The Boomerang Effect:

Consequences of European Sanctions on

Russia on the European Economy
Regina Chowdhury, Elisabetta Mari, Giacomo Bergamo
and Joe Kelly

Background on Crimea
Crimean population: 2.3 million
Russians = 1,450,000 (58.5%)
Ukrainians = 577,000 (24%)

1954: Transferred to the Ukrainian Soviet Socialist

Republic within the Soviet Union
1991: Crimea became a part of independent Ukraine,
as Autonomous Republic of Crimea
Strategic Position
The Black Sea ports of Crimea provide quick access to the Eastern
Mediterranean, Balkans and Middle East

Energy
Several natural gas fields

Crimean Crisis
Russian and Ukrainian conflict over control of the
Crimean Peninsula
Crimean government did not recognize new Ukraine
President- Viktor Yanukovych
March 16: Crimean referendum to join Russia (result:
96.77% affirmative vote)
March 18: Russia and Crimea signed a treaty of
annexation
EU, USA and Ukraine do not recognize the annexation
as legal

EUs Three-Tier Sanctions

on Russia
Targeted at banks, defense, and energy companies
1. People and entities:

Assets frozen and visa bans apply to 119 people

23 entities are subject to a freeze on their assets in the EU

2. Commercial:

Prohibition on imports from Crimea

Trade and investments restrictions

3. Financial:

Prevention of EU investors to buy/sell Russian securities with

maturity > 90 days Harder for Russian banks to sell
debt/stocks
Imports of energy equipment and technology from Russia
only allowed with authorization

Russian Retaliation

August 6, 2014:

Embargo for 1 year period on imports of most European

agricultural products

Further Effects:

Uncertainty
Cut on gas supply

Agricultural Exports
Banned
Country

All banned products

euros (millions)

Lithuania

927

Poland

841

Germany

595

Netherlands

528

Denmark

377

Spain

338

Finland

283

Belgium

281

France

244

Italy

163

EU28

5252

Major Hit for European

Farmers
Compensation by European Commission
Emergency fund of 125 MEUR
Ends in November

Other Jobs at Risk

Decreased Confidence
For Firms
Compliance with new regulations of the sanctions
Wide scope of activities affected (trade,
investment and insurance operations )
Avoiding legal consequences, though some
sanctions may lower a companys profits

For Investors
Concerns about the returns on investments (ROI)
Fear of government locking in the funds

Potential Gas Supply Cut

Biggest concern
Connecting pipelines
European dependence (1/3)

Conclusion and Lessons

Learned
War of economic attrition
Russia will ultimately be hurt the most from these
sanctions
Nov. 11: German Chancellor Angela Merkel has
announced EU will not issue anymore sanction
Domino Effects and Interplay between Politics and
Economy

Foreseeable Future
Europe may enter in another economic recession
Flow on international investment into Russia has
stalled
Ban on EU exports of equipment used for oil to
Russia

Russian Gas and Oil

Restrictions

Recent Putin Quote

Putin speaking to Western investors: Does
anyone gain from disruptions to regular
cooperation between Russia and the European
Union? Does anyone gain from seeing our joint
work come to a standstill on what are important
issues for everyone such as nuclear safety,
fighting terrorism, trans-border crime, and drug
trafficking, and other priority issues? Is this
supposed to make the world any more stable and
predictable? Surely it is clear that in todays
interdependent world, economic sanctions used
as an instrument of political pressure have a
boomerang effect that ultimately has
consequences for business and the economy of

References
http://www.bbc.com/news/world-europe-28834170
http://www.bbc.com/news/world-europe-30003449
http://www.spiegel.de/international/business/germaneconomy-hit-by-us-eu-sanctions-on-russia-a-982075.html
http://www.newyorker.com/business/currency/hurt-putinhurt
http://www.washingtontimes.com/news/2014/sep/15/russiasanctions-risk-return-to-recession-for-euro/?page=all
http://nationalinterest.org/feature/the-west-vs-russia-theunintended-consequences-targeted-11427
http://www.euractiv.com/sections/agriculture-food/russiassanctions-threaten-both-eu-farmers-and-policymakers307827
http://europa.eu/newsroom/highlights/specialcoverage/eu_sanctions/index_en.htm