Data Shows How New EU Sanctions Are Devastating the Russian Economy

The Kremlin has been bombarding its domestic and international audiences with propaganda that the EU sanctions aren’t hurting Russia’s economy today, but this is patently false. The ninth round will have an even larger impact on the troubled Russian economy, but they need to be enforced more stringently.

EU sanctions against the Russian Federation and Belarus have been the first example of war sanctions which are directly targeted against a country responsible for violation of the most basic foundations of the UN Charter and peace. And it is devastating the Russian economy today.

The 9th package of EU sanctions against Russia is a very recent example. The latest batch includes new individual designations, including the members of the Russian Armed Forces who are responsible for missile strikes on Ukrainian civilian infrastructure, Russian banks and broadcasters, additional bans on arms technologies, as well as a prohibition exporting components for drones, etc.

The readiness to defend the core values of international law and the sovereignty of an independent European nation shows a strong commitment to rule-based international order, where tyrannies cannot dictate their will only by means of brutal military power. Thus far, fierce Ukrainian resistance on the battlefield, together with the Allies’ support through sanctions and military assistance, are inflicting defeat on the Russian Federation. Though the battle is far from over, there is significant room for strengthening the strategic triangle.

Reality of EU Sanctions on Russian Economy

Sanctions hurt the Russian economy even if Moscow insists they do not work. Russian propaganda has inundated the public with the message that sanctions instead inflict more pain on Europeans, and about 15 per cent of the media space in Russia is solely dedicated to downplaying sanctions.

Yet, the statistics confirm the opposite is true, that is, international sanctions have had a severely detrimental effect on the Russian economy and its markets, the industrial, high-tech, and IT sectors, as well as social welfare. Illuminating examples include the increase in unemployment to 7 per cent in 2022 (from 5 per cent in 2021) and the more than 50 large Russian companies suspended their activities due to the lack of foreign components.

Thus far, the EU has imposed sanctions against about 1,300 individuals and 120 companies designated under Russian-affiliated programmes, and about 200 individuals and 35 companies have been designated under Belarus-affiliated programmes. Yet, much more can be done to make sanctions stronger to stop the aggressive war launched by Moscow.

Symbolic and Legal Meaning of Sanctions Against Russian Economy Today

Between 2014 and 2022, EU sanctions played a symbolic, rather than meaningful, role. Only a few companies were placed under sanctions in the period in question, and even their designation caused heated debates and high-stakes negotiations between Paris and Berlin.

Including a reference to the Minsk Process as a condition of lifting sanctions in 2015 eventually meant that Russia’s realpolitik won that time. Even the title of the sanctions documents avoids blaming Russia, stating rather the following unintelligible notion: “Council Decision concerning restrictive measures in respect of actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine”. If an uninitiated person is looking at the sanctions, he or she may eventually imagine that the sanctions are against Ukraine or because of some situation in Ukraine.

Before 24 February, the designated persons and companies were selected carefully to avoid confrontation with Moscow. The companies under EU sanctions were mainly from the occupied regions, the persons put under personal sanctions were rather intermediaries or Moscow puppets which can be easily substituted. The return of the Russian delegation to the Council of Europe in 2019 marked an end to tensions between pragmatic leaders in Europe and the Kremlin. Hopefully, this Overton window closed once and for all after the first shelling of Kyiv in the early morning of 24 February 2022.

Kyiv is One Step Ahead of EU Against the Russian Economy

Alignment with EU sanctions ought to take the form of an institutionalised, rather than politicised, process. Once a country has declared its EU aspiration and gains candidate status, a firm legal commitment to legal alignment with foreign policy acts is expected. On the other hand, the country concerned has to be invited to EU ministerial fora and working groups to have an advisory or consultative opinion during the elaboration of sanctions packages.

The EU Commission reports providing an assessment on alignment rates hardly seem indicative because, in certain instances, the alignment function does not go beyond a mere political statement with no legal outcomes. The effectiveness of such measures is controversial. In addition, a few strategic partners of the EU decided not to align themselves with the largest sanctions package against Russia and Belarus in the aftermath of 24 February 2022, namely Serbia and Georgia.

Editor’s Pick: Georgia’s Balancing Act Between Russia and the West

“Serbia respects Ukraine’s territorial integrity and considers Russia’s military action against it to be “wrong,” but will not impose sanctions against Moscow,” Serbian President Aleksandar Vucic said on 25 February 2022.

“I want to state clearly and unambiguously, considering our national interests and interests of the people, Georgia does not plan to participate in financial and economic sanctions, as this would only damage our country and populace more,” Garibashvili told reporters also on 25 February 2022.

These statements starkly contrast with the Ukrainian position, even before it was a candidate member-state. Ukrainian Minister of Foreign Affairs Dmytro Kuleba further explained,

“The issue of Belarus is a great example of how the convergence of foreign policies of the EU and Ukraine, provided for by the Association Agreement, works when we really act as a ‘united front’ on the most painful issues.”

Alignment with the Common Foreign and Security Policy of the EU should be considered equally important as the status of the judiciary or human rights on the integration track to full membership in the EU.

Against Russia’s Economy – EU Sanctions Enforcement

The principal difference between the two biggest sanctions authorities in the world, namely the US and the EU, is the enforcement models they employ. Brussels has no equivalent of the US Office of Foreign Assets Control (OFAC). Thus, the EU relies more on national authorities to implement and properly enforce the sanctions adopted at the Union level.

The lack of a single centralised institution makes it almost impossible to enforce the sanctions uniformly throughout all EU countries. There are numerous reports and evidence on sanctions evasion or violation, including the following:

• The cases of sanctions violations from the Czech Republic. According to a Datalab report (as of October 2022), there have been several incidents where Czech companies were involved in violating international sanctions. Datalab identified 17 companies that are suspected of having connections with Russian individuals, including those who are on the EU sanctions list.
• Another case comes from Sweden, where Swedenbank AB had facilitated the transfer of one million dollars from the Russian gun maker industrial giant “Kalashnikov”. While only OFAC investigated this instance, EU bodies and domestic authorities remained silent about the situation.
• The recent report of the Yermak-McFaul sanctions group and Defence Intelligence of Ukraine provided a large volume of evidence that foreign components (for instance, Thales, France, products) are frequently found in destroyed Russian arms.

Actions taken recently to criminalise sanctions violations or evasion at the EU level seem a timely and useful step. A notable fact is that only war sanctions actually forced EU bureaucrats to reconsider sanctions design. The second noteworthy development is the allowance for secondary sanctions within the regime of war sanctions against Russia, which allows the specific designation of natural or legal persons who are “facilitating infringements of the prohibition against circumvention of the provisions of this Regulation”.

Editor’s Pick: Serbia Weighs Up the Cost of EU Accession

Personal and Sectoral EU Sanctions: the List is Still too Short

A package approach to designating members of the Russian State Duma and heads of the occupation authorities, as well as Russian mouthpieces of propaganda, should be among the priorities on the EU foreign agenda. For instance, the same package approach for designation should be considered for Russian companies involved in the pillaging of Ukrainian grain and RU oligarchs (still, many of them are not under sanctions).

• Yermak-McFaul sanctions takeouts should have due consideration. The latest working paper specifically addresses the issues connected to ways of preventing the circumvention of sanctions. The number of Russian companies from the arms industry that are not on the sanctions list remains high. Such companies as Zavod “Sokil” LLC, CJSC “Saratovsky Aviation Plant”, JSC “Izumrud, “RT-Komplekt” LLCJSC “NVP “Topaz”, “Baltic Engineering Technologies” LLC and others shall fall under the designation as well.
• The group also addressed the necessity of making sectoral sanctions against Russian sectors in all fields which require technologies, investments or services.
• Minimum derogations from sanctions. A higher number of derogations from sanctions make it harder to maintain a unified approach to sanctions policy per se. This is because weak enforcement deteriorates through the different applications of derogation in domestic domains.
• The designation of Russia as a State-sponsor of terrorism.

Steps Needed to Improve Sanctions

The lack of a single sanctions enforcement authority is a fundamental flaw in the EU institutional design. However, relevant steps are duly being implemented by the Commission to address the challenges.

War sanctions against Russia require Brussels and EU capitals to revise the decentralised nature of EU sanctions enforcement by providing more supervisory power to EU institutions with the right to intervene when national authorities are unwilling to secure the integrity of the Union sanctions regime. Closer cooperation is needed regarding the alignment policy between the EU and candidate states.

There are many relevant designations to consider still on a case-by-case approach. The primary one is sanctioning the CSTO, which still plays a military role in strengthening Russia’s military power. Central Asian countries have to take more concrete steps in order to avoid sanctions circumvention.

Despite its permanent backlash and talks about peace, Russia is continually raising the stakes in the war. The missile terror against Ukrainian critical civil infrastructure is a striking example of what peace Moscow really wants. More notably, talks about peace are damaging and disappointing. The country – a victim of aggression – can accept nothing but a just peace.

Talk of peace discussions should shift to a pragmatic approach on how effectively the EU can tighten the noose around the Russian imperial neck. The triangle of sanctions, military assistance and Ukrainian resistance is the only way to stop this war of atrocities.

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Free to read as part of our Future of Ukraine Fellowship programme. Learn more about it here and contribute to more free content. This article was also published in Polish on Onet and Res Publica Nowa.

• EU
• EU Council
• European Parliament
• Russia
• Sanctions
• Ukraine