Will the EU’s latest sanctions actually hurt Russia? | DW Business

Will the EU’s latest sanctions actually hurt Russia? | DW Business

A new year and a new round of EU sanctions against Russia russels is hoping to hit the Russian economy through targeted restrictions on its diamond and aluminum Industries as well as assets freezers and Export banss so to talk us through the measures and their potential effect I’m joined by

Ycob kard from the German Marshall fund of the United States thank you very much for joining us yakob this is the 12th round of EU sanctions now how does it rank among the others in terms of its severity suppos well I think we should be clear

That the fact that there has been 12 rounds indicates that there is a there is an element of incremental you know tightening of sanctions going on but I would say this one because it includes you know very explicitly a rapid ban on diamonds which is one of these outstanding sectors that the EU

Countries have been trying to agree uh to to ban for quite some time and then now they’ve finally done it it also uh involves quite significant potentially at least increases in the enforcement of existing sanctions so I would rate it uh probably in the sort of top three or

Four of the 12 rounds right yeah so there’s a bit of bolstering going on there but also some some new ideas thrown in let’s start off by taking a look at some of the sanctions effective as of January the 1st first off we do have that big headline measure which is

The banon Imports of Russian diamonds so diamonds mined processed or produce there for now that’s not industrial diamonds but it will soon be and also jewelry containing Russian diamonds will be banned later this year also on the list are measures to enforce a G7 cap on

The price of Russian oil and make it harder for Russia to circumvent it Russian aluminium products are being sanctioned for the first time and the EU is also prohibiting European businesses from selling software to Russian companies and government entities yakob kicker Guard from the German Marshall

Fund that was just a few of the measures but let’s take a look uh at what they’re adding to because we’ve had these 11 rounds of sanctions already are we to assume by the fact that there’s a 12th that they’re not having the desired effect well I I would say it depends on

What the desired effect is if we believe that economic sanctions would crush uh the Russian economy and force Vladimir Putin into abandoning his his war in Ukraine well then obviously they have not worked uh but I think that would that would have been ultimately the original hope wouldn’t it yeah that but

But I think there was always an inflated uh uh sense of expectation about what can sanctions achieve against a large economy like Russia and one that clearly was prepared for economic sanctions in terms of its macroeconomic bolstering uh large budget surpluses and things like that pre-war and then of

Course the fact that Russia produces uh very important energy and raw materials desired by throughout the global economy this is not an economy that it’s easy to subdue with with economic sanctions however if we believe that the real aim of these sanctions were to limit or restrict uh aspects of Russia’s

Ability to wage Advanced industrial War uh in terms of limit its ability to produce uh cruise missiles and other Advanced weaponry well then I must say I think the sanctions have actually worked uh and then of course there is the big Joker namely that we have about 300

Billion of Russian assets Frozen in Western uh financial institutions we haven’t agreed what to do with that money uh but that is potentially also a game Cher when it comes to the potential at least uh in one way or another of using these funds to rebuild or

Compensate Ukraine uh after the war war and uh was it ever really the the idea that these sanctions were supposed to work immediately or was it always factored in that it might take some time for them to work I mean I I think there were always these inflated expectations that oh we

Use these sanctions and and you know Vladimir Putin is going to change his mind immediately well that was always a pip dream uh it was always only going to work uh on a very gradual basis by you know making it harder for Russia to wage its War effectively and obviously

Ultimately again in the medium run by sort of two three four years undermining the economic strength of the Russian government uh and I think the the the the sanctions are having uh that desired effect but we have to keep that timeline in mind uh uh we are not we shouldn’t

Expect uh therefore these Russian these sanctions to sway the mind of Vladimir Putin away from his aggressive War we’re not there yet what we absolutely have to bear in mind is that some of these sanctions are being actively undermined in various ways that’s something we’re going to get into

A little later yaka but first I just want to take a look at the big new addition to the sanctions regime diamonds Russia is the world’s leading producer of rough diamonds in terms of volume Russia’s state-owned alosa dominates over 90% of the market in 2021

As you can just see here just before the in iation of the fullscale invasion of Ukraine Russia exported approximately 4 billion doar worth of diamonds so they’re hoping along with the G7 the EU is hoping that they can reduce at least that level of income when it comes to

The S so so let’s just understand a bit better yakob kard um how this ban on the import of diamonds is going to work and actually which diamonds it’s it’s going to incorporate well I I mean there basically there is an immediate ban on the direct importation of newly mined or

Newly industrially produced diamonds from Russia that takes place in fact today uh and then there is this gradual phasing of the import ban of diamond already uh being incorporated into jewelry and other uh uh you know Goods Goods uh this will come in uh over the

Course of the year because what you need to do is you need to have a Trace ility mechanism you basically need to be able to verify whether or not these diamonds are ultimately Russian uh seems like the most obvious stumbling block doesn’t it is is is if you’ve got an item of

Jewelry with a diamond in it how on Earth you supposed to know where that diamond came from well no I mean absolutely this is this is uh this is the problem and obviously I mean we have you know the movie about blood diamonds from Africa uh we do have some experience with

Making these traceability mechanism but as you said Russia is a far larger producer than say suron or other uh uh sources of origin of blood diamonds in the past so it needs to be much more comprehensive uh and and therefore it’s going to take some time and then of

Course ultimately uh there is also the risk that and this was always by the way the argument of the Belgian government for uh not wanting this diamond import B and sooner uh namely that a lot of it is tied to the diamond uh b or Diamond

Auction house in the city of antal uh and the belgians always said look if if we ban it they’re just going to shift it to somewhere else outside the EU or the G7 uh so ultimately you know it’s not going to affect Russia’s ability to earn

Uh uh you know export earnings it’s just going to keep going to hurt our business that’s why they opposed it well that’s that was the AR against so many of the sanctions wasn’t it it was C it would it would be an act of self harm but it’s

Been sort of pushing through that that’s been one of the challenges for the EU yeah and I think I think now probably because of a combination of the fact that Belgium is taking over the EU presidency they kind of felt that now is the time to do it and probably also

Because they they will feel that they have come that they’re able to implement uh and and and a degree of traceability so that the sanctioned circumvention uh will hopefully be uh limited and therefore that this will actually hurt uh Russia’s ability to earn foreign exchange by the sale of

Diamonds but we shouldn’t kid ourselves look there are plenty of buyers in India China and other economies that are buing that will be willing to buy Russian diamonds uh maybe they will even just ask for a little bit of a discount but ultimately Russia will still make a

Substantial Su of money from these exports and what you’re talking about there this sort of parallel economy is very reminiscent of what we’ve seen with oil and gas which is something that we’ll we’ll get on to talking about but while we’re talking about import bans there’s also a a new ban on Russian

Aluminium products how big a blow is that likely to be for Russia well again uh you know it it is the question though is to what extent does this just meaning a rerouting of uh Russian export away from the EU to other markets because again like oil and gas

The reality is that there is a global demand for aluminium uh so yes Russia loses a market uh uh in the EU but uh that probably means that they I mean they will be forced of course to redirect those sales elsewhere uh so they will try uh probably cut

Prices a bit in China India and elsewhere so their profit margins from the sale of aluminum aluminum uh globally will go down but again we shouldn’t pretend that uh just because we stop importing a globally uh sought after Russian commodity that this is going to end Russia’s ability to earn

Money from those exports it will not it will cut it but it won’t it certainly won’t end it well speaking of which let’s let’s talk about uh oil and gas particularly let’s look at look at oil one of the most significant sanctions imposed since Russia’s fullscale

Invasion of Ukraine was the G7 cap on Russian oil capping sales at $60 Western firms are banned from being involved in any oil sales worth more than $60 a barrel the new itions include measures that are supposed to enforce that ban better so are we to conclude that Russia

Has been getting around it so far oh yeah there’s no doubt about that I mean that what basically what has happened is that Russia has begun I mean the Western band basically works that we cannot Western insurance companies Etc can’t provide Financial Services to uh Russian shipments uh above the price cap

Uh the problem of course is that uh Russia increasingly has its own Fleet of oil tankers uh that they are will that they use to ship their oil around the world this is the soal ghost Fleet that people talk about right exactly and and there there is actually also an

Element of the new sanctions involved here where the EU says well we need a so-called again transparency mechanism to see uh whether not uh European chartered or previously european-owned oil tankers are being sold to Russia uh but the reality is that this is a little

Bit like I mean the the the horse has left the Stables if I may put it that way because what has been going on is that a lot of oil tankers particularly previously owned by Greek shipping uh firms has been sold to Russia directly or to Russian middleman so Russia

Therefore today probably does have or actually does indeed have a sizable ghost Fleet uh to to therefore facilitate the continued Supply and circumvention of the western B uh or the Western price cap uh so unfortunately for that reason unless we are in the west willing to directly impose

Secondary sanctions on the buyers of Russian oil in third countries say India or China this probably isn’t going to be that effective and certainly the EU uh has to date Shi away from those types of secondary sanctions which is only therefore something done by the United States so what what do these latest

Measures actually do then they just I think they just seem to aim to better monitor the movement of of Russian oil is is that right yeah I mean the reality is that the the actual effect on Russia’s oil uh proceeds uh of of these sanctions I personally believe is quite limited

Because what happens of course is that when Russia uh is also supplying the transportation of that of the oil well then they earn money from providing that service as well and you got to factor that in not just the the sort of cow the the price of the crude oil itself but

The total revenue earned by the Russian government and government link entities as part of these exports and that I don’t think has gone down very much I think the real issue though is that a lot of this Russian uh crude oil exports are now being transported around the world in an

Underinsured uh basis so the re the real risk here is that one of these ghost Fleet tankers capsizes and we’re going to have a massive oil spill somewhere uh and there won’t be the reinsurance cover coverage to pay for the cleanup uh because ultimately people will go well

You vadir Putin has to pay for your mess and obviously Vladimir Putin is gonna say no I don’t think so I’m gonna say that it’s because of the G7 sanctions that we now have this slick exactly exactly so so you end up therefore and I think this is a major risk of the

Companies and countries that allow these Russian ghost likely underinsured Russian ghost fleets to transort oil through their territorial Waters because they quite frankly end being stuck with a potential catastrophic Bill uh if there is uh uh a a an accident but it hasn’t happened yet

Uh so so far everybody is kind of making money on this uh but if this happens then uh I think countries will think twice and that’s uh unfortunately likely the only point in time in which this these sanctions will actually become biting because people realize or countries and businesses will realize

That they actually need the Western reinsurance coverage to pay for those types of catastrophic damages so this is sanctions package number 12 will there be a sanctions package number 13 during the course of 2024 oh I’m sure there will be because uh one of the aspects of the 12th

Package was was as you mentioned in the beginning better enforcement there are more entities Russian entities and Russian owned entities in other jurisdictions Hong Kong Singapore UAE Etc 140 entities on on this latest list yeah that are now designated as essentially sanctioned and Western European companies G7 uh companies can’t

Do business with them that list is going to have to constantly change and evolve and as as we catch it mean it’s sort of a cat and mouse game a little bit where uh you know Russian and Russian uh go businesses will set up shell companies

To evade sanctions uh now clamped on on directly on Russian companies and then we need to sanction these shell companies uh and and and on it goes so there’s no doubt that we will have to revert once again to uh the enforcement of these existing economic sanctions uh

During the course of 2024 and likely Beyond no doubt about it and the diamond sector was the big new addition in this set of sanctions are there any other sectors left to sanction are there any other vulnerabilities within the Russian economy that the EU is going to look to try and Target

Next well I I think the big one remains gas right I mean the the the issue neither Russian I mean pipeline gas Russia has essentially cut on its own right but uh the EU now Imports completely legal a sizable amount of Russian LG yeah uh we as part of this

New sanctions package uh liquid propane gas is sanctioned uh but why not liquid natural gas well that’s obviously this Everlasting balance between hurting your own economy and hurting the Russian economy watch the balance but I certainly believe as Europe’s uh you know natural gas market is increasingly well supplied and securely supplied from

Suppliers in Norway and the United States and elsewhere that uh moving on to Banning the import of Russian LG in my opinion would be a logical Next Step uh uh and then but then beyond that uh yes I think a lot of the the action will be in the enforcement and there really

The EU has to make up its mind are we going to to go directly after uh Third Country governments or third Country Companies uh in say Kazakhstan or China or wherever uh that are actively facilitating the breaking of existing EU sanctions uh that will be a new step for

The EU we’ve never done that before a lot of countries say I European countries are are are selling significantly higher volumes of banned goods to Russia’s neighbors only for them to clearly be imported straight into Russia those yeah so so the EU as part of our enforcement of these

Sanctions we have to think really hard about do we do outright secondary sanctions against these kinds of uh sanctions breaches uh by Third countries and Third Country Companies uh well that’s obviously a lot about the relationship that we would like with these third countries uh uh so so those

I would say lngg and second AR sanctions are the big obvious next steps that you know we’ll have to revert back to during the course of 2024 it’s going to be very interesting to see how that develops isn’t it yakob kard from the German Marshal fund of the

United States thank you so much for bringing us your insights my pleasure and thanks to you for watching there’s plenty more from us here on the DW news YouTube channel we’ll see you over at whatever you choose to watch next take care

A new year and a new round of EU sanctions against Russia. Brussels is hoping to hit the Russian economy through targeted restrictions on its diamond and aluminium industries, as well as assets freezes and export bans. To talk through the measures and their potential effect, we’re joined by Jacob Kirkegaard from German Marshall Fund of the United States, based in Brussels.

Subscribe: https://www.youtube.com/user/deutschewelleenglish?sub_confirmation=1

For more news go to: http://www.dw.com/en/
Follow DW on social media:
►Facebook: https://www.facebook.com/deutschewellenews/
►Twitter: https://twitter.com/dwnews
►Instagram: https://www.instagram.com/dwnews
►Twitch: https://www.twitch.tv/dwnews_hangout
Für Videos in deutscher Sprache besuchen Sie: https://www.youtube.com/dwdeutsch

#Russia #Ukraine #EU