Russia Sanctions Cause Concern for Swedish Trade

Swedish trade may suffer a huge blow as a result of ever more tense relations between Russia and the EU that have been further tightened by the most recent wave of economic sanctions targeting Russian companies and officials.

The latest batch, published on September 12th in the EU Official Journal, banned debt financing for three Russian companies – Rosneft, Transneft and Gazprom Neft. The sanctions take effect from the moment of their publication.

Russia is Sweden’s 13th largest export market. Exports fell slightly during the first half of the year but increased fivefold during the period 2000-2009. Last year, they amounted to SEK 10.9 billion. Half of this was in the form of automotive exports and this is perhaps the greatest area of concern from a Swedish point of view.

“We don’t know what the long-term consequences could be,” said Mikael Johansson at Business Sweden.

According to the Russian media, car imports could be halted if Russia decided to take new countermeasures.

Stefan Elfström, press spokesman for Volvo Cars, said: “Last year we sold 15,000 cars in Russia and the figure looks set to increase this year. Up to now we have not seen any effects of the situation in Russia but we are naturally monitoring developments closely. In the long term we can see potential for continued growth.

“The Russian embargo on foods will, for example, hit Finnish dairy products hard as well as Norwegian salmon and Polish apples. Swedish food producers will not be affected to the same extent even if the brakes could be put on Arla’s expansion in Russia.”

According to Fredrik Torehammar at the Swedish Food Federation, a trade organisation with around 850 members, a great deal of what Sweden exports, such as oil, fats and egg products, are not covered by the sanctions.

Swedish food exports to Russia, which last year were worth almost SEK 900 million, constitute a small proportion of our total food exports. The annual value of goods on the sanction list is just over SEK 70 million.

“But of course the situation is causing concern. Too many trade agreements are being entered into and there are too many sanctions throughout the world,” Fredrik Torehammar said.

Stefan Kvarfordt at Svensk Handel, which represents companies in the wholesaling and retailing sectors, has issued a warning.

“The current situation is leading to uncertainty,” he said. “Trade benefits from predictability, such as knowing what investments will lead to. And of course the propensity of Swedish companies to invest in Russia is affected. We are following developments with great interest.”

On the import side, Sweden’s trade with Russia is dominated by raw materials and fuels, mainly crude oil. In 2013, Russia was Sweden’s seventh largest import country.

According to a release issued by the Port of Gothenburg, up to now, the direct effects of the trade conflict with Russia are not that obvious in Sweden. Indirect consequences, however, should not be underestimated. German industry, a crucial customer base for major Swedish companies, could be hit hard.

Marcel Fratzscher, head of the Berlin-based research Institute DIW, said to Reuters: “Companies don’t know if they will be able to sell their goods to Russia in three months’ time or in a year’s time.”

The banks are also uncertain about whether loans will be repaid and it is unclear to energy users and households what will happen with regard to oil and gas prices.”

On July 29, the EU stepped up sanctions against Russia. The reason was the alleged Russian involvement in the Ukraine conflict. Restrictions were introduced on the financing of government-controlled Russian banks, there was a future-related arms embargo against Russia and limitations on exports to the Russian energy sector. At the beginning of August, Russia responded with a one-year ban on the import of a whole range of foodstuffs from the EU, Norway, Australia, Canada and the USA.

“The direct impact is marginal,” said Mikael Johansson, trade Secretary at Business Sweden in Moscow.

“Sweden does not have any major exports to the areas in question. The Swedish companies we have been in contact with generally report that it is business as usual. However, there is concern about how the situation will develop and what the long-term consequences could be.”