Russia places sanctions on itself

8 Aug 2014

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Yesterday Russia became the first country ever to place sanctions on itself – at least I cannot think of another example of this happening.

Russia’s strongest card is its exports of oil and gas as I have already pointed out.  Its weakest is its reliance of imports of food from other countries.  Russia imports more than 50% of its food, and in some places, such as Moscow the total is closer to 70%.  I always try to buy local produce wherever I am – I found it quite difficult in Russia.

I realise that this was done out of nationalist spite which shows that the Putin regime is digging its heels in and expecting a long drawn out conflict.  I am sure that they must have factored in a ban on Russian exports of oil and gas despite the problems with other producers such as Libya and Iraq.  If so, then this is a turn which could hit the Russian economy really badly.

This will effect above all the poor who are reliant on cheap imports of foodstuffs provided through major retail networks.  It may mean that the likes of Putin and his multi millionaire friends may have to pay a little more for their lobster but they can afford it.  The poor cannot.

This will also effect the exporters.  The EU exported nearly EUR12bn in food to Russia last year, whilst the US exported less than EUR1bn.  This will have a major effect on some countries.  Around 2.5% of Lithuania’s GDP is made up of food exports to Russia whilst Dutch exports come to nearly EUR2bn.

I suspect that nationalists will use the argument that Russia needs to produce its own food.  If it could not do it under the USSR, much less can it do it now.  It may try to source it from other countries, however food is not something which is suddenly produced from one day to the next.  Outside of the boycotted countries, the main suppliers are Belarus which exports around EUR2bn, Brazil EUR1.8bn and Turkey EUR1.2bn.   I can’t see them making up the shortfall.

As Putin was winning, this move was unnecessary.  I don’t think that paying more for groceries is a substitute for flag waving.  And that is before a retaliation on Russian gas and oil which would create economic havic in that country.

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