Oil and financial sectors affected: EU imposes 18th sanctions package against Russia

After Slovakia's concession, the way is clear: The EU has agreed on a further package of punitive measures against Russia. This also includes the Nord Stream pipelines, the oil price cap, and further export restrictions.

The EU is imposing new sanctions due to Russia's ongoing war of aggression against Ukraine. Representatives of the member states agreed in Brussels to adopt the 18th package of punitive measures after weeks of blockade by Slovakia, as several diplomats confirmed.

In particular, it is intended to further reduce Russian revenues from oil exports to third countries and hit the Russian financial sector. Furthermore, sanctions are intended to preclude any possible restart of the Nord Stream 1 gas pipeline and the use of the Nord Stream 2 pipeline.

Although three of the four pipelines from Russia to Germany were destroyed in an attack in September 2022, if repaired, the pipelines running through the Baltic Sea could enable Russia to make billions in profits from gas sales.

Slovakia's veto delayed sanctions package

Agreement on the sanctions package was supposed to have been reached immediately after the June summit of heads of state and government. However, Slovak Prime Minister Robert Fico prevented this with a veto threat.

The agreement was made possible by concessions. Slovakia received assurances that it would not face serious economic and financial consequences if, after the new sanctions package, a plan for a complete ban on imports of Russian gas was implemented. Fico cannot block this plan because, unlike the sanctions package, it can be passed by majority vote against Slovakia's will.

Oil price cap is adjusted dynamically

In addition, Malta, Greece, and Cyprus recently expressed concerns about measures designed to reduce Russian revenues from crude oil exports to third countries. These countries feared unfairly significant disadvantages for domestic shipping companies if the so-called oil price cap were reduced too drastically. As a compromise, it was now agreed to regularly adjust the price cap so that, in the long term, it remains no more than 15 percent below the average market price. In a first step, it is to be reduced from the current 60 to 47.60 US dollars per barrel (159-liter barrel).

The original plan was to permanently lower the price cap on Russian oil to $45 per barrel. This cap applies to the sale of Russian oil to third countries such as India, China, and Turkey and was introduced in 2022 jointly with the United States, Japan, Canada, and the United Kingdom.

To enforce the regulation, companies involved in transporting Russian oil at prices below the cap are threatened with sanctions. This regulation targets shipping companies, but also companies that provide insurance, technical assistance, and financing and brokerage services.

Long list of new sanctions

In addition to the above-mentioned measures, the following was also agreed:

• Introduction of an import ban on refined products made from Russian crude oil, such as fuels for cars and aircraft, and heating oil. This is intended to close a legal loophole that previously allowed Russia to export indirectly via third countries.
• Introduction of a ban on financial transactions with third-country companies that circumvent oil-related sanctions.
• More than 100 ships belonging to the so-called Russian shadow fleet, which circumvents energy sanctions, have been listed. They will no longer be allowed to enter ports in EU member states and will no longer be insured, financed, or equipped by European companies. A total of approximately 450 ships will be affected.
• Listing of an additional 22 banks that will be disconnected from the SWIFT financial communications system; and expanding the punitive measure to a complete ban on transactions.
• For the first time, a ban on transactions with two Chinese financial institutions that are hampering EU sanctions; and sanctions against several Chinese companies that directly support Russia's war of aggression.
• Introduction of further export restrictions; this affects, for example, machine tools that can be used in the military-industrial system.
• The list of sanctioned individuals, companies, and organizations has been expanded by more than 50 entries. It will now include more than 2,500 entries.

How hard do the sanctions hit Russia?

Meanwhile, the effectiveness of the sanctions against Russia remains controversial. Critics doubt that they have a significant impact on the policies of Russian President Vladimir Putin. Supporters, however, point out that the sanctions are hitting the Russian economy hard and the state is having to cope with significant revenue losses. According to them, Russia might have won the war in Ukraine long ago without the sanctions.

The formal Council of Ministers' decision on the new sanctions package is expected to be made later today. The punitive measures would then come into force shortly thereafter.