EC announces a fifth package of sanctions on Russia, targeting coal, high tech equipment and transport

EC announces a fifth package of sanctions on Russia, targeting coal, high tech equipment and transport
Europe has imposed new sanctions on Russia targeting coal among other things, the first time Russian energy exports to the EU have been targeted. / wiki
By bne IntelliNews April 5, 2022

The European Commission has proposed new sanctions on Russia that will hit coal imports, trade and more banks in response to the massacre in Kyiv’s suburb of Bucha on April 3, where retreating Russian soldiers murdered civilians in cold blood.

EU President Ursula Von der Leyen announced the new sanctions on twitter, listing the main points:

·       An import ban on coal from Russia, worth €4bn per year, cutting another important revenue source for Russia;

·       A full transaction ban on four key Russian banks, among them VTB, the second-largest Russian bank;

·       A ban on Russian and Russian operated vessels from accessing EU ports and a ban on Russian and Belarusian road transport operators;

·       Further export bans, worth €10bn, in crucial areas: advanced semiconductors, machinery and transport equipment;

·       A ban on Russian and Russian operated vessels from accessing EU ports and a ban on Russian and Belarusian road transport operators;

·       Further export bans, worth €10bn, in crucial areas: advanced semiconductors, machinery and transport equipment;

·       Specific new import bans, worth €5.5bn euros;

·       Targeted measures, such as a ban on participation of Russian companies in public procurement in Europe and exclusion of all financial support, EU or national to Russian public bodies;

“Finally, we are also proposing further listings of individuals,” von der Leyen added.

“We are also working on additional sanctions, including on oil imports, and reflecting on some of the ideas of the Member States, like taxes or specific payment channels such as an escrow account,” von der Leyen added. “Today over 40 countries apply sanctions like these. To take a clear stand is crucial for the whole world. A clear stand against Putin’s war of choice. Against the massacre of civilians. Against the violation of the fundamental principles of the world order. Slava Ukrainje!”  

All told, the new sanctions will reduce the trade turnover with Russia by an estimated €20bn a year. In 2021 Russia’s trade turnover with Europe was €257.5bn, according to the European Commission.

Following the atrocities in Bucha there have been widespread calls for Europe to cut off imports of Russian gas, but many countries, led by Germany, have shied away from the idea, afraid of the negative economic impact. Russia accounts for 41.1% of the EU’s gas imports, which totalled 155bn cubic metres (including LNG) in 2021, worth $145bn, according to the Institute of International Finance (IIF) estimates.

Russia plays an even bigger role in the importing of coal, accounting for 46.7% of total EU imports, which were worth $15bn in 2021, according to IIF estimates. But as the EU is in the process of winding down the reliance on coal as a fuel as part of its Green Deal, ending the imports of coal is a more palatable measure.

The ban on the import of coal is the first sanction since the start of the war in Ukraine on Russia to directly target an energy supply from Russia to Europe. A ban on Russian coal had been proposed in January should Russia invade its neighbour, but EU sources told Reuters it was blocked by Germany.

Banning oil imports was also not mentioned in the new fifth packet of sanctions, as although Russian oil makes up 26.9% of EU oil imports, worth $120bn in 2021, some countries are much more exposed to the trade. The UK government has already said that it will phase out imports of Russian oil, but not until the end of this year, as it is the most dependent on Russian oil imports of all European countries.

Other measures in the new sanctions strike at Russian transport and logistics and are designed to stymie Russia’s ability to transport and sell its commodities, which in turn will also reduce its export revenues, which are significant.

The SWIFT sanctions limiting Russia’s access to the international financial system were extended modestly, targeting VTB Bank in particular, Russia’s second-largest bank. However, while the SWIFT sanctions have proved highly disruptive, they have only been extended to seven banks so far out of a total of 372 banks as of the end of 2021.

Notably, Gazprombank, the financial arm of Russia’s natural gas producer, remains exempted from the SWIFT bans and continues to be the payment agent for European countries to settle their gas import bills with Russia.

In a particularly painful sanction, high tech products and machinery were also targeted. Russia has missed out on two revolutions in machine tool development and remains highly dependent on imports of precision machine tools, sourcing the bulk of them from the world leaders of Germany and the US. Cutting off access to these tools will severely hamper Russia’s economic development.

The import bans go into effect as soon as they are published in the EU's official journal, with winding-down periods whose length is still to be decided, a source told Reuters.

The European Union announced a fourth package of Russian sanctions on March 15 that were designed to “further contribute to ramping up economic pressure on the Kremlin and cripple its ability to finance its invasion of Ukraine”. The measures included: a ban on transactions with certain Russian state-owned enterprises; an import ban on steel products; a ban on new investment into the Russian energy sector; and an export ban on luxury goods amongst other things. The list of sanctioned oligarchs was also extended.


EU countries are also discussing other restrictions against Russia. Bloomberg noted that the restrictions could affect sales of natural gas liquefaction equipment. The Wall Street Journal writes that the EU will introduce new sanctions against "oligarchs" and their families. Reuters sources add that the European Commission will also proposed including in the new package of sanctions a ban on imports from Russia of rubber and chemicals (possibly fertilizers, although Vladimir Putin ruled out this possibility, saying that fertilizers will be taken because "no one wants to die of hunger ").

In addition, the EU may impose sanctions against Katerina Tikhonova and Maria Vorontsova, whom the media call the daughters of Vladimir Putin. This is reported by Bloomberg and The Wall Street Journal correspondent in Europe Lawrence Norman. Bloomberg notes that the inclusion of Tikhonova and Vorontsova in the sanctions lists will be "a symbolic step, since it is not known whether they have significant assets outside of Russia, but it is intended to attract the attention of the president."

What do restrictions on coal imports mean for Russia?

For Russian coal, the European market is important: in 2021, about 50mn tons of coal were exported to Europe, which accounted for 22.1% of total exports. “For Europe, the dependence is even higher: about 50% of imports are from Russia,” Alexander Titov, a senior expert at the Institute of Energy and Finance, told The Bell.

He notes that the wording of the ban chosen by the European Union in “billion euros”, and not in “million tons”, which leaves some room for manoeuvre when distributing quotas by country and clarifying the volumes under sanctions.  

“If we count at average prices for 2021, then almost all imports of Russian coal to the EU (48-49mn tons) will be banned, about €4bn were exported there, according to the Federal Customs Service of Russia. But if we take current prices, then the ban will affect about 16.5mn tons of exports, that is, only a third of the total,” Titov told The Bell.  

At the same time, prices are likely to continue to rise. On April 5, futures for coal supplied to north-western Europe rose 7.9% to $205 per ton. This means that the reduction in imports may be even smaller. It is expected that in the near future the European Union will clarify the procedure for distributing quotas by country.

It will not be easy for Europe to find alternative suppliers to Russian coal, Titov notes. “It could come from South Africa, Colombia, Indonesia, the USA and Australia, but a number of companies from these countries at the beginning of March already announced that they had contracted their volumes to Asia and other regions and they have little free volumes that can be redirected to Europe,” he explained.  

On the other hand, Europe now has time to find new suppliers, as the heating season is over. Power stations and utilities have until the end of the summer to replenish coal reserves. By that time, it may be possible to find other sources of imports and/or reduce coal consumption.

American sanctions

The Joe Biden administration also plans to announce a new package of sanctions against Russia on Wednesday, NBC News reported, citing sources. According to them, the package was developed in coordination with the G7 countries and the European Union.

The new sanctions, according to the TV channel, "are aimed at causing significant economic damage to Russia" and are introduced as a response to "war crimes in Ukraine." They provide for a ban on all new investment in Russia, increase pressure on the country's financial institutions and state-owned enterprises, and impose restrictions on officials and their families.

The Wall Street Journal also writes about the preparation of new US sanctions. According to the paper, the new sanctions package may include additional restrictions against Sberbank.

Europe continues to expel Russian diplomats

On April 6, several other European countries announced the expulsion of Russian diplomats. And the European Union declared 19 employees of the Russian Permanent Mission to the EU persona non grata.

The expulsion of diplomats as of April 6 included:

  • Denmark      will send 15 Russian diplomats, all of them are suspected of espionage;
  • Slovenia      expels 33 Russian diplomats;
  • Romania      declared 10 Russian diplomats persona non grata;
  • Latvia          will send 13 employees of the Russian diplomatic mission and close two Russian consulates general;
  • Estonia        expels 14 employees of the Russian consulate and closes the consulate in Narva and the office in Tartu.

In addition, it became known that the Russian embassy in Dublin complained to the Irish Foreign Ministry about the "discriminatory" refusal of local companies to supply diesel fuel for heating and hot water. The parties do not comment on this information, however, anti-Russian protests in Dublin were among the most violent, and a month ago the gates of the embassy were rammed by a truck. The Irish media also write that the Bank of Ireland blocked the embassy's accounts, but there is no independent confirmation of this information either.