Photo Credit: http://lajeunepolitique.com

August is regarded as the disaster month in Russia, and if you look at the timeline starting from the 1998 financial crisis when the country defaulted on its debt, you’d know why.

This August, European and Russian citizens have been caught in a crossfire of sanctions prompted by the deteriorating Ukraine crisis.

The latest round of sanctions by the EU has been feared and considered highly unlikely because any economic sanctions against specific industries are certain to backfire.

But the fallout from the MH17 crash and US pressure have been too hard to ignore and the EU has decided to apply restrictive measures, which it usually does to pursue any specific CFSP objectives set out in the Treaty on European Union.

In late July, the Council of the European Union concluded it was appropriate to apply additional restrictive measures “with a view to increasing the costs of Russia's actions to undermine Ukraine's territorial integrity, sovereignty and independence and to promoting a peaceful settlement of the crisis”.

The ban applies to:

1.    exports of certain dual-use goods and technology, related services, except for aeronautics and for the space industry;

2.    exports of arms and military equipment, except for non-military use or for a non-military end-user;

3.    exports of certain technologies and equipment for the oil industry in Russia, including:

·      Line pipe of a kind used for oil or gas pipelines

·      Drill pipe

·      Casing and tubing of a kind used for drilling for oil or gas

·      Rock-drilling or earth-boring tools

·      Liquid elevators

·      Mobile drilling derricks

·      Floating or submersible drilling or production platforms

·      Sea-going light vessels, fire-floats, floating cranes and other vessels

4.    access to the capital market for the following financial institutions:

·      SBERBANK

·      VTB BANK

·      GAZPROMBANK

·      VNESHECONOMBANK (VEB)

·      ROSSELKHOZBANK

There’ve been many projections of the economic effect of the sanctions. Some said they will hurt the Russian economy by €23 billion this year (1.5 percent of its GDP) and €75 billion in 2015 (4.8 percent of its GDP).

According to The Economist, the pain Russian firms will suffer from these sanctions could go up to one trillion US dollars (€744bn).

But one thing is certain – the EU will also be hurt by the capital markets restrictions and trade bans for defense, high technology and goods that can be used both for military and defense purposes.

There’s been a lot of concern from southern member states, including Greece and Italy, where fragile economic growth could give way to recession.

In Germany, the Committee on Eastern European Economic Relations, a powerful lobby group, said about 350,000 German jobs are under threat.

Russia has worsened the fears of the business community by imposing a food imports ban, hitting Poland and many other nations where the agricultural sector depends heavily on exports. The foods rejected by Russia will have to be dumped at the domestic markets at cheaper prices.

The question is now, how long will the bitter standoff continue – Russians are facing higher prices and food deficit while Europeans could see their slim growth wiped out by the struggling farm industry.