EU Still Wary of Russia – 8/12/16

EU nations are set to renew sanctions against Russia for six more months amid renewed tensions in eastern Ukraine.

The consensus follows months of lackluster progress in implementing the February 2015 Minsk peace accord. So far the countries involved — Russia, Ukraine, Germany and France — have had little luck enforcing the ceasefire with the most recent setback being an alleged incursion into Crimea by Ukrainian forces. Since the incident, troops on both sides of the Crimean border have been put on high alert.

The sanctions are set to lapse on July 31 and require a unanimous vote for extension, but Russia has done little to improve its standing with the EU since they went into place between subterfuge in European politics and unrelenting calls for nationalism in its mostly state-controlled media. It would be surprising if Putin’s Russia convinces any EU member to fight on its behalf. Considering many of the countries in the EU also belong to NATO, which is stepping up security in Eastern Europe in response to Russian aggression, one can expect that solidarity will compel most to extend the sanctions.

The EU and US sanctions limit Russia’s access to international capital markets and energy technology such as hydraulic fracturing equipment, both painful areas for Russia. Faced with a long recession and hamstrung by the oil price collapse, Russia is burning through reserve funds at an alarming rate considering it took about a decade of high oil prices to make them in the first place. As those funds run low, Russia needs to depend more and more on borrowing from other markets. And without the fracking technology that helped fuel the U.S. shale revolution Russia may find itself struggling to keep up its oil output as it pushes its aging fields to keep up record production levels. Russia may find itself unable to take advantage of recovering oil prices if it can’t keep output steady.

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