How will Crimea crisis change Czech-Russian trade relations?

Photo: CTK

In recent years, the Czech Republic has seen Russia as an increasingly important economic partner. Czech exports to Russia have grown tenfold over the past decade, and about 70 percent of Czech oil and gas imports come from that country. But the ongoing crisis in Crimea has highlighted the risks of the Czech economy’s exposure to Russia. In this edition of Panorama, I discuss the implications of the Crimea crisis for the Czech-Russian relations with deputy foreign minister Petr Drulák and commentator Erik Best. I first asked Mr Drulák to sum up the Czech government’s position to developments in Ukraine.

Photo: CTK
Petr Drulák: “We are very much concerned by Russia’s actions because they challenge the post-Cold War order and some of the international law’s fundamental principles. The sovereignty of Ukraine was breached and part of its territory has been incorporated into Russia. So we condemn these actions, and we are seriously concerned about this situation.”

EU Commissioner Štefan Füle said the targeted sanctions imposed by the EU and the US against Russian individuals with ties to the regime is not a punishment but rather a tool to get Russia to the negotiating table. So in what situation can the sanctions be lifted?

Petr Drulák: “These sanctions are an important political signal that the EU is serious about the situation and that this is not business as usual. The ultimate goal is negotiations. We need Russia to seriously negotiate with Ukraine, and we also need want to talk to Russia about this. So by imposing the sanctions, we tried to show to Russia that we are concerned and that they need to move on and reconsider their previous behaviour.”

Well, it does not seem that would be willing to do just that, and the annexation of Crimea appears to be a done deal. Is the international community ready, in your opinion, to go further and impose blanket economic sanctions?

Petr Drulák: “Blanket economic sanctions are still rather distant but I think a discussion about some kind of specific targeted economic sanctions has already started in the EU. We are still not at a stage when they would be imposed but it’s part of the European discussion and planning in case the escalation of the situation continues.

Erik, do you think these across-the-board sanctions against Russia are a real option?

Erik Best: “The way I understand it is that they would only come into play if Russia encroached on further territory in Ukraine. You asked what the EU and the US want to achieve, and although Mr Drulák gave a very good answer, I think we are still somewhat unclear on what that end game is.

“I would have to extrapolate and assume that the end game is that Russia will not go any further into Ukraine. But that means the West will basically accept the annexation of Crimea. It will perhaps not formally recognize it but after a while, things will return more or less to normal.

“It all now really depends on whether Russia does anything more militarily and whether the actions by the EU and especially the US will provoke Russia into doing something more drastic.”

Mr Drulák, do you think that Ukraine has lost Crimea?

Petr Drulák: “I would still say that the ideal goal is full restoration of Ukrainian sovereignty, and that’s a question of practical matters and of what is possible to achieve. We can talk about how far we are able to pursue this ideal goal, and I cannot image we would officially recognize the fact of Russian occupation of Crimea.

What are the implications of the Crimean crisis for the Czech Republic? Trade between the Czech Republic and Russia has been flourishing in recent years, and Russia supplies some strategic resources to the Czech Republic. So how has the crisis changed this relation?

Petr Drulák: “There is a change in the political perception of Russia, given the fact that Russia seriously breached international law. We cannot consider it a normal partner with whom we would continue business as usual.

“Having said that, Russia remains the supplier of strategic resources and an important economic partner. But even in this area, the simple fact is that Russia’s actions provoked increased uncertainty. And that’s never good for business so I believe business will be affected too. The Russian economy has already been affected.

“There will of course be a much stronger emphasis on diversification and on efforts to limit our vulnerability to the Russian economy in the long term. In the short term, we cannot do that much but in the long run, I would expect a strategic reorientation of our economic ties.”

How realistic is that, Erik? How can it be achieved?

Petr Drulák,  photo: CTK
Erik Best: “This is probably the most vivid example of the reality of the conflict we have seen in the Czech Republic over the last five or seven years, the conflict between politicians and the civil society organizations that say we should be much more careful about increasing our relations with Russia, China and other countries that fall into this category.

“Now for the first time, we have an actual event that requires us to make that decision in practice and not just on paper. Those who were saying we need to quit being so kind to Russia now have to say if we really want to implement that strategy and reduce our trade ties. Now it’s Russia, perhaps it will be China if we extrapolated and said that China stood up for Russia in this encounter. So should also apply the same principles to China? That would also have an impact on trade relations.

“I think what we’re seeing now is big relief on the part of many people that Germany’s policy towards Russia and towards Ukraine is similar to what the Czech business people and some of the politicians would like to see. So PM Sobotka is very careful to toe the line as presented by the EU but he is apparently very happy to say ‘no blanket across-the-board economic sanctions’.

“Unless something more drastic happens, I think business will speak carefully but continue to increase their ties not with Ukraine because of the difficulties there but with Russia. As it becomes more difficult for instance for American companies to do business there, that means opportunities for countries that can do business will actually increase.”

Mr Drulák, should the Czech Republic adopt some policy in this respect to limit our exposure to Russia?

Petr Drulák: “I think we are about to have a strategic debate on this. I cannot foresee what the result will be but if you ask about my opinion, I see an important strategic risk in too much focus of our economy on Russia and our vulnerability to Russia’s economic and political interests. But that will be just one of the inputs to the debate which will come up with some sort of redefinition of the situation.”

We have heard from the Czech exporter’s association that cutting trade ties with Russia would cost us 40,000 jobs. Is that a price the Czech government would be eventually willing to pay?

Petr Drulák: “This is premature. We cannot expect blanket sanctions because it would be difficult to keep unity in Europe over this. I don’t expect that we would go that far. But it’s possible there will be some more target action in the case of further escalation. “

Photo: CTK
Well, rather than sanctions, I was wondering more about possible re-orientation of the Czech economy which would probably mean the loss of some of these jobs as well.

Petr Drulák: “But we are talking about what would have happened if we had cut the ties from one day to another. No one would like to do that. That would be irresponsible and counter-productive. But when we look at it from a longer perspective, all these issues can be phased out and implemented step by step in a manner with would minimize any economic pain.”