Gas, raw materials, grains … What is the economic interdependence between the EU and Russia?

Since Russia launched its invasion of Ukraine on February 24, the European Union and its allies have adopted a series of large-scale sanctions against Moscow. The result is already felt in the Russian economy.

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“” The economic and financial balance of power is in full favor of the European Union in the process of discovering that economic power. “Said Bruno Le Mer, Minister of Economy and Finance, Tuesday 1ster March, at Franceinfo. Due to the interdependence between the EU and Russia, EU countries are being economically affected by the conflict. An overview of these links between Russia and the EU to better understand the economic implications of this war.

What is the Russian economy based on?

Most of Russia’s gross domestic product (GDP) is based on services such as banking and financial sectors, insurance and business services, said Julien Vercueil, a professor of economics at the National Institute of Languages ​​and Inalco. I will explain.ofRussian Political Economy-1918-2018 (Threshold, 2019). “The oil and gas sector is” only “20% of GDP.” Economist says. In general, industry accounts for about one-third of the country’s economy, and most of its industrial products are imported, especially from Europe and China.

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In addition, Russia is a very rich country with natural resources, which it also exports. “You can find everything Mendeleev’s table »»To summarize Vercueil. Russia is one of the top three oil producers and exporters. It accounts for 20% of the world’s gas reserves, of which it is one of the world’s leading producers and exporters, with significant coal reserves. Russia is one of the major producers of several industrial metals such as palladium, nickel and aluminum. Its territory also has 8% of the world’s uranium reserves.

EU, Russia’s first supplier and first customer

“Economically, Europe is a much stronger market than Russia in a broad sense. The first market accounts for 39% of the world’s trade in goods and services, the second market is only 2%.” Emphasizes Deniz Unal, Editor-in-Chief of Overview of CEPII, It claims that the Russian economy is more risky than the European economy.

Russia is the EU’s trading partner, but far from the first trading partner. More than 60% of European countries’ foreign trade is with other EU countries. Regarding trade outside the EU, according to 2021 figures, Russia is fourth in the ranking of countries where the EU exports the most commodities. Also, the EU buys the most in the third country, but it is far behind China.

In contrast, the EU occupies an important position in Russia’s foreign trade. It is Russia’s major export destination, accounting for more than 40% in 2020 before the crisis and almost half in 2019. By the way, China, the first customer in Asia, accounts for 14.6% of Russia’s exports. Therefore, according to the French Ministry of Finance, Russia exports about 11% of GDP to the EU.

It is also from the Union that Russia buys more than one-third of its imports, especially manufactured goods, transportation and industrial equipment, as well as chemicals and medicines. China accounts for almost a quarter of Russia’s imports.

Gas and oil: European double-edged dependence

But these overall numbers obscure the EU’s strong reliance on Russia. This is especially the case with the energy consumed by the Union. Russia is by far the major supplier. Almost half of the solid fuels (coal, wood, etc.) purchased by the Union come from Russia, 41% of gas and 27% of oil. In a broader sense, because three-fifths of the energy consumed in the EU is imported, member states have sharp prices worsened by conflict, whether or not they buy gas or oil from Russians. It is vulnerable to rising.

But Russia is also dependent on the EU. More than 60% of Russia’s exports in 2019 will be occupied solely by hydrocarbons and refined petroleum products, almost half of which was destined for the EU, Moscow’s main gas customer. “Russia has diversified its distributors and has signed major gas supply contracts, especially with China.Julien Vercueil explains. However, the amount supplied is disproportionate to the amount sold to Europe, where most of Russia’s gas pipeline network is located. It will be a long time before China can replace the European Union in this area. »»

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Titanium, Palladium … Russian metals essential to the aviation and automotive industries

Certain European industrial sectors also rely heavily on Russia (or Ukraine) for the supply of raw materials. This is the case in aeronautics, where Russia is a major supplier of titanium. Used by aircraft manufacturers to be lightweight and extremely resistant, this metal is used in the manufacture of parts such as engines and fuselage parts. The Russian group VSMPO-Avisma supplies half of the titanium to French saffron and the same amount to Airbus. gallery.. The tension is even more severe as the two ores needed to make titanium sponges are mainly imported by Russia from Ukraine.

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The automotive sector needs palladium (also widely used in the electronics industry) to manufacture catalytic converters that reduce pollution generated from exhaust pipes. But Russia dominates half of the world market for this metal.

For other metals such as nickel and aluminum, which are in high demand in battery factories around the world, the EU’s reliance on Russia is less important. However, the country is one of the major producers, and the prices of these metals on the stock market have risen sharply in a few days, affecting the European industries that depend on them.

In agriculture, fear of fertilizer and grain prices

Russia and Ukraine play a major role in the global grain market. Russia has been the world’s largest wheat producer since 2018. Ukraine is the world’s fourth largest exporter of corn and is becoming the third largest exporter of wheat. Therefore, the prices of these cereals on the stock market have skyrocketed since the Russian attack began.

However, concerns in Europe are limited to this point. Russia purchased about 4% of EU agricultural exports in 2021, but since the 2014 embargo, European food imports have been much lower. As part of that, the EU produces almost all wheat inventories, and France also has a surplus. The cereal it consumes. Meanwhile, nearly 18% of corn inventories are purchased from third countries, half of which are from Ukraine, where exports are blocked. And even though European buyers are not directly dependent on Kyiv and Moscow, they still suffer from a general rise in prices in the global market.

The focus of the agricultural industry is mainly on nitrogen fertilizers made from gas. According to Eric Thirouin, chairman of the General Association of Wheat Producers (AGPB), the EU imports 30% of its fertilizer from Russia. Conflicts cause price increases and even inventory shortages, which have a direct impact on European farmers.

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In addition, Ukraine and Russia are the first countries to produce sunflowers, sell them in the form of seeds, and turn them into livestock and oil foods. However, Ukraine is a major supplier of sunflower oil and cakes (aggregated for livestock), of which the Union imports almost 40% in the first case and one-third in the second case. Therefore, the agricultural industry is afraid of a general rise in the price of animal feed (wheat is also purchased by breeders for this purpose). This weighs heavily on already vulnerable sectors and ultimately affects consumer prices.