Davit Shatakishvili, MPA, Tbilisi State University and German University of Administrative Sciences Speyer
On December 15, the EU countries reached an agreement on imposing a ninth package of sanctions against Russia. According to EU High Representative Joseph Borrell, after creating an artificial food crisis, the Kremlin is now using winter as a political-economic tool to leave millions of Ukrainians without water, heat and electricity. He said that the ninth package of sanctions is a response to more than 10 months of continuous aggression and the recent escalation of the situation in Ukraine, which is destroying critical civilian infrastructure and putting even more lives at risk. In addition to economic restrictions, the EU leaders agreed to provide Ukraine with a macroeconomic aid package of 18 billion Euros next year. In response, the press secretary of the Kremlin, Dmitry Peskov, said that Russia will study the list of sanctions and only then will it make a decision. However, considering the impact the sanctions are having, and Russia’s economic downturn, the effectiveness of their retaliatory action is questionable. It would be interesting to take a look at what the ninth package of EU sanctions includes, and what impact it might have on the course of the war, as well as on the Russian economy and its recovery potential.
Extended Economic Constraints
According to the ninth package of sanctions, new restrictions will be imposed on exports from the EU to Russia, which will affect dual-use products and technological components that Moscow actively uses in its military and defense industry. In addition, restrictions will be imposed on an additional 168 companies that are in various ways connected to the Kremlin’s military production. This decision will help to restrict Russia’s access to chemicals, night vision and navigation systems, generators, electronics and hardware, such as hard drives, computer hardware, cameras and lenses. To reduce the risks of circumventing these sanctions, the restrictions also affect Russian-controlled entities located in the illegally annexed Crimea. Moreover, the list has been extended to components of the aviation industry, which includes aircraft engines and their spare parts. The following limitation also applies to manned and unmanned aerial vehicles such as drones. Important to note is that the export of aircraft engines and their spare parts was banned not only to Russia, but also to any third country, for example, Iran, which can potentially supply these products to Russia. It seems that Russia still has partner countries that directly or indirectly support its open aggression in Ukraine and even help circumvent the Western sanctions.
Within the EU’s latest package of sanctions, the assets of two additional Russian banks will be frozen, and the “Russian Regional Development Bank” will be added to the list of Kremlin-controlled entities that are subject to a full transaction ban. Additionally, the new restrictions prohibit EU investment in Russia’s energy and mining industries.
Despite the harsh and unjustified actions of the Kremlin in Ukraine, the European Union has not banned trade in agricultural and food products, including wheat and fertilizers, between Russia and third countries, in order to ensure world food security and so as not to promote a crisis, which Russia has repeatedly tried to artificially create. That is why, in order to avoid disruptions in financial transactions in food trade, the EU has presented an initiative that envisages a partial relief of frozen assets and a certain increase in access to economic resources for individuals and legal entities who play an important role in the world trade in agricultural and other food products. According to them, each such case is considered individually and this should not be perceived as any kind of compromise.
The Effectiveness of the Sanctions and the Continued Financing of the Russian War Machine
Each new package of sanctions is followed by some criticism about their effectiveness, the main argument being the fact of the continuing the war. Generally, the logical period for a sanction’s impact to become apparent is in the medium term, and expectations for immediate results are unrealistic, especially when it comes to the Russian Federation, which has immeasurably large energy and other natural resources. A number of restrictions imposed on the aggressor country by the European Union and other Western partners can take several months to enter into force, meaning a sanction adopted today may only start working after 6 months or more. Yet, there is no doubt that the sanctions are working, and the damage to the Russian economy will become more apparent in the medium to long term.
Clearly, restrictions do not mean a complete blockade of all types of trade. Moscow continues trade operations, both with its allies and even with countries which are imposing sanctions, with products that are not included in the restrictions. It continues to sell its own energy resources in China and other Asian countries, as well as in African countries. There is also a rumor that after the annexation of Crimea in 2014, Russia started mobilizing huge amount of funds within the country, and kept 40 USD from each barrel of oil sold in the so-called “black cashbox”, potentially to deal with the crises that it is now facing. As such, it is clear where Moscow is getting the necessary funds for the war from, as well as for creating an imitation of the normal functioning of the economy.
Just a couple of weeks before imposing the ninth package of sanctions, on December 5, the decision of the G7 countries to set up an upper limit on the price of Russian oil came into force, which was joined by the United States of America, the European Union, Great Britain, Australia and Japan. As a result of the agreement, the global seaborne oil ceiling price was set at 60 USD per barrel. According to European leaders, this will significantly reduce the Kremlin’s budgetary energy revenues. Countries that do not join this decision will not be able to use the services of EU maritime and insurance companies, or financial institutions, to carry out energy transactions. Moscow’s retaliatory decision to this, and the contours of the consequences of the upper oil price limit, are likely to be outlined soon.
The coordinated decisions of Western partners and the economic sanctions significantly reduce the Kremlin’s budget revenues, put into question its rapid industrial recovery potential, and minimize the risks of future Russian aggression in neighboring countries. The ninth package of sanctions presented by the European Union serves this purpose: To gradually exhaust Moscow’s war machine. In this package, along with all other restrictions, the ban on the export of drone engines and their components, including to third countries, is undoubtedly one of the most significant moves, especially given the recent massive Russian missile attacks in Ukraine.
It is clear that the new restrictions will not stop the Russian aggression; however, they will definitely contribute to the significant deterioration of the country’s economic, military and industrial production capabilities. Frequently, new sanction initiatives give the impression that they have exhausted all resources, and that adopting the new proposal may be ineffective, or that there is no industry left to be subject to restrictions, which is clearly not the case. Sanctions always have a targeted function and a wide scope of action. Thus, the sanctions work and every new initiative is a step forward, not only to stop the Russian aggression, but also to prevent it in the future.