Counting the cost of a Russian trade war – Bottom Line
It’s hardly the Cold War all over again, but Russia’s announcement that it intends to retaliate against sanctions imposed on it by Europe and America are an unfortunate escalation.
The sanctions are well-deserved in the wake of Russia’s interventions in Ukraine and the downing of flight MH17. But trade is two-way and sanctions hurt the imposer as well as the target – the City will also feel the impact of the EU’s Russian banking sanctions.
After the EU grounded low-cost airline Dobrolyot by stopping its airline leasing agreement, Russia may in response be tempted to deny its Siberian airspace to European planes heading for Asia, but if it does so it will hurt Russia as well.
And while sanctions hurt both sides financially, they do even more damage by limiting one of the great peacemaking activities between nations: trade itself.
For now, the remaining ties of mutual interest that exist between both sides should keep more dangerous actions than sabre-rattling in check. Russia’s reliance on natural resource exports and our need for cheap energy are intimately entangled.
But we must not underestimate the price Russia will pay to defend its pride as we underestimated the importance it placed on keeping Ukraine in its sphere of influence. Putin’s popularity is at an all-time high: 80 per cent of Russians are behind him. If our miscalculations create a cycle of tit-for-tat stakes-raising, both sides will lose out.