Why Russia is taking a huge (economic) risk against Europe

If Europeans’ dependence on Russian gas is a reality, Russia is still largely dependent on its trade with Europe, even though Moscow has been trying to reduce it for many years.

“We don’t give a crap.” Much to the official message delivered by the Russian ambassador to Sweden last week, when asked about possible European sanctions against the country. For several weeks, Europeans have been trying to quell the ardor of Vladimir Putin, who is determined – according to the White House – to invade his Ukrainian neighbor.

And there is no shortage of threats: “a tragic miscalculation” warned Prime Minister Boris Johnson at the beginning of the month, with “massive consequences” threatening French Foreign Minister Jean-Yves Le Drian in return.

precious russian gas

If a direct armed conflict between Europe and Russia seems impossible at the moment, the response will be above all economic. European Commission President Ursula von der Leyen said on Saturday that Ukraine’s attack could harm Russia’s “prosperous future”.

Until recent weeks, Europe has been reluctant to go into wrestling. In the midst of an energy crisis, Russian gas is precious, especially for Germany. So much so that the young German coalition showed the first signs of division on the situation in the face of Russian threats, before Chancellor Olaf Scholz, under pressure from his neighbours, ended his edgy appearances.

The delay shows that the conflict in Ukraine is also an economic issue. And that even though Moscow claims to “not care” about economic sanctions, its trade with the EU remains a significant part of its economy.

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Interdependence

Before the pandemic, the EU was, in 2020, the leading outlet for exports (40.6% of the total, or $136.7 billion). These are mainly oil and gas products destined for the Netherlands, Germany and the United Kingdom.

The latest Eurostat bulletin on European foreign trade shows that Russia remains one of the EU’s main partners, despite the decline in international trade. Russia exported 158 billion euros to Europe for 2021, more than the United Kingdom (146 billion euros).

The reverse is also true: the European economy depends on its exports to Russia (89.3 billion euros in 2021). Not to mention the presence of European companies in Russia like Renault.

So a military conflict could dry up major commercial exchanges for Russia, just as financial sanctions would prove too heavy for the economy.

look at china

However, Putin’s response has been prepared for years. If the gas is exported to Europe, especially Via The future Nord Stream 2 gas pipeline is crucial for Moscow, with the country already making strategic shifts toward China and emerging countries not to depend on the European Union. Exports to the EU have been falling for several years and are directed primarily towards Chinese neighbors but also Brazil or India.

Similarly, Russia has worked successfully to “de-dollarize” its economy, making US sanctions painless (such as a ban on dollar transactions) by selling its gas for other currencies. Thus the greenback is no longer the first foreign exchange of Russian reserves. Problem for Russia: Euro overtaken…

With a low-debt economy (17.5 percent of GDP), Russia is currently taking advantage of a sharp rise in hydrocarbon prices and has accumulated tons of gold to counter conflicts with Europe and the United States.

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In fact, Russia might not tolerate the sanctions that could result from an invasion of Ukraine. The worst would be to ban it or ban it from the global financial system. Not sure the Russian economy, which already shows inflation of over 8%, has enough kidneys to cope.

Thomas Le Roy Journalist BFM Business

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About the Author: Forrest Morton

Organizer. Zombie aficionado. Wannabe reader. Passionate writer. Twitter lover. Music scholar. Web expert.

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