Hrant Kostanyan at Boris Nemtsov Forum, Brussels

November 25, 2016

Hrant Kostanyan summarises the discussion of the working group on Economy, Trade and Energy

“[I just want] to say I’m thrilled to be part of this Forum, and I had a pleasure to co-chair the Group on Economy Trade and Energy. My task here will be very shortly to give you the summary of the discussion that we had today, and it is about sanctions.

“I am very glad to say that we had two presentations, and a discussion, and despite the political sensitive nature of the topic that we discussed, the discussion was rather insightful and civilised. The first presenter we had clearly showed us that even with the sanctions, EU remains the biggest investor and trade partner of Russia. The economic growth of Russia largely depends on the oil price, and since Russian policymakers do not control the oil price, they largely do not control the growth of Russia’s economy. And for the coming 20 years, it is unlikely that the oil price will grow dramatically.

“Obviously, the answer to this would be diversification and modernisation of the economy, which is rather complicated, given the current political and economic conditions. However, the economy has to be made more predictable in order to attract the investment that is needed for the modernisation and diversification of the economy.

“The second presenter has showed us that if sanctions were directed for changing the behaviour of the current government in Russia, then they have largely failed. The pro-Kremlin party has won the elections, and President Putin is likely to be re-elected. There are, however, negative effects from sanctions on the economy, but the economy’s biggest problems do not stem from those effects.

“We were given three different scenarios [about] what to do going ahead. First one is to leave it as it is, and the second option would be to direct sanctions not against the regime as such, but the whole of the country, all of the economy, and make it much weaker, although the economy will get weaker, possibly, however, this might raise revanchism, opinions, and approaches from Russian side.

“The third option is to accept that sanctions have failed, and to open up, although there are also very big problems with this scenario, as this is not real at the moment. EU will lose face, and Putin is likely to use this for his internal popularity, and therefore also there’s no huge interest from the EU side in Russia in terms of economics, as the oil and gas that are dominating the economic relationship are working anyways, and the other elements are not that attractive for European business.

“We have discussed in general the nature and the purpose of the sanctions, and the conclusion was that the change of behaviour, change of regime, is not the only objective of the sanctions. Sanctions are there also for punishment reasons, they are also there for signalling and messaging. Of course sanctions could be made more painful and more targeted. There should be more consultation with wider associations in terms of getting the sanctions right and more effective.

“There was a consensus that the sanctions are making things worse in Russia, but they are not the core problem of the economy. There are also direct effects of the sanctions on the military-industrial complex. However, there are also indirect effects of the sanctions, and their so-called multiplier effect. We have to also keep in mind that sanctions usually are not effective in the short-term but they become more effective in the long-term.

“There are many instances where cronies that are under the sanctions used loopholes to go around the sanctions, and there are many examples of that. There should be in the context of difficult political environments and difficult intergovernmental relations … there is more need for civil society engagement between the EU and Russia. And more importantly, and lastly, going beyond the sanctions, it is very important to make Ukraine a success, because building Ukraine a success would be even more difficult than keeping sanctions in place, given [the] difficult corrupt political and economic elite that is in Ukraine. Thank you very much.”