The European Union is expanding its sanctions against Russia in a new round, which includes significant restrictions on the purchase of Russian gas – KNfins

The European Union is expanding its sanctions against Russia in a new round, which includes significant restrictions on the purchase of Russian gas

This is the 14th sanctions package adopted by EU member states, aimed at closing previous loopholes and, for the first time, directly impacting Russian gas exports. The decision was announced on Monday by the EU foreign ministers.

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The sanctions have been intensified in response to Russia’s large-scale invasion of Ukraine in February 2022, a conflict that triggered a series of punitive measures by Western powers.

The new specific gas restrictions aim to reduce Russia’s revenues from liquefied natural gas (LNG) exports. They include a ban on transshipments in EU ports, which involves the transfer of cargo from one vessel to another, as well as a clause allowing Sweden and Finland to cancel certain LNG contracts.

It is important to note that these measures do not represent a complete ban on LNG imports to the EU, which have increased since the start of the conflict.

The new sanctions will take effect after a nine-month transition period and include a ban on new investments and services for the completion of LNG projects currently under construction in Russia. Gas market experts point out that these measures are likely to have limited impact since Europe continues to import Russian gas, and LNG transshipments through EU ports to Asia account for only about 10% of total exports.

An EU official emphasized that the estimated economic impact on Russia will be in the millions, not billions. Despite the sanctions, some countries in Central and Eastern Europe continue to receive gas from Russia through Ukraine. The EU had already banned imports of Russian oil in 2022, with a few limited exceptions.

In addition to direct energy restrictions, the new sanctions package aims to increase effectiveness by limiting the circumvention of existing sanctions and imposing more responsibilities and penalties at the national level for those who do not comply with the established rules. The package also expands the sanctions list to include 116 new entities and individuals, bringing the total number of sanctioned targets to over 2,200.

Alongside previous sanctions, the European Union has announced additional measures to respond to Russia’s malicious cyber activities against EU countries and Ukraine. Six individuals were sanctioned, four of whom are directly linked to Russian intelligence and security services.

The European Commission is proposing an extension of the “No Russia” clause, initially requested by Germany, which obliges subsidiaries of EU companies in third countries to prohibit the re-export of certain goods to Russia, including military dual-use products, ammunition, and firearms. The proposal was temporarily withdrawn pending an impact assessment but could be reintroduced later.

Furthermore, the sanctions package bans the use of EU-based banks outside Russia in Moscow’s SPFS system, which corresponds to the global SWIFT payment system. Western powers had already excluded Moscow from the SWIFT system in 2022. The measure also authorizes the EU Council to create a list of banks from non-Russian third countries that will be prohibited from conducting transactions with EU operators.

These actions aim to increase economic pressure on Russia and limit its trade capabilities as part of the EU’s response to Russia’s actions in Ukraine and adversarial cyber activities against EU countries.

The new EU sanctions package also targets Russia’s so-called “parallel fleet,” which supports Russia’s war efforts. It provides a structure to include ships on the sanctions list, including tankers circumventing Russian oil price caps and vessels transporting weapons from North Korea to Russia.

According to the EU ministers’ statement, ships could be designated for involvement in “the transport of military equipment to Russia, the transport of stolen Ukrainian grain, and the transport of LNG components or LNG transshipments.” Diplomats indicated that 27 ships, mainly tankers, will initially be listed, with the option to add more later.

The European Union has taken further steps by sanctioning Russian state giant Sovcomflot and its CEO, Igor Vasilyevich Tonkovidov, as announced in the EU’s Official Journal on Monday.

The measures include specific restrictions on trade involving helium, rare earths, and manganese ores, as well as limitations on Russian funding for think tanks and non-governmental organizations.

Additionally, the EU has postponed the start of the mandatory full traceability regime for raw and jewelry diamond imports into the bloc by six months, moving the start of this measure to March 1, 2025. This decision follows the last sanctions package that introduced a ban on Russian diamond imports, significantly impacting the diamond industry, which was agreed upon in the 12th EU sanctions package.

The United States is reconsidering the stricter aspects of the ban on Russian diamonds, originally supported by the leading democracies of the G7, but facing resistance from African countries, Indian diamond cutters, and New York jewelers, as reported by seven sources to Reuters in May.

Meanwhile, EU member states are discussing a new sanctions package aimed at better aligning measures against Belarus with those against Russia since 2022 in response to the invasion of Ukraine.

Belarus is a key route for goods deliveries to Russia, but EU member states are cautious about addressing this issue due to concerns about Belarusian fertilizer exports.

Discussions within the European Union on the new sanctions package are now focused on better coordinating measures against Belarus with those targeting Russia since the start of the Russian invasion of Ukraine in 2022.

However, there is hesitation to directly address the issue of Belarusian fertilizer exports, a concern raised due to the potential impact on agricultural supply chains in Europe.

In the United States, the ban on Russian diamonds is under review due to resistance from various sectors, including African countries, Indian diamond cutters, and New York jewelers, highlighting an ongoing debate about the effectiveness and reach of international sanctions.

Picture of Ella Bailey
Ella Bailey

an editor at KNfins since 2024.

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