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Neutral Switzerland’s economy shaken by sanctions on Russia

Switzerland's newly adopted tough stance on Russia has forced the Swiss economy to readjust to sanctions, blowing a wind of panic through the raw materials market in particular.

Published: 5 March 2022 16:55 CET

Neutral Switzerland's economy shaken by sanctions on Russia

This picture taken on September 24, 2019 from the top of the Saleve mountain shows the public lighting of the Greater Geneva. (Photo by FABRICE COFFRINI / AFP)

Switzerland announced Monday it would follow the sanctions being imposed by the European Union, abandoning Bern’s traditional reserve by ordering the immediate freezing of assets belonging to Russian companies and individuals appearing on the EU blacklist.

And it went further on Friday, adopting even stricter EU sanctions applied in response to Moscow’s February 24 full-scale invasion of Ukraine.

Exporting goods that could enhance Russia’s military capabilities is prohibited, as is the exportation of certain goods and services in the oil sector, and aviation technology.

“The implementation of these sanctions is compatible with Switzerland’s neutrality,” the government insisted in a statement.

The wealthy Alpine nation’s businesses are complying with the sanctions but have also stressed that Russian money accounts for only a fraction of their turnover, in an attempt to reassure investors.

The airline Swiss, a subsidiary of Germany’s Lufthansa, has suspended its flights to Moscow and Saint Petersburg.

Global container shipping company MSC and freight logistics firm Kuehne + Nagel have stopped taking Russian orders for cargo, except for food, medical and humanitarian goods.

Business lobby Economiesuisse said the sanctions would have “limited” direct consequences on foreign trade.

Russia is only Switzerland’s 23rd-biggest trading partner. The Swiss mainly export medicines, medical products, watches and machinery to Russia, while the chief imports are gold, precious metals and aluminium.

In 2021, exports to Russia amounted to 3.2 billion Swiss francs ($3.5 billion, 3.2 billion euros), with imports as low as 270 million francs, according to the customs authorities.

However, the landlocked state is an important player in raw materials trading, through companies such as Glencore, Trafigura, Vitol and Gunvor.

Gennady Gatilov, Russia’s ambassador to the United Nations in Geneva, said Friday he was surprised by the sanctions, because Switzerland had always “tried to maintain a certain neutrality”.

“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,” he told reporters.

Crisis mode

According to figures circulating in the Swiss press, 80 percent of Russian oil is traded in Switzerland, though Florence Schurch, secretary general of the Swiss Trading and Shipping Association, could not confirm the figure.

The exact amount is “being assessed”, she told AFP, nonetheless confirming that the sector weighs heavily in the economy.

In employment terms, energy, grains, metals and minerals trading represents some 10,000 direct and 35,000 indirect jobs.

“Since Monday, everyone has been in a bit of a crisis cell mode,” Schurch explained. Some companies are already trying to “locate their cargoes” on the move, 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.

The Swiss-based Nord Stream 2 company has gone under after Germany halted the gas pipeline following Moscow’s invasion of Ukraine.The bankruptcy has caused panic in the sector.

Trading giant Glencore has announced it is reviewing its business in Russia while Trafigura is revisiting its stake in Vostok Oil — Rosneft’s major oil project in Siberia.

Banks, watches and tourism

Swiss banks are a popular place for wealthy Russians to stash their money. According to the Bank for International Settlements, Swiss banks’ liabilities to Russian customers amounted to $23 billion in the third quarter of 2021.

The Swiss Bankers Association reacted to the sanctions by saying that Russia was “not a priority” market, and excluded the Swiss subsidiaries of Gazprombank and Sberbank from its ranks.

On the stock market, the Richemont group and the Swiss watch giant Swatch were also shaken by investor fears for the luxury sector.

Russia represents only about “one percent of our exports”, said Jean-Daniel Pasche, head of the Federation of the Swiss Watch Industry.

But the fall of the ruble could affect watch sales and the conflict also threatens to delay the return of Russian customers who “have not come to Switzerland since the start of the pandemic”, he added.

In 2019, before the Covid-19 crisis, Russian tourists accounted for only 1.7 percent of hotel nights in Switzerland.

“However, it is a wealthy clientele” favouring five-star hotels, said Switzerland Tourism spokeswoman Veronique Kanel.

Some large hotels with a loyal Russian client base could therefore be “more specifically impacted”.

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The study said the security picture in Europe had sharply deteriorated, notably due to the Russian invasion of Ukraine in 2022, power politics and increasingly destabilised crisis regions.

The defence ministry established the study commission on security policy in July 2023, and tasked it with outlining security policy adapted to current threats.

Its report contained more than 100 recommendations, chiefly concerning Swiss neutrality, international cooperation, armaments policy and the orientation of security strategy.

Switzerland’s long-standing position has been one of well-armed military neutrality.

The landlocked nation is neither in NATO nor the EU, while its neighbours Germany, Italy and France are in both, and Austria is an EU member.

“The neutrality policy must be revised, more focused on its security function and applied more flexibly,” a statement said.

A majority of the commission recommended that the neutrality policy be more closely aligned with the United Nations charter, with greater consideration of the distinction between aggressor and victim.

“Switzerland cannot represent a security gap in Europe,” and its location surrounded by the EU makes the need for defence cooperation “clear”, the report said.

“Neutrality is no obstacle to cooperation with NATO in security policy matters,” it added.

“Cooperation with NATO and the EU should be further deepened with the aim of a common defence capability and developing a genuine defence cooperation,” the statement said.

Switzerland should therefore set out its expectations from its own defence capabilities, and what it could offer to cooperation partners.

With the committee finding hybrid warfare was “the main threat to Switzerland”, the country’s arms industry should be strengthened and calibrated more closely to the threat situation.

Therefore, “access to EU and NATO cooperation projects should be ensured”.

The report also called for strengthened diplomatic efforts on international arms control and on regulating new technologies.

The report’s author said Russia’s aggression in Ukraine opened the door to a conflict with NATO, and said Switzerland’s neutrality did not guarantee it would not be attacked.

The study recommended increasing the defence budget to one percent of gross domestic product by 2030.

The report will feed into the broader 2025 security policy strategy.