The range of sanctions that come into force today against Russia chosen by the EU and the US have been very carefully balanced to impact as little as possible on their national interests.
They also target longer- term developments, such as drilling for oil in the Arctic and state-owned banks issuing shares and bonds on European markets and apply to all EU citizens.
EU officials refused to say what the cost to the Russian and EU economies might be but said they were conducting stress tests, including on the likelihood of Russia cutting off gas supplies and hoped to have a full analysis in October for the next ordinary EU summit.
They have been careful to avoid accusations of breaching international contracts and WTO rules — though this is also with a view to maintaining unity among EU countries and permitting France to comply with its contract to sell two helicopter carrier ships to Moscow.
The other concern, even more acute, is to do everything possible to keep Russia’s supply of natural gas flowing to EU countries, some of whom are 100% dependent on it.
They are banking on the fact that about a third of Europe gas comes from Russia, cutting this off would be extremely costly for the state-owned Gazprom.
President Vladimir Putin immediately responded to the most intense sanctions yet with a promise to underwrite the affected banks, and a warning that he would retaliate.
The effect of the sanctions on the EU economy and on Russia will be constantly monitored by a group of experts from member states and the European Commission, as will their implementation to avoid any attempts to circumvent them. They are also capable of being cancelled quickly if Russia accedes to demands.
The escalation in the sanctions followed reports that Russia has done nothing to calm the situation in east Ukraine.
They fall into three basic categories: a ban on providing the four state- owned Russian banks with debt and equity, investment services such as brokering, and allowing them sell from EU stock exchanges; embargo on import and export of arms and goods and technology that could be used by the military; and export of energy-related equipment and technology to Russia if they are destined for oil exploration and production.
EU banks and subsidiaries of foreign banks in the EU are banned from purchasing the Russian banks’ bonds on the primary and second market. However, subsidiaries of EU banks registered in other countries are not covered by the ban, but the hope is their parent company will advise them to observe it. EU companies are forbidden from advising, underwriting or otherwise aiding sales.
EU banks bought close to half, €7.5bn worth, of Russian bank bonds last year, but their sale is not an everyday occurrence.
Russia’s sovereign debt is not targeted and loans of less than 90 days are not affected. “The intention is not to destroy the banks and cause a liquidity crisis. They have to be able to access markets but this constrains their ability to finance the Russian economy in the longer term,” said the official.
There is a common EU list of military equipment and the import and export of any on the list are banned for which contracts have not already been signed. Exports amounted to about €300m to Russia last year while imports were worth considerably more.
However spare parts, servicing and maintenance for equipment already sold to Russia will be allowed.
There is also an EU common list of dual use technology and goods which will be banned — these goods must be authorised and an end- user certificate issued by the member state before it can be exported, and an export licence will be refused if there is any suspicion they could be used for the weapons industry.
Dual-use good exported to Russia last year were worth €20bn — but most of this was for civilian use, much from Germany, which member states decided not to include in the ban. Additional restrictions have been placed on trade and investment for Crimea and Sevastopol, which have been annexed by Russia.
© Irish Examiner Ltd. All rights reserved