Saturday

7th May 2016

EU approves economic sanctions on Russia

  • EU sanctions target oil exploration in Russia, but not its gas sector (Photo: eni.com)

EU ambassadors on Tuesday (29 July) approved economic sanctions on Russia which are expected to enter into force on Friday.

Under the new regime, known as stage three sanctions, EU citizens and firms will not be allowed to buy or sell debt, equity or other financial instruments issued by Russian state-owned banks with a maturity of over 90 days.

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An arms embargo will also come into force ,applying to all weapons on the EU common military list. It will not be enforced retroactively.

The export of so-called dual use items - goods which can have both civilian and military use - will be banned only for "military end users" as opposed to a general ban for civilian firms too, as envisaged initially.

Russia will also have restrictions on importing oil exploration technologies from Europe. But its much larger gas sector will be spared.

EU ambassadors also added eight individuals and three entities to an existing blacklist of 87 individuals and 20 organisations. Four of the new names are expected to be “cronies”, close to Russian President Vladimir Putin. The names will be published in the EU official journal on Wednesday.

Even if the sanctions are slightly watered down compared to the initial EU commission proposal, they mark a new departure. Just two weeks ago, diplomats were joking that member states would never go to stage three, rather to "2.999".

But the downing on 17 July of the Malaysia Airlines passenger plane, which killed 298 people, mostly EU citizens, changed the mood. Pro-Russia separatists in eastern Ukraine are believed to have accidentally shot down the plane with a missile system supplied by Russia.

Key to Tuesday’s agreement was for all countries to take a more or less even hit, as Russia is expected to retaliate against the EU after the sanctions kick in.

According to an International Monetary Fund report published earlier this month, "Cyprus, Austria, and Hungary are most exposed to the Russian banking system, with total asset of their subsidiaries in Russia of about 4-10 percent of national GDP".

France on the other hand got its way with the arms embargo not applying to its €1.2bn sale of two Mistral warships to Russia, as the ban will only apply to future, not old contracts. France was supported by some eastern member states who were concerned that they won't be able to get spare parts for their Soviet-era planes and equipment.

Lithuanian President Dalia Grybauskaite, however, did not hide her disappointment on this point. "Welcome EU decision on a wide range of sanctions on Russia. Unfortunately nothing to stop the deal of Mistral yet," she tweeted.

”Strong warning”

A statement by the European Council and European Commission said the sanctions were meant as a “strong warning” to Russia.

"Illegal annexation of territory and deliberate destabilisation of a neighbouring sovereign country cannot be accepted in 21st century Europe. Furthermore, when the violence created spirals out of control and leads to the killing of almost 300 innocent civilians in their flight from the Netherlands to Malaysia, the situation requires urgent and determined response," the statement reads.

"The European Union will fulfil its obligations to protect and ensure the security of its citizens. And the European Union will stand by its neighbours and partners," it adds.

The statement also criticises Putin for not delivering on promises made to EU leaders to work towards a peaceful solution in Ukraine and warns him not to destabilise other neighbouring states.

If the destabilisation of Ukraine continues "or of any other eastern European neighbouring state" - a reference to Moldova and Georgia - Russia will be further isolated and its economy hurt even more.

However member states also indicated that they are ready to reverse the sanctions if Moscow is cooperative.

"The European Union remains ready to reverse its decisions and re-engage with Russia when it starts contributing actively and without ambiguities to finding a solution to the Ukrainian crisis," it concludes.

An EU official on Tuesday evening explained that the sanctions regime will be under "constant review" and could be rolled back at any time if Russia changes course. They can also be adjusted if Russia circumvents the embargoes and buys the banned items elsewhere or if the impact on EU economies is too hurtful.

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