Switzerland's economy unstable after Russian sanctions

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Switzerland's recent stern attitude against Russia has caused the Swiss economy to respond to sanctions, causing panic in the raw materials sector in particular.

Switzerland stated Monday that it will join the European Union's sanctions, discarding Bern's usual reserve and ordering the immediate freeze of assets belonging to Russian firms and persons on the EU blacklist.

It escalated its measures Friday, imposing harsher EU sanctions in reaction to Moscow's military operation in Ukraine.

Exporting products that might improve Russia's military capabilities, as well as some commodities and services in the energy industry and aviation technology, is restricted.

In a statement, the government claimed that "the implementation of these sanctions is compatible with Switzerland's neutrality."

In an effort to reassure investors, the nation is emphasizing that Russian money accounts for only a fraction of their total revenue.

Swiss Airlines, a subsidiary of Lufthansa of Germany, has canceled flights to Moscow and Saint Petersburg.

Except for food, medical, and humanitarian commodities, global container shipping giant MSC and freight logistics business Kuehne + Nagel have stopped accepting Russian cargo orders.

"Limited" effects on commerce

According to the business organization Economiesuisse, the penalties will have "limited" direct effects on overseas commerce.

Switzerland's 23rd-largest commercial partner is Russia. The Swiss mostly export medications, medical items, watches, and machinery to Russia, whereas gold, precious metals, and aluminum are the most important imports.

According to customs, exports to Russia in 2021 totaled $3.5 billion.

Russia's Ambassador to the United Nations in Geneva, Gennady Gatilov, said Friday that the penalties shocked him since Switzerland has always tried to maintain certain neutrality.

Gatilov told the press, "We are disappointed with this because we have very good relations with Switzerland... and the joining of Switzerland to these unlawful sanctions... will have (a) certain negative impact."

According to Swiss press reports, 80% of Russian oil is traded in Switzerland, though Florence Schurch, Secretary-General of the Swiss Trading and Shipping Association, was unable to confirm the figure.

Schurch told AFP that the exact amount is "being assessed", but confirmed the sector's importance to the economy.

Trading in energy, grains, metals, and minerals accounts for approximately 10,000 direct and 35,000 indirect jobs.

Schurch revealed that since Monday "everyone has been in a bit of a crisis cell mode." The Secretary-General elaborated that companies are already trying to "locate their cargoes," or "repatriate sailors stranded in the Black Sea."

"A lot of companies have censored themselves," she said, not least because payments are becoming "complicated" now that Russian banks are cut off from the SWIFT system and Swiss banks are reviewing their trade financing.

Read more: Why cutting Russia from SWIFT is bad for the west

The Swiss-based Nord Stream 2 corporation went bankrupt when Germany shut down the gas pipeline in response to Moscow's operation.

The bankruptcy has sparked widespread fear in the industry. Glencore has undertaken a review of its operations in Russia, while Trafigura is reconsidering its interest in Vostok Oil, Rosneft's large oil project in Siberia.

Swiss banks are popular among rich Russians as a safe haven for their funds. Swiss banks' obligations to Russian clients totaled $23 billion in the third quarter of 2021, according to the Bank for International Settlements.

Not a priority market

In response to the sanctions, the Swiss Bankers Association stated that Russia was "not a priority" market, and it withdrew the Swiss subsidiaries of Gazprombank and Sberbank from its membership.

On the stock exchange, the Richemont company and Swiss watchmaker Swatch were also rattled by investor concerns about the luxury industry.

Jean-Daniel Pasche, head of the Federation of the Swiss Watch Industry, said Russian clients make up only one percent of exports.

Nevertheless, watch sales could be affected as most Russians have not returned to Switzerland since the pandemic began.

Switzerland Tourism spokesperson Veronique Kanel revealed that although Russian tourists made up 1.7% of hotel stays, they are relatively wealthy, choosing five-star establishments regularly, which could affect larger hotels with loyal Russian guests.