John Whelan: Fresh sanctions on Russia not good for Irish exporters
Irish exporters could be an unintended victim of western sanctions against Russia if Vladimir Putin attacks Ukraine.
As Micheál Martin and other EU leaders ponder harsher sanctions to be imposed on Russian president Vladimir Putin for deploying large numbers of troops at the Ukrainian border, following their pre-Christmas summit, Irish exporters worry about lost sales of €1.5bn to the Russian market since sanctions were imposed in 2014.
Germany’s new defence minister Christine Lambrecht caustically commented after the EU summit to the German media, saying Mr Putin should personally feel the consequences of his actions and not be allowed to go shopping on the Champs Elysées in Paris anymore.
A more sober response is needed from the EU, and lessons must be learned from the sanctions that were imposed in 2014 when Russia invaded Ukraine and subsequently annexed Crimea. The Russian premier responded with counter sanctions, including a total ban on food imports from EU countries as well as the US.
The effect on Irish food exporters to the region was devastating, with companies such as ABP - Ireland’s largest beef exporter - and Ornua, the Kerrygold butter exporter, sidelined as years of investing to build up a market presence was swept away overnight.
Total Irish exports to Russia collapsed by more than 50% in the following years and a total loss of food export sales was seen.
Paradoxically, Ireland’s imports from Russia have more than doubled in the period. Rising volumes of fertilisers, animal feed stuff, wood pulp and railway sleepers, aluminium, steel, salt and petroleum oils have added to the growing list of goods imported.
A similar pattern is evident across the EU where imports from Russia are up 59% in the 10 months to October and imports into the US are now back to pre-invasion levels.
The cold reality is that the sanctions against Russia over the Crimea annexation have not been effective and have not altered the Putin administration’s ambitions in eastern Europe.
Russia continues to be one of the world’s largest economies; 11th in terms of GDP in 2020, with global exports of €302bn and imports of €208bn and its numbers are quickly recovering from the pandemic, with foreign trade up 34% year-on-year in the first half of 2021, despite current EU sanctions extending into January next year.
The statement released by the EU leaders at the end of their summit on December 17, while strong, did not mention any specific sanctions, stating only that they would impose further economic sanctions on Russia - in tandem with the US and Britain - if the Russian military invaded Ukraine. However, they encouraged more diplomacy with Moscow.
Although no new sanctions were agreed at the summit, diplomats have said fresh measures could include targeting Russian oligarchs, banning EU transactions with private Russian banks and possibly cutting all Russian banks from the SWIFT network - or the Society for Worldwide Interbank Financial Telecommunication, to give it its full name - that is the lifeblood of international money transfers.
However, these are very much the same as the sanctions imposed in 2014, which have had little real effect.
The Biden administration is pushing EU allies to finalise a broad package of sanctions against Russia, but early Commission leaks indicated that they are likely to be focused on banks and energy companies.
The US believes agreeing on harsh specific joint sanctions would send a firm signal to the Russian president, which may ensure that he pulls back troops from the Ukraine border. Western officials say the Russian build-up could be complete early next year, making an assault possible as soon as late January.
However, it is not clear if these banking and energy sanctions, or other economic measures, would dissuade Mr Putin from attacking Ukraine if he continues to view NATO‘s military network extension across eastern Europe - particularly in the Ukraine - to be an existential threat to Russian security.
Final details of the sanction proposals remain to be worked out, and EU officials are still assessing the potential economic and legal impact the measures might have on key goods, services and individuals.
There is a need for Taoiseach Micheál Martin and officials at the Department of Enterprise Trade and Employment to make a strong case for Irish exporters, who have lost an estimated €1.5bn in export sales to the region since the imposition of sanctions in 2014. This is well out of proportion to the economic damage to the US and the EU, based on international studies of the per capita cost of sanctions.
Other EU countries, such as Germany who have a high dependence on Russia for energy and other products, will be attempting to shape the sanctions to best suit their own economies. The US has also pushed Germany to agree to stop the Nord Stream 2 gas pipeline from Russia in the event of an invasion. Currently, 40% of Europe’s gas supply comes from Russia.
The US and the big western European countries, together, are trying to strike a balance between sounding like they will follow through on their threats while keeping a diplomatic dialogue going.
Berlin will be reluctant to risk a cut-off of Russian natural gas supplies, on which it is highly dependent for its businesses as well as households in winter, by standing up to Moscow.
And, Dublin will be caught between balancing any further damage to its food exports and other products, while trying to be seen to be good Europeans, as well as keeping in step with the Biden administration. The big unknown, of course, is the reaction of Mr Putin to any EU and US sanctions.
Diplomats close to the negotiations expect Russian retaliation with an import ban on a wider range of goods than before. This could push back any return to the market by Ireland’s beef and dairy industry, who are bracing for Brexit tariff introductions on shipments to the UK next year, and would welcome alternative market options.
There is also the worry that new sanctions could be extended by the Kremlin to imports of pharmaceutical products and computer components, hitting Ireland’s lucrative trade in these products.
There are a range of sensitivities across the EU member states as well as the UK, which is also committed to the sanctions. Those nearer Russia have an energy dependency, those further west have more general trade concerns.
There is, undoubtedly, a need for the EU to project a united front, to warn Russia of the severe consequences if it invades Ukraine, but there will be difficulty in getting the right balance.
To reassure NATO allies in eastern Europe, who worry they could be left open to an invasion, the US is pledging additional military deployments and security assistance in the event of a Russian attack. The Kremlin denies the West’s accusations against it, including any plan to invade Ukraine.
It says it has legitimate security interests in the region and handed proposals to the US demanding assurances that NATO will not expand or install military support structures across eastern Europe and the Balkans.
The top Republican on the US Senate Foreign Relations Committee says the security proposals that Moscow has put forth in response to Western alarm over a Russian troop build-up near Ukraine are a clear sign that Russia is “trying to create a pretext for war.”
- John Whelan is a leading expert on foreign trade
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