Russian sanctions, sanctions against Russia and the Finnish economy

There is a lot of sabre-rattling in international politics. First, the US and EU tightened sanctions against Russia and now Russia retaliates with a set of sanctions of its own. One sanction which is under consideration still is the closing of Russian airspace for flights over Siberia (e.g. to Japan).

Another measure being considered is banning flights over Siberia by European carriers bound for Asia, Medvedev said. The government in Moscow already barred Ukrainian flights from crossing Russia to Georgia, Azerbaijan, Armenia and Turkey, according to Medvedev.

The Finnish economy has significant interests in Russia – not only in terms of import and export but also in investments, such as in the paper industry. As this report from the Finnish Customs shows, export to Russia amounts to 10% of total exports, and imports show an even larger share. So Finland is vulnerable here – the import ban could (in my simple understanding) amount to roughly 1/3 of all Finnish exports to Russia (oil products, chemicals, food, see figure 6 in the document).

For individual companies there are risks too: the measure that is considered above would be extremely harsh on Finnair. Finland has a competitive advantage for flying to Asia (because of its location and the shape of the earth the route is shortest from here).

Furthermore, although Finland is not quite dependent on Russian oil or gas, still the industry uses quite a lot of it and this is a reason why Finland’s trade balance with Russia has been in negative territory for some time already (see report and this post).

The current Ukraine crisis is perhaps a watershed for Finnish international relations since through the sanctions it is now indisputably in the camp of the EU – for better or worse. In any case, it is probably not what was wished for, regarding the state of the Finnish economy.

 

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