Russia Ponders Russian Airspace No-Fly Zone for EU Commercial and Passenger Jets

The sanctions retaliation game took another big leap forward today with the EU in the spotlight:
Moscow May Force European Airlines to Fly Around Russia.

Russian Prime Minister Dmitry Medvedev threatened on Tuesday to retaliate for the grounding of a subsidiary of national airline Aeroflot because of EU sanctions, with one newspaper reporting that European flights to Asia over Siberia could be banned.

Low-cost carrier Dobrolyot, operated by Aeroflot, suspended all flights last week after its airline leasing agreement was cancelled under European Union sanctions because it flies to Crimea, a region Russia annexed from Ukraine in March.

The business daily Vedomosti reported that Russia may restrict or ban European airlines from flying over Siberia on Asian routes, a move that would impose costs on European carriers by making flights take longer and require more fuel.

Vedomosti quoted unnamed sources as saying the foreign and transport ministries were discussing the action, which would put European carriers at a disadvantage to Asian rivals but would also cost Russia money it collects in overflight fees.

At the height of the Cold War, most Western airlines were barred from flying through Russian airspace to Asian cities, and instead had to operate via the Gulf or the U.S. airport of Anchorage, Alaska on the polar route.

However, European carriers now fly over Siberia on their rapidly growing routes to countries such as China, Japan and South Korea, paying the fees which have been subject to a long dispute between Brussels and Moscow.

The daily quoted one source as saying a ban could cost carriers including Lufthansa, British Airways and Air France 1 billion euros ($1.3 billion) over three months.

However, state-controlled Aeroflot would also be hurt if it lost the fees. Aeroflot was the worst performing stock in Moscow on Tuesday, closing down 5.9 pct compared with a 1.4 percent drop on the broad index.

Lufthansa said it operates about 180 flights a week through Siberian airspace but declined further comment, as did British Airways.

Estimated Losses

• Greek tourism expects the move to cost $400 million. 
• Travel from Ukraine down 50% 
• Lufthansa, British Airways and Air France expect 1 billion euros ($1.3 billion) over three months 
• Russian controlled Aeroflot would lose $300 million in flight fees it collects for flights over Russia

Lose-Lose Game

The nature of this lose-lose game is to inflict more damage on the other side than it costs your side.

Take that! No, you take that! Sanctions and retaliations are much like children pushing and shoving, and calling each other names on a school play lot.

Last week Russia struck at Poland, banning fruit and vegetable sales from that country. Russians will pay more for fruit, but Poland is the largest apple producer in the world, and 50% of that crop goes to Russia.

See How About Them Apples? for further discussion.

One would hope that bureaucrats would see the folly of sanctions, but EU bureaucrats egged on by president Obama are likely to do even stupider stuff than we have seen so far.

Russia may very well shut off natural gas to Europe this winter if sanction madness escalates out of control.

Simple Proposal

Isn't it time to have serious cease-fire discussions with all sides at the table instead of war, killing, and sanctions?

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com