With the threat of military action escalating, Western countries are considering placing further sanctions on the Russian Federation.
Norbert Roettgen, a member of German Chancellor Angela Merkel’s party, does not like the aggression Russia has shown, saying, “In my view, such behavior cannot remain without consequences, and I don’t think that one should say that there won’t be any further sanctions.”
President Donald Trump does not like the aggression shown by Russia either. “I don’t like that aggression at all. Absolutely. And by the way, Europe shouldn’t like that aggression. And Germany shouldn’t like that aggression.”
Trump also opted to cancel a meeting with Russian President Vladimir Putin at the G-20 meeting in Buenos Aires.
Current Russian sanctions devised by the United States and NATO specifically target the oil and gas sector.
According to the United States Energy Information Agency (EIA), 36 percent of the Russian federal budget revenue in 2016 came from oil and gas exports.
With oil and gas comprising such a large percentage of the budget, the United States and NATO target this sector for maximum impact. The United States specializes in the gas and oil industry as the current top producer in the world. New advanced technological methods have allowed the United States to achieve record production growth and sanctions block this technology from reaching Russia. Sanctions also block United States companies from collaborating with Russia, depleting expertise and labor. In addition to prohibiting technology and halting collaboration, NATO countries have blocked capital for investment in Russia. Russia has turned to China for capital, but investment still has significantly decreased since the Crimea annexation in 2014.
Using data compiled from George Washington University, the chart below shows the amount of foreign direct investment (FDI) in Russia from 2014 to 2016 by the United States, France and Germany, which are leaders in NATO and among the top five investors in Russia. These three countries have sanctioned Russia, causing their FDI in Russia to drop from 2014 to 2016.
According to the World Bank, the largest exporters to Russia are China, Germany and the United States.
The Bluewater Reporting Country-to-Country Transit Analysis by Service tool shows China currently has the most services in the database with a destination in Russia. Due to the Chinese ability to stay out of global conflict, these services likely would not face any threat by sanctions.
An opportunity could arise for the Chinese, if Germany and the United States reduce exports to Russia due to sanctions.
According to the Bluewater Reporting Country-to-Country Transit Analysis by Service tool, Germany currently has 12 services that transit to Russia, as illustrated in the chart below. These services potentially could be impacted by additional sanctions. The largest service, based on total deployed capacity, is Maersk Line’s ECUBEX loop. This service currently operates with eight vessels and has a total deployed capacity of 19,976 TEUs.
If tensions continue to escalate between the Russian Federation and Ukraine, the West is likely to add sanctions and wage economic warfare. If the West were to sanction Russia as thoroughly as Iran or North Korea, ocean liner services to Russia from the West likely would be impacted. However, if Russia were to de-escalate tensions and release the boats and sailors captured, the ocean liner services from the West will not be impacted.
Alexander Ullmann is a BlueWater Reporting analyst.