The EU is preparing a new, fourteenth package of sanctions

The EU is preparing a new, fourteenth package of sanctions
The EC is working on a fourteenth package of sanctions that are unlikely to include any new products and will focus mainly on making the previous rounds of sanctions work better. / bne IntelliNews
By Ben Aris in Berlin April 11, 2024

The EU is preparing a new fourteenth package of sanctions that is slated for adoption in the coming months but is unlikely to introduce any new products, and it will focus mostly on enforcing the existing thirteen rounds of sanctions.

EC Vice-President Valdis Dombrovskis said in a speech: "We have started the preparation of the fourteenth package of sanctions, which should be adopted in the spring. It will probably include a wide list of restrictive measures to combat sanctions evasion as the Russian Federation continues violating the upper limit of oil export prices".

According to him, the EU is also looking for ways to stop the circumvention of sanctions through Western subsidiaries operating in countries outside the EU.

Dombrovskis added that EU parent companies that retain influence over the business operations of their overseas subsidiaries can be held liable for sanction-busting actions.

Dombrovskis also admitted that the short-term impact of sanctions has been less pronounced than expected. As bne IntelliNews has reported, the oil sanctions are a spent cannon and technology sanctions have also been a failure, as Russia has been able to export most of its oil to Asia and import as much technology as pre-war via its partners in friendly countries.

The prospects for the new sanctions package to include fresh bans on new products remains low. The thirteenth sanctions package, adopted on the second anniversary of the start of the war in Ukraine, was little more than an extended list of sanctions against more individuals, including the prison guards that guarded Opposition figure and anti-corruption activist Alexei Navalny, who died at the Far North camp on February 16. The sanctions targeted 106 individuals and 88 entities involved in Russia's aggression against Ukraine, including Russian partners in India, Sri Lanka, China, Serbia, Kazakhstan, Thailand and Turkey.

There has been talk of including Russian aluminium in the new rounds of sanctions, but the EC baulked at the idea as it would send metal prices soaring in Europe. The EC has also shied away from including uranium to the list, as too many countries still rely on Russian supplies of the hard-to-replace nuclear power plant (NPP) fuel.

The new round of sanctions is likely to add more individual names to the list that is now 2,000 names long and try to improve the enforcement mechanisms. Efforts to make the oil price cap sanctions work are likely to be high on the list, as not a single barrel of Russian crude oil has been sold below the oil price cap of $60 so far. But any new painful sanctions, that are increasing bouncing back on the EU members, will be hard to find a general consensus amongst the EU member states.

Dombrovskis warned that the space for additional restrictive measures "is becoming more limited" as talks among member states "are becoming more difficult."

OFAC letters

Since December, Office of Foreign Assets Control (OFAC) has started to impose smart sanctions separately from the previous coordinated sanctions that were brought out in parallel with new EU sanctions. The smart sanctions target individual companies, banks and highly specialised products and equipment and are having more effect than the blanket bans previously employed.

The EU sanctions have been ineffective because they are riddled with carve-outs and exemptions, designed to protect key European companies and sectors. For example, in one of the most recent additions, the new “diamonds are for never” sanctions that contain regulations that industry participants say are unworkable and have simply driven diamond trading from Antwerp in Belgium, which has long been Europe’s leading diamond trading hub, to Dubai where the sanctions don’t apply.

OFAC is attempting to improve the efficacy of sanctions by enforcing sanctions against individual abusers. It has sent letters to some 40 tankers and shipping companies threatening them with secondary sanctions, which has resulted in Indian refineries turning away tankers loaded with Russian crude in recent months.

Likewise, leading Chinese and Turkish banks have cut ties with Russian companies after they received similar letters, which will make settling trade deals much more difficult for Russia. The leading Chinese bank, Chouzhou Commercial Bank, has ceased all financial dealings with Russia in February, potentially leading to significant disruptions to trade, as it had acted as one of the leading clearing houses for payments settlements in the burgeoning Sino-Russian trade.

LNG sanctions bite

The US also introduced specific sanctions against the export of sophisticated LNG technology in November that has significantly hampered the main Russian producer of LNG, Novatek’s Arctic LNG-2 project, which is part of a programme to double Russia’s LNG exports. As only a handful of companies produce the required technology – and they are all Western – Novatek has had to scale back plans to finish the new plant in the northern Yamal-Nenets Autonomous District.

The launch of Arctic LNG-2, one of Russia’s flagship energy projects, was due to launch in the first two months of this year but has missed that deadline and will be reportedly further postponed. Additionally, the project may be scaled down entirely due to Russia’s lack of access to foreign-made ice-class tankers. However, Novatek said this month that it still hopes to meet delivery orders in the first quarter of this year.

Novatek expected to complete the second gravity-based production unit of the project after Chinese-made modules arrived in the Murmansk Region port of Belokamenka in April, but had to later admit that the Chinese-made equipment “doesn’t work very well.”

Deputy Prime Minister Alexander Novak, who oversees Russia’s energy industry and announced the launch of the first stage of Arctic LNG 2 in late March, had earlier said that the project’s main issue was the unavailability of tankers.

On April 2, Reuters reported that the project had suspended gas liquefaction after reducing it threefold in February. Novatek recently lost an opportunity to participate in another already functional LNG project, Sakhalin 2, when government-owned Gazprom took over Shell’s shares in the project instead.

Novatek announced another Arctic LNG project last year in the warm-water port of Murmansk and production units are already assembled. However, the latest developments with the Arctic LNG-2 project show how sanctions could complicate Russia’s plans to increase its share on the global LNG market and further the industrial development of the Northern Sea Route (NSR), which is also a priority for the Russian government. LNG projects inside Russia, such as LNG factories in the Republic of Sakha, are much smaller than Novatek’s flagship projects and also face transit difficulties of their own.