Russia’s Economy:

The Bleak Reality

Analyst: Katelyn McCafferty

Class: RIAP 275

Date: 11 December, 2014

Classification: UNCLASSIFIED

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Cover Image Sources:

http://www.jamestown.org/uploads/pics/russian_economy.jpg

http://www.kyivpost.com/media/images/data/uploads/e/iblock/en_articles/129529/4738/big.jpg

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Key Findings

It Is Highly Unlikely That Russia Has The Economic Leverage Required To Threaten The United States Economy

Executive Summary:It is unlikely that Russia poses an economic threat to the United States due to the impact of the country’s current recession. Russia’s economy is highly vulnerable in its current state and, due to its economic dependence on the West, it would unlikely endure the Western retaliation that would result from an attack. Although Russia is currently experiencing economic hardship, the country does have an economic strategy in place to spur rapid growth in the next ten years.

Due to:

Russia's Sovereign Wealth Funds Is Unlikely To Be Effective In Curtailing Recession:

Due to Russia’s poor economic performance, the conflict in Ukraine, and poor fiscal management, it is unlikely that Russia’s Sovereign Wealth Funds will be effective in curtailing recession in the near future. Russia’s Sovereign Wealth Fund is responsible for economic stabilization and is key in insolating the economy from the volatile prices of the oil and gas market.

Russia’s Import Substitution Long-term Effects Likely To Be Negative:It is likely Russia’s import substitution program will mainly see negative effects in the long-term. Though the program is seeing a few short-term benefits and the program succeeds in making Russia less dependent on the West, the program will prove to be costly and will likely raise the prices on any commodities Russia manufactures. Russia will also face many issues implementing the program nation-wide as manufactures are already struggling with finances and work capacity and are still heavily reliant on Western firms for specialized equipment.

Russia Likely To See Indirect Benefits From Gas Deal With China:It is unlikely the USD 400 billion gas deal between Russia and China will directly aid Russia’s economic state during the Ukraine crisis. Since the deal will not begin until 2018, it will be of little to no help for Russia in the short term, but it will likely provide indirect help as it strengthens Russian-Chinese relations. Russia and China signed around 40 agreements that will help Russia weather Western sanctions since the initial gas deal in May.

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Russia Highly Likely To Relax And Reverse More Banned Food:It is highly likely that Russia will continue to relax and reverse their food bans due to the bans negative effects on the Russian economy. Before the Ukraine crisis, the EU and Russia had significant agricultural trade. Since Russia and the EU are very economically intertwined, neither economically benefit from the food bans. Russia is already relaxing previous bans since their agricultural sector is seriously struggling, food prices are rising, and there are many indirect negative costs to Russia and the EU from a lack of agricultural trade.

Russia Is Unlikely To Replace Needed Western Technologies:It is unlikely that Russia has the economic and industrial capability to replace Western technologies they are dependent on. Since sanctions against Russia limit their access to specialized equipment and much needed technologies, Russia is trying to develop their domestic technological sector to replace this equipment. This is unlikely to be successful as Russia’s industrial capability for this specialized equipment is limited, their economic standing makes it difficult to pursue, and the lack of technology hurts the economy.

Russia Likely To Continue To Ignore The Need For Foreign FinancesIt is likely that Russia will continue push for economic independence than try to repair their foreign financial market relations. Russia is dependent on Western finances as they owe over USD 700 billion to western banks, China cannot give them enough economic support, and since limited foreign financial market access inflicts long-term economic damage. Despite this, Russia is still fighting to become economically independent from the West, even at the expense of their economy.

Analytic Confidence:Analytic confidence for this assessment is medium. Source reliability ranges from medium to high, and there was very little conflict among sources. The analyst has minimal knowledge of the subject matter and worked predominantly alone, although some assessments are the work of a team and/or casual discussions. The analyst used the Analysis of Competing Hypotheses (ACH) for one assessment. Finally, the complexity of the task was medium and the deadline was adequate.

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Table of ContentsKey Findings...................................................................................................................................2

Table of Contents...........................................................................................................................4

About This Document....................................................................................................................5

Outlook............................................................................................................................................6

It Is Highly Unlikely That Russia Has The Economic Leverage Required To Threaten The United States Economy................................................................................................................8

Russia's Sovereign Wealth Funds Is Unlikely To Be Effective In Curtailing Recession..........13

Russia’s Import Substitution Long-term Effects Likely To Be Negative.................................18

Russia Likely To See Indirect Benefits From Gas Deal With China........................................20

Russia Highly Likely To Relax And Reverse More Banned Food...........................................22

Russia Is Unlikely To Replace Needed Western Technologies................................................24

Russia Likely To Continue To Ignore The Need For Foreign Finances...................................26

Annex A: ACH.............................................................................................................................28

Contact Information.....................................................................................................................29

Endnotes........................................................................................................................................30

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About This Document

Tasking

This document represents the cumulative work of three intelligence analysts. Professor William Welch presented the tasking on Thursday, August 28, 2014 and analysis concluded on Thursday, December 11, 2014. The report was generated with the intent of analyzing what economic threats Russia presents to U.S. interests. The report addresses the overall outlook of the region for the next 12 -24 months. It should be noted that the analysts evaluated various sectors of Russia’s economy individually. 

The Key Findings are a combination of various issues and outlooks addressing Russia’s economy and how it interacts with other nations, particularly the U.S. and EU. The findings are supported by the short and long form analytical reports (SFARs, LFARs) which provide highly detailed descriptions of relevant topics and their effect on Russia’s economy.

All information contained within this report is unclassified, as were all the sources used to create this estimate. The sources were generally medium to high in credibility. The expertise of the three analysts who authored this report is low, and the complexity of the subject matter is medium. The time provided to complete this task was adequate. Each analyst’s contact information is included should there be any feedback or questions.

Signature:_________________________________

11 December 2014

Analyst: Katelyn M. McCafferty

kmccaf10@lakers.mercyhurst.edu

(440) 799-3999

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Outlook

It Is Highly Unlikely Russia Poses A Threat To The United States Economy

Executive Summary:

It is highly unlikely that Russia poses an economic threat to the United States. Considering the country’s current recession, dependence on the West, and the fall in oil prices, Russia’s economy faces economic hardship. Their economic state coupled with their dependence on Western goods and services makes it nearly impossible for Russia to manage their deteriorating economy while also pursuing economic independence from the West.

Discussion:

There are three main Western goods and services that Russia is dependent on. They are:

Western food imports and agricultural trade Western technology and specialized equipment Foreign financing

There are several methods Russia is using to try and pull away from the West to become more economically independent. They are:

The Import Substitution Program The Russia-China gas deal Food bans Developing sectors, like technology, that are dependent on the West

Though Russia is trying to become more independent, there are many various problems, setbacks, and reasons why this is currently not feasible for Russia. They include:

The current recession Western sanctions Rising commodity prices Food bans already being relaxed

Russia is fighting very hard to become economically independent from the West, even at the expense of their economy. With so many issues piling on though, Russia has to set aside these plans in exchange for more reasonable measures reforming their economy. In the next 12-24 months, Russia will have to focus on their economy’s wellbeing before pushing plans for economic independence or territorial conquest in Ukraine, making it a low threat to the U.S.

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Analytic Confidence:

Analytic confidence for this assessment is medium. The analyst used an ACH structured methods of analysis. Source reliability is high with very little conflict among sources. The analyst’s expertise is minimal and collaborated with a team along with doing individual work. The task complexity is moderately complex and the time constraint was ample.

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It Is Highly Unlikely That Russia Has The Economic Leverage Required To Threaten The United States Economy

Executive Summary:

It is highly unlikely that Russia poses an economic threat to the United States due to the impact of the country’s current recession. Russia’s economy is highly vulnerable in its current state and, due to its economic dependence on the West, it would unlikely endure the Western retaliation that would result from an attack. Although Russia is currently experiencing economic hardship, the country does have an economic strategy in place to spur rapid growth in the next ten years.

Discussion:

Current Economic Hardship

As Russia significantly depends on oil and gas exports, which account for more than half of the total exports, the decrease in oil price has a remarkable impact on the future growth of the Russian economy. The oil price reached its lowest point in the last five years at the end of 2014. Many financial institutions forecasted that the oil price will fluctuate around USD 72 to USD 85 in 2015.1 This downward movement of the oil price is the result of the high oil supply compared to the low global consumption. The Organization of Petroleum Exporting Countries decided that they will maintain the currently high production as no country in the group is willing to give away its market share.

As the result of the decreasing oil price and Western sanctions, the Russian economy is gradually falling into recession again after the last financial recession in 2009. The Russian Finance Ministry has lowered the forecast for the growth of gross domestic product in 2015 from 1.2% to -0.8%.2 The oil price required for Russia to break even in 2015 is USD 107 per barrel, which is much higher than the current oil price and the estimated average oil price over the next three years.3

The appreciation of the U.S. dollar compared to the ruble. Source: http://tinyurl.com/2ddbz93

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The decline of the oil price and economic sanctions also led to the devaluation of Russian currency. The ruble lost 15% compared to the U.S. dollar from July to October of 2014 and reached 40.37 per dollar on 10 October, the lowest level since the Russian financial crisis of 1998.4 The Russian Central Bank made its effort to support the currency by raising interest rate up to 8%. The bank also spent USD 15 billion in the Foreign Market Currency to buy back the ruble and support the value of the currency.5 However, the sharp diminishing of the oil price hinders the effort of the Central Bank.

Russian Dependency On The West

Many aspects of the Russian show that Russia is reliant on the West for economic support. Russia’s import substitution program will likely see negative effects in the long-term with few short-term benefits. The majority of Russia’s export revenue comes from fuels and metals with machinery, food products, and chemicals dominating imports.6 Russian external trade focuses heavily on the West though Russia is trying to diversify its exports to open markets abroad and spur internal competitiveness.7 The biggest direct impact the program will have is that it will lead to high costs and prices. 8 Economists are warning the program will be detrimental as prices would likely grow at least 20-30% on products, especially produce.9

Despite Russia’s extensive industrial capabilities, their high-tech sector is still reliant on Western firms for most of their specialized equipment. President Putin told officials that Russia’s task is to protect themselves against the risk of foreign partners not performing their contractual obligations, but industrial development is still required.10 Without the proper foundation to install this program, the chances of its success are low.

When considering Russia’s recent USD 400 billion gas deal with China, Russia is trying to improve eastern relations to attempt to pull away from the West. While the deal will not directly aid Russia’s economy until it begins in 2018, the deal will likely provide indirect help through strengthened relations with China. 11 The deal involves China paying Russia USD 400 billion to supply 38 billion cubic meters of gas annually, over 30 years beginning in 2018. This is equal to about 20 percent of Russia’s gas sales to Europe. 12 2014 gas deal would make China the third largest

singular country Russia exports gas to. Source: http://tinyurl.com/nus33nc

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In October 2014, Russia and China furthered these ties by signing an additional 40 deals.13 These include energy, trade, technology, and finance agreements to help weather Western sanctions as well as also extend credit lines from Chinese banks and arrange for currency swaps.14 There is some concern over Russia’s improved relationship with China, but this relationship seems to only work when China benefits so it poses little threat currently.

Russia and the EU’s agricultural trade also display Russia’s dependence on the West. Before the Ukraine crisis, the EU and Russia had significant agricultural trade. Since Russia and the EU are economically intertwined, neither economically benefit from the food bans. Russia is already relaxing previous bans since their agricultural sector is seriously struggling, food prices are rising, and there are many indirect negative costs to Russia and the EU from a lack of agricultural trade. 15

In August 2014, Russia banned agricultural products from the EU and other countries to contest sanctions against them. The bans will last at least one year with 73% of those banned imports being from the EU.16

Russia is slowly relaxing and reversing these bans as their agricultural sector cannot make up their imports from the EU.17 The ban caused prices to rise in some areas and the market to fall.18 The Russian government will allow select imports to help their farmers increase production.19

Russia is facing a financial crisis and cannot support to boost the economy while also becoming more independent from the West. Russia is dependent on various Western technologies, industries, foods, and general trade, on top of being unable to find new economic partners that can cover the full extent of the Western economic impact on Russia’s economy. The Russian government is trying to prioritize their interests and security over economic reform in an effort to

become more independent from the West at the expense of their own economy. Despite its economy falling into a recession, Russia is slowly reprioritizing their economy back over their interests.

Russian Economic Outlook

As stated earlier in this document, the current state of the Russian economy is bleak. Low global oil and gas prices, as well as Western sanctions have crippled the economy. Vladimir Putin’s actions to counter these sanctions such as Russia’s food ban has done little to stabilize

A selection of Russian paper and coin currency. Source: http://tinyurl.com/k6e3a23

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the economy, and in some cases, worsened it. Despite this economic hardship, many aspects of the Russian economy including the Yamal project, the auto industry, and increases in government gold purchases have a positive outlook.

The Yamal project is a liquid natural gas (LNG) project that is among the largest industrial endeavors in the Arctic Circle.20 The project will extract large quantities of LNG from the Russian Arctic, the location of the largest LNG reserves in the world.21 Estimated to be operational by 2017, the project will generate hundreds of millions of USD annually in tax revenue annually. Overall, the Yamal project has cost its private investors USD 26.9 billion and will export 16.5 million metric tons of LNG a year.22 As trends toward environmentally friendly alternatives to coal become more popular, the Russia reaps the benefits of vast LNG reserves and modern infrastructure to extract it. Revenue generated from Russia’s oil and gas industry will allow the country to invest in other sectors of its economy to diversify risk and insulate it from violent swings in gas prices. With no alternative energy solutions to natural gas in sight, it is likely that Russia’s choice to expand its petroleum industry will not only promote sustained growth for its economy.

The Russian automotive industry plays a large role in the country’s economy. The industry accounts for nearly 3 million jobs in Russia, which equates to about 4% of its workforce.23 Despite its recent poor performance plagued by questionable economic policy, the auto industry has a positive outlook. According to a US based consulting group, the Russian automotive market is far from saturated and has room for exponential growth.24 The country has 190 vehicles for every 1,000 Russians (compared to 800 vehicles per 1,000 U.S. citizens).25 This fact highlights Russia’s economic potential and demonstrates why the country

is predicted to jump from the 10th largest auto-making country to the sixth largest by 2020.26 Additionally, 33% of vehicles in Russia are manufactured by foreign brands and 36% of the total cars sold in Russia were imported.27 With this vast presence of international automakers, and substantial room for growth, Russia has leverage over foreign companies looking to capitalize on their potential growth.

Over the last decade, Russia's National Treasury has increased its gold reserves by 570 metric tons.28 Its holdings have nearly tripled to 1,149.8 tons, making it the world's sixth largest holder of gold among central banks.29 Putin has

continued this trend by purchasing 55 tons of gold in the third and fourth quarters of this year.30 Two main factors for Russia’s gold accumulation include decreasing its dependency on the US dollar and ongoing geopolitical tensions derived from the Ukraine crisis.31 Russia’s defensive economic strategy allows the country to remain flexible in a time of recession. The country’s gold reserves can also serve as a method to pay for imports, as a solution to the

Russia has tripled its holdings of gold since 2004 to 1,149 tons, making it the sixth largest gold holder among central banks. Source: http://tinyurl.com/n32p52u

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rapidly devaluating ruble.32 This strategy is an indicator that Russia seeks to enhance its economic resilience in order to employ Putin’s policies and endure Western sanctions. It is likely that Russia will continue its gold purchases in future in order to combat Western sanctions forecasted to be in place until 2017.33

Analytic Confidence:

The analytic confidence of this assessment is medium. The analyst used no structured analytical techniques for this project. Source reliability is medium and sources corroborated. The analyst’s expertise is low and the analyst worked as a team. Subject complexity is medium and the time available for the task was adequate.

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Russia's Sovereign Wealth Funds Is Unlikely To Be Effective In Curtailing Recession

Executive Summary:

Due to Russia’s poor economic performance, the conflict in Ukraine, and poor fiscal management, it is unlikely that Russia’s Sovereign Wealth Funds will be effective in curtailing recession in the near future. Russia’s Sovereign Wealth Fund is responsible for economic stabilization and is key in insolating the economy from the volatile prices of the oil and gas market.

Discussion:

History

In 1994, the Russian government created the Stabilization Fund to finance the budget deficit during a period of recession.34 In 2004, the Stabilization Fund rapidly grew from USD 3.73 billion in to USD 157.38 billion in 2008, due to thriving economic conditions and rising oil and gas prices.35 At this time, former Finance Minister Alexei Kundrin divided its stabilization fund into two Sovereign Wealth Funds, the Reserve Fund and the National Wealth Fund.36 The National Wealth Fund created the country’s pension savings while the Reserve Fund took over the role of the Stabilization Fund, covering the federal budget’s expense.37 The Ministry of Finance supervises the operation of these two funds and the Central Bank of Russia is the manager financing both funds.38

Russian National Wealth Fund

Russia’s Sovereign Wealth Funds consist of the Reserve Fund and Russia’s National Wealth Fund, also known as the National Welfare Fund. The National Wealth Fund serves as a cushion for the Russian economy39 and as a pension reserve fund that is supposed to save for the long term, safeguard suitable co-financing of Russians’ voluntary pension savings, and steady the budget of the state pension fund.40

The National Wealth Fund holds USD 83 billion41 derived from energy revenues42 meant for investment in debt of foreign governments, central banks, foreign banks and international financial institutes.43 According to Russian laws, the fund can allocate a maximum of 100% of its assets in foreign investments including 45% U.S. dollars, 45% euros and 10% British pounds. The fund cannot domestically invest more than 40% of its assets.44 This rule diversifies the asset allocations of the fund and minimizes the investment risk. However, in June 2014, Russia lifted the cap on domestic investment up to 60%.45 Compared to the Reserve Fund, the National Wealth Fund involves in a higher-risk/ higher-yield investment.46

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The National Wealth Fund uses the revenue from the investment of its funds to reinvest itself and finance pension payments.47 After the Reserve Fund receives enough money from the oil and gas revenue to reach its mandatory size, 10% of the GDP, the rest of the revenue will go to the National Wealth Fund.48

As Western sanctions, capital flight, and the plummeting ruble continue to take a toll on Russia’s economy, public and privately owned companies need financial support. The government has pledged to support sanction-hit companies using the National Wealth Fund as one of the options.49 Managed by close contacts of President Vladimir Putin, the state-controlled oil company Rosneft, has requested $49 billion from the National Wealth Fund.50 However, Rosneft might receive only up to $4 billion from the fund.51

Not only is the Russian government ready to use the National Wealth Fund to aid public and privately owned energy companies, but reportedly banks as well. The fund allegedly would aid the state-controlled banks of VTB Bank and Rosselkhozbank by buying over USD 6 billion of their shares. Vice Premier Dvorkovich stated the Russian government would also “consider temporarily placing the remainder of the National Welfare Fund into securities, including the securities of oil companies.”52

Russia’s Reserve Fund Summary

For decades, Russia’s overreliance on oil and gas as a source of revenue left its economy vulnerable to the ever-fluctuating prices of these commodities on the global market.53 To combat this weakness, Russia developed its Reserve Fund, which is a large reserve of capital the country uses to stabilize its economy when oil and gas prices dive below their international averages.54 The Reserve Fund also adds economic stability by reducing inflationary pressure and insulating economic performance from the volatile market.55 The fund is dedicated to

The distribution of oil and gas revenues in the federal budget, the Reserve Fund and the National Wealth Fund. Source: http://tinyurl.com/m9ov6uc

from creation in February 2008 through August of 2013.

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ensure the federal government has the capital to fund national projects.56 Russian laws require the overall size of the Reserve Fund be no more than 10% of Russia’s GDP.57

The creation of the Reserve Fund occurred for a number of reasons. First, it needed to compensate for lower-than-forecasted oil and gas prices to keep the economy running.58 Next, the fund needed to fulfill budget obligations and counterbalance budget deficits during harsh

economic downturns.59 Furthermore, the fund serves as a tool for combating inflation, creating a buffer for the economy, and absorbing excess liquidity generated from oil and gas profits.60 In order to maximize its performance, the Russian government invests its Reserve Fund in international low-risk/low-yield securities and used

when oil and gas incomes fall.61 The investment of the Reserve Fund in locations abroad combats high inflation rates.62 Without the fund, these fluctuations would likely cause a sudden negative impact on the economy, as seen during the recent financial crisis.63

After the financial crisis in 2008, the global recession and rapidly falling oil prices devastated Russia’s economy, forcing Russia to rely on the Reserve Fund. The fund decreased by 82% from USD 142.6 billion in 2008 to USD 25.44 billion in 2010.64 After the global economic crisis, prices of oil and gas subsequently rose, as did Russia’s oil and gas revenues.65 The Reserve Fund started to recover its losses, reaching USD 84.68 billion in 2013.66 The Finance Ministry forecasts that the Reserve Fund will be 3.7% of GDP in the end of 2014 and drop down to 3.0% in 2015.67 The annual withdrawals from this fund demonstrate Russia’s dependence on this financial resource and its importance for the health of its economy.

Russia’s politicians propose a multitude of arguments for using the Reserve Fund in the country. Many politicians believe in the benefit of using the fund to increase government spending and boost the economy.68 Others believe that the government should invest the fund more aggressively when oil prices are high.69 As a result of sanctions imposed by the West, Putin and the Russian government are currently spending vast amounts of capital out of the Reserve Fund to prevent a recession.70 By tapping into the fund’s current balance of USD $88 billion to curtail a sluggish economy, Russia is decreasing its ability to be economically resilient during prolonged periods of low oil prices.71

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Impact On Russia

After 2008, the financial crisis and the plunge in global energy prices caused various complications for Russia economy which decreased its federal budget revenue.72 The Russian government used financial resources from the Sovereign Wealth Funds to cover the federal budget deficit and bailout major state-banks and other industries.73 In the past two years, the Russian government did not use the National Wealth Fund as a savings for future generations, but as a tool to stimulate economic growth and resolve current financial problems. 74 This runs the risk of only benefit Russia’s economy in the short term with growth dying out after a sharp, brief acceleration.75

As one of the solutions for the financial crisis, Russian Federal Law No. 245-FZ, which expires at the end of 2014, suspends deposits to these funds and allows for the transferring of revenue to directly finance the federal budget expenditures.76 The conflict in Ukraine currently forces Russia to increase expenditures, which adds to the budget deficit for 2014.77 Without the direct financial support from the Reserve Fund and the National Wealth Fund in 2015, Russia’s government faces a threat of partly losing its financial power to balance its budget.

Currently, the Russian government is receiving criticism for its poor management of the Sovereign Wealth Funds. According to former Finance Minister Alexei Kundrin, the government mismanages the funds by exposing them to risky investments. Kundrin also disagrees with the investment of the National Wealth Fund in oil companies such as Rosneft because it goes against this hedge fund’s purpose of being independent on oil and gas exports.78 He also mentioned that this fund allocates its assets on riskier investments, such as infrastructure, which will lead to risk concentration without diversification.79

Russia faces a higher financial threat since the West controls the right to freeze the assets of the Sovereign Wealth Funds to punish Russia for its involvement in Ukraine.80 As the two Sovereign Wealth Funds allocate a large part of their assets on foreign investments, Russia has a significant financial dependence on the West. If the West decides to freeze these assets, it has to consider if it wants to block the pension savings which many Russian citizens are

the poor management of the Sovereign Wealth Funds. Source: http://tinyurl.com/naanzv7

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dependent on. However, the fact that Russia uses these funds for political interests gives the West reason to restrict Russia’s access to these funds.81

Analytic Confidence:

Analytic confidence for this assessment is medium. The analysts used no structured method of analysis. Source reliability is high with very little conflict among sources and information is up to date. The analysts’ expertise is minimal and worked together as a team. The task complexity is moderately complex and the time constraint was ample.

The chart above depicts the 2013 major trading partners of Russia. It is important to note the volume of trade between Russia and other western countries making up a significant portion of not only imports, but exports as well. Source: Accessed through Jane’s “Russian Federation: Economy – Data”

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Russia’s Import Substitution Long-term Effects Likely To Be Negative

Executive Summary:

It is likely Russia’s import substitution program will mainly see negative effects in the long-term. Though the program is seeing a few short-term benefits and the program succeeds in making Russia less dependent on the West, the program will prove to be costly and will likely raise the prices on any commodities Russia manufactures. Russia will also face many issues implementing the program nation-wide as manufactures are already struggling with finances and work capacity and are still heavily reliant on Western firms for specialized equipment.

Discussion:

Russia is taking steps to reduce its reliance on imported goods through an import substitution program. The majority of Russia’s export revenue comes from fuels and metals with machinery, food products, and chemicals dominating imports.82 Russian external trade focuses heavily on the West though Russia is trying to diversify its exports to open markets abroad and spur internal competitiveness.83

Reuters discussed the impact of the import substitution program, noting that Russian manufacturing has been slowly expanding through August with the consumer goods sector reporting output growth, a rise in new work, a rise in new export orders, and an increase in outstanding business as a result of import substitution. Nonetheless, the long-term effects are likely to be negative for Russia’s economy as it will lead to higher costs and prices.84

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President Putin told officials that Russia’s task is to protect themselves against the risk of foreign partners not performing their contractual obligations and he further elaborated that Russia can produce all their industrial needs themselves, though he acknowledged development is still required. Despite Russia’s extensive industrial capabilities, their high-tech sector is still reliant on Western firms for most of their specialized equipment.85

It is unlikely import substitution will be successful considering manufacturers are running at near-full capacity and are in need of new investment, which is in shorter supply as foreign financing is shrinking. 86 Economists are warning the program will be detrimental as prices would likely grow at least 20-30% on products, especially produce.87

The Ministry of Industry and Trade is managing part of the program and proposes the Russian government would provide additional funding through budget appropriations in 2014 through 2016 for a two-step program. The proposal suggests Russia begin substituting Ukrainian components with Russian systems which then extends outwards to other components delivered by foreign suppliers.88

Analytic Confidence:

Analytic confidence for this assessment is medium. The analyst used no structured methods of analysis. Source reliability is high with very little conflict among sources and information updated within the last 3 months. The analyst’s expertise is minimal and mainly worked alone with some casual discussion among peers. The task complexity is moderately complex and the time constraint was ample.

Russia’s President Putin and China’s President Xi Jinping during the signing ceremony for the USD 400 billion gas deal in Shanghai. Source: http://tinyurl.com/kmpxwrs

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Russia Likely To See Indirect Benefits From Gas Deal With China

Executive Summary:

It is unlikely the USD 400 billion gas deal between Russia and China will directly aid Russia’s economic state during the Ukraine crisis. Since the deal will not begin until 2018, it will be of little to no help for Russia in the short term, but it will likely provide indirect help as it strengthens Russian-Chinese relations. Russia and China signed around 40 agreements that will help Russia weather Western sanctions since the initial gas deal in May.

Discussion:

Russian foreign policy dictates China is increasingly important to economic and strategic interests. Bilateral ties between the two countries are strengthening, most notably with the landmark deal on gas exports from Russia to China in May 2014. China has an interest in accessing Russia’s natural resources while providing energy resources to China is more economical for Russia since their main oil fields are in eastern Siberia.89

Russia and China finalized a USD 400 billion deal to supply 38

billion cubic meters of gas annually over 30 years, or about 20 percent of its sales to Europe. Bloomberg reported an associate at the Chatham House research group stated “Russia can manage bad relations with the U.S. and the EU, but it can’t manage that and an uncertain relationship with China.”90

The deal will start around 2018 and because of this, the “economic effect on the European crisis will be limited,” as stated by a BBC news analyst. The greater achievement may be that the deal opens more doors between China and Russia.91 On 13 October 2014, Russia and China furthered their ties by signing energy, trade, and finance agreements to help weather Western sanctions. Russia and China signed around 40 deals in total and there are prospects of a 2015 deal to build a second pipeline to ship Russian gas to China.92 The deals also cover technology and extend credit lines from Chinese banks and arrange for currency swaps.93

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diversify their gas imports away from Russia.94 Trade relations with China must diversify or Russia risks becoming a raw material supplier and the internal Russian market could be flooded with cheap Chinese manufactured goods. On top of this, Chinese investments could displace locally produced goods and labor.95

Analytic Confidence:

Analytic confidence for this assessment is medium. The analyst used an ACH as a structured method of analysis. Source reliability is high with very little conflict among sources and information updated within the last week. The analyst’s expertise is minimal and mainly worked alone with some casual discussion among peers. The task complexity is moderately complex and the time constraint was ample.

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Russia Highly Likely To Relax And Reverse More Banned Food

Executive Summary:

It is highly likely that Russia will continue to relax and reverse their food bans due to the bans negative effects on the Russian economy. Before the Ukraine crisis, the EU and Russia had significant agricultural trade. Since Russia and the EU are very economically intertwined, neither economically benefit from the food bans. Russia is already relaxing previous bans since their agricultural sector is seriously struggling, food prices are rising, and there are many indirect negative costs to Russia and the EU from a lack of agricultural trade.

Discussion:

Russia and the EU are highly economically interdependent.96 Russia is a net importer of agricultural products from the EU. Agricultural products as well as machinery and chemicals dominate EU exports to Russia. In 2013, the gap between imports and exports stretched up to USD 20 billion due to a 12% reduction in agricultural exports and a 1.4% reduction in agricultural imports. In 2013, Russia’s top destination for agricultural exports was the EU at 19%.97

Russia mainly exports commodities, making up half of the agricultural exports. Wheat alone makes up one third of Russia’s agricultural exports, but sales were down by 26% in 2013. Import wise, Russia relies on meat, cheese, fruit and vegetables, alcoholic beverages, and tobacco products from the EU.98  

U.S. officials say the impact of Russia’s decision on the American economy will be minimal, but more significantly hurts the EU. Source: http://tinyurl.com/kvajhva

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In August 2014, Russia banned agricultural products from the EU and other countries to contest sanctions against them. The bans will last at least one year with 73% of those banned imports being from the EU.99 The original food bans were on dairy, meat, fish, fruit, and vegetable products.100

Russia is slowly relaxing and reversing these bans as their agricultural sector cannot make up their imports from the EU.101 The ban caused prices to rise in some areas and the market to fall.102 The Russian government will allow select imports, like salmon and potato seeds, to help their farmers increase production.103

The lack of agricultural trade between Russia and the EU caused various other indirect impacts. The countries most exposed to the Russian market are losing export business, like Germany. There is also an influx of liquidity from Russia that benefits some financial systems. Finally, partly due to tense Russian-Western relations, the price of oil dropped which the big energy importers gain from.104

Analytic Confidence:

Analytic confidence for this assessment is medium. The analyst used no structured methods of analysis. Source reliability is medium to high with very little conflict among sources and information updated within the last year. The analyst’s expertise is minimal and mainly worked alone with some casual discussion among peers. The task complexity is moderately complex and the time constraint was ample.

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Russia Is Unlikely To Replace Needed Western Technologies

Executive Summary:

It is unlikely that Russia has the economic and industrial capability to replace Western technologies they are dependent on. Since sanctions against Russia limit their access to specialized equipment and much needed technologies, Russia is trying to develop their domestic technological sector to replace this equipment. This is unlikely to be successful as Russia’s industrial capability for this specialized equipment is limited, their economic standing makes it difficult to pursue, and the lack of technology hurts the economy.

Discussion:

Russia’s economy is largely dependent specialized foreign technologies and industries.105 In late 2013, Russia banned foreign-made technology and machinery if a domestic equivalent was available. This took effect at the start of 2014 in order to preserve their defense industry’s technological independence and support local producers.106

Currently, Western sanctions are limiting Russia’s access to modern technology that they are dependent on. The Western sanctions range from visa bans and asset freezes to restricting Russia’s foreign drilling technologies which encourages Russia to develop its technology and fundamental sciences sectors.107

The United States banned exporting high technology oil equipment to Russia while also sanctioning major Russian oil companies like Rosneft.108 Russia heavily relies on certain technologies like specialized robots used to develop oil fields as well as other arctic and offshore drilling technologies.109 Russia depends on hydrocarbons that they need to effectively exploit without western technology if Russia wants to succeed economically without the West.110

SMD, a specialist engineering firm that makes sophisticated robots which operate on seabeds, relies on its exports, and one fifth of its market is in Russia. Source: http://tinyurl.com/lc2kzdg

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Russia must decide between furthering their territorial expansion in Ukraine and risk further economic damage from the West or construct a stable free-market economy that provides long-term prosperity.111 Russia depends on foreign technology to upgrade industry and create jobs which boosts the economy.112

Combined with the fall in oil prices, the Russian economy is falling into a recession and the ruble is dropping. Still, Russia will not decrease the USD 15 billion budget for sciences even with falling oil revenues and gas exports.113 Russia must either find an economically sound way to manufacture the technologies they need from the West or they must accept their economy will continue to hurt from the lack of foreign technology until they take steps to gain foreign industrial production back.

Analytic Confidence:

Analytic confidence for this assessment is medium. The analyst used no structured methods of analysis. Source reliability is medium to high with very little conflict among sources and information updated within the last year. The analyst’s expertise is minimal and mainly worked alone with some casual discussion among peers. The task complexity is moderately complex and the time constraint was ample.

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Russia Likely To Continue To Ignore The Need For Foreign Finances

Executive Summary:It is likely that Russia will continue push for economic independence than try to repair their foreign financial market relations. Russia is dependent on Western finances as they owe over USD 700 billion to western banks, China cannot give them enough economic support, and since limited foreign financial market access inflicts long-term economic damage. Despite this, Russia is still fighting to become economically independent from the West, even at the expense of their economy.

Discussion:Financial experts say Russia’s most pressing problem is their financial crisis. Russia owes almost USD 700 billion to Western banks with much of that owed by state-run companies. Russia tried turning to the east to help, but China does not have the capacity or drive. Their “debt threatens to drain the Kremlin of its [USD] 400 billion in foreign currency reserves.”114 On top of this, companies like Rosneft are asking for large quantities of money that is well out of reach for the USD 80 billion in the National Welfare Fund which is part of those reserves.115

Since the West is barring Russia from western financial markets, the government will have to cut spending or raise taxes to keep the deficit down to .6% of the GDP or Russia must borrow from

Russia’s total external debt began steadily increasing in 2003 where it spiked in 2008. Russia currently owes USD 715 billion in external debt. Source: http://tinyurl.com/kqm6xbh

27 | R u s s i a n E c o n o m y

domestic institutions at increasingly expensive rates.116 Russia not only wants to avoid this, but does not want to be dependent on external financing altogether. 117

The current sanctions against Russia target their financial sector to inflict long-term damage. The sanctions froze most of Russia’s companies and banks out of the global capital markets which is damaging how Russia pays its USD 700 billion in foreign currency debt as they must pay off USD 10 billion every month. The International Energy Agency says Russia “needs [USD] 750 billion of fresh investment over the next 20 years – and imported Western technology – just to stop oil and gas output declining.”118

Although domestic banks dominate the Russian market, foreign bank’ claimed USD 219 billion at the end of 2013.119 Currently, the central bank, the most independent institution in Russia, raised interest rates that will push Russia deeper into recession in 2015, but held off a currency meltdown.120 The bank’s actions are starting to gain traction, but will mainly just help in the short-term.121

Even though Russia is facing considerable financial problems, Western countries are beginning to realize that the economic and financial measures imposed so far have not deterred Putin from his actions in Ukraine.122 Though Russia is dependent on foreign finances, they continue to try and prioritize economic independence over economic reform.

Analytic Confidence: Analytic confidence for this assessment is medium. The analyst used no structured methods of analysis. Source reliability is medium to high with very little conflict among sources and information updated within the last year. The analyst’s expertise is minimal and mainly worked alone with some casual discussion among peers. The task complexity is moderately complex and the time constraint was ample.

28 | R u s s i a n E c o n o m y

Annex A: ACHAnalysis of Competing Hypothesis for the analytic report on “Russia Likely To See Indirect Benefits From Gas Deal With China”

29 | R u s s i a n E c o n o m y

Contact Information

30 | R u s s i a n E c o n o m y

Endnotes

Katelyn M. McCafferty

Mercyhurst University Institute for Intelligence Studies

4964 West Park Drive

Fairview Park, OH 44126

Phone: (440)-799-3999

kmccaf10@lakers.mercyhurst.edu

1 http://www.theguardian.com/business/2014/dec/03/oil-collapse-leads-world-economy-trouble 2 http://www.theguardian.com/world/2014/dec/02/russia-warns-fall-into-recession-2015-sanctions-oil-price 3 http://www.marketwatch.com/story/iran-venezuela-russia-may-face-pain-from-cratering-oil-prices-2014-12-01 4 http://www.bloomberg.com/news/2014-10-09/russia-moves-ruble-band-by-most-since-march-spends-1-8-billion.html5 http://www.businessweek.com/news/2014-10-07/orderly-ruble-drop-seen-costing-up-to-30-billion-russia-credit6 http://ec.europa.eu/trade/policy/countries-and-regions/countries/russia/ (high)7 “Russian Federation: Economy – Trade Profile”, in Sentinel Reports 01 July 14 (accessed through Jane’s): “After the collapse of the special trade relationships within the old Comecon (or more properly, CMEA) and the disintegration of the Soviet Union, the locus of Russian external trade has shifted dramatically toward the West, the EU in particular. Nevertheless, Russian import demand is still crucial for most of the other CIS economies. Russia is seeking to diversify its exports in terms of commodities and, in an effort to open markets abroad and spur competitiveness at home,” (high)8 http://www.reuters.com/article/2014/09/01/us-pmi-manufacturing-russia-idUSKBN0GW1C520140901 (high)9 http://www.globalpost.com/dispatch/news/afp/140807/russia-retaliates-against-western-sanctions-food-ban (high)10 “Analysis: The impact of Europe’s sanctions on Russia”, in Jane’s Defense Weekly 01 Aug 14 (accessed through Jane’s): “Russia has been preparing for sanctions on its defence industry in recent months and has been taking steps to secure its security of supply and reduce its reliance on imported goods. Speaking at a meeting on import replacement on 28 July, Russian President Vladimir Putin told officials: "Our task is to protect ourselves against the risk of foreign partners not performing their contractual obligations." However, despite the country's broad industrial capabilities the high-tech sector is still reliant on many Western firms for specialised equipment, and while stating that Russia "can definitely produce everything we need ourselves" Putin also acknowledged that development was still required.” (high)11 http://www.bbc.com/news/business-27503017 (high)12 http://www.bloomberg.com/news/2014-05-21/russia-signs-china-gas-deal-after-decade-of-talks.html (high)13 http://uk.reuters.com/article/2014/10/13/russia-china-banks-idUKL6N0S82EJ20141013 (high)14 http://www.voanews.com/content/china-russia-business-finance-technology-deals-signed/2483776.html (high)15 http://modernfarmer.com/2014/08/5-ripple-effects-russias-food-ban/ (medium)16 http://epthinktank.eu/2014/10/03/russian-measures-against-european-union-agricultural-products/ (high)17 http://modernfarmer.com/2014/08/5-ripple-effects-russias-food-ban/ (medium)18 http://epthinktank.eu/2014/10/03/russian-measures-against-european-union-agricultural-products/ (high)19 http://modernfarmer.com/2014/08/5-ripple-effects-russias-food-ban/ (medium)20 http://www.total.com/en/energies-expertise/oil-gas/exploration-production/projects-achievements/lng/yamal-lng?%FFbw=kludge1%FF21 http://www.eia.gov/countries/cab.cfm?fips=rs (High) 22 http://www.total.com/en/energies-expertise/oil-gas/exploration-production/projects-achievements/lng/yamal-lng?%FFbw=kludge1%FF23 http://www.reuters.com/article/2009/07/31/us-autos-usa-clunkers-sales-idUSTRE56U0GR2009073124 http://www.sema.org/sema-enews/2011/20/10-facts-about-the-russian-car-market-you-need-to-know25 http://www.sema.org/sema-enews/2011/20/10-facts-about-the-russian-car-market-you-need-to-know26 http://www.sema.org/sema-enews/2011/20/10-facts-about-the-russian-car-market-you-need-to-know27 http://www.sema.org/sema-enews/2011/20/10-facts-about-the-russian-car-market-you-need-to-know28 http://www.csmonitor.com/World/Europe/2014/1114/Can-gold-deflect-Western-economic-attacks-The-Kremlin-thinks-so29 http://www.csmonitor.com/World/Europe/2014/1114/Can-gold-deflect-Western-economic-attacks-The-Kremlin-thinks-so30 http://www.csmonitor.com/World/Europe/2014/1114/Can-gold-deflect-Western-economic-attacks-The-Kremlin-thinks-so31 http://www.csmonitor.com/World/Europe/2014/1114/Can-gold-deflect-Western-economic-attacks-The-Kremlin-thinks-so32 http://www.bloomberg.com/news/2013-02-10/putin-turns-black-gold-into-bullion-as-russia-out-buys-world.html33 http://www.csmonitor.com/World/Europe/2014/1114/Can-gold-deflect-Western-economic-attacks-The-Kremlin-thinks-so34 http://blog.securities.com/2013/03/national-funds-of-russia-gain-momentum-in-2013/35 http://blog.securities.com/2013/03/national-funds-of-russia-gain-momentum-in-2013/36 http://blog.securities.com/2013/03/national-funds-of-russia-gain-momentum-in-2013/37 http://sovereignwealthfundshistory.wordpress.com/ (moderate)38 http://www.state.gov/e/eb/rls/othr/ics/2013/204720.htm 39 http://www.reuters.com/article/2013/11/06/russia-putin-idUSL5N0IR2W220131106 (high)40 http://www.sovereignwealthcenter.com/fund/47/National-Wealth-Fund-and-Reserve-Fund.html#.VGaynfmjOm4 (moderate)

41 http://www.bloomberg.com/news/2014-07-10/why-putin-raiding-wealth-fund-won-t-cure-what-ails-russia.html (high)42 http://www.businessweek.com/articles/2014-10-08/russia-dips-into-its-pension-fund (high)43 http://ccsi.columbia.edu/files/2014/04/nrf_Russia_September2013_RWI_VCC.pdf (high)44 http://www.reuters.com/article/2013/11/06/russia-putin-idUSL5N0IR2W220131106 (high) 45 http://www.reuters.com/article/2014/11/15/us-russia-economy-wealth-fund-idUSKCN0IZ0I920141115 (high)46 http://sovereignwealthfundshistory.wordpress.com/ (moderate)47 http://ccsi.columbia.edu/files/2014/04/nrf_Russia_September2013_RWI_VCC.pdf (moderate)48 http://www.investinginrussia.ru/ppp/nationalfund/ (moderate)49 http://www.reuters.com/article/2014/09/20/ukraine-crisis-novatek-lng-idUSL6N0RL0G520140920 (high)50 http://www.reuters.com/article/2014/10/24/russia-economy-ratings-idUSL6N0SJ1SU20141024 51 http://www.businessweek.com/articles/2014-10-08/russia-dips-into-its-pension-fund 52 http://www.businessweek.com/articles/2014-10-08/russia-dips-into-its-pension-fund (high)53 http://scieuro.com/wp-content/uploads/2014/10/April-2014.pdf#page=7 54 http://scieuro.com/wp-content/uploads/2014/10/April-2014.pdf#page=7 55 http://scieuro.com/wp-content/uploads/2014/10/April-2014.pdf#page=7 56 http://scieuro.com/wp-content/uploads/2014/10/April-2014.pdf#page=7 57 http://scieuro.com/wp-content/uploads/2014/10/April-2014.pdf#page=7 58 http://blog.securities.com/2013/03/national-funds-of-russia-gain-momentum-in-2013/59 http://blog.securities.com/2013/03/national-funds-of-russia-gain-momentum-in-2013/60 http://blog.securities.com/2013/03/national-funds-of-russia-gain-momentum-in-2013/61 http://blog.securities.com/2013/03/national-funds-of-russia-gain-momentum-in-2013/62 http://blog.securities.com/2013/03/national-funds-of-russia-gain-momentum-in-2013/63 http://blog.securities.com/2013/03/national-funds-of-russia-gain-momentum-in-2013/64 http://blog.securities.com/2013/03/national-funds-of-russia-gain-momentum-in-2013/65 http://blog.securities.com/2013/03/national-funds-of-russia-gain-momentum-in-2013/66 http://blog.securities.com/2013/03/national-funds-of-russia-gain-momentum-in-2013/67 http://www.reuters.com/article/2013/05/22/russia-economy-idUSL6N0E330K20130522 68 http://blog.securities.com/2013/03/national-funds-of-russia-gain-momentum-in-2013/69 http://blog.securities.com/2013/03/national-funds-of-russia-gain-momentum-in-2013/70 http://www.bloomberg.com/news/2014-07-10/why-putin-raiding-wealth-fund-won-t-cure-what-ails-russia.html71 http://www.bloomberg.com/news/2014-07-10/why-putin-raiding-wealth-fund-won-t-cure-what-ails-russia.html72 “Russian Federation: Economy – Outlook”, in Sentinel Reports 29 October 14 (accessed through Jane’s): “The plunge in world-market energy prices in the fourth quarter of 2008 and the credit crunch that accompanied turmoil in global financial markets subsequently resulted in a very sharp contraction of aggregate economic activity in Russia. This caused federal budget revenues to dwindle while the government instituted major fiscal stimulus initiatives and fortified social spending. The resulting huge federal budget deficit was funded from the Reserve Fund and the National Wealth Fund, which are the successors to the oil stabilization fund accumulated during the period of record-high world-market energy prices.” (high)73 http://www.state.gov/e/eb/rls/othr/ics/2013/204720.htm 74 http://ccsi.columbia.edu/files/2014/04/nrf_Russia_September2013_RWI_VCC.pdf (high)75 http://www.bloomberg.com/news/2014-07-10/why-putin-raiding-wealth-fund-won-t-cure-what-ails-russia.html (high)76 http://ccsi.columbia.edu/files/2014/04/nrf_Russia_September2013_RWI_VCC.pdf (high)77 http://www.reuters.com/article/2013/05/22/russia-economy-idUSL6N0E330K20130522 (high)78 http://www.bloomberg.com/news/2014-11-11/ex-finance-minister-says-rosneft-must-stay-away-from-state-fund.html (high)79 http://www.bloomberg.com/news/2014-07-10/why-putin-raiding-wealth-fund-won-t-cure-what-ails-russia.html (high)80 http://geoeconomica.com/index.php/analyses.html?file=tl_files/geoeconomica/reports/ March%20Update%20Russia.pdf (moderate)

81 http://geoeconomica.com/index.php/analyses.html?file=tl_files/geoeconomica/reports/ March%20Update%20Russia.pdf (moderate)82 http://ec.europa.eu/trade/policy/countries-and-regions/countries/russia/ (high)83 “Russian Federation: Economy – Trade Profile”, in Sentinel Reports 01 July 14 (accessed through Jane’s): “After the collapse of the special trade relationships within the old Comecon (or more properly, CMEA) and the disintegration of the Soviet Union, the locus of Russian external trade has shifted dramatically toward the West, the EU in particular. Nevertheless, Russian import demand is still crucial for most of the other CIS economies. Russia is seeking to diversify its exports in terms of commodities and, in an effort to open markets abroad and spur competitiveness at home,” (high)84 http://www.reuters.com/article/2014/09/01/us-pmi-manufacturing-russia-idUSKBN0GW1C520140901 (high)85 “Analysis: The impact of Europe’s sanctions on Russia”, in Jane’s Defense Weekly 01 Aug 14 (accessed through Jane’s): “Russia has been preparing for sanctions on its defence industry in recent months and has been taking steps to secure its security of supply and reduce its reliance on imported goods. Speaking at a meeting on import replacement on 28 July, Russian President Vladimir Putin told officials: "Our task is to protect ourselves against the risk of foreign partners not performing their contractual obligations." However, despite the country's broad industrial capabilities the high-tech sector is still reliant on many Western firms for specialised equipment, and while stating that Russia "can definitely produce everything we need ourselves" Putin also acknowledged that development was still required.” (high)86 http://www.economist.com/news/europe/21611141-vladimir-putin-pretends-he-can-make-russia-self-sufficient-and-strong-how-lose-friends (high)87 http://www.globalpost.com/dispatch/news/afp/140807/russia-retaliates-against-western-sanctions-food-ban (high)88 “Analysis: The impact of Europe’s sanctions on Russia”, in Jane’s Defense Weekly 01 Aug 14 (accessed through Jane’s): “One strand of the substitution work is being managed by the Ministry of Industry and Trade (Minpromtorg), with Minpomtorg Minister Denis Manturov announcing on 25 July that his ministry had developed and submitted a programme for import substitution for the Russian military-industrial complex to the government. Under his proposals the Russian government would provide additional funding through budget appropriations this year and in 2015-2016 for a two-step programme. The proposal would first substitute Ukrainian components with homemade systems and then be extended to other components delivered to the Russian military-industrial complex (MIC) by foreign suppliers.” (high)89 “Russian Federation: External Affairs – Outlook”, in Sentinel Reports 28 July 14 (accessed through Jane’s): “Economic and strategic interests make China an increasingly important priority of Russian foreign policy.  Bilateral ties have strengthened in recent years, most obviously with the signature of a landmark deal on gas exports in May 2014. The first visit abroad by China's new president Xi Jinping was to Russia in March 2013, and resulted in multi-billion-dollar contracts. China has an interest in accessing Russia's natural resources, including oil and gas, other mineral resources and timber. Russia's main oil fields are in eastern Siberia, making it more economical to provide energy resources to China.” (high)90 http://www.bloomberg.com/news/2014-05-21/russia-signs-china-gas-deal-after-decade-of-talks.html (high)91 http://www.bbc.com/news/business-27503017 (high)92 http://uk.reuters.com/article/2014/10/13/russia-china-banks-idUKL6N0S82EJ20141013 (high)93 http://www.voanews.com/content/china-russia-business-finance-technology-deals-signed/2483776.html (high)94 http://www.forbes.com/sites/pikeresearch/2014/05/30/russia-china-gas-deal-narrows-window-for-u-s-exports/ (high)95 “Russian Federation: External Affairs – Outlook”, in Sentinel Reports 28 July 14 (accessed through Jane’s): “In September 2010, the first oil pipeline connecting Russia to China was launched, the East Siberian Pacific Ocean Oil Pipeline, sending up to 300,000 b/d of Russian oil to China under a 20-year supply deal. Additionally, the two governments have agreed to create a joint Russian-Chinese venture for production of high-speed trains connecting eastern Russia with China. The Chinese development bank has extended USD500 million to Russia's Vnesheconombank (VEB), and another USD500 million to VTB. While Sino-Russian economic relations are likely deepen, but political relations will remain cautious. If trade relations with China do not diversify, Russia risks becoming a raw material supplier, and the domestic Russian market could be flooded with cheap Chinese manufactured goods. In addition, Chinese investments could displace locally produced goods and labour.” (high)96 http://www.ecfr.eu/article/commentary_who_pays_for_the_sanctions_on_russia372 (high)97 http://ec.europa.eu/agriculture/trade-analysis/map/2014-1_en.pdf (high)98 http://ec.europa.eu/agriculture/trade-analysis/map/2014-1_en.pdf (high)99 http://epthinktank.eu/2014/10/03/russian-measures-against-european-union-agricultural-products/ (high)100 http://modernfarmer.com/2014/08/5-ripple-effects-russias-food-ban/ (medium)101 http://modernfarmer.com/2014/08/5-ripple-effects-russias-food-ban/ (medium)102 http://epthinktank.eu/2014/10/03/russian-measures-against-european-union-agricultural-products/ (high)103 http://modernfarmer.com/2014/08/5-ripple-effects-russias-food-ban/ (medium)104 http://www.ecfr.eu/article/commentary_who_pays_for_the_sanctions_on_russia372 (high)105 http://www.globalpost.com/dispatch/news/afp/141124/russia-lose-some-40-bn-year-due-sanctions-0 (high)106 “Russian Federation: Defence Production and R & D – Assessment”, in Sentinel Reports 01 July 14 (accessed through Jane’s): “In late 2013 the government banned the industry from purchasing foreign-made machine tools, production equipment, and services if a local equivalent is available. The order, which went into effect on 1 January

2014, is part of a drive to preserve the technological independence of Russia's defence industry and support local producers.” (high)107 http://www.reuters.com/article/2014/12/08/russia-putin-science-sanctions-idUSL6N0TS3AO20141208 (high)108 http://www.bbc.com/news/business-30209319 (high)109 http://www.ft.com/intl/fastft/245981/putin-says-western-sanctions-will-help-russia (high)110 http://www.neweasterneurope.eu/interviews/1384-russia-s-dependence-on-the-west (high)111 http://www.neweasterneurope.eu/interviews/1384-russia-s-dependence-on-the-west (high)112 http://fortune.com/2014/11/20/russias-lackluster-economy-means-putin-simply-cant-afford-a-ew-cold-war/ (high)113 http://www.reuters.com/article/2014/12/08/russia-putin-science-sanctions-idUSL6N0TS3AO20141208 (high)114 http://www.nytimes.com/2014/12/03/business/russia-forecasts-a-recession-in-2015-signaling-a-toll-from-sanctions-and-oil-prices.html?_r=0 (high)115 http://www.nytimes.com/2014/12/03/business/russia-forecasts-a-recession-in-2015-signaling-a-toll-from-sanctions-and-oil-prices.html?_r=0 (high)116 http://fortune.com/2014/11/24/finance-minister-oil-slump-sanctions-cost-russia-140-billion-a-year/ 117 http://www.ft.com/intl/fastft/245981/putin-says-western-sanctions-will-help-russia (high)118 http://www.telegraph.co.uk/finance/economics/10981648/Russia-vastly-outgunned-in-economic-showdown-with-West.html (moderate)119 http://www.economist.com/news/economic-and-financial-indicators/21601532-foreign-banks-lending-russia (high)120 http://www.reuters.com/article/2014/11/24/russia-cenbank-independence-idUSL6N0TB40W20141124 (high)121 http://fortune.com/2014/11/24/finance-minister-oil-slump-sanctions-cost-russia-140-billion-a-year/ (high)122 http://foreignpolicy.com/2014/09/03/the-wests-tricky-economic-war-with-russia/ (high)