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Why Europe Might Balk at Backing Sanctions Against Russia

Image: Armed men block access to the main crash site of the Boeing 777 Malaysia Airlines flight MH17, which crashed over the eastern Ukraine region, near Grabovo, some 100 km east of Donetsk, Ukraine, July 21.

Armed men block access to the main crash site of the Boeing 777 Malaysia Airlines flight MH17, which crashed over the eastern Ukraine region, near Grabovo, some 100 km east of Donetsk, Ukraine, July 21. IGOR KOVALENKO / EPA

LONDON - Propelled by worldwide revulsion at the shooting down of MH17, Europe last week joined the United States in intensifying its economic and trade war on Russia. Despite a marked escalation of pressure on President Vladimir Putin over his support for pro-Moscow separatists fighting in eastern Ukraine, there are several reasons Europe might hesitate to take further steps against Moscow.

Russia would “find itself increasingly isolated by its own actions” European Council President Herman Van Rompuy and Commission President José Manuel Barroso said in a statement on Tuesday. The new measures were “a powerful signal to the leaders of the Russian Federation: destabilizing Ukraine, or any other Eastern European neighboring State, will bring heavy costs to its economy,” they added.

These brave words may mask a deeper worry running through shop floors and company boardrooms around Europe that sanctions on oil and gas-rich Russia will hurt the continent’s economy. After all, Europe-Russia trade is worth around 10 times that of U.S.-Russian trade.

“It would be absurd to suggest that we can impose wide-ranging sanctions on the Russian economy without also having some impact on ourselves,” British Foreign Minister Philip Hammond told the BBC after the sanctions were announced.

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The continent’s major companies have also been taking note: BP, the largest foreign investor in oil and gas rich Russia, warned that western sanctions could harm its business.

It isn’t only energy companies - shares of German sportswear company Adidas plunged 13 percent on Thursday as it too warned about its business in Russia.

Acknowledging how exposed his company was to the regional turmoil, the chief executive of massive French tire manufacturer Michelin Jean-Dominique Senard told CNBC: “I really hope that in the coming months, years that we will be able to stabilize that. We are free traders here at Michelin, we really like free trade.”

Sanctions, by definition, are far from free trade.

France's Mistral did not let the prospect of imminent sanctions and the shooting down of MH17 stop a 1.1 billion euro ($1.5 billion) contract to supply warships to Russia, although it did acknowledge that future supplies might be disrupted.

Image: Britain's Foreign Secretary Philip Hammond
Britain's Foreign Secretary Philip Hammond leaves Downing Street in London on July 30, 2014. LUKE MACGREGOR / Reuters

And while the United Kingdom has supported sanctions, its financial services industry has for years attracted Russian oligarchs and their investments, and stands to lose out, too.

Britain’s Hammond, at least, has said that the sacrifice would be worth it.

“So our discussions last week focused on a package which shares the burden fairly across the EU, making sure that the big economies share the pain,” he said. “But if we are going to take a stand against Russian aggression, if we are going to insist on Russia behaving like a civilized nation in the modern world, then we have to be prepared to pay the price for doing that.”

Ties That Bind: By the Numbers

Russia is the E.U.’s third largest trading partner, behind China and the United States. The continent’s largest economy, Germany, exported $38.3 billion worth to Russia in 2013. These exports to Russia are dominated by machinery and transport equipment, chemicals, medicines and agricultural products.

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European Union is Russia’s biggest global trading partner, a net importer in a relationship dominated by oil and gas. It purchased $277 billion worth of goods from Moscow in 2013 - including $156 billion worth of crude petroleum. It is also Russia’s most important foreign investor, according to E.U. figures.

Europe’s dependence on Russia, energy wise, also makes the continent vulnerable.

Crude petroleum and natural gas was the biggest Russian import for 21 of the 28 E.U. member states last year. Germany alone bought $24 billion worth.

Not Just Resources

The relationship isn’t all about natural resources. The E.U.’s $160 billion worth of exports to Moscow in 2013 included everything from $1.74 billion worth of Italian clothing to $53 million worth of cork from Portugal. In return, Britain consumed $44 million worth of Russian drinks.

Image: President of Russia Vladimir Putin
President of Russia Vladimir Putin attends a news conference at the end of a EU Russia Summit at the European Council headquarters in Brussels, Belgium, where he was meeting with top European Union officials. OLIVIER HOSLET / EPA

Country by Country: 2013 European Union-Russia Exports and Imports by Largest Category

Austria

Import from Russia: crude petroleum and natural gas – $879 million

Export to Russia: machinery and equipment – $1.34 billion

Belgium

Import from Russia: mining and quarrying products – $2.95 billion

Export to Russia: basic pharmaceutical products and preparation – $1.47 billion

Bulgaria

Import from Russia: crude petroleum and natural gas – $5.22 billion

Export to Russia: basic pharmaceutical products and preparation – $227 million

Cyprus

Import from Russia: agriculture, hunting and related services – $18.75 million

Export to Russia: products of agriculture, hunting and related services – $15.4 million

Czech Republic

Import from Russia: crude petroleum and natural gas – $6.3 billion

Export to Russia: computer products - $853 million

Croatia

Import from Russia: crude petroleum and natural gas - $121 million

Export to Russia: basic pharmaceutical products and preparation - $149 million

Denmark

Import from Russia: basic Metals – $247 million

Export to Russia: food Products – $743 million

Estonia

Import from Russia: crude petroleum and natural gas – $310 million

Export to Russia: machinery and equipment - $475 million

Finland

Import from Russia: crude petroleum and natural gas – $7.9 billion

Export to Russia: machinery and equipment– $1.3 billion

France

Import from Russia: crude petroleum and natural gas – $5 billion

Export to Russia: chemicals and chemical products – $1.47 billion

Germany

Import from Russia: crude petroleum and natural gas – $24.1 billion

Export to Russia: machinery and equipment – $10.7 billion

Greece

Import from Russia: crude petroleum and natural gas – $6.15 billion

Export to Russia: products of agriculture, hunting and related services – $154 million

Hungary

Import from Russia: crude petroleum and natural gas – $6.83 billion

Export to Russia: pharmaceutical products and preparation – $837 million

Ireland

Import from Russia: chemicals and chemical products – $118 million

Export to Russia: food products – $296 million

Italy

Import from Russia: crude petroleum and natural gas – $17.95 billion

Export to Russia: machinery and equipment – $3.1 billion

Latvia

Import from Russia: crude petroleum and natural gas – $636.15 million

Export to Russia: beverages – $639 million

Lithuania

Import from Russia: crude petroleum and natural gas – $9 billion

Export to Russia: machinery and equipment – $1.02 billion

Luxembourg

Import from Russia: machinery and equipment– $1.1m

Export to Russia: basic metals – $64.3 million

Malta

Import from Russia: motor vehicles, trailers and semi-trailers – $`10.3m million

Export to Russia: computer, electronics, and optical products – $797,000

Netherlands

Import from Russia: crude petroleum and natural gas – $21.8 billion

Export to Russia: computer, electronic, and optical products – $2.95 billion

Poland

Import from Russia: crude petroleum and natural gas – $16.9 billion

Export to Russia: machinery and equipment – $1.25 billion

Portugal

Import from Russia: crude petroleum and natural gas – $433 million

Export to Russia: leather and related products – $66 million

Romania

Import from Russia: crude petroleum and natural gas – $2.3 billion

Export to Russia: motor vehicles, trailers, and semi-trailers – $820 million

Slovakia

Import from Russia: crude petroleum and natural gas – $7.2 billion

Export to Russia: motor vehicles, trailers, and semi-trailers – $1.75 billion

Slovenia

Import from Russia: crude petroleum and natural gas – $254 million

Export to Russia: pharmaceutical products and preparation – $605 million

Spain

Import from Russia: crude petroleum and natural gas – $5.6 billion

Export to Russia: motor vehicles, trailers, and semi-trailers – $699 million

Sweden

Import from Russia: crude petroleum and natural gas – $5.2 billion

Export to Russia: motor vehicles, trailers, and semi-trailers – $848 million

United Kingdom

Import from Russia: crude petroleum and natural gas – $2.8 billion

Export to Russia: motor vehicles, trailers, and semi-trailers – $2 billion

- Ian Wood, Reuters and CNBC contributed to this report.