Will Trade Open Between Russia And The West By The End Of 2015?

In early 2014, the German economy was doing incredibly well and projected to continue doing so. However, as the year went on, major issues around the world started to plague the economy.

One of those major issues was the sanctions placed on Russia as a result of their activity in Ukraine. Because sanctions were placed on Russia, Germany could no longer trade with one of their biggest trading partners. As a result, the decline in economic growth in Germany started. However, there's a big question spreading around the internet right now; “How long will Russia be able to keep their position before they're forced financially to make moves to lift the sanctions and open the trade gates again?”

Today, we'll talk about Russia's ability or lack thereof to survive economically under sanctions and whether or not the barrier between trade is likely to break by the end of 2015.

The Value of the Russian Ruble

One of the best ways to look into the strength of an economy is to look at the value of their currency. As proof to the effectiveness of Western sanctions on Russia, the Ruble has dropped by around 50% over the past year; forcing generally high end Russian shoppers to seek other, low cost options. As economic conditions worsen in Russia and the Ruble continues to fall, Vladimir Putin is in a worse position by the day.

Oil Makes It Even Harder On Russia

Russia is one of the world's largest oil producers. As a matter of fact, crude oil is so important to the Russian economy that extractions and exports account for about half of the Russian Central Government's revenue. So, on top of economic pain as a result of Western sanctions, Russia is being dealt a pretty bad hand in the oil market right now. With oil down more than 50% in recent months, Russia's primary income source is depleting. 

Then Again, Oil Makes It Easier For Russia to Lock Up Trade

Sure, low oil prices are a major danger to the Russian economy; however, with oil playing such a key role in the country's central income, a new question arises. “Will opening up the trade barrier between Russia and the West really help the country's economy?” The bottom line is that with oil being such a major part of the Russian economy, even if sanctions were lifted, foreign trade simply wouldn't be enough to pull Russia out of the economic mess they're in. The country needs oil prices to start moving back in the upward direction for economic stability regardless of what happens with sanctions.

Is It Likely That Sanctions Will Be Lifted By The End Of 2015?

I don't think so. First off, Vladimir Putin is being very hard to work with as far as the Ukraine issue goes. No matter how much Germany pushes for peaceful talks and lifted sanctions, the West is not going to lift the sanctions unless Putin changes his activity in Ukraine. I don't think that's going to happen any time soon.

Also, like I said above, oil is the main income source for Russia. So, even in the extremely unlikely event that Putin did back out of Ukraine and sanctions were lifted, Russia would still be struggling. Therefore, although sanctions are effective, they aren't as big of an issue for Russia as we would first assume. Therefore, there's even less of a reason for the already stubborn Putin to change his actions.

Final Thoughts

Although I would love to say that Germany and other euro zone members will be able to count on trade with a major partner once again soon. However, Russia still has no plans of backing out of Ukraine; so, I don't think it will happen anytime this year. I'll continue to keep an eye on the crisis in Ukraine as it evolves and let you know about any changes.