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23rd May 2022

Fourth round of EU sanctions hits energy and oligarchs

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Moscow was hit by a fresh round of EU sanctions on Tuesday (15 March) that include a ban on investments in the Russian energy sector, but the measures fell short of the total ban on oil and gas imports urged by most member states bordering Ukraine or Russia.

The investment ban will particularly hit Russia's oil giants, state-controlled Rosneft, Transneft and Gazprom Neft.

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However, EU governments will still be able to buy oil and gas from these corporations and an exemption also was made for nuclear energy, as several central and eastern European countries rely on Russian fuel to keep their power plants going.

Poland, plus the Baltic states of Estonia, Latvia and Lithuania in particular have been pushing hard for EU sanctions to go further. But Germany, Italy, Hungary and Bulgaria have been reluctant to commit to further sanctions, especially on energy.

These four member states have been "prioritising their economic interests," an EU diplomat said, on condition of anonymity. And the so-called reluctants managed to carve out some products, such as iron ore, from the newly imposed import ban on Russian steel, irking the Polish and Baltic side.

"We also have our own dependencies on Russia, it is very difficult to find the right balance here," said the EU official, who wanted to remain anonymous because of the sensitivity of the issue.

"For the moment, we keep supply and purchase of energy into the EU open," the official added.

More oligarchs

Under this fourth set of sanctions, the EU also targeted the wealthy oligarchs who have benefitted from Russian president Vladimir Putin's repressive regime.

European governments agreed to an export ban to Russia of luxury goods worth more than €300, including jewellery, truffles, wine, beer, spirits, art, handbags. Exports of cars costing more than €50,000 will be off-limits.

The restrictive measures also freeze the assets of more than a dozen business people who support the Russian state, including Chelsea football club's Roman Abramovich, who this month put the club into an opaque charitable trust ahead of being sanctioned by the UK.

Besides Abramovich, 14 individuals and nine entities dealing with steel or military equipment, have been put on the EU sanctions list in this round.

In total, 877 individuals and 62 entities have been placed on the EU's Russia sanctions list since 2014, when Moscow annexed Crimea and recognised Russian-backed separatist controlled areas of Donetsk and Luhansk.

The EU has been grappling with how far and fast it should proceed with sanctions on Russia's energy sector, which will have an increasing cost on European economies as well, which are just emerging from the downturn caused by the Covid-19 pandemic.

Nevertheless, experts warn that decoupling from the Russian economy cannot be avoided, meaning more economic pain for Europeans.

"As long as we show Putin we are dependent, we are not willing to do what is necessary, we are giving him the opportunity to weaponise the supplies, he can threaten us," Fabian Zuleeg, chief economist of the Brussels-based European Policy Centre said.

"Our decisions cannot be driven by Russian oil and gas," Zuleeg added, saying the only question is how long decoupling from Russian energy will take.

Zuleeg said a part of the package needs to be a "mechanism of solidarity" similar to the Covid-19 recovery fund, which helps the countries worst affected by the economic fallout of sanctions. "This is about making sure we can respond in unity to this declaration of war on democracy," he added.

"It will cost money. This is an economic war, we also have to bear the cost, this is part of the cost," he said. "If Germany changes its stance, it could lead to quicker action at EU level."

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