Sanctions and the New Economic Reality

06.04.2017

By all appearances, anti-Russian sanctions have become a constant of international life. However, a new reality is emerging in Russia’s economic relations with the West. Economic interaction is growing, despite anti-Russian sanctions, and increasingly penetrates strategic fields. This is happening because sanctions affect the interests of many key Western figures who are beginning to feel them as a burden. 

Heads of foreign companies asked during Russian Business Week, held in Moscow in March, whether it was worthwhile to lift the sanctions. Yes, it is necessary to come up with new project funding patterns and obtain more investment authorizations, but Western companies operating in Russia have adapted to the situation, and sanctions bar entry to new competitors. So every cloud has a silver lining.

In essence, relations are undergoing a crash test, which naturally yields an answer to the question, not how to improve economic relations, but why? The situation leads to the survival of only the most viable and relevant projects. Many of them are oriented toward strategic prospects and are resistant against political hazards.

Nuclear and conventional energy remain a vehicle of cooperation as well as a testing ground for it in the new conditions. Russia has proven to be a reliable and indispensable partner in this sphere. Its own resources and competences guarantee Russian companies’ leading positions in the industry, while Moscow’s military-political dynamism in the Middle East, Asia and Latin America opens up new markets to Russian businesses and provides grounds for partnership with Western companies. 

Russia has strengthened its reputation as a global player interested in international stability. It is an active negotiator in the Syrian, Libyan, Ukrainian and Nagorno-Karabakh conflicts, one which advances the most lasting options for their settlement. In its relations with the principal rising economies – Turkey, China, India, Egypt, Iran, Vietnam and Qatar – Russia advances the priorities of predictability and mutual benefit.

Despite the aftermath of an acute crisis in bilateral relations, Russian specialists are continuing to build up the Turkish nuclear industry, and Rosatom is carrying on the construction of Turkey’s first nuclear power plant. Rosneft has emerged on the Egyptian gas market with a contract to supply ten LNG tankers. The Qatar Sovereign Wealth Fund is participating in the privatization of this major Russian oil company. Ukraine is an exception, as it makes its companies bypass obstacles to continue cooperating with Russian enterprises. For instance, the Motor Sich helicopter engine manufacturers export engines to China for a Russian-Chinese helicopter assembling joint venture. 

Russian diplomatic and corporate activity on developing markets provides a platform for cooperation with the West. The Egyptian government has recently approved the acquisition of a block of the Zohr gas field, Egypt’s largest, by Rosneft from Italy’s Eni. Rosneft will soon purchase the second-largest Indian refinery. Russia’s principal oil dealers have a firm basis in Europe as they increase the interdependence of Russian and transnational finances. Russian-Japanese rapprochement logically opens prospects for gas transport infrastructure to link Sakhalin with Japanese islands. Even Russian-US relations, for the first time in many years, show the possibility for an economic foundation of bilateral relations through the joint development of mineral resources of the Russian Arctic shelf. ExxonMobil and Rosneft concluded a relevant contract before the Ukraine crisis, and the two companies are waiting for politics no longer to impede the mutually lucrative project. 

One particularity of the discussion on anti-Russian sanctions is that they are gradually no longer being tied to the Ukraine crisis, as the Ukrainian theme recedes into the background of the international agenda and the West tacitly acknowledges that Kiev is to blame for the procrastinated implementation of the Minsk Agreements. Conditions are gradually emerging in this situation for forming a trans-Atlantic consensus on the necessity of lifting the sanctions.

It is too early to speak about such a consensus yet. The sanctions will not vanish immediately due to a number of political and procedural obstacles. The latest example is provided by the negative verdict of the EU Court of Justice in Luxembourg on the Rosneft challenge to the lawfulness of the sanctions. This is an evidently politicized decision that violates general European legal norms and ignores the known Iranian precedents.

The sanctions introduced by the US Congress will remain in effect, as it requires extraordinary conditions for the legislature to lift them. We cannot rule out that the sanctions will become a tool of non-economic competition: for instance, the United States may go on blocking Russia’s cooperation with the European Union or Japan while developing cooperation with Moscow in the Arctic.

Though major obstacles survive in the economic relations between Russia and the West, serious reciprocal interest, geographic proximity and mutually complementary economic opportunities make cooperation a must. A river forms a new bed when it comes up against an obstacle. It will be clear in a decade that the sanctions caused major losses of time and opportunities.

Andrey Sushentsov is head of Foreign Policy Analysis Group, a Moscow-based consulting agency,  Programme Director of the Valdai Discussion Club and Assistant Professor of the Institute of International Relations (MGIMO) under the Russian Ministry of Foreign Affairs. 

Views expressed are of individual Members and Contributors, rather than the Club's, unless explicitly stated otherwise.

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