Russia issued sanctions against the European Union and United States in
response to repeated threats and accelerating sanctions against Russia. These
are for 12 months, not 3 as are the EU and US sanctions. The Saker provides an
overview of Russia's rationale and benefits. How long will Obama and the
neoconservatives continue this madness? At what price? Who benefits? Michael
Collins
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You
wanna be Uncle Sam's flunky? Pay the price!
By The Saker at Vineyard of the Saker, Aug 7
(Reproduced with the author's permission)
Dear
friends,
I just took a short break from my life in "meatspace" to comment on the great news of the day: Russia
announced a full 12 months embargo on the import of beef, pork, fruits and
vegetables, poultry, fish, cheese, milk and dairy products from the European
Union, the United States, Australia, Canada and the Kingdom of Norway. Russia
is also introducing an airspace ban against European and US airlines that fly
over our airspace to Eastern Asia, namely, the Asia-Pacific region, and is
considering changing the so-called Russian airspace entry and exit points for
European scheduled and charter flights. Furthermore, Russia is ready to revise
the rules of using the trans-Siberian routes, and will also discontinue talks
with the US air authorities on the use of the trans-Siberian routes. Finally,
starting this winter, we may revoke the additional rights issued by the Russian
air authorities beyond the previous agreements. This is such an interesting and
major development that it requires a much more subtle analysis than just the crude calculation of
how much this might cost the EU or US. I will attempt no such calculation, but
instead I would point out the following elements:
First, this is a typically Russian response. There is a basic rule, which every
Russian kid learns in school, in street fights, in the military or elsewhere:
never promise and never threaten - just act. Unlike western politicians who
spent months threatening sanctions, the all the Russians did was to say, rather
vaguely, that they reserve the right to reply. And then, BANG!, this wide and
far-reaching embargo which, unlike the western sanctions, will have a major
impact on the West, but even much more so on Russia (more about that in an
instant). This "no words & only action" tactic is designed to
maximize deterrence of hostile acts: since the Russians do not clearly spell
out what they could do in retaliation, God only knows what they could do next!
:-) On top of that, to maximize insecurity, the Russians only said that these
were the measures agreed upon, but not when they would be introduced, partially
or fully, and against whom. They also strongly implied that other measure were
under consideration in the pipeline.
Second, the sanctions are wonderfully targeted. The Europeans have acted like
spineless and brainless prostitutes in this entire business, they were opposed
to sanctions from day 1, but they did not have the courage to tell that to
Uncle Sam, so each time they ended up caving in. Russia's message to the EU is
simple: you wanna be Uncle Sam's flunky? Pay the price! This embargo will
especially hurt southern Europe (Spain, France, Italy, Greece) whose
agricultural production will suffer greatly. These countries also happen to be
the weakest in the EU. By hitting them, Russia is maximizing the inevitable
friction inside the EU over sanctions against Russia.
Third, EU carriers suffer from much higher costs and flight times on the very
important Europe to Asia route. Asian carriers will not, giving the
latter a double competitive advantage. How is that for a way to reward one side
while hurting the other? The EU got one
Russian airline in trouble over its flights to Crimea (Dobrolet) and for
that the entire EU airlines community could end being at a huge disadvantage
vis--vis its Asian counterparts.
Fourth, Russia used these sanctions to do something vital for the Russian
economy. Let me explain: after the collapse of the USSR the Russian agriculture
was in disarray, and the Eltsin only made things worse. Russian farmers simply
could not compete against advanced western agribusiness concerns, which
benefited from huge economies of scale, from expensive and high-tech chemical
and biological research, which had a full chain of production (often through
large holdings), and a top quality marketing capability. The Russian
agricultural sector badly, desperately, needed barriers and tariffs to be
protected form the western capitalist giants and, instead, Russia voluntarily
followed by the terms of the WTO and then eventually became member. Now Russia
is using this total embargo to provide a crucially needed time for the Russian
agriculture to invest and take up a much bigger share on the Russian market.
Also, keep in mind that Russian products are GMO free, and that they have much
less preservatives, antibiotics, colors, taste enhancers, or pesticides. And
since they are local, they don't need to be brought in by using the kind of
refrigeration/preservation techniques that typically make products taste like
cardboard. In other words, Russian agricultural products taste much better, but
that is not enough to complete. This embargo now gives them a powerful boost to
invest, develop and conquer market shares.
Fifth, there are 100 countries that did not vote with the US on Crimea. The
Russians have already announced that these are the countries with which Russia
will trade to get whatever products it cannot produce indigenously. A nice
reward for standing up to Uncle Sam.
Sixth, small but sweet: did you notice that EU sanctions were introduced for 3
months only, "to be reviewed" later? By introducing a 12 months
embargo, Russia also sends a clear message: who do you think will benefit from
this mess?
Seventh*,
it is plain wrong to estimate EU financial losses by simply calculating the
total value of sales for the most recent year (or other period). For example, if EU country X had exports of Y
million dollars to Russia, the value of lost exports is just the beginning of
total losses. The lost sales of these products may create a surplus that may then adversely
affect demand and lower prices and profit margins for specific products. When production is decreased as a result of lost sales, producers in
country X will lose economies of scale, creating more pressure on prices and
profits. Conversely, for hypothetical
non-EU country Z or a Russian company, a contract with Russia might mean enough cash to invest,
modernize, and become more competitive, not only in Russia, but on the world
market, including the EU.
Eighth, the Baltic countries have played a particularly nasty role in the
entire Ukrainian business. As a result of Russia's sanctions, some of
their most profitable industries (such as fisheries), 90% dependent on Russia,
will have to shut down. These countries are already a mess. They will
hurt even more. Again, the message to them is simple: you wanna be Uncle Sam's
flunky? Pay the price!
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