Czech business awaits Russian retaliation against latest EU sanctions

Although Czech politicians have made soothing sounds about the impact of stricter EU sanctions on Czech business, the risk of counter measure from Moscow are a source of concern.

Photo: CC BY-NC-ND 2.0

The scope of tougher European Union sanctions against Russia were due to be detailed on Thursday after the general scope had already been outlined. They will target state banks, deep drilling oil technology, and exports that could benefit the military.

Czech politicians gave assurance that this did not amount to an own goal that would damage local business more than it would hurt Russia. That interpretation was immediately questioned by, amongst others, the president of the version arms manufacturing lobby, the Defence and Security Industry Association of the Czech Republic, Jiří Hynek.

He maintained that Russian purchasers could easily find other supplier, in Asia and elsewhere, and Europeans would just lose markets. But the real wait is for the Russian reaction and the early rumbles out of Moscow suggest they will not lack impact.

Jiří Hynek, photo: archive of Czech Army

If trade sanctions are diplomacy, or war, by another means, then Russia has the upper hand in its dealings with the Czech Republic. Russian exports totalled just over 155 billion crowns in 2013 against just over 116 billion crowns of goods heading in the opposite direction. Czech exports to Russia account for around 3.7 percent of foreign deliveries. The Czech Republic represents about 5.5 percent of Russian exports.

Almost half Russia’s exports are oil, around 40 percent is natural gas, with steel and iron, nuclear fuel rods, and other odds and ends making up the rest. Around half of Czech exports are cars and other vehicles and engineering equipment. Russia would be shooting itself in the foot if it curbed oil and gas exports, the main earner of a raw materials based economy. |But the threat of delivery problems – more so for oil than gas - can raise prices, hurt Western economies, but benefit Russia in the short term.

While the Czech army has largely plugged itself into Western markets over the last 20 years, there are still some hangovers from the Warsaw Pact where Russian part supplies could pose a problem during frosty relations. Parts for around 30 Mi-24 and mi-17 Russian-made helicopters operated by the Czech army are a case in point.

At a business level, the Czech Republic has been trying to boost trade with Russia with state export insurer EGAP smoothing the path of local companies worried about the risks – previously business today also political – of doing business there. Around a third of all the insurance offered by EGAP in recent years covers Russian deals with the state likely to be paying dearly if most of this insurance is called in.

Russians are also the owners of many Czech firms. A survey last year by the Czech consultancy Bisnode estimated there are just over 17,000 Russian owned companies in the country with Russians making up the biggest single group of foreign owners. Whether these are shell companies created solely for real estate ownership or have some real activity and whether current tensions will curb or increase the presence in the Czech Republic is not at first glance clear.