The dissolution of the strategic partnership between the European Union and Russia following the 2014 annexation of Crimea has not only prevented both major partners from realizing positive bilateral trade benefits, but has also negatively impacted the welfare of neighboring countries through the imposition of sanctions, according to a new analysis.

However, according to researchers from Spain's University of Málaga, who published their research April 14 in European Review, international sanctions and diplomatic tensions between the European Union and Russia don't mean the parties should give up on the relationship — they're still of strategic relevance to each other, though trade flow has significantly dropped.

"In this regard, it is important not to completely lose those economic and cultural ties which had been established over many years, taking into consideration that sooner or later the parties should reach an agreement and put an end [to] the destructive sanctions war," said Anna Garashchuk, co-author of the study, a faculty member at the University of Málaga and a researcher in the Jean Monnet Center of Excellence on European and Global Studies and Research

In 2009, Russia was first included on the EU's list of strategic partners — countries with whom the union aims to cooperate on matters including foreign policy, trade, security, law and justice, and consumer affairs. A large component of this particular strategic cooperation revolved around the facilitation of bilateral trade. 

Both countries expressed a desire to collaborate more closely in the years ahead on issues related to energy, mobility and travel, humanitarian goals and security, before the ongoing Russo-Ukrainian conflict and the annexation of Crimea by Russia in 2014 resulted in a diplomatic crisis and sanctions war. Russia was promptly suspended from the international economic Group of Eight — now Group of Seven — in March 2014, and its status as strategic partner was called into question that September by Federica Mogherini, the incoming high representative of the European Union for Foreign Affairs and Security Policy.

The Spanish researchers investigated whether the strategic partnership between the EU and Russia had a positive effect on bilateral trade, taking into account the effects of per-capita gross domestic product growth, distance between trading partners, devaluation of the Russian currency and an increase in oil prices in Russia during the period studied, from 2001 to 2018.

Using an empirical gravity model of the current scenario, the study concluded that sanctions reduced trade flow between 24 EU member states and Russia by 25%. A gravity model of international trade predicts bilateral trade flow based on economic size and distance; the behaviors represented by the model mimic the interactions described by Isaac Newton's law of gravity. Cyprus, Malta, the Netherlands and the Czech Republic were omitted from the analysis because of a perceived distortion of data.

The existence of a strategic partnership, however, was found to have boosted trade flow between EU member states and Russia by an estimated 0.5%. Researchers also estimated that a 1% increase in the price of oil would increase EU-Russia trading activity, although overall trade flow tends to decrease as the geographical distance between Russia and EU member states increases.

At present, trade is still experiencing some degree of growth due to the devaluation of Russia's currency relative to the euro in the long term and an increase of EU member states' per capita GDP. Garashchuk also pointed out that both parties have managed to adapt to the sanctions war, despite its downsides.

"[T]he EU diversified its markets for agricultural production," she said, "while Russia promoted and increased domestic production and diversified its suppliers by buying embargoed products" from the Eurasian Economic Union, the BRICS nations — including Brazil, India, China and South Africa — and non-European neighbors.

To complement the gravity model, the researchers also constructed a simulation of an outcome where the EU-Russia partnership continued up until and through 2018, with no sanctions imposed in 2014. The simulation estimates that, if the strategic partnership had not ended, trade between the 24 EU member states and Russia would have increased by approximately 3%. 

Results also indicate that Germany, Italy, France, Poland, the United Kingdom and Finland are the EU member states that would have benefited the most from a continued bilateral partnership. 

Relations between the European Union and Russia continue to be strained; in April, Russia barred eight EU officials from entering the country in retaliation for sanctions imposed on several Russian citizens a month earlier. According to a paper obtained by Bloomberg, the EU is also concerned that Russia is trying to gradually absorb parts of eastern Ukraine by organizing illegitimate elections and issuing passports to locals; the EU's foreign-affairs arm, the European External Action Service, is expected to prepare a report on the matter.

Garashchuk said the present diplomatic tensions between Moscow and Brussels do not imply that the EU and Russia are no longer of strategic relevance to each other. On the contrary, the study's findings indicate that the strategic partnership has continued to exist informally in some ways, although it could be considered in a "frozen" state.

"Moreover, we believe that the gradual lifting of sanctions between the [Western] world  ... and Russia could mitigate, at least a little bit, the negative impact of economic crises provoked by COVID-19," Garashchuk said.

The study, "The empirical evidence of the EU–Russia failed strategic partnership: Did it have a positive impact on bilateral trade?" published April 14 in European Review, was authored by Anna Garashchuk, Fernando Isla Castillo and Pablo Podadera Rivera, Universidad de Málaga.