Tough new sanctions against Russia likely to also negatively impact Czech firms

The European Union on Tuesday agreed on the toughest new sanctions so far against Russia. The move comes after the country was charged it had supplied heavy weapons to rebels in Ukraine and following outrage that international investigators were still being prevented from visiting the crash site of MH 17.

Europe, like the United States, has lost patience with Russia, after appeals to the country over the Ukraine crisis were seemingly ignored. As fighting has escalated in Ukraine, Russia has been accused of failing to withdraw support for rebels and of providing heavy weaponry (including the system which allegedly brought down Malaysian flight MH17). The sanctions – affecting Russia’s banking sector, arms and technology production, and oil – are expected to hit Russia’s already slowing economy hard and increase the pressure on Mr Putin and his regime. Following agreement on sanctions by the EU British Prime Minister David Cameron said this:

“We are united in sending that very tough message but it’s a message that will be backed by very tough action.”

But the 28-member strong EU can expect that it too will suffer economically. Throughout the EU, including the Czech Republic, there are countless firms which do business with Russia, have a stake in Russian companies and rely on Russian markets or on Russian export. The Czech Ambassador to the EU Martin Povejšil told Czech Radio’s flagship station Radiožurnal there was a danger, indeed a likelihood, of economic blowback:

Martin Povejšil, photo: MZV

“One of the problems we focused on would be the impact and rebound effect that could be felt by the EU. We tried to agree on a certain balance so that no EU country will feel a disproportionately greater impact from sanctions against Russia. This of course doesn’t include measures Russia itself may now take. We don’t know yet what Russia will do but we can expect a reaction.”

Czech companies which normally do business with Russian counterparts are wary. Enterprises like the state-owned LOM Praha, which employs 1,000 workers and refits Russian Mi helicopters for sale in western countries, could be affected, as well as industrial or engineering companies. Firms producing parts or machinery for export to Russia, which can have a dual-use – both civilian and military – could be badly affected, in some cases leading to a cancellation of contracts, a lull in production and layoffs. Jiří Hynek is the head of the Czech Defence and Security Industry Association:

“If global sanctions are accepted affecting engineering technology it will threaten thousands of jobs.”

Vladimir Putin, photo: ČTK

The Czech government, which had always backed a diplomatic solution, will be closely monitoring the situation and could help where help is needed, the minister for industry and trade has already indicated. Meanwhile, on Wednesday, the EU will announce full details of the sanctions, including bans levelled against eight more influential figures close to Vladimir Putin, who have allegedly profited from the conflict and the annexation of Crimea. On the whole, it is too early yet to gauge where things will go from here, above all, whether Russia will flinch.