Economic double shooting: Consequences of complete cessation of Ukraine-Russia trade relations

Author : Olena Holubeva

Source : 112 Ukraine

Ukraine and Russia have come to the point of a complete cessation of trade and business relations
23:16, 30 September 2021

The aggressive anti-Russian policy, devoid of logic, pursued by Petro Poroshenko and, contrary to the expectations of the majority of voters, adopted by Volodymyr Zelensky, has now reached its climax. The persecution of the opposition, led by Viktor Medvedchuk, could be the last straw that will overwhelm the patience of Russian President Vladimir Putin. The tolerance with which Moscow has so far treated Ukraine's decisions to impose bans and economic sanctions, even to the detriment of its own economy, may end. And this will have the most serious consequences for Ukraine.

Due to the political course pursued in Ukraine after Poroshenko came to power, Ukrainian food producers, the light industry, and a number of other industries have lost a capacious sales market in the Russian Federation: many enterprises closed, and people left to work abroad. Most of all, due to the break with Russia, high-tech Ukrainian enterprises have suffered - the machine-building sector, the defense industry, Ukrainian aviation, and space construction. Having failed to find a substitute for Russian partnership in seven years, the enterprises have been teetering on the brink of bankruptcy for several years. The European market, despite all the promises, did not open up for Ukrainians, and for those units who nevertheless managed to get to it, it did not become a lifeline.

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The rise in prices for oil products, coal, and electricity is also the consequence of the break with the Russian Federation. Our country has already lost significant volumes of gas transit, consistently bringing billions of dollars to the treasury, and may soon lose them altogether, which will have, without exaggeration, catastrophic consequences for the distressing Ukrainian economy.

One gets the impression that the authorities are deliberately aggravating the current situation. Having finally ruined the situation with Russia, they are now doing everything to break off economic relations with another important trading partner - Belarus. And just like with the Russian Federation, there is no economic logic, only politics.

While pursuing a course of breaking with its traditional partners, Ukraine is not much different from the non-commissioned officer's widow, who whipped herself. The actions of the Ukrainian authorities, carried out under the banner of the fight against the aggressor state, defy logical explanation since they do the main harm not to the Russian Federation, but to Ukraine itself and the Ukrainians.

This is especially noticeable and tangible in the energy sector. Until 2015, Ukraine bought gas from Russia directly and, as a result, had a price that made it possible to actively build up the muscles of the Ukrainian chemical industry, producers of mineral fertilizers, and metallurgy. The gas price for the population in 2010-2013 did not exceed few cents per cubic meter. After the Maidan, it no longer dropped by 0,25 USD, and now the population pays 0,4 USD per cubic meter with delivery, and the authorities assure that this is still a great blessing, since with the current world $ 1,000 per 1,000 cubic meters the price could be more than 0,75 USD per cubic meter. At the same time, the state-owned Ukrgasvydobuvannya, whose gas is mainly used for the needs of the population, produces it at a cost of no more than 0,07 USD per cubic meter. This was recently confirmed by the top manager of Naftogaz.

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Domestic gas is not enough for everyone, and Naftogaz still has to buy it abroad at $ 1,000 per cubic meter. m. Where is the logic? Instead of sitting down at the negotiating table and agreeing on an acceptable gas price with Gazprom, the Ukrainian government continues to shoot itself in the foot, buying gas at the price of European hubs. At the same time, the money of Ukrainian taxpayers goes to the accounts of Western traders, but the gas does not physically move: it is the same Gazprom gas that is shipped in Ukraine from transit volumes. The need to move gas from Europe through the pipe will physically add another $ 50 per 1,000 cubic meters to the cost.

And, no doubt, such a need for Ukraine will soon appear. The aggressive anti-Russian policy pursued after the Maidan forced the Russian Federation to intensify the process of building gas pipelines bypassing Ukraine. Back in 2012, the Nord Stream was put into operation, then two lines of the Turkish Stream were built, as a result of which gas supplies to Turkey, Greece, Bulgaria, and Romania stopped: the Trans-Balkan gas pipeline on the Ukrainian side was empty. After the launch of Nord Stream 2, which has already been completed and is in the process of certification, there will be no need to use the Ukrainian GTS at all. After that, it can and should be cut into scrap metal, since Ukraine does not need such volumes for internal needs. They will put an additional burden on the shoulders of the industry, which will be forced to pay for the maintenance of empty pipes.

Zelensky understands perfectly well that if the physical volumes of Russian gas in the pipeline are reduced to the minimum, Ukraine will not be able to provide adequate pressure in winter. A number of regions in the south and east may remain without gas in severe frosts. Residents of the Mykolaiv, Odesa, Kherson regions may freeze, and the work of key industrial enterprises in the regions will stop. Obviously, in such a situation, Ukraine, not Russia, should be interested in negotiating. But for some reason, it is Russia, which has proved that it can ensure stable and uninterrupted gas supplies to Europe and does not need the Ukrainian GTS, that has been calling Ukraine to the negotiating table for several years, but in return receives a constant refusal.

A similar situation with electricity - Ukraine has banned its supplies from Russia, although even people from Zelensky's inner circle have publicly said that cheap Russian electricity helped to lower prices and was a strict collar for the greed of the Ukrainian oligarchs who dominate the industry. Electricity in Ukraine has already significantly increased in price, which is reflected in the cost of most goods, the prices of which have increased. City water supply services and not only them trumpet the need to raise tariffs for the population. Electricity prices will rise even more by winter. And it would be nice if there was no shortage and, as a result, large-scale blackouts. Coal warehouses in Ukraine have been empty for a month, but the protective duties imposed on most grades of Russian coal continue to operate. Coal for the needs of Ukrainian thermal power plants is purchased at the prices of the ill-fated Rotterdam. The principle at work is the same: it is better for Ukrainians to pay dearly for an international hub than cheaply to an aggressor. However, whose policy in trade and economic relations is more aggressive is still a big question. The balance of the introduced duties and prohibitions is unequal - Ukraine is the leader in this field.

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The Ukrainian authorities have introduced a special duty on diesel fuel supplied through pipelines. After that, by the decision of the National Security and Defense Council, the "pipe" was completely nationalized, immobilizing it. Forced to leave the market the largest supplier of autogas from the Russian Federation. As a result, Ukrainians are faced with a frenzied rise in prices for a social type of fuel. Ukraine is constantly updating its sanctions list, adding new product groups from the Russian Federation to it: building materials, mineral fertilizers, woodworking and metallurgy products, cars, and trucks. At the same time, Russia reacts to this with more than restraint. A number of European goods that have been banned in Russia since 2014 were banned from Ukraine, in particular gourmet cheeses - Italian parmesan, for example. We must pay tribute, the Russian Federation has never played with sensitive topics for our country, for example, with the supply of petroleum products. But the share of Russia is so large that it would not have been difficult for it to arrange a tangible shake-up in Ukraine.

Last year, according to the State Customs Service, Russia became one of the three main trade partners of Ukraine. It turned out that Ukraine imported the most goods from Russia (by $ 4.6 billion), China ($ 8.3 billion), and Germany ($ 5.1 billion).

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Russia remains a major export market for Ukraine. The country is supplied with rolled metal and metal products, machine tools and vehicles, chemical products, timber and pulp, and paper products, food products and agricultural raw materials, textiles and footwear. Until 2014, Russia was the largest market for dairy products, in particular cheeses, meat, Ukrainian vodka and confectionery, and light industry products. The Russian market is very capacious, and besides, Russians are loyal to Ukrainian food products. Due to the anti-Russian policy, they lost the sales market and were forced to close dairy processing plants, cheese, and distilleries, which provided thousands of jobs. Ukraine has done everything possible to destroy long-term cooperation with the Russian Federation in the machine-building, space, and aviation industries. This has put the unique Ukrainian enterprises on the brink of survival. Legendary Antonov, Yuzhmash, most of the enterprises of Ukroboronprom have not been able to find an opportunity to replace the Russian materials and devices on which their projects were oriented. Enterprises are forced to lay off employees and ask for handouts from the budget in order to pay salaries to the remaining employees.

“We have seriously changed the structure of trade with Russia. If in 2012-2013 we had a fairly large share of high-tech products, now we have lowered to the level of raw materials - products with low added value,” economic expert Oleh Pendzin said.

Over the post-Maidan years, Ukraine has not been able to acquire the Eldorado, which many counted on when concluding a free trade agreement with the EU. Everything is not so simple: as it turned out, Europe is ready to buy round timber and amber from Ukraine at bargain prices but is in no hurry to open its markets to products with high added value. Ukrainian entrepreneurs have repeatedly complained about the limited quotas for the supply of livestock products to the EU, and road carriers - about the egregious situation with the issuance of transport permits by Poland. For many industries, the FTA with Europe has become a one-sided game. Entrepreneurs complain that in addition to the highest competition in the EU, certificates and permits are required for almost every single item of the nomenclature; the procedure for entering trade networks is incredibly confusing and complicated. Without exaggeration, only a few Ukrainian producers were able to take advantage of the tempting offer to increase exports to Europe. Alas, for this small success a huge price was paid: by declining industrial enterprises, the dismissal, and departure from Ukraine of the best brains - engineering personnel and IT specialists.

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But despite the fact that the reorientation to economic relations with Europe does not provide Ukraine with the necessary export volumes and Minsk remains an important foreign economic partner of Kyiv, Ukraine decided to respond to the detention of Belarusian blogger Roman Protasevich by imposing economic sanctions. As in the case of Russia, they caused damage mainly to Ukrainian enterprises. And as crazy as it sounds, the authorities are seriously considering strengthening anti-Belarusian sanctions, including by banning the import of Belarusian oil products. Let's be honest, for Belarus, it's like a mosquito bite - the country aims to preserve the Russian market, which is ten times more capacious and solvent than the Ukrainian one. But the Ukrainians can seriously suffer because only from the message that a large Belarusian producer of diesel fuel and autogas is going to be repaired, the stellas at Ukrainian gas stations begin to fever. For Ukraine, Belarus is the only alternative, after the Russian Federation, to obtain oil products at normal rather than European prices, at which oil products come from the sea.

It looks like President's Office doesn't care much about it. After all, it is not Poroshenko, or Zelensky and his team members who pay for all these political decisions, but ordinary Ukrainians are paying from their empty pockets.

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