Minus half a billion a year. What Moscow’s ban on Ukrainian goods means

Minus half a billion a year. What Moscow’s ban on Ukrainian goods means

Russia’s sanctioning machine keeps picking up speed. Expanding personal restrictions against Ukrainian politicians and businessmen, Moscow has turned to specific goods, banning the import of more 55 Ukrainian items.

This covers a wide range of products—from wine and chocolate to agricultural machinery and a number of mineral commodities. In total the sanctions cover about 10% of Ukrainian imports to Russia – more than half a billion dollars.

And, judging by how often Moscow imposes new restrictions, this is far from the end. There is more to ban. “Strana” analyzed the economic and political consequences of the sanctions.

Reason for the new sanctions

The Government of Russia today continued to “fulfill and exceed” Vladimir Putin’s October decree on sanctions against Ukraine.

True, this time the pretext is analogous to Kyiv’s move. 19 December Ukraine extended the commodity sanctions against Moscow for another year – adopted back in 2015 and since expanded.

First under Ukrainian sanctions were Russian meat and meat products, fish, dairy products, processed cheese, coffee, tea, grain, confectionery, baby food, pasta, beer, alcohol, and cigarettes. Since last year the ban also includes fertilizers.

And a week after extending the old sanctions, the NSDC introduced new ones against some individuals and legal entities for participating in elections in the “LDNR” and for the Kerch incident. And also in response to Russia’s expansion of the Ukrainian political blacklist.

In general the winter sanctions web has turned into a snowball of mutual restrictions. True, the Kremlin stated that today’s “restrictions” would be lifted as soon as Ukraine does the same.

“The Government of Russia may decide to lift the introduced special economic measures if Ukraine lifts the restrictive measures previously imposed on specific Russian goods,” reads a statement from the Russian leadership.

What Moscow banned

From food products: wheat, sunflower oil, canned or prepared fish, sturgeon caviar, confectionery, chocolate, bread, canned vegetables and fruits, fruit and vegetable juices, beer and wine.

From industrial goods: gravel, sand, ballast, detergents, paper and cardboard, wallpaper, furniture with built-in refrigeration or freezing equipment, wires and cables, tractors and trailers, and also feminine hygiene pads and tampons, baby diapers.

Strana has published the full list of forbidden goods.

The main thing that stands out is that the list contains almost no major Ukrainian export goods sold to Russia. These are non-organic chemical products (16,5% of total), ferrous metals (20,4%), and also reactors, nuclear boilers and machines (14,4%).

It seems Ukraine was given a kind of hint. But there was no goal to deal a serious blow. Yet.

Also notable is the agricultural nature of the sanctions. Most of the list consists of ready-made products and agricultural raw materials for them.

Interestingly, in 2018 the agrarian and food export from Ukraine to Russia grew fastest. According to the Federal Customs Service, since the beginning of 2018 Ukraine increased the export to Russia of animal-origin products by 292%, plant-origin by 289%. So the quickly growing export was hit by the ban.

By the way, almost all deliveries of Petro Poroshenko’s confectionery products were banned, which previously slipped past sanctions (discussed below).

Of course, his chocolate has not been sold in Russia for a long time directly – it harms the president’s image. However nothing prevented any broker company from purchasing Roshen products and selling them in the Russian Federation (the company itself could be doing this covertly). Now that route is blocked.

With candies, there’s a separate story. Recently Ukraine banned imports of starch and molasses from Russia. The authors of the innovation complained that over the past year our confectioners greatly increased deliveries of this product from Russia. It turns out a mirror situation: first we banned Russian raw materials for candies, and then they banned our candies made from that same raw material.

A separate item is a ban on importing certain types of turbines. In Ukraine, these are mostly produced by Kharkiv Turbine Plant – one of the most profitable state-owned enterprises. Thus, the pressure vector on the budget-forming sector of Ukraine’s economy is visible.

Another important aspect is the hit to Ukrainian winemaking. Russia accounts for half of Ukraine’s wine exports – 15 million dollars of 31 (data for 2017 year). This means that industry revenues will fall significantly.

At the same time, it is noticeable that the list was drafted so as not to hit the Russian economy. Turbines for civil aviation can be imported. It’s funny to see caviar listed in the blacklist – which Russia itself supplies to the world market in large quantities. Ukraine’s catch of caviar is minimal – and certainly not enough for any meaningful export to Russia. On the contrary, Ukraine also imports the same caviar from Russia.

A similar story with wheat – in less than 2018 year, grain exports from Ukraine to Russia amounted to a tiny 20 million dollars.

Also visible are measures to counter re-export. They may concern the same sturgeon or the mollusks listed. And regarding, for example, pads and diapers, Ukraine does not produce them at all – here foreign companies dominate, whose manufacturing capacities are mainly in Eastern Europe – Poland and the Czech Republic, as well as Turkey.

Nevertheless, despite the selectivity of the list, the damage for Kyiv could be serious.

How much money will Ukraine lose?

The Russian Ministry of Economic Development has already calculated the potential damage to Kyiv from the new sanctions. This year the import of sanctioned goods from Ukraine will amount to 510 million dollars. In total, Ukrainian products will reach Russia this year for almost five billion.

This is about 10% of Ukrainian imports to Russia.

Last year the amount that Ukraine imported under the current ban amounted to 470 million dollars. In other words, the figures are comparable. And more importantly – steady. This means a serious blow to Ukrainian producers who lost the market in the northeast.

Overall, half a billion dollars is a substantial amount for Ukraine. For comparison, a standard IMF loan tranche is one billion. And its arrival in Ukraine is touted as an incredible achievement.

At the same time, the loan must be repaid. And the money earned from sold goods flows directly into the economy (and some of it also ends up in the state treasury as taxes). By the way, the year 2019 is a boom in Ukraine’s external debt repayments. All while Russian sanctions, it seems, are only beginning.

Political significance of the sanctions

On the eve of presidential elections Moscow continues to apply sanctions pressure on Kyiv. This implies the main conclusion: Russia expects a change of power in Ukraine precisely at the elections, not as a result of a military invasion (we analyzed in detail whether there would be war between Ukraine and Russia in 2019 year).

Commodity sanctions are meant to raise the price of resisting Russia for Ukraine and to tighten the squeeze on the real sector of industry to push Kyiv to take a less hard-line stance toward Moscow.

A notable statement from the Kremlin is that it will lift sanctions as soon as Kyiv does. In other words, Ukraine could get rid of problems with one decision by the NSDC. This suggests that Russia is primarily interested in restoring normal economic relations – which would be strange if Moscow decided to attack Ukraine, as Petro Poroshenko claims.

The pre-election and purely “civil” nature of the restrictions is seen if we tie them to Russia’s political sanctions against Ukraine in November and December. Almost the entire political elite was included in those sanctions, except for politicians who are now uniting in the “Opposition Platform – For Life” and nominate Yuri Boyko as a single candidate.

That is, Moscow signals that it supports the “peace party” in Ukrainian politics and opposes the “party of war” and its allies.

At the same time, sanctions also hit politicians traditionally allied with the “peace party” - Boris Kolesnikov, Vadim Novoinsky, Alexander Vilkul, and Yevgeny Muraev. All of them share that they did not support the “Opposition Platform – For Life.” As Strana has written, Moscow interpreted this as working to split the voters in the southeast, which plays into Petro Poroshenko’s hands and the “war party” in general (you can read more about why the sanctions list expanded here).

As for the current commodity sanctions, it is interesting to compare them with the blacklist of legal entities published by Moscow in November. There are direct coincidences – for instance, the owner of Kharkiv Tractor Plant, Oleksandr Yaroslavskyi, was sanctioned then, and now Moscow has banned the import of Ukrainian tractors (which could have entered Russia via intermediaries, not directly through Yaroslavskyi’s structures).

And judging by the presence in the new list of transmissions and gearboxes, this is a “consolidation” of sanctions pressure on AutoKraz and Konstantin Zhevago, who were targeted in November.

Earlier there was mention of chocolate produced by Poroshenko, and also the aforementioned Boris Kolesnikov.

The sanctions also target another former regional official – Valentyn Landyka. The list includes “furniture with built-in refrigeration or freezing equipment.” In Ukraine, such equipment is produced only by Nord – the refrigerator plant owned by Landyka.

Coincidentally, this former ally of Yanukovych now sides with the Ukrainian authorities. He is the main witness in the case against former head of the Party of Regions faction Alexander Efremov, who has been on trial in Severodonetsk for years. According to some reports, the Banková helped drop the sentence on his son Roman Landyka, who in 2013 year beat a girl in Lugansk cafe “Bakkara.”

Thus, Russia continues to “put pressure on” businesses and politicians loyal to the current government – forcing them to ask who they stand with. Large oligarchs like Rinat Akhmetov were not touched in the current list, and in the previous ones were only teased, giving them time to think.