After the introduction of new Western sanctions against Russia last month as punishment for its role in destabilizing Ukraine, Russia has returned fire by announcing a raft of sanctions of its own. Economists, however, are baffled at the Russian decision. While the Western sanctions have hurt the Russian economy, Russia's retaliatory sanctions will hurt its own economy even more.
Western sanctions started with asset freezes of senior officials and companies linked to the Putin regime. However, they were expanded last month to include limitations on Russian banks, as well as to halt exports to Russia of arms and high-tech oil-and gas exploration equipment.
Russian Prime Minister Dmitry Medvedev has retaliated with a ban of "all beef, pork, fruit, vegetables, and dairy products from the European Union, the United States, Canada, Australia, and Norway for one year," according to The New York Times.
Russia is also considering banning Western airlines from flying over Russian airspace. European and American airlines currently fly over Siberia en route to various Asian destinations. Finally, Moscow is "studying the possibility of introducing restrictions on the import of planes, navy vessels, and cars."
Forbes' Tim Worstall points out the Russian retaliation is nonsensical. It is, in effect, Russia saying, "You are making us poorer by denying us your lovely imports. We shall therefore make ourselves poorer by denying ourselves more of your lovely imports."
If Russia really wanted to retaliate, it would ban exports to the West, like the natural gas exports that are a highly important for the European economy. However, whether Russia would actually do that remains to be seen — while Europe needs the Russian gas, Russia may need Europe's cash even more.