Foreign Policy Research Institute

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Foreign Policy Research Institute

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INTERNATIONAL WEEKLY № 20 (01.11.2018 – 15.11.2018)

The Russia's introduction of sanctions against Ukraine will not lead to significant economic losses

On October 22, President of the Russian Federation, Vladimir Putin signed a decree introducing sanctions against Ukraine. Special economic measures justified as "unfriendly actions of Ukraine concerning citizens and legal entities of the Russian Federation". In the Decree, from all legal entities and individuals – residents of the Russian Federation require " in their activities to rely on the fact that from the date of the entry into force of this decree concerning certain individuals and legal entities apply special economic measures." The Russian government has been instructed to define the list of sanctions and restrictive measures. The decree comes into force on the date of its signing and is subject to cancellation on the submission of the Government of the Russian Federation in case of cancellation of restrictive measures imposed by Ukraine concerning citizens and legal entities of the Russian Federation.[1]

On November 1, Russian Prime Minister Dmitry Medvedev signed a decree introducing special economic measures against Ukraine.  According to the Russian government's press service, 322 Ukrainian citizens and 68 companies fell under Russian sanctions. Among those who are subject to sanctions are judges of the Constitutional Court of Ukraine, deputies of the Verkhovna Rada of the VIII convocation, large Ukrainian entrepreneurs, officials of the presidential administration of Ukraine, heads of executive bodies  and large Ukrainian companies, as well as legal entities. In particular, the Russian list of sanctions included the eldest son of the President of Ukraine Petro Poroshenko Olexiy, the head of the Ministry of Internal Affairs Arsen Avakov, the head of Naftogaz of Ukraine Andriy Kobolyev, the head of the General Staff of the Armed Forces of Ukraine Viktor Muzhenko, the Prosecutor General Yuriy Lutsenko, the Chairman of the Verkhovna Rada Andriy Parubiy, former Prime Minister Arseniy Yatsenyuk, People's Deputy Dmytro Yarosh, leader of the All-Ukrainian Union "Svoboda" Oleh Tyahnybok, leader of the «Fatherland» Yulia Tymoshenko. Accounts, securities and property of the participants in the list of , which is in Russia, are subject to blocking. It is also prohibited to withdraw capital of citizens and companies outside Russia.[2]

These are the most extensive restrictions imposed during the conflict between the Kremlin and the West after the Russian aggression against Kyiv. Though anti-Ukrainian sanctions will have economic consequences, their political effect will be more significant. The Swedish-American economist and diplomat Anders Åslund writes about this in an article for the Atlantic Council. The Russian "black list" can be read as a reference about who is among the Ukrainian elites. It includes the leaders of the parties who declare their Pro-European course, as well as liberal deputies, members of the ruling party "Petro Poroshenko Bloc" and people from the inner circle of the Ukrainian President. Although the name of the President is not in it. According to the publication the only political force that Moscow sanctions actually bypassed is the "Opposition Bloc". The author of the article is surprised by the business component of the Russian sanctions list, which became a copy of the rating of the richest Ukrainians according to Forbes.

Interesting is that the Kremlin put a Russian businessman Pavel Fuchs on the list, who lives in Moscow, a partner of Dmitry Firtash – Ivan Fursin, as well as Konstantin Grigorishin, who until recently was a citizen of Russia. The executive director of «Naftogaz» Andriy Kobolyev also fell under the influence of anti-Ukrainian sanctions. This could theoretically mean that «Gazprom» no longer wants to negotiate with the Ukrainian company, the expert notes. At the same time, the Kremlin "took pity" the oligarchs Rinat Akhmetov and Vadym Novynskyi, as well as the companies that belong to them. "Roshen" and other firms owned by Poroshenko, also did not get on the Russian list, Åslund emphasises.       

Despite the fact that Russian sanctions can be perceived as a response to the restrictions imposed by the United States and Ukraine, they are too large. Therefore, it will be difficult for anyone who wants to speak in Ukraine about loyal policy to Russia. Given that only 5 months left before the presidential election, pro-Russian candidates in Ukraine will also not be able to promote their political platform.[3]

For its part, Ukraine imposed sanctions against individuals and legal entities of the Russian Federation in 2014 after the annexation of the Crimea and the outbreak of hostilities in the Donbass. Sanctions affected 1228 Russian citizens and 468 companies. Persons included in the list of sanctions were banned from entering the territory of Ukraine and their assets were confiscated.[4]

The National Bank of Ukraine (NBU) does not expect large losses of Ukrainian individuals and legal entities due to their falling into the list of sanctions of Russia. This was stated by the deputy head of the NBU, Kateryna Rozhkova, the edition writes. "We need to conduct a more detailed analysis, but given that most of the sanctions concern individuals, we hope that after the Russian aggression they do not keep their assets in this country," she said.  Rozhkova noted that only one of the Ukrainian banks is in the list – " Credit Dnipro". "We also expect that they do not have operations with Russian counterparties," said the deputy head of the NBU.[5]

The European Union criticized the introduction of sanctions by Russia against individuals and some companies in Ukraine. This was stated by a spokesperson of the European Union on Friday, Ukrinform's correspondent reports. "The decision of the Russian government to introduce financial measures against Ukrainian individuals and companies is unfounded. Steps aimed at aggravating the situation and undermining the search for a solution for the sake of restoring the territorial integrity of Ukraine should be avoided," the EU stressed.[6]

Thus, by imposing sanctions, the Kremlin wants to demonstrate its supremacy and dependence of Ukraine in economic terms, and, above all, to use it as an instrument of influence on future presidential elections. In addition, spreading propaganda about " punishment of enemies" Russia, thus, allows to divert the attention of its citizens from a number of their own problems. For Ukraine, sanctions imposed by the Russian Federation were expected. Although today there are trade relations with the Russian Federation, however, despite a significant reduction in trade between the two countries, economic losses from Russian sanctions will not be significant.