Deputy Foreign Minister Vasily Nebenzya’s interview with Rossiya Segodnya, 31 December 2014

Question: The outgoing year was fairly difficult in terms of Russia's relations with Western countries. We hear pessimistic views of Russia's foreign economic policy across many areas and of the country's isolation. Do you think there are grounds for such negative statements?

Answer: Indeed, 2014 was a difficult year for our relations with certain Western partners. The sources of instability in the global economy now include the so-called unilateral sanctions on Russian individuals and corporations imposed by several countries in connection with the situation in Ukraine. Russian businesses, primarily in the energy, financial and defence sectors, have come under economic pressure.

These steps constitute a flagrant violation of international law, including WTO rules. Restrictive measures may be imposed only with the approval of the UN Security Council, otherwise they are simply illegitimate.

Politically motivated restrictions imposed on Russia by certain Western countries constitute a departure from basic market principles and the abandonment of international economic cooperation based on mutual respect of interests and fair competition. Unverified and often deliberately distorted information is used to increase pressure on Russia in order to force it to change its foreign and domestic policy. A desire to cause substantial damage to the Russian economy has been stated openly. Our explanations and calls for renewed dialogue on vital issues of the international agenda are ignored.

We believe that such restrictions are counterproductive and dangerous, primarily for those who failed to consider the consequences before resorting to such measures. You can't unilaterally change fundamental economic rules and undermine the atmosphere of stability in international relations, thus damaging existing business relations. In a globalised world, any attempt to limit economic interaction is doomed to fail.

In this connection, I'd like to point out that the talk about isolating Russia is groundless. Today, we are successfully advancing trade and economic cooperation with the countries that would not sacrifice their national interests in order to satisfy someone else's geopolitical ambitions. Prospects for a significant increase in trade with countries of Asia, Africa and Latin America are opening up. Moreover, the business community in Western countries that have imposed sanctions on our country are actively working with us and are successfully implementing their business projects in Russia.

Is that isolation? I believe it's proof of successful economic cooperation between our country and foreign partners. Russia is not going to fence itself off, and we are ready to engage in dialogue with everyone based of equality and respect for each other's interests.

Question: Enough time has passed to judge whether the Ukraine crisis has affected the investment climate in Russia: has there been any significant loss of interest in our country among foreign investors?

Answer: No, the interest is still there. This was confirmed by the outcome of the 28th meeting of the Foreign Investment Advisory Council (FIAC) chaired by Prime Minister Medvedev on 20 October. Major foreign companies – FIAC members – clearly expressed their interest in continuing their investment activities in Russia. At the same time, our foreign partners confirmed their readiness to increase investment in the Russian economy regardless of the geopolitical situation.

We will encourage this attitude in foreign investors. In particular, the presidential address to the Federal Assembly on 4 December called for measures to improve the business climate in Russia, such as improving the legal framework governing entrepreneurship, developing transport infrastructure, introducing an investment rating of the Russian regions, and creating technology parks, to name a few.

Meanwhile, some of our Western partners are exerting unprecedented pressure on businesses to get them to reconsider their investment plans in Russia, saying that "politics trumps the economy" at a moment like this. Often, this pressure is not related to specific sanctions, but going beyond the sanctions, which evokes memories of administrative methods of economic management. Of course, businesses don't like this, and companies, including large ones, don't want to "tow the party line".

Question: The EU has set two dates in its "sanctions calendar" for 2015: on 15 March, it will decide on whether to renew the restrictions on individuals, and in late July on corporations. Will Moscow take any actions in the coming months to stop anti-Russian moves by the EU?

Answer: Russia has repeatedly said that we didn't initiate the sanctions, and we won't beg anyone to lift them. The sanctions, according to those who introduced them, are designed to make us change our foreign and domestic policies. Backers of the sanctions should understand by now that this is futile and useless. Not just because we are stubborn and don't care what others think, but because we believe we are right and we aren't going to trade that for a mess of pottage.

It took the United States 50 years to realise that its economic embargo against Cuba was an exercise in futility. I wonder how long it will take to realise the same thing with regard to Russia. Of course, many already understand this, and not just businesses and ordinary citizens. We know many Western politicians understand this perfectly well. This hasn't stopped the European Union from locking itself into a sanctions spiral from which it won't be easy to find a way out without losing face.

Question: Will we fully restore trade and economic contacts if the situation is settled and the sanctions are lifted within this term – or will we never restore previous relations and become more cautious?

Answer: Of course, further sanctions can trigger loss of confidence between partners. European Union countries have demonstrated already that geopolitical ambitions can outweigh economic expediency and benefits brought by cooperation. Brussels' sanctions hit the public and business community, and undermine global economic stability. It will be hard to restore confidence at previous levels, even after the sanctions are lifted, but we will have to do it if we really care about our economic development. Russia is willing to interact with the EU as with all participants of the international economic community.

Question: The reliability of Russian energy exports to Europe has become more relevant as we've entered the winter season. What problems are energy consumers facing and what will Russia do to address them?

Answer: An agreement was reached with our Ukrainian partners on the terms and conditions for allowing Russian gas exports to Ukraine through 31 March 2015 at the tripartite talks between Russia, Ukraine and the EU. A relevant protocol was signed in Brussels on 30 October. If implemented, the agreement will guarantee winter gas supply to Ukraine and transit to Europe. This is not only an economic matter, but a vital social one as well, since it affects essential daily comforts such as home heating for millions of consumers in Ukraine and EU countries.

Given its thorough understandings of such matters, Russia has introduced a gas price discount by reducing export duties. Although this seasonal discount implies budget losses, Russia is willingly making a sacrifice to help Ukraine.

To mitigate Ukraine's energy problems, we decided to sell it 500,000 tonnes of Russian coal. If an additional agreement is reached, we will sell another 500,000 tonnes a month at Russian domestic prices, which will cost Ukraine much less than South African coal. Following the Ukrainian leadership's requests, Russia will also export electricity at domestic prices, which are cheaper than present-day Ukrainian prices.

Ukraine's solvency remains the greatest challenge given our current circumstances. Instead of advancing condescending moral support, we hope that the European Union will be more active in implementing this protocol, which we trust would greatly help Ukraine financially.

Question: There were plans to notify Russia's partners through diplomatic channels that the South Stream project has been shelved. Did they say they hoped for its revival, and is there any chance that the pipeline will be built, after all?

Answer: The matter is closed for today, as you know. The Russian President said it explicitly. We knocked on a closed door for too long before realizing that it wouldn't open to us, and so we decided to terminate the particular version of the project. It is preposterous to waste billions of dollars in investments for a project that holds no slightest hope for repayment.

Further replies came from Brussels and the countries blocking the project ensuring that they would not have objected to the South Stream construction had it complied with the Third Energy Package. I know what actually happened and I dare say it's all wrong. Project implementation was really obstructed, and the time came when we realized that it would be of no use to proceed with the project.

Question: The North Atlantic Alliance is launching a designated fund as a channel for its finance aid to Ukraine. How, do you think, will the fund impact peaceful settlement in that country?

Answer: Ukraine is in an economic void. International experts see the greatest problem in the country's balance of payments, as its deficit is estimated at 30 billion euros, while the simultaneous upkeep of the Donbass-stationed troops alone costs Kiev $500 million a month.

There are several remarkable negative influences on the Ukrainian economy today; inflation skyrocketing at 30 percent while the GDP has shrunk by 8 percent and the hryvnia plummeted by 50 percent. The national debt equalled GDP at year's end while the gold and currency reserves have been shrinking at 22 percent a month totalling $11.6 billion by mid-November. Leading industrial companies are in a critical situation. Kiev has lost control of its labour market, and investors are losing up to 60 percent of their money a year.

Ukraine certainly needs financial aid to cope with this crisis. I would like to quote President Vladimir Putin's words in his address to the Federal Assembly on 4 December: "It is well known that Russia not only supported Ukraine and other brotherly republics of the former Soviet Union in their aspirations to sovereignty, but also facilitated this process greatly in the 1990s. Since then, our position has remained unchanged." We are willing to carry on mutually beneficial cooperation with Ukraine to help the country meet its tremendous social and economic challenges.

The primary goal of economic aid from Russia, other countries and international institutions should be to promote deep-rooted reforms in Ukraine. Regrettably, Kiev is overlooking them lately as it spends exorbitant resources on the expansion of domestic warfare, especially in the southeast. Such is the context in which we should regard the plans of financial aid to Ukraine by NATO, which is a military-political alliance.

Ukraine will surely benefit from assistance aimed at improving its investment climate and overcoming its energy crisis. If, on the contrary, Ukraine builds up its war budget with NATO aid, its economic crisis will only get worse and peaceful settlements will achieve nothing.

Question: Ukrainian President Petr Poroshenko noted at his news conference that martial law may be declared in eastern Ukraine if the peace process is torpedoed. How would you comment on this statement?

Answer: This statement is, of course, absolutely unconstructive. Everyone is waiting for the situation to be resolved, rather than for the introduction of martial law. A threat to resume hostilities is not conducive to dialogue and may undermine the peace process.

Question: How have mutual sanctions between Russia and the West influenced the work of Russia within two post-Soviet interstate associations: the CIS and the Eurasian Economic Union?

Answer: First of all, I believe that the term "mutual sanctions" does not describe the current developments accurately enough, because Russia did not initiate the spiral of sanctions, and because it does not advocate this process. From the very beginning, we have stated that restrictive measures are counter-productive in the economic and political context, that they only undermine mutual trust and that they are absolutely unconducive to the healthy operation of the global economy, not to mention the legal aspect of this issue.

Our CIS partners understand this, and have therefore repeatedly voiced their concern, including on the international scene, over the introduction of sanctions against Russia. We discuss the relevant Western moves that, unfortunately, are now becoming openly less friendly.

The CIS, the Eurasian Economic Union and our other integration associations do not oppose anyone. These formats allow regional countries to expand cooperation in those areas where they are ready to do so, and to the extent to which they are willing to accomplish this. We do not impose decisions that run counter to the interests of our partners, as has now become customary in the West. Therefore more substantial anti-Russian sanctions cannot influence the operation of CIS organisations.

However, there is another aspect here, namely, Russian responses based on import substitution that open up new prospects for expanding mutual trade between Customs Union members. We are ready, and we have already called on our partners in the CIS and the Eurasian Economic Union to fill Russian market niches that have opened due to the short-sighted policy of the West. These countries plan to take advantage of the opportunities that are becoming available.

Question: Earlier, the possibility of joint actions within these associations was noted. What might this imply?

Answer: The issue of joint actions in response to restrictive Western measures with regard to Russia is not yet on the agenda, although regulatory documents of the Customs Union allow this. In December 2011, the Supreme Eurasian Economic Council passed its Decision No. 13, allowing Customs Union members to hold consultations and to expose and assess the negative impact of restrictive measures being imposed by a third party and, if necessary, to jointly respond to these measures in line with national legislation and with due account for the current international obligations of the parties.