Skip to main content

Sanctions on Russia: Would World Cup boycott hit harder?

By Ivana Kottasova, CNN
March 24, 2014 -- Updated 1337 GMT (2137 HKT)
This map shows the gas pipelines that go through Ukraine, and the EU's dependence on Russia for energy. Design: Inez Torre/CNN

STORY HIGHLIGHTS
  • European leaders are discussing further economic sanctions against Russia
  • The United States and Europe targeted 28 Russian and Ukrainian officials
  • Tight economic links between Russia and the EU could mean sanctions hurt both sides

(CNN) -- European leaders are meeting in Brussels Thursday to discuss further sanctions against Russia.

So far the EU has imposed financial and visa restrictions against 21 carefully selected Russian and Ukrainian officials -- but avoided anyone from President Vladimir Putin's inner circle and stayed clear of any large-scale economic sanctions.

The EU and U.S. have condemned Russian annexation of Crimea as illegal and stepped up their rhetoric towards the Kremlin, but whether they are willing to put more economic pressure on Russia is unclear.

The leaders of Europe's biggest economies are likely to be cautious.

Here's why.

How important is Russia's economy?

Russia is the eight biggest economy in the world, with GDP of more than $2 trillion. But its economy -- which is heavily reliant on commodities, particularly oil and gas, was growing just 1.3% last year compared to 2012, one of the sharpest slowdowns in the emerging markets.

With the Ukraine crisis taking its toll, Russia's economy may not grow at all in 2014, some analysts have warned.

European sanctions labeled 'toothless'
Crimea: The economics of independence

Hopes Russia would be one of the decade's powerhouse economies may have faded, but its close links with the European Union have not.

Would sanctions hit Europe back?

The EU is Russia's largest trading partner, and there are deep economic links between the two. Almost half of Russia's exports -- $292 billion worth -- end up in EU countries. 15% of Russia's GDP comes directly from the country's exports to EU. Russia, in turn, is the third biggest trading partner for the EU, with $169 billion in imports.

But the eurozone itself has only just emerged from its own crisis, and is wary of cutting ties with such a powerful economic partner. Its reliance on gas out of Russia would also feed caution.

Robert Pape, political science professor at University of Chicago with expertise in security studies, says the sanctions would hurt both sides. "Between great powers, leverage is a two-way street, Russia can squeeze us almost as effectively as we can squeeze them," Pape wrote for CNN.

While steps that would push the price of oil down for a sustained period would really bite, these would be hitting right back. Energy supplies remain vitally important for the European Union, to which Russia supplies a third of EU's natural gas. Germany, the eurozone's biggest economy, imports around 40% of its gas from Russia.

What is Russia's economic relationship with the U.S?

Russia's trade flows

The economic relationship between Russia and the U.S. is more unbalanced. Russia is the 20th largest trading partner for the U.S., with $27 billion worth of trade exported across the Atlantic. On the flip-side, the U.S. is Russia's fifth largest partner, with just $11 billion worth of trade.

According to Russian Foundation chair David Clark, trade is a "relatively unimportant" component of relations. Energy links are also weakening as the U.S. looks to shale gas for its energy supplies and heads towards self-sufficiency.

Crimea makes Putin more popular
Putin wants Crimea ... ASAP

Clark told CNN the U.S. could get greater leverage over Russia from financial sanctions aimed at the country's banking system and stability of the ruble. Measures targeted at named individuals, similar to those contained in the Magnitsky Act, could also be effective. "Russia's angry response to the act shows that it works," Clark said.

What's next for Crimea's economy?

But again, the financial links between Russia and the west would mean huge losses for European banks which have lent billions to Russia.

While the EU and U.S. adopted sanctions against 28 individuals, Clark said these "have little more than nuisance value and would have to be dramatically expanded to have a real impact."

"Travel bans and asset freezes aimed at all members of the Duma and Federation Council who voted to annex Crimea would be a start," Clark said.

Targeting the money men who handle the finances and assets (often illicit) of top tier politicians would really hurt, he added. And the names of these individuals are quite well known.

But again, the financial links between Russia and the west would mean huge losses for European banks which have lent billions to Russia.

Are there other options?

The EU has a wide range of legal options here. Its economic significance means sanctions can be very powerful tool. Export and import bans or restrictions that apply to specific products such as oil or diamonds, flights restrictions or investment freezes have been successful in the past.

"Restricting access to foreign capital and the international banking system could prove very damaging indeed because Russia's economy is stagnating and it needs inward investment," Clark said.

But experience shows that economic sanctions rarely work in the pursuit of non-economic goals. "Imposing economic sanctions on a state is similar to backing an angry dog into a corner -- in most cases, the dog will become more vicious, and more defensive," Pape said.

At the end, targeting Russia's national pride may prove more useful.

"A decision by a large group of countries to boycott the 2018 Football World Cup in Russia would probably hurt Russian prestige rather more, especially if FIFA had to move the event to another country," David Clark said.

Read more:

Why annexing Crimea may prove costly for Russia
West's sanctions on Russia: Are they just for show?
Is Russia's annexation of Crimea opportune or opportunistic?

CNN's Irene Chapple and Mark Thompson contributed to this report.

ADVERTISEMENT
Part of complete coverage on
July 31, 2014 -- Updated 1108 GMT (1908 HKT)
The road isn't easy -- past shelling and eerie separatist checkpoints. But where it leads is harder still.
July 30, 2014 -- Updated 1510 GMT (2310 HKT)
More Russian aggression in Ukraine. More U.S. and European sanctions imposed on Moscow.
July 31, 2014 -- Updated 0001 GMT (0801 HKT)
Deadly violence, ongoing tensions and the deliberate downing of a passenger airplane. Though that turbulence is happening far away from American streets -- in Eastern Ukraine -- why should Americans worry?
July 18, 2014 -- Updated 1642 GMT (0042 HKT)
The shooting down of MH17 may finally alert Washington and Europe to the danger of the conflict in Ukraine.
July 24, 2014 -- Updated 2304 GMT (0704 HKT)
The United States and its allies are angrier at Russia now over Ukraine, but will they do anything more about it -- especially Europe?
The U.S. State Department released satellite images of what it says is photographic evidence that the Russian military has fired across its border with Ukraine to strike Ukrainian military targets.
July 20, 2014 -- Updated 1540 GMT (2340 HKT)
Some contend that larger weapons have come into Ukraine from Russia.
July 28, 2014 -- Updated 1437 GMT (2237 HKT)
Background information about Ukraine, the second-largest European country in area after Russia.
July 27, 2014 -- Updated 1725 GMT (0125 HKT)
Ukraine's Foreign Minister Pavlo Klimkin on securing the MH17 crash site and negotiating with the separatists.
Learn more about the victims, ongoing investigation and the Russia-Ukraine conflict.
July 24, 2014 -- Updated 0700 GMT (1500 HKT)
When passengers boarded Malaysia Airlines Flight 17 last week, they couldn't have known they were about to fly over a battlefield.
July 23, 2014 -- Updated 0925 GMT (1725 HKT)
The downing Malaysia Airlines Flight 17 put the pro-Russia rebels operating in Ukraine's eastern region center stage.
July 28, 2014 -- Updated 0121 GMT (0921 HKT)
Increased fighting around the MH17 crash scene blocks international investigators. CNN's Kyung Lah reports.
July 22, 2014 -- Updated 1600 GMT (0000 HKT)
In the tangled aftermath of the disaster, two narratives have emerged -- one that most of the world subscribes to, and another that Russia and the rebels are pushing.
July 22, 2014 -- Updated 1229 GMT (2029 HKT)
"Every country, including Russia," must determine whether it is "together with the terrorists or together with the civilized world," Ukrainian President Petro Poroshenko said.
July 27, 2014 -- Updated 1811 GMT (0211 HKT)
Russian President Vladimir Putin bears at least some responsibility for the shooting down of Malaysia Airlines Flight MH17, former U.S. Secretary of State Hillary Clinton said.
June 28, 2014 -- Updated 1708 GMT (0108 HKT)
Ukrainian President Petro Poroshenko says peace is possible if Vladimir Putin is in the right mood.
ADVERTISEMENT