Israel pays a high price for Russia sanctions

Policymakers in Washington should consider that trade fosters long-term global stability.

By NIMA SANANDAJI, JUDITH LEVY, DENNIS AVORIN
February 14, 2018 22:19
3 minute read.
Russian President Vladimir Putin (L) welcomes Israeli Prime Minister Benjamin Netanyahu in Sochi, Ru

Russian President Vladimir Putin (L) welcomes Israeli Prime Minister Benjamin Netanyahu in Sochi, Russia August 23, 2017.. (photo credit: SPUTNIK/ALEXEI NIKOLSKY/KREMLIN VIA REUTERS)

 
X

Dear Reader,
As you can imagine, more people are reading The Jerusalem Post than ever before. Nevertheless, traditional business models are no longer sustainable and high-quality publications, like ours, are being forced to look for new ways to keep going. Unlike many other news organizations, we have not put up a paywall. We want to keep our journalism open and accessible and be able to keep providing you with news and analyses from the frontlines of Israel, the Middle East and the Jewish World.

As one of our loyal readers, we ask you to be our partner.

For $5 a month you will receive access to the following:

  • A user experience almost completely free of ads
  • Access to our Premium Section
  • Content from the award-winning Jerusalem Report and our monthly magazine to learn Hebrew - Ivrit
  • A brand new ePaper featuring the daily newspaper as it appears in print in Israel

Help us grow and continue telling Israel’s story to the world.

Thank you,

Ronit Hasin-Hochman, CEO, Jerusalem Post Group
Yaakov Katz, Editor-in-Chief

UPGRADE YOUR JPOST EXPERIENCE FOR 5$ PER MONTH Show me later

The Russian annexation of Crimea in 2014, the downing of a civilian aircraft (Malaysia Airlines Flight 17), and the Russian military aggression in Ukraine were without doubt serious violations of the international order that required a powerful response from Western powers. But what is the right response – and who might be affected other than the intended target?

For the past year, the debate on Russia sanctions has dominated the foreign policy debate in the US. Various initiatives introducing additional sanctions policies have been proposed by both the administration and Congress. Europe, too, is examining both how to manage existing sanctions policies and whether to introduce new ones.

Be the first to know - Join our Facebook page.


Sanctions are powerful foreign policy tools. However, they can, if misused, disrupt global value chains. A politicized debate risks undermining the sanctions program itself – and can inflict unintended economic consequences on a number of countries.

Because of the risk of causing global financial turmoil, the US Treasury Department is apprehensive about expanding sanctions on the Russian sovereign debt market. This poses a dilemma for the Trump administration, as pressure from Congress for additional sanctions is mounting in Washington.

Sanctions have amounted to the freezing of assets, travel bans for individuals designated as members of the Russian elite, suspension of EBRD loans, a ban on large public banks and defense corporations, a military equipment embargo, and a ban on exports of dual-use items. These sanctions, although targeted, have been costly not only for Russia but also for the economies doing the sanctioning.

A research paper by the Kiel Institute for the World Economy has calculated that Germany bears almost 40% of the Western trade loss, compared with merely 0.6% incurred in the United States. This is indicative of strong “friendly fire” effects of the economic sanctions on Russia.

In a new policy paper, we at the European think tank ECEPR have extended this scope by looking at effects on trade with Russia on the two Western economies that have not engaged in the sanctions, namely Israel and Switzerland. One might have expected these two economies to have increased their exports to Russia substantially, since Russia was hindered in trading with other Western economies. Instead, we find that the exports of non-sanctioning economies were hurt by the sanctions almost as much.

By observing trade volumes until the end of 2016, we find that exports to Russia by the four largest sanctioning states (the US, Japan, Germany and the UK) fell to 70% of pre-sanctions levels. The reduction in Switzerland and Israel is remarkably similar, with their average exports falling to 74% and 75%, respectively, of pre-sanction levels.


The explanation seems to be that Israel and Switzerland are part of the same global value chains as other Western economies. The export losses of Israel and Switzerland amount to no less than $680 million and $2.3 billion, respectively.
The sanctions, so far, have had a limited effect on Russian policy, while creating a heavy burden on US allies. A report by the Centre for European Policy Studies suggests that Russian President Vladimir Putin’s popularity has risen to its highest-ever point during the course of the sanctions – not an uncommon side effect of isolation policies.

The interconnectedness of global value chains complicates implementation of targeted sanctions. On the upside, global value chains provide strong forces for the facilitation of global security. This is, of course, even more relevant in the modern global economy, in which global value chains reflect increased interdependency among nations.

Policymakers in Washington should consider that trade fosters long-term global stability, and that the arsenal of economic sanctions will be depleted once Russia is fully alienated from the West. As the 19th-century economist Otto T. Mallery wrote: “If goods don’t cross borders, soldiers will.”

Dr. Nima Sanandaji is president of ECEPR. He holds a PhD in engineering from the Royal Institute of Technology, Stockholm, and is well known for a stream of comprehensive policy reports and books on enterprise and public administration.

Dennis Avorin is a master in interdisciplinary research and studies on Eastern Europe at the University of Bologna, with a special focus on Russian foreign policy and transition economics. He has previously served as desk officer at the Swedish Foreign Ministry.


Judith Levy has a masters degree in international relations from the University of Oxford, with a special focus on Israeli military and strategic history. She is the English publications editor at the Begin-Sadat Center for Strategic Studies.

Join Jerusalem Post Premium Plus now for just $5 and upgrade your experience with an ads-free website and exclusive content. Click here>>

Related Content

December 17, 2018
America’s holiday season in the Trump era

By NOAH LAWRENCE