Sanction Me If You Can
The latest sanctions package, which the EU Council is set to approve imminently, suffers from the same flaws as the previous 13. It has been adopted too late, and the measures it introduces are not comprehensive enough to achieve their declared objectives. What can be done? Speed up. The surprisingly simple recipe is that the escalation of sanctions must occur faster than Russia can adapt to them.
On 24 June, the EU Council will officially adopt the 14th sanctions package against Russia, which was agreed upon at the ambassador level on 20 June. This has been one of the longest preparatory procedures, lasting four months, similar to the 11th sanctions package. Only the 12th package took longer, with a six-month preparation period. Usually, it takes 2-3 months. Why so many sanctions packages, yet Russia continues to profit from exporting raw materials, oil, and gas? Why have so many packages been needed over 28 months, but Russia still obtains the materials, electronic components, and equipment it needs for war? Because they were adopted too late and were too weak.
The Fourteenth Package – Typically Weak
Let’s look at the contents of the latest package. What’s in it? There was much discussion about restrictions on the export of Russian liquefied natural gas (LNG). The package does not include restrictions on the import of LNG into EU countries, but it does ban the re-export of this commodity through EU ports. Clearly, this will hardly affect Russia’s income from exports since re-export accounts for only 10% of the total sales of this commodity abroad.
One positive aspect of the new package is the imposition of sanctions on maritime vessels used by Russia to transport oil while avoiding price caps and on vessels used for transporting weapons. Unfortunately, these restrictions are targeted rather than comprehensive. The EU sanctions list now includes an additional 47 legal entities and 69 individuals. The total number of sanctioned individuals and entities now stands at 2,200. It sounds like a lot, but most of them are simply proxies who can easily be replaced by others not yet under sanctions.
The half-hearted nature of the measures is evident in the German government’s position, which blocked the inclusion of a clause in the 14th sanctions package requiring contracts to include a special condition prohibiting the re-export of certain goods and materials to Russia.
This leaves a deliberate loophole, allowing critical war materials and components to continue reaching Russia through intermediary structures. The list of sanctioned intermediaries will expand, but this will have little impact on the supply of crucial materials. Instead of implementing systematic measures, efforts will be wasted chasing individual violators. The cost for Russia to solve this problem is unlikely to exceed the cost of registering a new company and some additional expenses for running another intermediary.
Have the channels for financing illegal Russian purchases and receiving income from illegal raw material exports been intercepted? Not even close. For example, Raiffeisen Bank International (Austria) has a subsidiary in Russia through which, according to Russian media, more than half of foreign currency transactions to abroad are conducted. Similarly, Russian subsidiaries of the OTP (Hungary) and Unicredit (Italy) groups play significant roles in cross-border transactions.
Yes, the 14th package includes a ban on directly connecting to the Russian System for Transfer of Financial Messages (SPFS, controlled by the Bank of Russia) for EU companies operating in Russia. It also bans transactions conducted with companies and financial institutions using the SPFS system to circumvent other sanctions. But as long as the subsidiary banks of international financial groups thrive in Russia, these restrictions are not devastating to Russia’s military potential.
Moscow Is Leading the Sanctions Race. Still It Is Now
The main issue with all 14 sanctions packages is that they are always playing catch-up. Moscow manages to evade the targeted sanctions before they can take effect. Networks of proxies are created, performing a few operations before being replaced by others. Transactions are routed through small banks in third countries, including China.
Of course, all this increases the cost for Moscow to access modern materials, components, and equipment. However, during wartime, money is not the primary concern. Furthermore, Russia's export revenues are not significantly affected. The United Arab Emirates, Turkey, China, Georgia, Kyrgyzstan, Uzbekistan, and many other countries are used by Russia as hubs to circumvent sanctions.
Moreover, some reputable EU businesses are not averse to profiting alongside Russia. They continue their operations as usual, despite the fact that their earnings help finance the Russian war machine through taxes, and their products and services fuel the Russian military-industrial complex.
These European business representatives justify their actions by arguing that otherwise, they would lose profits, and EU countries would seek replacements for Russian resources elsewhere. However, it's time to reconsider. Today's profits from business-as-usual with Russia lay the groundwork for much greater, potentially catastrophic losses in the future due to Russia's aggressive actions.
Putin repeatedly emphasized that the collapse of the Soviet Empire is "the greatest geopolitical tragedy" of the 20th century. He regularly articulates ambitions to restore the Soviet bloc, including the countries of the former Warsaw Pact. In Moscow, there is open talk about the Baltic states and Poland as targets. This is a real and imminent threat. The cost of this threat increases every day. Therefore, sanctions must be truly crippling and comprehensive, leaving no room for evasion.