EU prepares eighth sanction package against Russia, including oil price cap but no ban on diamond trading

EU prepares eighth sanction package against Russia, including oil price cap but no ban on diamond trading
EU member states are divided on the question of the oil price cap, depending on their dependence on Russian oil imports. / bne IntelliNews
By bne IntelliNews September 29, 2022

The EU released some details of a proposed eighth package of sanctions on Russia on September 28, which included more details of the mooted oil price cap scheme but no ban on buying Russian diamonds.

The draft measures will be considered by the 27 member countries, where they need unanimous approval. No deadline has been set for the approval process, which is expected to be difficult. Member states are divided on the question of the oil price cap, depending on their dependence on Russian oil imports. EU leaders are next due to meet in Prague on October 6-7, where they will discuss the measures.

The new package is partly in response to the controversial referenda held by Russia in four Ukrainian regions over the weekend that are expected to result in Russia’s annexation of the regions sometime in the next two weeks. The authorities announced an unscheduled meeting of the Duma on October 3 that is seen as the possible date for the annexations to be ratified by the Russian parliament.

"We do not accept the sham referenda nor any kind of annexation...And we are determined to make the Kremlin pay the price for this further escalation," European Commission President Ursula von der Leyen said, reported Reuters. "We are proposing a new package of biting sanctions."

Von der Leyen said a new imports ban targeting a longer list of goods and services would cost Russia €7bn in lost revenues and that the EU would also expand the list of prohibited exports "to deprive the Kremlin's war machine of key technologies".

The Group of Seven major industrialised countries – which includes EU countries Italy, France and Germany – have already agreed to put an oil price cap in place via insurers.

Ukraine has been adamant that the EU should significantly tighten sanctions on Russia. "If you are doing nothing it means you are just prolonging this war with Ukraine. This is just ridiculous. The whole civilised world has to be united on that," said Oleg Ustenko, advisor to Ukrainian President Volodymyr Zelenskiy.

While the US has already banned the import of diamonds, the EU has shied away from the same measure, as Russian diamonds are so important to Antwerp and the Belgium economy. Russian diamonds continue to be exported to international markets, including the US, as reported by bne IntelliNews.

The new sanctions package will also ease restrictions on Russian exports of coal and other essential raw materials like cement and fertilisers, where the EU is struggling to replace Russian supplies.

There is also a new proposed embargo on the export of semiconductors, including a ban on the sales of dishwashers, washing machines and fridges, which have been the source of microchips the Russians have been using in missiles.

Aircraft have also been targeted, including their tyres and brake pads. Russia has been unable to source parts for planes and has begun to cannibalise its fleet of jets in an effort to keep at least part of the fleet in the air.

EU members would also be explicitly banned from exporting riot control gear such as tasers, tear gas and protective equipment, the FT reports.

Von der Leyen said the EU would outline the “legal basis” for the oil price cap, which would bar insurance for shipments of Russian crude sold above a certain price. However, people familiar with the sanctions told the Financial Times that the mechanism for setting the level of the oil price cap still needs to be agreed by the members of G7 and that will be difficult. The new eighth package of proposals will skip over the more controversial parts of the problem for the meantime.

A price cap on Russian gas is also being discussed as part of a wider effort to curb energy prices despite opposition from several member states, including Greece and Austria, which fear that it could result in a cut-off of any remaining supplies.

Hungary continues to criticise the total ban on Russian crude oil imports that is slated to come into effect on December 5. Other EU countries with large shipping fleets including Greece, Malta and Cyprus have also criticised the ban. Russia exports three quarters of its oil by ship and Greece alone accounts for 55% of the business, according to Institute of International Finance (IIF).

EU foreign policy chief Josep Borrell said the bloc was also blacklisting more individuals from Russia's defence sector and officials involved in organising the Ukrainian referenda.

Poland's EU ambassador said the proposed individual sanctions would include Patriarch Kirill, head of the Russian Orthodox Church and a close Kremlin ally, after previous attempts to blacklist him in the EU were blocked by Hungary.