Armenian economists, entrepreneurs and private business owners are warning about hardships that have arisen due to sanctions against Russia following its invasion of Ukraine. The risks and consequences for Armenia’s economy are severe.

Russia’s war against Ukraine has gone beyond the borders of the conflict between the two states and has knocked on the doors of all countries, targeting their economies first. The invasion of Ukraine by Russian troops led to a global economic backlash against Russia in the form of additional economic sanctions. These complement the package of sanctions initiated in 2014 following the annexation of Crimea and the war in Eastern Ukraine. These restrictions are still valid and have already had significant negative impacts on the Russian economy.

Last year, COVID-related shortages of everything from hand sanitiser to canned tomatoes reminded the world that, for all their depth and sophistication, supply chains are fragile things. As economic uncertainty lingers and global food prices continue to rise, Russia may be on the cusp of restoring its 19th century legacy as the world’s breadbasket, particularly for the commodity-strapped developing world. But how much is all that wheat actually worth in this day and age? And can an agricultural boom really reshape the Russian economy?

A combination of socio-economic factors observed in Russia not only indicates that the impact of the coronavirus crisis on the country's economy will be profound, but that the recovery might take longer than it appears today. Much will depend on the authorities’ readiness to support household incomes and business activity through accumulated reserves and borrowings.

Russia has approached the beginning of the coronavirus pandemic with the economy not in great condition. Back in 2010-2012 the Russian economy was growing faster than the world economy. Yet since then, its global share has fallen by about one-fifth. In 2014, following the events in Ukraine, the Russian economy suffered a double blow as a result of lower oil prices and the impact of sanctions imposed on it by the United States, the European Union and a number of other countries.

Most countries of Central and Eastern Europe that are now members of the EU developed impressively since the collapse of the centrally planned economy. Yet, Poland and other countries in the region still lack their own capital to compete on a global scale. The merger of Poland’s two state-owned refineries, Orlen and LOTOS, could illustrate a solution – selective state-ownership in crucial sectors.

Economic power is not shared equally across the European Union. Only one out of all EU companies in the Global Fortune 500 ranking is based in one of the new member states that joined the union after 2004. The remaining 112 companies are based in the “old” EU. Yet, as the case of a merger of two state-owned Polish oil companies shows, this unparalleled level of inequality is not being addressed by Brussels.

While both in the United States and Europe, the Federal Reserve, European Central Bank, and Bank of England all rushed to help their ailing economies during the pandemic, the Central Bank in Russia has done nothing except organise small currency interventions supporting the rouble.

The economic diversification and growing relations with actors other than Russia presents both great opportunities and challenges to the Eastern Partnership states. This includes deepening economic ties with the European Union, but also with China and Turkey. Meanwhile, the outlook for Russia regaining its influence in the region, or at least halting this trend, looks bleak.
In the last few years, several countries participating in the European Union’s Eastern Partnership programme have been working to deepen their economic relationship with the EU, as well as with Turkey and, to a lesser extent, China. These changes in economics will have long term geopolitical consequences. Overall, they come at the expense of Russia’s interest, which remains influential but will be unable to halt the changes with its own economic tools. This is why the Kremlin will try to promote its interests by any means necessary, including force.

Despite some initial disruption, the Kremlin’s efforts to counteract and mitigate the impact of sanctions have been quite successful. The state-led redistributive model has ensured that the authorities are well placed to respond to any disruption caused by the sanctions. In essence, the effect of the sanctions has reinforced a highly interventionist economic policy and a dominant role of the state in driving economic growth.

Is Russia’s economic policy a success or failure? The answer may strike many as self-evident. By most conventional measures, the economy has performed poorly in recent years. Between 2000 and 2008, Russia’s economy grew by an impressive seven per cent per year, driven by both rising oil prices and substantial productivity gains. Over the past ten years, however, Russia’s real GDP has risen, on average, by just one per cent per year.

For years the Belarusian economy has faced the same challenges. The main input to state coffers comes from a few gas enterprises and the military industry, while many branches of the economy remain ineffective. Heavy dependence on Russia is also a serious problem. The only cure is structural reforms. Yet, seemingly there is no political will for their quick implementation.

According to official projections, Belarus is to reach 3.5 per cent GDP growth this year. Less optimistic is the forecast of the IMF which believes growth will be at only 0.7 per cent. The National Bank of Belarus, in turn, assumes inflation will not pass seven per cent. Regardless of the source, the predicted growth is not going to result in any form of structural change to the Belarusian economy. Rather it will be a reflection of global economic prosperity and higher gas prices.

Despite China's assurances that Baku-Beijing-Tbilisi relations are to be based on the principle of equilibrium, with economic gain being the sole motivation, the impression of political dominance is hard to avoid. It is estimated that the old patterns of regional rivalries will further change with China’s expansions westwards, with China becoming a regional stabiliser.

The situation in Ukraine, at first glance, looks good: the military conflict is frozen, the macroeconomic stability has been achieved, the economy has started to grow, and the West continues to support the country. Despite the successes, however, Ukraine has failed to meet the expectations of its citizens.

Ukraine needs economic growth, as it provides the resources for defence, social peace and reforms. The state's interference in the economy has been too strong and the increase of social obligations given the bad business climate has constrained business activity.

Politically, Latvia is firmly anchored to the West through its membership of the European Union and NATO. Economically, however, the country still remains under significant Russian influence. The Kremlin has several economic instruments at its disposal which could be used to cause significant negative impact on Latvian economy. The key ones would include restricting imports of Latvian goods, banning future and liquidating existing Russian FDIs in Latvia, reducing volumes of Russian freight transit through Latvian ports, halting supplies of natural gas to Latvia, and withdrawing non-resident deposits controlled by Russia-related entities from the Latvian banking system.