(Fixes typo in paragraph 3)
By Daria Sito-Sucic
TESANJ, Bosnia (Reuters) - Bosnian businesses, already grappling with domestic instability and anaemic economic growth, fear further turmoil from potential fallout from the war in Ukraine as Western-led sanctions against Russia threaten to shut out an important market.
Bosnia has been going through its worst political crisis since the end of the Balkan wars of the 1990s, with Bosnian Serbs challenging state institutions as part of their longtime bid to secede, emboldened by at least tacit support from Russia.
Although it lies hundreds of miles from Ukraine, NATO and the European Union - which has doubled its peacekeeping troops in Bosnia as a precaution - have warned that the war may bring more instability.
A slowing economy, forecast by the Vienna Institute for International Economic Studies to grow at 2.5% this year, down from 4.8% in 2021 and the lowest in the region, risks being undermined further as sanctions against Moscow start to bite.
"Almost 35% of our rawhide production that was aimed for the Russian market through our Italian partners is now stopped," said Adisa Karahodzic, the general manager of the Koteks textile and leather producer in the northern town of Tesanj.
Karahodzic said that her company was already experiencing a slowdown in production since January, after foreign partners were spooked by a militarised police parade marking an illegal holiday in the Bosnian Serb region on Jan. 9.
"They have been calling and inquiring about a possible war, and some managers had postponed scheduled visits to approve new orders fearing they could get stuck if something happened," she said. "After the coronavirus pandemic, we just go from one crisis to another."
Calls for sanctions on the country's autonomous Serb Republics following Bosnian Serb leader Milorad Dodik's threats of pulling the region out of the national military, tax system and judiciary as part of his secession bid are stoking businesses' fears.
The EU, which is Bosnia's largest trade partner, has warned that 600 million euros ($656.5 million) worth of projects that were already agreed for Bosnia's Serb Republic will be halted unless the Serbs resume work in state institutions.
"My hair goes up when (EU) sanctions are even mentioned," said Dragutin Skrebic, who owns footwear producer Skrebic Company in the town of Teslic, which exports all its products to European buyers.
He said he was already struggling with rising prices of raw materials and unreliable transportation in the wake of the Ukraine war.
"We absolutely have no clue as to where this is going, we need a prophet," he told Reuters.
($1 = 0.9140 euros)
(This story refiles to fix typo in paragraph 3)