Sanctions Imposed on Russia: Economic Impact

During the last several decades, Russia has been one of the leading importers of agricultural products globally. The country developed business relationships with different countries and established trade agreements in different sectors. However, the geopolitical events of 2014 created certain changes in the relationships between Russia and other countries (Liefert & Liefert, 2015). The conflict with Ukraine and the West was hard to stop, and Russia had to deal with numerous economic, technological, and financial sanctions imposed by the United States, Canada, and the European Union. At the same time, Russia found it necessary to ban its agricultural products. An embargo was introduced to milk, meat, fruits, vegetables, and fish (Judit & Nikulin, 2017).

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The official Russian embargo date was 7 August 2014. In this paper, the evaluation of the sanctions imposed on Russia as a result of its geopolitical conflict with Ukraine and their impact on its economy will be developed to identify all possible negative and positive short- and long-term effects, including such aspects as Russian currency, the dynamics of people’s income distribution, and the changes in agricultural and energy sectors of the country.

The economic sanctions imposed on Russia included a withdrawal of all financial and trade relationships with the country due to its illegal and unexplainable violations of international standards, including the invasion of Crimea and the promotion of military operations in the eastern part of Ukraine. Due to the expansion of the Ukrainian conflict, the United Stated targeted its sanctions on the energy sector of Russia, and the European Union put an embargo on its agricultural sector (“Information note on the Russian ban of agri-food products from the EU,” 2015; Shirov, Yantovskii, & Potapenko, 2015).

The effectiveness of all these sanctions is doubtful, and the researchers cannot come to one conclusion. Therefore, this paper is also an attempt to clarify if Russia was able to cope with financial and economic challenges during the last three years.

Economic Impact: General Aspects

The main research question of this paper is how the sanctions imposed on Russia in agricultural and energy sectors in 2014 affected its economy in the following years. The works by Boulanger, Dudu, Ferrari, and Philoppidis (2016), Kutlina-Dimitrova (2017), Judit and Nikulin (2017), Liefert and Liefert (2015), and Shirov et al. (2015) will be used to gather the opinions of different economists on the same issue and compare the results of their studies. In addition, one of the reports of the European Commission is a helpful source in the analysis of the sanctions in Russia (“Information note on the Russian ban of agri-food products from the EU,” 2015). Each of the sources contains credible information about the development of the country and the problems appeared after the imposed sanctions.

Several similar opinions and approaches are found in the articles. For example, Boulanger et al. (2016) and Kutlina-Dimitrova (2017) used a computable general equilibrium model as the strength of their research to identify the impact of sanctions. Despite the fact that no common solution concerning the outcomes of sanctions was made, the authors admitted that these sanctions caused negative outcomes on the Russian economy (Kutlina-Dimitrova, 2017; Shirov et al., 2015).

One of the short-term effects included the depreciation of the ruble in regard to the USD and other world currencies due to the necessity to establish high prices on import and deal with inflation (Liefert & Liefert, 2015). Ruble demand was lowered and promoted a new long-term effect of the sanctions, the reduction of the Russian economic potential and fast devaluation of the ruble (Shirov et al., 2015). Judit and Nikulin (2017) introduced the cooperation between Asia and Russia as a positive outcome and explained the increase in prices of substitute products as one of the negative outcomes. The embargo made Russia change its commodities in a short period.

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Many organisations were not prepared for new requirements and had to investigate their options. The necessity to discover new trade relationships was a short-term effect of the sanctions for Russia that resulted in a long-term effect such as the decline in the welfare level of the population (Judit & Nikulin, 2017). Therefore, new challenges and problems may become a good stimulus for Russia to evaluate its opportunities and open new boundaries. The only challenge is the price of such discoveries.

Economic Impact in Agriculture

As a large agricultural importer, Russia seems to lose a lot because of the imposed sanctions. Several months after putting an embargo on certain import products, Russia started experiencing an economic crisis caused by the inability to use foreign credits and investments and the necessity to deal with huge capital flight (Liefert & Liefert, 2015). Production, consumption, and distribution of the products in the agricultural sector were challenged in the following years.

The increase of the imported products that caused the depreciation of Russian currency influenced grain export and made it price-competitive. Regarding the export flows, the EU Member States experienced certain challenges in the agricultural sector with more than 70% of total products being affected by the ban (Kutlina-Dimitrova, 2017). The American agricultural sector did not lose a lot, and the EU countries lost about $ 15-16 billion (Liefert & Liefert, 2015).

To compensate the loss of the Russian agricultural products, the EU exports to other regions had to be expanded (Boulanger et al., 2016). The short-term effect of the sanctions in the agricultural sector was the increase in trade competitiveness and the necessity to search for cheap intermediate products (Boulanger et al., 2016). In other words, price change was an obligatory step in all countries, including Russia.

The agricultural sector experienced considerable drops in market prices. Trade restrictions influenced the development of the agricultural sector in a negative way due to the inability to avoid losses in the commercial market, including the production and distribution of milk and dairy products, meat, fruits, and vegetables. The Russian government focused on the development of domestic agricultural production and avoided the dependence on foreign food supply (Liefert & Liefert, 2015). Such governmental support included the increase in subsidies, the improvement of price control, and the promotion of technological updates in agriculture to speed up production processes.

Economic Effect in Energy

The economic sanctions targeted the energy sector in many ways. In a short period, Russia lost its access to high technologies that were important to the energy sector and promoted multiple long-term limitations (Shirov et al., 2015). The restrictions set by the European Union resulted in a search for additional sources of energy for the countries and the establishment of new business and trade relationships to compensate the loss of Russian distributors. Russia had to think about new partners and predict the cases of stagnation in the energy sector. In addition, Russia lost foreign support in the supply sector. Many Russian companies could not continue working at the same level due to the lack of appropriate technologies and equipment. New prospectives had to be explored.

The weak aspect of the opinion about the sanctions for Russia is that many economists and researchers face a serious challenge when they have to discuss which country is more challenged by the economic sanctions imposed on Russia (Kutlina-Dimitrova, 2017; Shirov et al., 2015). Despite the fact that Russia could not sell its energy products to other countries and improve its GDP, many European countries lost their opportunities to buy cheap services. The energy sector remains one of the most serious negative outcomes caused by the economic sanctions as no clear solution for all participants of the embargo ban could be given.

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Positive and Negative Effects for Russia

In the following table, a brief evaluation of positive and negative effects that Russia may experience because of the economic sanctions imposed after August 2014 will be developed (Boulanger et al., 2016; “Information note on the Russian ban of agri-food products from the EU,” 2015; Judit & Nikulin, 2017; Kutlina-Dimitrova, 2017; Liefert & Liefert, 2015; Shirov et al., 2015):

Positive effects Negative Effects
1. New business relationships with Asian countries that do not impose sanctions on Russia (China is one of the countries that neglected the global demand to impose sanctions on Russia and become a powerful business partner for the country). 1. Price growth for domestic products (many local organisations are exhausted because of the necessity to compensate the outcomes of the embargo ban and continue increasing prices to cover main losses).
2. The promotion of domestic production and distribution (the Russian government supports its local organisations to improve and distribute its local products) 2. Welfare level decline among the Russian population (the increase in prices decreased the level of the welfare of Russian people).
3. The development of the domestic agricultural sector (Russia has much empty land for the development of its agricultural sector). 3. The reduction of demand for domestic products (people do not want to spend more money when they have already got an opportunity to buy cheaper products).
4. A need for new decisions and business ideas (organisational growth and development are supported by many companies and appreciated by the Russian government). 4. Increased prices of import due to an import ban on total extra EU export (import and export relationships with the European countries influence the work of many Russian companies in the energy sector).
5. Increased subsidies for the agriculture and energy sectors (the Russian government takes care of its people and offers rational approaches to deal with changes). 5. The loss of competitiveness on international markets (as a leader in different international markets, Russia has lost its competitiveness due to the reputation of an aggressor and invader).
6. The recognition of Russia as an important business partner by many EU countries (the loss of services and products proves the dependence of many countries on Russia). 6. The decrease in private demand (public organisations cannot provide people with appropriate wages and working conditions, and employees prefer to take responsibility for their personal assets).
7. New working places and working power (many people have to return to Russia from other countries and search for jobs in the country, and the government is ready to offer new working places). 7. The increased demand for intermediate purchases (people are not confident in their economic and financial future so that they prefer to buy in advance and use the current options).
8. The discussions of new equipment from Asian partners (Chinese companies are ready to cooperate with Russia and offer their services at affordable prices). 8. The lack of equipment and technologies (many companies in the energy sector lost its regular partners).

Conclusion

In general, there is no definite opinion about the effects of the sanctions imposed on Russia in 2014. Despite the fact that the reputation of the country and its place in the world arena have been dramatically changed, these sanctions opened new opportunities and business ideas for the country. The authors of the chosen articles introduced different explanations of how Russia coped with the sanctions, and what outcomes had to be overcome during the last several years.

There are many positive and negative outcomes of the economic sanctions. Russia is not the only loser in the events after August 2014 because many European countries have also lost a credible business partner. Though the sanctions imposed on Russia influenced its agricultural and energy sectors in a negative way, it is necessary to admit a number of new positive opportunities and business relationships that became available to the country.

References

Boulanger, P., Dudu, H., Ferrari, E., & Philoppidis, G. (2016). Russian roulette at the trade table: A specific factors CGE analysis of an agri-food import ban. Journal of Agricultural Economics, 67(2), 272-291. Web.

Information note on the Russian ban of agri-food products from the EU. (2015). Web.

Judit, S., & Nikulin, E.E. (2017). The economic effect of Russia imposing a food embargo on the European Union with Hungary as an example. Studies in Agricultural Economics, 119(2017), 85-90. Web.

Kutlina-Dimitrova, Z. (2017). The economic impact of the Russian import ban: A CGE analysis. International Economics and Economic Policy, 14(4), 537-552. Web.

Liefert, W.M., & Liefert, O. (2015). Russia’s economic crisis and its agricultural and food economy. Choices, 30(1), 1-6. Web.

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Shirov, A.A., Yantovskii, A.A., & Potapenko, V.V. (2015). Evaluation of the potential effect of sanctions on the economic development of Russia and the European Union. Studies on Russian Economic Development, 26(4), 317-326. Web.

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StudyCorgi. (2021, February 7). Sanctions Imposed on Russia: Economic Impact. Retrieved from https://studycorgi.com/sanctions-imposed-on-russia-economic-impact/

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