Ben Aris in Moscow -

The European Union has voted to link the extension of sanctions on Russia to the fulfillment of the two Minsk ceasefire agreements. It stopped short of immediately re-imposing the sanctions regime, which is due to start expiring in July, but nevertheless the decision, at a summit in Brussels on March 19, will mean a de facto six-month extension of European sanctions.

A formal, legal decision on whether to extend the sanctions on Russia's financial, defence and energy sectors that expire in July will only be taken at the next EU summit in June.

"This evening, we discussed Ukraine and Russia. Leaders decided to align our sanctions regime to the implementation of the Minsk agreements brokered by [German] Chancellor [Angela] Merkel and [French] President [Francois] Hollande," European Council President Donald Tusk told journalists after the first of two European Council meetings. "The European Council agreed that the duration of economic sanctions will be clearly linked to the complete implementation of the Minsk agreements, bearing in mind that this is only foreseen by the end of 2015," he said.

There have been two attempts to end the bloodshed in eastern Ukraine that produced agreements at summits in the Belarusian capital of Minsk in September and March. A 13-point package on the implementation of a ceasefire and other measures agreed at the September 2014 Minsk summit was adopted at the February talks.

Russia still on the hook

Among the main points in the deal is for Russia to secure its border with Ukraine and hand over control of the region to Ukrainian authorities. This week's decision notes that the Minsk II agreement will not expire until December, leaving Russia on the hook until then. Hence the link to Minsk II agreement is a de facto six- month extension of sanctions – a compromise between the hardliners like Poland, and Russia's friends in the EU.

The decision will come as a blow to Moscow, which had been hoping that divisions within the EU would prevent the sanctions from being extended. The EU's sanctions are due to automatically expire between July and September unless there is a unanimous decision by EU members to extend them.

In recent months several members of the EU have expressed their concern over the sanctions and their apparent unwillingness to re-impose them when the current resume expires. This "pro-Russian" group includes countries like Hungary, Spain and Bulgaria, all of which have significant economic ties to Russia. Even Germany is seen to be sitting on the fence: on the one hand Merkel is adamant that Europe should not cave into Russian aggression, but on the other hand the German business lobby, which is heavily invested into Russia, is keen to normalise the situation and get back to work.

Securing EU gas contracts 

The Financial Times (FT) reports that Poland has been isolated in Brussels in its push for the toughest response to Russia. Tusk has been holding out not only for restrictions on Russian-sanctioned banks raising finance in the western capital markets and on exports of oil drilling technology to Russia, but also wants new EU powers to reject members' gas supply contracts signed with Russian state-owned Gazprom if they were deemed to break EU law.

“Most bilateral contracts with our dominant supplier, Russia, are concluded on a long-term basis, sometimes more than 20 years. That can be unhealthy,” Tusk said, reports the FT. However, observers say that Tusk will keep working on this aspect of potential sanctions, which might be added at a later date.  

“It is not an empty conclusion, you can be sure,” Tusk said. “I feel after today’s decision, when it comes to energy security, all member states are ready to co-ordinate and co-operate with the institutions and the commission to ensure gas contracts are secure for Europe.”

Stick and carrot

However, yesterday's communiqué only mentioned the economic and financial sanctions, leaving the EU with the possibility of "rewarding" Moscow for progress in implementing the Minsk agreements by lifting some of the visa bans and thawing asset freezes the EU has imposed on scores of Russian and Ukrainian citizens and organizations if the situation in Eastern Ukraine improves.

"If things deteriorate on the ground, we will strengthen sanctions. If, on the other hand, the situation remains stable and improves, then we might envisage a re-examination of the scale of the sanctions package and possibly ease it," a French diplomatic source told Reuters.

Linking the European sanctions regime to the implementation of the Minsk agreements will in effect perpetuate them for the foreseeable future as the conflict is unlikely to be resolved by the December deadline: Russia is holding out for much bigger changes in Ukraine and is unlikely to loosen its hold over the Donbas until it ticks off all the items on its wish list.

"Linking EU sanctions to full implementation of the Minsk agreement means they are here to stay for a long time," Dmitri Trenin, head of the Carnegie Endowment for Peace in Moscow said in a tweet.

Wider issues pressing

While the Minsk agreements laid the ground work for a de-militarized zone and a line of demarcation between the Moscow-backed separatists on one side and the Ukrainian army and its related militias on the other side, the agreements did not broach the topic of how to deal with the substantive issues behind the conflict, such as Russia's objections to Ukraine's Nato membership bid or the proposed trade regime with the EU, which need to be resolved before the conflict can be brought to an end.

Russian President Vladimir Putin is expected to keep forces in the field in Ukraine's Donbas region until these questions are solved. And that could take a very long time.

The first round of sanctions was imposed on Russia following its annexation of the Crimea in mid-March 2014 and targetted Russian officials and companies close to the state. The West announced new, sectorial, restrictions against Russia in late July 2014 and added financial sanctions to that in September and December.

Russia responded with its own sanctions, imposed on August 6, with a one-year ban on imports from the EU and US of beef, pork, poultry, fish, cheeses, fruit, vegetables and dairy products.

Red Square in Moscow was packed this week with Russians celebrating the first anniversary of the "return" of Crimea to the motherland. Putin has very effectively capitalised on the sense of national pride and has seen his popularity soar to an all-time high of well over 80% despite the obvious deterioration of the economic situation in Russia.

The situation on the ground in East Ukraine remains tense and unstable. While in general the terms of the ceasefire seem to be holding and heavy artillery has been withdrawn from the conflict line defined in the agreements, low-level shooting continues on the ground between the rival militias.

Putin camp still quiet 

Putin has yet to comment on the decision. He arrived on March 20 in the Kazakh capital Astana to meet with his counterparts from Belarus and Kazakhstan, Alexander Lukashenko and Nursultan Nazarbayev, whose countries are members of the Russian-led Eurasian Economic Union (EEU). The timing of the meeting may have some symbolic significance: it was Russia's vigorous attempts to get Ukraine to join the EUU instead of the EU that lead to the current conflict.

"The sides plan to discuss the state and prospects for development of trade and economic cooperation of the three countries, Eurasian integration processes with account for the influence of modern tendencies in the global economy," a statement by Russia's Foreign Ministry said. "An exchange of opinions on urgent international issues, first of all the situation in Ukraine, is also expected to take place."

Both Lukashenko and Nazarbayev have been less than enthusiastic about Russia's military adventure in Ukraine and both refused at first to impose the sanctions on European agricultural goods despite Russian bullying, although Belarus has informally caved in since.