Brussels is drawing up plans to use trade tariffs and capital controls to maintain financial pressure on Russia, even if Hungary decides to use its veto to block an extension of the European Union’s sanctions regime, which lapses in July of this year.
The European Commission has told ministers that a large part of the EU’s sanctions, which included freezing 200 billion euros ($224bn) of Russian assets, could be adapted to a new legal framework to bypass Budapest’s veto, according to the United Kingdom’s Financial Times newspaper.
Viktor Orban, Hungary’s prime minister, has repeatedly held up EU boycotts on Moscow as the central European country gets 85 percent of its natural gas from Russia. Orban’s nationalist government is also one of the most friendly to Moscow in all of Europe.
In any event, the EU’s recent proposals have emerged as Moscow and Kyiv hold their first direct peace talks since Russia’s full-scale invasion of Ukraine in February 2022.
Ukrainian and Russian representatives are convening today in Istanbul, Turkiye. However, Vladimir Putin will not travel to Istanbul for face-to-face talks with Volodymyr Zelenskyy.
Last weekend, European leaders held talks in Ukraine to put pressure on Russia to agree to a 30-day ceasefire in the run-up to the Istanbul talks. Ukraine agreed to it. Russia did not.
What sanctions does the EU currently have in place against Russia?
The EU adopted its 17th sanctions package against Moscow, designed to stifle Russia’s economy and force President Vladimir Putin to end the war in Ukraine, on Wednesday. This package has been signed off by Budapest and will be formally ratified by the European Commission next week.
Brussels has progressively expanded sanctions against Moscow since 2022, introducing import bans on Russian oil, a price cap on Russian fuel and the freezing of Russian central bank assets held in European financial institutions.
Vast swaths of Russia’s economy – from media organisations to aviation and telecommunications – are now under EU restrictions, in addition to trade bans and measures targeting oligarchs and politicians.
Under the 17th package, some 200 “shadow fleet” tankers have been sanctioned. These are ships with opaque ownership and no Western ties in terms of finance or insurance, allowing them to bypass financial sanctions.
The latest sanctions will also target Chinese and Turkish entities that the EU says are helping Russia to evade embargoes. New restrictions will be imposed on 30 companies involved in the trade of dual-use goods – products with potential military applications.
“Russia has found ways to circumvent the blockage imposed by Europe and the United States, so closing the tap would grab Russia by the throat,” France’s foreign minister, Jean-Noel Barrot, told BFM TV.
How effective are sanctions?
Alongside military support for Kyiv, sanctions have been the EU’s main response to Russia’s war on Ukraine. But sanctions have so far failed to stop the war. What’s more, due to high oil prices and elevated military spending, Russia’s economy has outperformed expectations since the start of 2022.
Barrot acknowledged on Wednesday that the impact of sanctions has been insufficient. “We will need to go further because the sanctions so far have not dissuaded Vladimir Putin from continuing his war of aggression … we must prepare to expand devastating sanctions that could suffocate, once and for all, Russia’s economy,” said Barrot.
What new measures are being proposed?
While the 17th round of sanctions was only agreed on Wednesday, EU ministers are already considering what more might be done to undermine Putin’s political clout if the war in Ukraine persists.
Capital controls, which would be aimed at restricting money flowing in and out of Russia, and trade measures such as tariffs, are two options that have been mentioned by the European Commission in recent weeks. Capital controls can take a variety of forms, including restrictions on foreign investment, limiting currency exchange or imposing taxes on the movement of capital.
The commission also aims to share proposals next month that would allow Brussels to implement a ban on new Russian gas spot market contracts – deals for immediate delivery and payment – with European companies in 2025, and a total phase-out by 2027.
Despite oil export restrictions, Russia still earns billions of euros from natural gas sales into the EU through liquefied natural gas (LNG) and TurkStream (a pipeline connecting Russia to southeastern Europe via the Black Sea). Banning spot market contracts would lower Moscow’s revenue from these sources.
Brussels may also propose tariffs on enriched uranium as part of its effort to cut EU reliance on Russian fuels.
According to The Financial Times, the EU insists that these measures would not amount to sanctions and therefore would not need the unanimous backing of all 27 EU countries, which is normally required to extend sanctions.
“I think the EU cooked up these potential punishments to try and get Russia to agree to the 30-day ceasefire … it was the stick they were brandishing,” said an analyst familiar with the matter who asked not to be named.
Will the US impose more sanctions?
It may. On May 1, Senator Lindsey Graham, a South Carolina Republican, said he had the commitment of 72 colleagues for a bill that would enact “bone-crushing” sanctions on Russia.
Graham, a close ally of President Donald Trump, is spearheading a draft bill that seeks to impose a 500 percent tariff on imports from countries that buy Russian oil and fossil fuels.
Trump himself, who seemingly welcomes the possibility of a rapprochement with Russia, said in March that he was “considering” imposing sanctions and tariffs on Russia until a peace agreement is reached with Ukraine.
Could such measures force Putin to the negotiating table?
“Most Russian people want life to return to normal and business owners are getting tired of war-related costs,” the anonymous analyst told Al Jazeera. “There is a growing sense of unease.”
She said she doubted whether the EU’s touted measures would bring Putin any closer to signing a peace agreement, however. “Only because sanctions haven’t been able to do that,” she said, “and there’s already a maze of them.”
According to Castellum.AI, a global risk platform, Russia has been slapped with 21,692 sanctions since the start of the war – the majority of them against individuals.
“On past performance, it’s hard to see how even more sanctions and additional punishments will stop the fighting,” the analyst said.
She estimated a 60 percent chance that Russia and Ukraine would still be at war by the end of this year.