Navigating complexity. The European Union's ongoing efforts to sanctions against Russia amidst sectoral debates and economic challenges

The European Union (EU) continues to tighten sanctions against Russia, aiming to weaken the aggressor country and hinder its ability to sustain its war of attrition. Following the adoption of the 12th sanctions package by the EU, which bans the import of Russian rough diamonds from January 1, 2024, limits the sale of iron and steel, and tightens the oil price ceiling, discussions on new restrictions are already underway.

The EU is considering further restrictions against Russia

The Deputy Head of the Chancellery of the President of Ukraine, Ihor Zhovkva, announced the initiation of discussions on further sanctions on December 18. He mentioned that Ukraine has submitted proposals to the European Commission for new sanctions against Russia, including sectoral and personal restrictive measures not included in the 12th EU sanctions package.

Zhovkva highlighted that President Volodymyr Zelenskyy has urged the consideration of sectoral restrictions and personal sanctions against Kremlin propagandists, emphasizing that not all Russian propagandists, actors, and artists freely traveling within the EU have received personal sanctions.

On December 21, several Members of the European Parliament (MEPs) confirmed the commencement of discussions on additional restrictions against Russia. Czech MEP Tomáš Zdechovský stated that EU countries began preparing the 13th and 14th packages of restrictive measures immediately after the adoption of the 12th package.

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The European Commission reiterated its readiness to tighten restrictions against Moscow.

"We are always ready to adopt new sanctions against Russia, although we never comment on their possible content in advance"
European Commission spokesman Daniel Sheridan Ferrie stated.

Reports from Western media suggest that the next package may contain elements on which EU countries have not reached a compromise before. The 12th sanctions package was initially expected to include a procedure for using profits from the frozen assets of the Russian central bank to assist Ukraine. European Commission President Ursula von der Leyen had proposed the introduction of a windfall profits tax, but member states expressed concerns about legal and financial stability.

Additionally, the Baltic countries and Poland were pushing for additional restrictions on liquefied natural gas and the Russian IT sector, while all EU countries sought restrictions on the Russian nuclear sector. Analysts expected the 12th package to include tighter restrictions on Russia's ability to circumvent EU sanctions through third countries like the United Arab Emirates and Turkey.

European publications emphasize that further negotiations on new restrictions against Russia will be challenging, given the slowdown in work on sanctions in Brussels. Despite pressure from Eastern European countries like Lithuania and Poland, other member states are unlikely to endorse maximalist proposals, including restrictions on Russia's nuclear sector, liquefied petroleum gas (LPG), liquefied natural gas (LNG), and steel.

There is growing frustration in Brussels over the circumvention of Western sanctions against Russia by unscrupulous states and companies. EU special envoy David O'Sullivan lacks sufficient leverage to persuade third countries to align with EU policy.

The Russian financial sector after the latest Western sanctions

As for the Russian financial sector, despite Moscow's statements about full adaptation to Western sanctions, there are evident financial problems. The head of the Bank of Russia, Elvira Nabiullina, acknowledged preparing for tougher sanctions from the West against the Russian economy. Cross-border payments remain a challenge for many companies, and there are serious issues in the development of long-term financing.

The Russian central bank faces a significant challenge of galloping inflation, which has accelerated at the end of the year, affecting disposable income. The central bank attributes the price increases to factors such as domestic demand outpacing production capacity, rapid credit growth, and budget spending. Analysts from Bloomberg suggest that in these conditions, the Russian central bank may need to raise interest rates further.