The EU has imposed a series of sanctions over Russia’s invasion of Ukraine. Not yet Ousmene Jacques Mandin Many EU countries argue that the EU’s response to the war has been weakened by the continued levels of trade with Russia.
The European Union (EU) imposed a series of blockade measures following Russia’s full-scale invasion of Ukraine. However, the effectiveness and scope of these measures remain questionable.
Since Russia’s full-scale invasion of Ukraine, the EU’s cumulative goods trade deficit with Russia has reached $120 billion, equivalent to 5% of Russia’s annual GDP. This net transfer of resources to Russia stands in stark contrast to the EU’s rhetoric, which claims it will “continue to take steps to further reduce Russia’s revenue sources and ability to wage war.” The EU’s approach to Russia is self-defeating and risks prolonging the war.
Why the trade balance is important
The balance of trade is a measure of the net movement of resources from one country to another. If we consider the US-China trade deficit dispute, the larger the deficit for a country, the more resources that deficit country transfers to its trading partner.
While Russia’s foreign exchange reserves were frozen in March 2022, cumulative net transfers from the EU allowed the country to rebuild a significant portion of its foreign financial resources. International banks found that cross-border debt to Russian residents increased from $155 billion in March 2022 to $254 billion in March 2024. This may also explain why the Russian economy is performing relatively well.
The EU’s trade deficit with Russia has been decreasing since March 2022, but it is taking too long and the efforts of EU member states vary greatly. It took a year to go from $19.5 billion in March 2022, the largest deficit since the pandemic, to a surplus of $700 million in March 2023. The average trade deficit between Hungary and Russia in January-May 2024 was still $300 million. In Slovakia it is $400 million per month.
explain the trade deficit
The EU’s trade deficit with Russia is mainly due to continued imports of mineral fuels. From March 2022 to May 2024, the EU’s cumulative mineral fuel imports from Russia amounted to US$166 billion. This amount fell from an average of $10.6 billion per month in January to May 2019 to $2 billion per month, or 19% of pre-war levels.
But the decline is not universal. Belgium still imports 54% of pre-war levels, Spain 58%, Czech Republic 77%, Slovakia 88% and Hungary 138%. Germany, on the other hand, imports only 1% of pre-war levels.
Russian gas still enjoys high imports, at 83% of pre-war levels. From January to May 2024, Belgium and the Netherlands imported more than twice as much Russian gas as before the war, and Spain imported more than seven times more gas. Hungary, the largest importer of Russian gas in the EU, imported almost double the amount in January-May 2024 compared to January-May 2019.
Recent observations that India has increased its imports of mineral fuels from Russia have raised significant concerns. India actually increased its mineral fuel imports from Russia from an average of $300 million per month during January and May 2019 to $3.9 billion per month during January and May 2024.
a contradictory approach
The EU’s position on Russia contradicts its ambitions. It is right to blame India for financing Russia through mineral fuel imports. This serves as a reminder of how important it is to reduce imports from Russia.
Maintaining stable revenue levels and increasing revenue amid structural constraints related to pipeline and refinery layout are quite different issues. To argue that changing existing dependence on Russia would be too costly is to underestimate the enormous humanitarian and economic costs of war.
The EU’s piecemeal approach – the EU is working on its 14th project.Day The sanctions package against Russia provided a significant source of revenue that Russia could use to continue its war. The EU is demanding that its citizens provide resources to support Ukraine on the one hand, while continuing to tolerate massive net transfers to Russia on the other.
Following Russia’s full-scale invasion of Ukraine, the EU claims to have supported Ukraine with $121 billion in financial and military aid. During that period, the EU accumulated a trade deficit of the same amount with Russia. This cannot be a rational approach to supporting Ukraine and reducing Russia’s ability to wage war.
Note: This article gives the views of the author and not the position of EUROPP (European Politics and Policy) or the London School of Economics. Main image source: kremlin.ru
