The global economy, which is struggling on the recovery path, is likely to be hit further with fresh sanctions imposed on Russia by the US and the EU following Moscow’s intervention in Ukraine.
The economy of modern Russia is far more globalised and dependent on food imports than its Soviet-era counterpart. According to a recent report, the US exports of food and agricultural products to Russia totalled $1.3bn last year, while the European Union exported $15.8bn to Russia in 2013.
Russia’s newly-announced sanctions against food imports from some Western nations are being seen as a tit-for-tat response to stepped-up US and European sanctions against Moscow’s business interests.
While the sanctions will have an impact on the Russian domestic market, the fact remains these will have some implications for farmers in the producing countries as well.
Some US food sectors are expected to feel the impact of the new Russian sanctions, especially poultry producers, which exported about 267,000 metric tonnes of chicken, valued at $303mn, to Russia last year.
Russia plans to offset the banned Western foods with a boost in domestic production. But reports suggest it may take a while, with the result that in the short term Russian producers may not be able to respond in such a way to fill that void that will be caused by the loss of imports.
The European Central Bank has already warned that the “heightened geopolitical risks” - an apparent reference to the Russia-Ukraine crisis - could hamper the Eurozone’s ongoing attempts to recover from its devastating debt crisis.
Russia’s involvement in the crisis in Ukraine has already roiled financial markets and led a number of countries to impose a series of sanctions against Russian banks and companies, including asset freezes and loan bans on a score of individuals and companies.
Western sanctions on key industries - a response to Moscow’s role in the Ukraine crisis - have so aggravated an economic downturn that Russia banks have lower capital ratios now than in the 2008 financial crisis, says Bank of America Merrill Lynch.
“Weak domestic funding, capital adequacy ratios declining and asset quality deterioration will be three most important negative implications for banks,” it said in a report.
That said, the sanctions mean Russian clients can no longer tap foreign rivals for loans and this positive angle for the country’s banks is borne out by recent data.
The Western sanctions also seek to ban co-operation with Russian oil firms on energy technology and services by companies including Exxon Mobil Corp and BP.
Russia is one of the world’s top oil producers and is the main energy supplier to Europe. Exxon signed a $3.2bn agreement in 2011 with Russian company Rosneft Oil Company to develop the Arctic.
Russian Economy Minister Alexei Ulyukayev said Russia would appeal to the World Trade Organisation (WTO) over Western sanctions, local news agencies reported.
“The latest round of sanctions gives reason to appeal to the WTO. And we will appeal,” RIA news reported him as saying in Brussels.
