MOSCOW: Russia’s trade with the EU’s eastern states fell by almost a third in 2015, as sanctions over Crimea and the economic impact of plummeting commodity prices further unravel the fraying links between Moscow and its former Soviet bloc allies.
Exports to Russia from the six countries for which full data are available were worth €5.9bn less in 2015 than 2014. Sales of goods from Lithuania, Latvia, Estonia, Poland, the Czech Republic and Bulgaria declined an average of 30 per cent last year, with similar falls in the first 11 months of the year in Slovakia and Hungary.
Russia banned the import of European food products in response to sanctions after the annexation of Crimea in 2014. The downturn in trade has been exacerbated by a recession in Russia, as well as falling oil prices which have reduced the value of its energy exports.
Balazs Jarábik, an expert at the Central European Policy Institute and the Carnegie Endowment for International Peace, says the conflict has restarted a pattern that started after the collapse of the Soviet Union but which had slowed in recent years, particularly during the eurozone crisis.
“Reducing Russia’s economic footprint in CEE [central and eastern europe] has been an ongoing trend for a longer period of time and the sanctions and oil price slump is only helping to move this forward again. Some of the old links could be rebuilt, but I believe politics will keep poisoning or interfering with trade relations in the Baltics and Poland [in particular],” Mr Jarábik said.
As well as the decline in trade, major Russian companies are also pulling back in the region, following similar withdrawals in western Europe. Russia’s largest bank, Sberbank, sold its Slovak subsidiary in December, and has signalled an interest in further exits from “less significant” European markets. Oil producer Lukoil, meanwhile, has sold its network of gas stations in Hungary, the Czech Republic and Slovakia since sanctions were introduced.
In Poland, which has the largest economy of the ex-communist states, Russia has gone from the country’s fifth-biggest export partner and second-largest import source in 2013 to seventh and third respectively last year. Poland is now importing more goods and services from China than Russia for the first time.
Even Bulgaria, which has historically shared close ties with Russia as a fellow Orthodox nation, has substantially reduced its economic links, with Germany overtaking Russia as its primary source of imports in 2015.
In Lithuania, the EU member most reliant on Russian trade, Russia’s share of exports dropped from 21 per cent in 2014 to 14 per cent last year. In an update over the new year, economists at trade credit group Euler Hermes said the conflict in Ukraine has helped to halve Lithuania’s predicted economic growth compared with the previous year.
However, politicians in those countries most likely to be hit by the decline in trade — particularly in the Baltic region — have been among the strongest supporters of further action against Russia. Mr Jarábik says “hysteria” about Russian influence in the region means governments “would swallow economic costs to cut links to Russia for the sake of security and their own internal politics”.
Whether the shift will be permanent, however, is less certain. Professor Ramunas Vilpisauskas, director of the Institute of International Relations and Political Science at Vilnius University, says businesses in the most affected countries, such as Lithuania, would be keen to return to trade with Russia as soon as they get the chance, despite rhetoric from politicians.
“If the trends since 1999 can teach anything, it is that due to the geography and familiarity of products and brands of Lithuanian companies, they would probably not miss a chance to be among the first to return to the Russian market if the economic situation in Russia stabilises and trade barriers are removed,” Prof Vilpisauskas said.
He added, however, that the “prospect is quite distant at the moment so we will not see such a return to the Russian market for quite a while”.
