Tuesday

24th Oct 2017

Analysis

Leaked paper: EU options on 'stage three' Russia sanctions

  • Damaged brand? (Photo: Mitya Aleshkovsky)

Even before the MH17 disaster, EU countries were discussing a potential ban on Russian oil and gas imports if worst comes to worst.

A text, drafted by the European Commission in late April, outlines what the EU is calling its “stage three” sanctions.

Thank you for reading EUobserver!

Subscribe now for a 30 day free trial.

  1. €150 per year
  2. or €15 per month
  3. Cancel anytime

EUobserver is an independent, not-for-profit news organization that publishes daily news reports, analysis, and investigations from Brussels and the EU member states. We are an indispensable news source for anyone who wants to know what is going on in the EU.

We are mainly funded by advertising and subscription revenues. As advertising revenues are falling fast, we depend on subscription revenues to support our journalism.

For group, corporate or student subscriptions, please contact us. See also our full Terms of Use.

If you already have an account click here to login.

It is entitled: “Assessment of the potential impact of restrictive measures towards Russia on the economy of the EU and its member states”.

A two-page segment of the paper, seen by EUobserver, describes three options.

Low-intensity

The first, a “low-intensity” scenario, contains seven steps.

They include: “restrictions” on imports of Russian “luxury goods (diamonds, precious metals, furs, vodka and caviar) and of food products”; restrictions on “selected … intermediate and processed goods (fertilisers, chemicals, tyres, vessels” but not “steel or nuclear components”; restrictions on “imports and exports of arms”; and restrictions to “export financing” for the listed industries.

They also include: blacklisting more Russian individuals and some companies; suspending EU grants for Russia projects; and stopping loans from the European Investment Bank.

The latter three measures were agreed by EU countries last week before MH17, in what some diplomats at the time called “stage 2.9 sanctions”.

The additional names on the blacklist are to be published by the end of the month.

Medium-intensity

The “medium-intensity” scenario designates eight more steps.

They are: a ban on imports of all intermediate and processed goods; a ban on imports/exports of “all sensitive technologies and dual use and arms”; blacklisting still more Russian individuals; “restrictions” on “trade and investment and related financial services”; restrictions on “free movement of capital”; restrictions on “maritime and road transport (not air transport)”; “holding up Russian investment/acquisition in the energy sector”; an “import ban on coal (no ban on electricity)”; and “cancellation of all co-operation activities”.

While France’s plan to deliver a “Mistral” warship to Russia in October has attracted attention, the ban on “dual use” items could hurt more.

According to Igor Sutyagin, a Russia specialist at the Rusi think tank in London, France makes gun sights for Russia’s leading tank, the T90, while European firms Thales and Eads make components for Russian spy satellites.

According to IHS Jane’s Defence Weekly, a British consulting firm, France also sells avionics for Russian MiG jets and “electro-optic infrared” technology, used in surveillance and targetting, for Russian tanks and helicopters.

Also before MH17, the EU already hit Russian energy sector investments by forcing Bulgaria to halt construction of the South Stream gas pipeline.

Following MH17, the EU on Tuesday (22 July) threatened to impose sanctions on “capital markets, defence, dual use goods and sensitive technology including in the energy sector” unless Russia stops destabilising Ukraine and lets international air crash investigators do their work.

High-intensity

The commission’s “high-intensity” option contains five steps.

It calls for: “capital market restrictions”; “prohibition of new investment in Russia”; “strict application of EU regulatory rules to Russian assets in EU companies”; an “import ban on gas”; and “an import ban on oil”.

Putting the oil and gas ban in perspective, according to US figures the EU buys 84 percent of Russian oil exports and 76 percent of its gas exports.

A back-of-the-envelope calculation indicates an EU ban would make a $300 billion hole in Russia’s $420 billion annual budget.

With some large EU countries, including Germany, Italy, and Poland, dependent on Russian gas for at least one third of their needs, it would also shock the European economy.

The commission paper says EU officials carried out macro-economic impact assessments for each member state. The results were sent in a “country fiche” to each capital.

Much is likely to have changed since the text was drafted in April.

The paper notes that the sanctions proposals are being “tested” vis-a-vis member states’ feedback, so that the options text is, at any given time, a “work in progress”.

There is also likely to be devil in the detail.

When the US imposed economic sanctions on Russia last week, it put a trade ban and asset freeze on eight Russian arms firms.

But it imposed a ban-lite on four Russian energy firms and banks, which prohibits only the issuing of long-term debt (90-day or longer bonds) to the companies concerned.

An EU official told this website some Russia arms ban options target only new export licences, allowing France to deliver its Mistral.

One sign the EU is getting serious came at last week’s summit, however.

From bark to bite?

In an aside, commission chief Jose Manuel Barroso told press his energy department is doing “stress-tests” on how EU states could cope without Russian gas, with results due in October.

A US source who helped prepare the American sanctions told EUobserver that Washington is planning to go further.

"These [the US sanctions so far] seem more designed to quiet critics than inflict real damage. Even so, we're firmly on the pressure track and will see further escalation. August looms and Russia will be about the business of establishing facts on the ground [in Ukraine] before we take another whack", the contact said.

Western bans on Russian financial and energy sectors, if imposed, would put Russia somewhere between North Korea and Iran in terms of pariah status.

Russian leader Vladimir Putin is wooing non-aligned states to hedge his bets.

But with dozens of MH17 victims coming from Indonesia, Malaysia, and the Philippines, Asia might be less willing to roll out the red carpet.

For its part, the Ukrainian embassy to the EU, in a letter sent to the EU foreign service on Monday and seen by this website, added ideas on how to increase the political pain.

It said Italy should uninvite Putin to a summit of Asian and European countries in Milan in October.

It said the EU should encourage Australia, which also lost people in the air crash, to uninvite him to a G20 summit in November.

It noted that the “Donetsk People’s Republic” and “Luhansk People’s Republic” - the Russia-controlled breakaway entities in east Ukraine - should be listed by the EU as “terrorist organisations”.

It also recommended an EU “reconsideration of Russia’s right to hold the next Fifa world cup in 2018”.

Investigation

Several EU states impose arms ban on Russia

Most of the EU’s top arms exporters have imposed a quiet ban on sales to Russia, but Ukraine’s military embargo could have a bigger impact on the crisis.

EU readies new sanctions on defiant Russia

EU ambassadors meeting in Brussels on Thursday are set to discuss a raft of new sanctions on Russia, as Moscow has shown no signs of wanting to meet an EU ultimatum over Ukraine.

Investigation

The mysterious German behind Orban's Russian deals

Klaus Mangold, a German businessman with good connections in Russia, and who provided a jet for Commission vice-president Guenther Oettinger, played a crucial role in Hungary's controversial Paks nuclear deal with Russia, Direkt36's investigation has found.

Macron puts trade policy on summit table

France's president wants a "political discussion" on EU trade policies at Thursday's summit, amid domestic concerns over Canada and South America deals. But his colleagues are likely to avoid a lengthy debate.

News in Brief

  1. Don't let City of London 'drift away', Luxembourg warns
  2. Far-right enters German parliament officially
  3. Orban declares migrant-free zone in Eastern Europe
  4. Madrid set to use force to stop Catalonia independence
  5. May: EU member states will not lose out with Brexit
  6. Slovakia pledges to be 'pro-European' oasis in region
  7. Report: Catalan leader to address Spanish senate
  8. Fiat-Chrysler 'obstructed justice' reports Le Monde

Stakeholders' Highlights

  1. Martens CentreI Say Europe, You Say...? Interview With EU Commission VP Jyrki Katainen
  2. Mission of China to the EUPresident Xi Jinping Proposes Stronger Global Security Governance at Interpol Assembly
  3. European Friends of ArmeniaEU Engagement Could Contribute to Lasting Peace in Nagorno-Karabakh
  4. UNICEFViolence in Myanmar Driving 12,000 Rohingya Refugee Children Into Bangladesh Every Week
  5. European Jewish CongressBulgaria Applauded for Adopting the Working Definition of Antisemitism
  6. EU2017EENorth Korea Leaves Europe No Choice, Says Estonian Foreign Minister Sven Mikser
  7. Mission of China to the EUZhang Ming Appointed New Ambassador of the Mission of China to the EU
  8. International Partnership for Human RightsEU Should Seek Concrete Commitments From Azerbaijan at Human Rights Dialogue
  9. European Jewish CongressEJC Calls for New Austrian Government to Exclude Extremist Freedom Party
  10. CES - Silicones EuropeIn Healthcare, Silicones Are the Frontrunner. And That's a Good Thing!
  11. EU2017EEEuropean Space Week 2017 in Tallinn from November 3-9. Register Now!
  12. European Entrepreneurs CEA-PMEMobiliseSME Exchange Programme Open Doors for 400 Companies Across Europe

Stakeholders' Highlights

  1. CECEE-Privacy Regulation – Hands off M2M Communication!
  2. ILGA-EuropeHealth4LGBTI: Reducing Health Inequalities Experienced by LGBTI People
  3. EU2017EEEHealth: A Tool for More Equal Health
  4. Mission of China to the EUChina-EU Tourism a Key Driver for Job Creation and Enhanced Competitiveness
  5. CECENon-Harmonised Homologation of Mobile Machinery Costs € 90 Million per Year
  6. ILGA-EuropeMass Detention of Azeri LGBTI People - the LGBTI Community Urgently Needs Your Support
  7. European Free AllianceCatalans Have Won the Right to Have an Independent State
  8. ECR GroupBrexit: Delaying the Start of Negotiations Is Not a Solution
  9. EU2017EEPM Ratas in Poland: "We Enjoy the Fruits of European Cooperation Thanks to Solidarity"
  10. Mission of China to the EUChina and UK Discuss Deepening of Global Comprehensive Strategic Partnership
  11. European Healthy Lifestyle AllianceEHLA Joins Commissioners Navracsics, Andriukaitis and Hogan at EU Week of Sport
  12. Nordic Council of MinistersNordic Council Representative Office Opens in Brussels to Foster Better Cooperation