The UK oil company currently has almost a third of its daily volume of oil coming from Russian firm Rosneft (though, fortuitously, a considerably lower percentage of its revenue is derived from this association). Rosneft also has agreements in place with a number of other European oil companies, such as Eni in Italy and Statoil in Norway, as well as Anglo-Swiss energy trading company Glencore Xstrata.
Germany’s dependence on Russian natural gas – which accounts for 40% of the country’s supply – has been well publicised, but this accounts for only 8% of the country’s total energy needs. Other reliant countries that are not as widely discussed are Italy and Turkey. There is also the exportation of goods from EU nations in the opposite direction to consider. Just under 8% – €123 billion – of manufactured exports are bound for Russia, along with a further €28 billion worth of services.
International lending to Russia
The US has already announced a more restricted attitude towards the financing of Russian firms, but at present US and European banks have lent around €149 billion to Russian companies. French banks have lent the largest amount, €35 billion, followed by the US with €20 billion; between them accounting for almost 37% of Russia’s international exposure. Together, the US, UK, Japan, Germany, Netherlands, Italy and France have lent Russia 80% of its international funding.
Weapons trade less restricted
The wording used by the EU regarding the exportation of weapons is a little less restrictive. Orders already placed will not be affected, ensuring that the two warships being manufactured in France – the first due for delivery in October – will go ahead as planned. The responsibility for interpretation is also being placed on the exporter, as it is up to the manufacturer to decide if the goods it is shipping will be used for military purposes or not.
Knock-on effects to airlines
Airlines also look as though they will see a number of knock-on effects from the increased sanctions over Ukrainian airspace. The most obvious concern is fuel, and the possibility that we will see a tightening of supply and therefore an increase in price. Following the attack on flight MH17, only a couple of airlines have changed their flight paths, but, as the public’s awareness of routes increases, pressure will mount for them to use less direct and therefore more expensive routes – not only avoiding Ukrainian airspace, but possibly also regions controlled by ISIS in northern Iraq.
A longer-term consequence could come from the manufacturing costs of airplanes. The current trend of replacing less fuel efficient planes with more cost effective versions is understandable, considering the difficulty of hedging fuel costs. However, since one of the key components of these newer planes relies on titanium, with 35% of the world’s mined resources coming out of Russia this too could cause costs to climb.
Do sanctions actually work?
Historically, sanctions against countries have not always been successful in forcing change: Iran, Zimbabwe and North Korea spring to mind. These recent measures are unlikely to see a swift change in stance from Russia, particularly due to the nature of leader Vladimir Putin – a man who has built his reputation on strength and resilience. Unless the situation is managed correctly, we could see a re-emergence of a cold war; although, this time, one more focused on fiscal rather than military strength.