the EU has been contained but it has been “tangible” in some areas mostly due to Russia’s counter-measures and because of the war itself, and the resulting rise in prices, according to the document.
The assessment notes that European industry has reported a few “severe” import-related supply chain disruptions on rare gases such as neon and xenon that are used to produce chips. Rail freight between the EU and China transiting via Russia has fallen and the import ban on wood products as well as Russian countermeasures has contributed to price increases and some supply issues, especially for plywood and oak.
EU exports to and imports from Russia have fallen by more than 50% compared to 2021 resulting in “an unprecedented decoupling,” the assessment says. This has led to technology-dependent processing industries to shrink particularly fast, with high and medium-high technology manufacturing recording a 13% annual loss.
Still, Moscow has been able to hoard some materials as well as source some banned goods and other substitute technologies from third countries including China, Kazakhstan, Turkey and the United Arab Emirates.
The report estimates that nearly a third of Russia’s federal budget will be spent on defense and domestic security this year. Russian steel production was down 7% last year compared to 2021 and a further 10% drop is expected this year.
“Far beyond their immediate impact, the EU’s import restrictions filter deeply into the fabric of Russia’s economy,” according to the document.
(Updates with report details from the fourth paragraph.)
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