On June 3, the Council of the European Union formally approved the sixth package of economic and personal sanctions against Russia and Belarus. Among them, perhaps the most important is the oil embargo. Participants in OPORA's Friday online discussion "War Speeches" talked about how economic sanctions affect russia's economy and whether it is possible to resist attempts to circumvent them, and the main narratives that Russia disseminated the previous week.
According to OPORA's analyst Oleksandr Neberykut, we can speak about a rubicon after the adoption of the 6th package of sanctions, taking into account all previous packages, to some extent, all key priorities set at the beginning were implemented. For example, energy restrictions, embargoes, SWIFT, etc. "Obviously, during all this time, when the conflict has escalated, we have two fronts: the military front and the sanctions front. It periodically becomes some point of paramount importance in terms of pressure on the russian federation. And, obviously, this week, in my opinion, some kind of rubicon has been crossed if we talk about this sanctions policy. We have the sixth package of sanctions," he said.
OPORA senior analyst Oleksandr Kliuzhev says last week russia promoted the idea that it has great potential to adapt to new sanctions, including in the energy sector, and continued to sell to domestic and external consumers logic "somewhere decreases - somewhere arrives." For russian citizens, the country's leadership is announcing ambitious plans to expand to other markets where sanctions are not applied, change legislation, and revise the economic and monetary policy. According to Kliuzhev, russia does not change its external position on sanctions - it speaks about readiness to accept any sanctions.
If we go beyond sanctions, the analyst says, last week russia began to promote the thesis that Ukraine has refused to negotiate with a new force. And each speaker, regardless of their position, also notes that any agreement is possible only on the russian terms. "It is such a hallmark of the russian side that they, on the one hand, call for negotiations and, on the other hand, insist on the capitulation of both Ukraine and the so-called collective West they are talking about. And this propagandistic framework remains. It shows that we have no prospects for real negotiations yet," Oleksandr Kliuzhev said.
The analyst also points out that the russian regime shows disagreements about their vision of the future of the temporarily occupied territories of Ukraine, both those that have been occupied since 2014 and those that have been occupied since February 24, 2022. Some speakers say there are no conditions for pseudo-referendums in the occupied territories. Instead, others say this year, we may see three pseudo-referendums (in the Donetsk and Luhansk regions and in the newly occupied parts of the Kherson and Zaporizhzhia regions). "In my opinion, this disagreement shows that russia still hopes to bargain, including on the diplomatic track. Probably, it hopes to bargain not with Ukraine but with Ukraine's western partners. They often use such a regime of different positions to show a willingness to engage in dialogue. But, of course, Ukraine cannot talk about any concessions of territorial and territorial integrity," Oleksandr Kliuzhev said.
According to the analyst, another key topic in the public rhetoric of the aggressor this week was the unblocking of Ukrainian ports. From the very beginning, russia launched an information attack, accusing Ukraine of being responsible for the blocked supplies of sea cargos. The Ukrainian side replied that russia was fully responsible for the situation because of its aggression, water mining, and other actions. And the solution to this question depends on russia. But there is also a parallel track - there are bits of information about the work of Turkey, Ukraine, and the UN, with the participation of russia, on a roadmap to create a corridor to let the ships with grain depart from Ukrainian ports. "This is an intrigue of the present moment, how this situation will be resolved. On the one hand, there is extremely aggressive rhetoric of the russian federation, and on the other hand, there is a diplomatic process, the details of which we don't know yet," Kliuzhev said.
Scientific editor of "Vox Ukraine" Ilona Sologub noted that now, we can not assess the effect of sanctions, even if the information was fully available and russia had not closed part of its data. "Sanctions do give immediate effect. Anyway, they will give some delayed effects. At best, this will be in a few months," Ilona Sologub said.
But these new oil sanctions, Ilona Sologub says, are something really painful. Even though the oil pipelines have not been under sanctions yet, they have accounted for about two-thirds of russia's oil exports to the EU. And russia exported about 40% of all its exports to the EU. The ban on the insurance of russian ships is effective, and it also affects the reduction of oil transportation to other countries, such as India.
The expert says if you take some oil from the world market, the prices will rise. Accordingly, we can think about how to limit russia's income from oil so that there is no situation where selling less through the embargo can get the same money due to rising prices. As an example, she mentioned the introduction of a special tax, or the use of a special account to receive payments from russia, the use of money from which will be limited to a certain point, or the price would be fixed at cost, etc. "All these solutions were proposed. For some reason, the EU did not adopt them in this package. We'll see, maybe they will be in the future. There are opportunities to limit Russia's revenues from oil exports even at such high prices," Ilona Sologub said.
The expert believes the sanctions imposed at the beginning - freezing of the Central Bank's assets - were notable. russia didn't expect this. They've been preparing for various sanctions since 2014 (they developed an internal payment system, converted dollars into gold, etc.). "Of course, the longer this imposition of sanctions lasts, the more time Russia has to prepare for it and find some workarounds. And, as we all understand, not all countries are as unanimous in their support as the United States and Europe. There are China and India, which, in general, are trying to find some ways to trade and continue to interact with russia in some other way," Ilona Sologub said. But, according to the expert, russia is quite professional in responding to sanctions, especially the Central Bank. It extinguished the panic in the foreign exchange market, which began in March, and now even slightly weakened the imposed currency restrictions. The expert thinks certain financial sanctions, in particular, the idea of freezing the assets of the central bank and disconnection it from SWIFT, existed before the full-scale russian invasion of Ukraine. In his speeches, Biden spoke about this as a warning against the invasion.
According to the expert, many factors are taken into account for each new package of sanctions - from russia's reaction to previous ones to the coordination of positions between different EU countries. "There may be two logics in this process. One is that sanctions are being introduced gradually in order to maintain the threat of greater sanctions as one of the instruments of pressure. And the second strategy, which I personally support, is to apply all sanctions at once and then, if there are no concessions from Russia, gradually weaken them. But our Western partners follow the first logic, which is to increase sanctions gradually. And this can be understood because sanctions also incur certain losses for them," Ilona Sologub said.
The expert believes that the target of the next sanctions will be gas. She also expects that the seventh sanctions package will increase financial and trade sanctions. "I think that Ukraine will talk at least about restrictions, if not a complete ban on gas imports from russia. And I think there will be more financial sanctions. At least there should be more. In particular, this applies to both russian banks and companies that trade their securities on foreign stock exchanges. Transboundary transfers from/to russia. Concluding with the exit of foreign banks from russia, we know that Raiffeisen and OTP still work there. I think trade sanctions will also increase. At least I expect that the Ukrainian party will speak about them to shut down even more imports of necessary goods to russia, first of all, goods that can be used for some military production," Ilona Sologub said.
According to the expert, in the context of endurance and strength in the sanctions' "war of Attrition" of the EU against Russia, there are two aspects: the economy and social order. From an economic point of view, the EU is much stronger than russia due to a larger economy, larger population, greater wealth, and more. "Another aspect is that the EU is a democracy, and we know their governments are dependent on the opinion of the population. The question is to which extent the EU population will be ready to put up with inflation, rising gas prices, and shortage of certain products. Because it is possible that Europeans will protest or even start some uprisings even after relatively minor difficulties. Then, as we understand, the russian population can tolerate toilet paper instead of sausage for years. And it will be Ok whenever there is "greatness". That is, there is a difference in this regard," Ilona Sologub said.
According to the expert, full energy independence of the EU is possible only if they finally understand that nuclear energy is also green. Otherwise, it's possible to replace russian oil, but most likely, it will be oil and gas from other parts of the world. Ilona Sologub also notes that nuclear energy is currently very negatively perceived in the EU due to the many years of work of various political forces. But it's important to raise these issues and tell Europeans that they make themselves dependent on undemocratic regimes (and not only russia) for russian energy. Recall the gas crises of the 2000s caused by russia's use of gas as a weapon.
As for the purchase of grain stolen by russia from the occupied territories of Ukraine, according to the expert, everything depends on the good will of other countries. If it's, for example, Syria, it'll buy stolen Ukrainian grain and won't be afraid of potential sanctions. But for many African countries, this would be a problem due to possible famine in their own countries. Therefore, it is worth thinking about introducing a mechanism so that this money for sale goes to Ukraine and not russia.
According to the expert, monitoring attempts to dodge the sanctions should be constant because you can't issue a single resolution and expect it to work forever. There should be continuous monitoring so that the sanctions have the desired effect. As for energy supplies, some scenarios could be considered earlier, such as the oil shutdown by the end of 2023. According to the expert, the work of the Ukrainian side accelerated these sanctions and made them possible in general. The expert says the argument about dodging the sanctions is quite simple: there is a presumption of guilt against russia. Both because of the war lasting for eight years and decades of propaganda. By default, we should question information from russia. The expert believes we must counteract russia's information about sanctions in particular. And, of course, systematically monitor these processes to make the stories of how sanctions are dodged public, draw the world community's attention, and call for counteraction. "We must take advantage of the fact that the EU is a democracy. They have an institution of reputation, and governments and companies are responsible for a sensitivity to public opinion. Public opinion now supports us, and it's important to nurture this," Sologub.
As for personal sanctions, the expert notes, there are two logic: 1) putin's oligarchs will feel pressure, and dissatisfaction inside russia may cause regime change; 2) all those involved in the putin's regime must be punished and feel the consequences of the state actions. There is a half-hearted situation with personal sanctions, as it is difficult to determine their reason. Accordingly, if you determine the goal, it'll be clear on whom to impose them. Since there is no consensus on the goal, such discussions are ongoing. "There is one important point in this regard - I would not listen to what Navalny's supporters or some other russian liberals are saying. Because, of course, they are trying to promote this narrative that "a certain circle of people around putin is to blame and let's impose sanctions on them, and the rest of the russians are not to blame." No, it doesn't work. This is the responsibility of the entire russian nation, and it is important to repeat that this is a collective responsibility, not the responsibility of just hundreds or thousands of russian people," Ilona Sologub said.
Oleksandr Neberykut adds that the importance of symbolic things should not be underestimated. For example, personal sanctions on the sports and cultural elites have not economic but reputational consequences. "It seems to me this is a very painful blow for the russian federation, which it cannot neutralize, as can be done in the case of economic sanctions, pretending that they do not work. The dollar exchange rate was 120 rubles, and now it is 50 rubles - and for many, it is an indicator of how russia is effectively working with sanctions. But there is the fact that there will be tournaments without russians this year and, most likely, next year. And you can't say that it doesn't work or hits you as well," he said. But, in his opinion, it is necessary to find some balance in paying attention to this. Because if we are working to exhaust russia so it can no longer wage war, it is, of course, economic sanctions.