Last month, European Commission President Ursula von der Leyen formally proposed the EU’s latest sanctions package on Russia – the bloc’s 21st (yes, twenty-first) since Russian President Vladimir Putin launched his country’s full-scale invasion of Ukraine in February 2022.
The package is largely identical to the 20 that preceded it. It includes several additional shadow fleet listings (30, this time); a smattering of transaction bans on Russian banks (31, this time) and third-country firms (20, this time); and a handful of extra export restrictions (metals, mostly).
JOIN US ON TELEGRAM
Follow our coverage of the war on the @Kyivpost_official.
The package’s genuinely novel measures are, predictably, also the most controversial.
Brussels’ call to limit imports of Russian fish, for instance, has sparked concerns in Germany and other major importers about the possibility of finding alternative (cheap) sources of supply. A proposed ban on Russian soldiers from entering the EU has led France and Italy, which receive the bloc’s highest number of Russian visa applications, to object to its legal and practical feasibility.
And the proposal to sanction Patriarch Kirill, the head of Russia’s Orthodox Church, has been vehemently condemned by Bulgaria, an Eastern Orthodox country whose prime minister described the move as a throwback to the “era of the Crusades.”
Still, EU diplomats and officials overwhelmingly expect the package, which must be unanimously approved by all 27 EU countries, to be greenlit within the next couple of weeks.
Medvedev Outlines Plans to Expand Russian ‘Security Zone’ into 3 Ukrainian Regions
This is because, in a certain sense, it has to be.
On July 15, the EU’s oil price cap – which bans EU firms from providing services to Russian oil tankers selling crude above a certain threshold – is set to jump from $44 per barrel to more than $60. Crucially, this is above the current price of Urals crude, Russia’s main export blend, which is now trading at around $56 per barrel. (The reason for the jump is that the cap is based on market prices over the previous six months, which have been stratospheric due to the Iran war.)
In other words, in just under two weeks’ time, the EU will, essentially, be banning nonexistent behavior. The price cap will be as effective as a prohibition on time travel.
Unless, that is, something is done. This is why, in an act of rare foresight and cunning, Brussels has also proposed a six-month freeze on the EU’s present oil price cap as part of the 21st package. Conveniently, it has also organized a meeting of EU foreign ministers for July 13 – which is when, diplomats say, the package will likely be formally approved.
“The 21st sanctions package… has to be decided upon at the Foreign Affairs Council in July,” says a senior EU diplomat. “The lower the [price cap], the better, so that Putin’s war economy doesn’t gain, and the economic noose around Russia’s neck is tighter and tighter.”
Deadly reasoning
This, however, points to the deeper problem with the EU’s sanctions policy, and indeed its approach to Russia more generally: sanctions won’t, at least by themselves, achieve Brussels’ goal of forcing Putin to the negotiating table. The sanctions noose can be tightened, but the Russian bear won’t suffocate.
After nearly four and a half years of full-scale war – a period longer than World War I – and numerous false predictions of Russia’s imminent economic collapse (von der Leyen, it’s worth recalling, said Moscow’s financial sector was on “life support” back in 2022), this should be obvious.
Arguably, this should have been clear at the war’s outset.
As Richard Connolly, a senior associate fellow at the Royal United Services Institute, a London-based think tank, observes, there are almost no historical examples of countries abandoning wars through economic pressure alone. (Germany and Japan, it’s worth recalling, were heavily sanctioned during World Wars I and II, respectively, but fought on regardless.)
“Wars are rarely abandoned because they become expensive,” Connolly notes. “The experience of Russia today fits this broader pattern. Its economy is under strain, but that strain is unlikely to prove decisive.”
Worryingly, in some respects, Russia’s economy even appears to be improving. Inflation has halved to 5.3% over the past year – only slightly above the central bank’s 4% target. The Kremlin’s splurge in military spending since the full-scale invasion has also boosted consumer sentiment and labor market expectations, while real wages have soared to record highs.
Still, Russia’s economy is hardly doing well. Indeed, in many ways, it’s performing abysmally.
The central bank’s key interest rate is an exceptionally high 14.25%, dampening much-needed investment. Ukraine’s long-range drone attacks on Russia’s oil refineries have severely damaged the country’s fuel exports, its main source of revenue. Growth is also sluggish, and labor shortages, which are being compounded by the war effort, are almost ubiquitous.
However, these problems are overwhelmingly unlikely to compel Putin to come crawling to the negotiating table anytime soon.
As The Economist – which itself reported four years ago that “Fortress Russia” was “crumbling” – noted last week: “Vladimir Putin’s war economy has problems – but it is not about to crash.”
Dubious morality
What is to be done?
One thing the EU should do is revamp its existing sanctions regime.
Alexander Kolyandr, a non-resident senior fellow at the Center for European Policy Analysis, notes that EU leaders have failed to recognize that Russia’s economy has profoundly changed over the past four years. While Moscow’s main challenge in 2022 was to find non-European markets for its exports and imports, now its main problems are overwhelmingly macroeconomic
These issues, Kolyandr argues, could be aggravated by seeking to accelerate capital outflows and the ‘brain drain’ of young Russians. This, however, will require encouraging Russians to travel to Europe rather than discouraging them. In other words, precisely the opposite of what Europe’s current sanctions are doing.
“If you deny the Russians access to Europe en masse, it simply means that they spend their money in Sochi, or somewhere else in Russia, rather than spending it abroad, which means capital outflows,” Kolyandr says.
“And I’d rather see a brainy Russian physics or mathematics PhD student doing something useful in Munich, Paris or London, than toiling in Moscow, increasing the country’s GDP and productivity.”
Even more important than Brussels overcoming its squeamishness about welcoming Russians to Europe (or allowing rich Russians to buy more EU luxury goods, which would also increase capital outflows) is that it recognizes the obvious: Ukraine’s battlefield success, rather than economic pressure, will ultimately determine if and when Putin is prepared to negotiate.
“I think it’s time to stop, go back to the drawing board, and reassess the current sanctions regime,” Kolyandr says.
EU leaders should take note.
This is a slightly abridged opinion piece by Thomas Moller-Nielsen for Euractiv, the original of which can be read here.
The views expressed are those of the author and not necessarily of Kyiv Post.
You can also highlight the text and press Ctrl + Enter
