The West tightens the screws on Russia

SOME eight months since Russia’s invasion of Ukraine, one of the major geopolitical surprises has been the unexpected unity of the Western response, especially that of the 27 European Union members.

With European prime ministers and presidents meeting on Friday (Oct 7) for their latest wave of continental summitry, the Brussels-based club has this week signed off on an eighth hard-hitting package of sanctions against Russia. This announcement was accompanied on Wednesday by a very robust speech by Commission President Ursula von der Leyen to the European Parliament, where she affirmed that “now is the time to stay the course and continue to stand with Ukraine as long as necessary”.

The cornerstone of the EU’s eighth sanctions package is a new price cap on the seaborne trade of Russian oil. According to Russia’s central bank, sales of Russian crude oil amounted to US$110.2 billion in 2021, while refined oil products, like diesel and gasoline, brought in US$68.7 billion.

A ban on most crude oil imports from Russia will come into force no later than Dec 5, as agreed in previous EU sanctions. The latest sanctions build on those measures, with the new European package providing a legal basis to underpin the oil cap.

The deeper details of the cap are still not finalised, however, and will undergo consultation in coming weeks with western partners, especially the United States, which heavily pushed the proposal at the G7 summit in Germany in June. Key outstanding details include the exact pricing range of the mechanism, and the devil may be in the details of this in October and November.

While the oil cap has been agreed upon by Western powers, its effectiveness in practice will depend upon how widely it is adopted internationally. Two pivotal players here are India and China, both of whom have significantly increased purchases of discounted Russian oil since the invasion of Ukraine.

While both Beijing and New Delhi have expressed concerns to Moscow about the ongoing war in Ukraine, it is most likely that China will not adopt the cap. India’s position is more nuanced given the diplomatic balancing act it is playing between Russia and the West, but its economic self-interest may well prevail too, at least in the short to medium term. Prime Minister Narendra Modi is likely to be therefore heavily lobbied on this issue by western leaders, including US President Joe Biden, at next month’s G20 summit in Indonesia.

Wider sanction measures in the European package include stricter import bans to keep certain Russian products out of the EU market, such as steel, wood pulp, paper, machinery, chemicals, plastic and cigarettes. Exports of EU-made goods, particularly key technology used in the Russian military, will also be prohibited, together with IT, engineering and legal services.

There is also a new provision that would prevent EU nationals from sitting on governing boards of Russia’s state-owned companies, as some prominent Europeans have in the past, such as former German chancellor Gerhard Schroder. New Russian individuals and entities accused of undermining Ukraine’s territorial sovereignty in last Friday’s annexations are being added to the extensive, and fast-growing blacklist.

Beyond the EU, other G7 states are also ramping up the pressure on Russia after its annexations. The United Kingdom, for instance, last week introduced a ban on the export of nearly 700 goods that are crucial to Russia’s industrial and technological capabilities as well as on services exports, targeted at vulnerable sectors of the Russian economy.

After initial concerns about the synchronicity of UK and EU sanctions, London and Brussels are seeking to align more to pinpoint key sectors of the Russia economy, including key supply chains. The UK will prevent Russian access to services such as IT consultancy, architectural services, engineering, advertising, transactional legal advisory, and auditing.

In the US too, the Biden administration announced a wave of new sanctions last week against some 910 individuals and entities, including the head of Russia’s central bank. The Department of Commerce’s Bureau of Industry and Security also added 57 entities located in Russia to its list of export control targets, making for a total of 392 entities now subject to such measures.

These sanctions are unlikely to be the last by the West. In the EU, for instance, von der Leyen promised on Wednesday further measures in the pipeline against Russia, including a potential cap on the price of gas. Work is now well underway to explore this by the European Commission, following Germany’s change of stance in dropping its opposition to such a measure.

Taken together, this underlines that the West is by no means done with sanctions against Russia. While such measures may become more incremental in Europe in the next phase of the war, with differences of opinion within the EU impacting how far and how fast the bloc goes, further momentum will be fuelled by states in the Baltics, Nordics and Poland too pushing for significantly faster and tougher sanctions against Moscow.

The writer is an associate at LSE IDEAS at the London School of Economics.