While the Russian import stop on agricultural products from the EU quickly led to new supplier configurations, other economic sanctions are also taking their toll. Not only on the slowing Russian economy but simultaneously on Western businesses who have been increasingly relying on Russia as a growth market. Especially European mechanical engineering companies and agricultural operations have already seen their sales and market growth weakened in Russia by the continuing tensions. As a result of adjusted growth expectations, an estimated 25,000 export-related German jobs are at risk. Similarly, other export driven economies are beginning to see the domestic backlash of the growing tensions. The Swedish cosmetic company, Oriflame, for instance, has been forced into cancelling a quarterly dividend and implementing unexpected cost-cutting measures in an effort to address lagging sales in its two biggest markets – Russia and the Ukraine.
Of course, Russian companies will feel the impact of continued economic sanctions more severely, especially those dependent on top technology. But the key issue is oil and gas and its transshipment, simply because the Russian economy lacks the vertical diversity and depth of, for instance, the German economy. The very fact that there are so many question marks in the present and the future means that initiatives are being made to reorganize the European and Asian energy balance. As traditional European importers of Russian oil and natural gas products, such as Germany, Poland, and Italy are exploring new supply options among Arab countries, Canada and the U.S. In turn, Russia is securing new export outlets for its vast resources. Most significantly, China and India are moving towards Russian natural gas as a clean and economical source to fuel their growing energy demand. China already signed a 30 year supplier agreement with Russia’s Gazprom worth an estimated $400 billion, and India seems poised to follow suit in the near future. In less viable but prestigious sectors such as space exploration and research, ambitious emerging nations including Mexico and Indonesia are looking to cooperate with Russia to break NASA dominance.
Without doubt, sanctions are jarring mechanisms that can have crippling effects on a country’s economy. While only time can tell how well Russia’s economy can really deal with the recent impositions and how sanctions also impact countries applying them. But one thing is clear – the widening rift between Russia and the West has triggered a reordering of economic realities. Some of these new alliances might be short-term arrangements, others are here to stay. One thing is for certain though. Russia and its economy will be a market to watch.
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