Breakdown in Ukraine-Russia trade will hit Russia's defence industry

What impact would a total economic breakdown in trade between Russia and Ukraine have on both sides?

Professor Stefan Hedlund:

It’s going to have a major impact, both in Ukraine and in Russia. Ukrainian foreign trade is about 25 per cent to the European Union and 25 per cent to Russia. And Russia, even going beyond the violence, is going to retaliate against Ukraine signing a free-trade agreement with the EU by taking Ukraine out of the free-trade agreement that they have with Russia.

And if in addition to losing preferences with Russian trade, Russia starts blocking trade then there will be substantial damage to the Ukrainian economy.

In moderate numbers there could be losses of maybe US$15 billion every year, and you can easily add to that much more, to which there would also come billions of dollars of remittances of Ukrainians working inside Russia who the Russian government is now talking about expelling back to Ukraine.

There is substantial damage, which may people have pointed out to Ukraine for making the European choice.

To this there is also damage to Russia. This is not something that Russia wants. It’s a big trade, even for Russia. Especially to the Russian military industrial complex a lot of rocketry and other fairly important components of the Russian military industry is located in eastern Ukraine. If that trade, if that economic cooperation breaks down completely it will be difficult for the Russian military industries to find substitute producers.

It’s already a big problem for Russian military industries that many of their supply chains that existed in the Soviet days have been broken. They don’t really have suppliers and they have to try to manufacture components in-house, which is always an inferior solution.

So a breakdown in trade between Russia and Ukraine is something that is going to impact very heavily on both sides. And it appears to be an inevitable thing now.

(Photo credit: dpa)