Sanctions Cut Both Ways – Is it Time to Change our Approach to Sanctions?

By Morgan Brobyn – Political Director – WRF

Recently, The WRF held an event on Free trade vs. Sanctions – opportunities for the UK and Russia, with guest speaker Mark Littlewood, Director of the Institute of Economic Affairs (IEA), the well-known and highly respected economic think-tank based in Westminster. There were essentially two aspects of the sanctions against Russia that were discussed, the economic impact on both Russia and the UK, and the effectiveness of the sanctions in achieving their desired political aims and objectives.The talk largely centred around the first aspect of said sanctions, naturally as the IEA is an economic think-tank, not a political interest group. Regardless of where one stands in their position against the current sanctions against Russia, there is broad consensus around how the UK will need to forge new free trade relationship with countries around the world once we leave the EU, countries are already queuing up to do a deal with the UK. IEA research presented at the discussion estimated there is £5 billion in untapped growth from a Russia-UK trading relationship that could happen post-Brexit.

Despite a combination of falling oil prices, internal structural limitations as well as the international sanctions, according to the country’s Ministry of Economic Development it stills expects to see modest growth for 2017, although Russia’s Central Bank is less optimistic. Despite this, Russia is one of the world’s leading producers of oil and natural gas, and is also a top exporter of metals, with a diverse range of industries and a strong agricultural sector. There are lots of reasons to remain bullish about Russia’s economic potential going forward.

According to the IEA, sanctions have had a minimum to moderate impact on Russia’s economy. Trade between the UK and Russia has declined by 50% between 2014-16 as a result, this breaks down to approximately 20% in services and 13% in goods. Across the EU, Brussels-imposed sanctions have had a much more detrimental effect on their own members’ economies, particularly those of Central and Eastern Europe – Russia is a major export market for countries such Poland, Bulgaria and the Baltic States. For example, Hungary’s Foreign Minister said in January that his country lost $6.5 billion in export opportunities.

In terms of the effectiveness of the Brussels-imposed sanctions, that the UK is free to abandon its commitment to once we Brexit, there seems to be little economic or even political evidence that they have had any impact on the Kremlin’s foreign policy or the country’s internal politics. In fact, a case can be made that the sanctions have only served to strengthen support for the Russia’s current governments, and exacerbate the skeptical attitudes of many ordinary Russians towards the outside world, including the UK. The UK is not Hungary or Poland of course, and we have minimal economic exposure or connectivity with Russia with compared with many other countries around the world. We must look at the potential value of the trade with Russia that the UK has essentially sacrificed largely but not entirely at the behest of Brussels, against what unelected bureaucrats, hellbent on creating a European super-state like to present as an external bogeyman to expedite that process – Russia. This approach has already begun to unravel, due to the economic damage it is causing many of the EU’s own members, with national politicians feeling the wrath of their electorates, fueled by furious exporters and business owners, demanding why their having to sack their employees and close their operations down.

We must ask policy and decision makers, are these sanctions effective in achieving the political goals their set out to achieve? Are these goals in the UK’s national interest and why are they in the UK’s national interest? Are there other ways to achieve said goals, without sacrificing what could be one of the greatest trading opportunities for our country in quite literally generations, once we leave the cloisters of the EU and embrace the world.