After pledging that Moscow would not respond "tit for tat" to sweeping sanctions imposed against Russia last week by the European Union and the US, President Vladimir Putin has ordered his government to work up a list of retaliatory measures to strike back with.
Over the past week Russia has enacted a list of "stealthy" counter-sanctions, including bans on fruits, vegetables, and meat products. They are not being called sanctions, but justified on grounds of "phytosanitation" concerns and enforced by Rosselkhoznadzor, the Russian government's veterinary and sanitary watchdog.
The agency has discovered an apparent outbreak of mad cow disease in Romanian beef, insects in Greek fruits, toxic residue in Spanish meat, and last Friday banned almost all Polish fruits and vegetables – the Russian market is worth $1.3 billion annually for Poland – because of "repeated violations" of food safety certificates. Citing similar concerns, Russia earlier halted a wide spectrum of Ukrainian agricultural imports, amid a general collapse in trading relations between the two former partners.
But on Wednesday Mr. Putin dropped all pretenses and ordered the government to impose counter-sanctions to prohibit "the import of certain kinds of agricultural products, raw materials and food originating in a country that has imposed economic sanctions against Russian companies and (or) individuals or has joined such sanctions."
More serious measures might be in the pipeline. According to the Moscow business daily Vedomosti, Moscow might deny European airlines the right to overfly Russian territory, a move that could add significant flight time and fuel costs on far eastern routes. Vedomosti said the measure could cost airlines such as Air France, British Airways, and Lufthansa about $1.3 billion over three months. However, it would also hurt Russia's national airline, Aeroflot, which collects an estimated $300 million annually in overflight fees paid by foreign carriers flying the Siberian route.
Russia might undercut Canada, which has been in the forefront of imposing sanctions, by dumping its bumper wheat crop on world markets this year and sticking Canadian farmers with painful losses, according to one Canadian expert.
"We're seeing this now because the West has enacted Stage Three sanctions against Russia, and they're starting to bite," says Chris Weafer, senior partner at Macro Advisory, a Moscow-based investment consultancy. "Putin has moved from complaining about Western sanctions to planning retaliatory action. We are not yet at the trigger for more aggressive actions but are certainly close."
The effects of sanctions are so far not visible, but experts say it's only a matter of time before higher borrowing costs lead to higher prices throughout Russia's consumer economy, and the brewing sanctions war brings on shortages of many imported goods that Russians have taken for granted since the collapse of the USSR almost a quarter century ago.
One of Russia's leading business oligarchs, Putin crony Gennady Timchenko, gave Russians a public glimpse this week of the troubles he has suffered since being placed on sanctions lists by the EU and the US a few months ago.
"The sanctions make themselves manifest in the most bizarre ways," Mr. Timchenko said in a marathon interview with the official ITAR-Tass agency. "For instance, Gulfstream company has refused to perform its duties under a contract by suspending the flights of my jet, which I had purchased from them for quite some money.... The aircraft is not serviced and is halted to a standstill."
At a Russian government meeting Tuesday, Prime Minister Dmitry Medvedev admitted that Russia's ability to raise money on Western capital markets is "not good" due to sanctions, and said that next year's state budget will have take into account the "negative impact" of sanctions on individual Russian companies and the economy as a whole.
Mr. Medvedev hinted that the government might let go of the strict balanced-budget policy it has pursued for many years, and start spending money to compensate Russians who've suffered from sanctions, to stimulate industries to start making things that were formerly imported, and to reorient the Russian economy away from its technology and capital dependency on the West.
"We will have to more actively engage in import substitution and support our high-tech industries, including the nuclear industry, aerospace, and others. In any case, no matter what happens, there is no question that we will continue to move forward, implement programs and projects of national significance," he said.
In the long-term, experts say, Russia could turn to Asia – where cloned US high-tech goods are available – to make up for some of the technological and dual-use goods that Western sources must now deny to Russian companies. The Moscow daily Izvestia reported Wednesday that quite a few military and aerospace components needed by Russia, not to mention consumer goods like smart phones, can be found in China.
Fruits and vegetables formerly purchased from Ukraine, Poland, and other EU countries might be replaced with supplies from former Soviet countries like Armenia and Azerbaijan, as well as Turkey. Meat products previously purchased from sanctions hawks like the US and Canada could be offset by imports from Latin America, like Brazil and Argentina.
"It's long been acknowledged that Russia could produce a lot of things for itself that it currently imports," says Mr. Weafer. "But there is no doubt that if it goes on much longer, or sanctions are ratcheted up, real damage is going to be done. Relationships have broken down, trust has been lost, and we are facing a long legacy of negative consequences."