Berlin, Brussels, New York The European Union’s threat of sanctions against Russia is a peculiar construct – both hard and spongy at the same time. Another Russian aggression against Ukraine would have “massive consequences and high costs”, the EU foreign ministers confirmed on Monday in Brussels.
“What matters now is deterrence,” said Dutch Foreign Minister Wopke Hoekstra after the meeting in an interview with the Handelsblatt. “It is therefore necessary to decide on a joint package of sanctions – the sooner, the better.” But the Europeans are not ready yet.
Officials like to claim that this vague formulation is based on a strategic calculation: the idea of deliberately leaving the Russian side in the dark and limiting their reaction options. But that is only half the truth, if at all. In fact, there is still a considerable need for coordination.
The EU Commission and the European External Action Service coordinate the consultations in secure rooms. The few officials involved in the talks are bound by strict confidentiality obligations. You take a close look at “what tools you have and what effects can be expected – in both directions,” explains one who is familiar with the consultations.
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Brussels is now saying that the package of sanctions should be ready “quickly”. One thing is clear: the tougher the sanctions against Russia, the stronger the repercussions on the European economy. Since individual European countries are intertwined with Russia in different ways, balancing national interests is extremely challenging. “But that’s exactly what the EU is good at,” stresses a senior official.
The sanctions will also, but not only, target the immediate environment of the Russian President – his government apparatus and the oligarchs who support him. Individual banks are to be targeted, but not the Russian financial sector as a whole. “The toughest stick” is “not always the smartest sword,” as Federal Foreign Minister Annalena Baerbock puts it.
“What matters now is deterrence”
(Photo: dpa)
Berlin in particular is pushing for exceptions. The federal government wants to keep the payment channels to Russia open, which are necessary for processing gas imports. The Handelsblatt reported last week that a blanket exclusion of Russia from the network of the payment service provider Swift was internally rejected. This account has since been confirmed by other sources, even if the governments publicly stand by the line of further examining all options.
In the sanctions debate, a Swift exclusion is often declared a “nuclear option”. But that is misleading. “The waiver of Swift sanctions does not mean that the planned measures can have little effect,” says Jonathan Hackenbroich from the European Council on Foreign Relations.
It is possible for the US government to cut off the supply of dollars to individual banks such as VTB and Sber, the largest bank in Eastern Europe. “That could damage Russia considerably,” said Hackenbroich. That is why the US does not insist on using Swift as a weapon against Moscow in negotiations with the EU. “We are getting closer and closer to the EU in terms of financial sanctions,” confirms a top US official.
Possible financial sanctions also include a boycott of the Russian sovereign wealth fund RDIF, which handles major investments in Russia, primarily together with Chinese and Arab sovereign wealth funds. Banning the holding and trading of Russian government bonds and securities of sanctioned companies is also being discussed. This would effectively block Russia’s foreign debt.
US considering export ban on chips
In addition to the financial sector, other Russian sectors must also prepare for far-reaching sanctions. Deliveries of steel and aluminum could be stopped or greatly reduced. The US is also considering stopping exports of chips based on American know-how to Russia.
This could result in Apple no longer being able to sell iPhones and BMW no longer being able to sell cars in Moscow. The US has tested such an approach against the Chinese tech group Huawei – the step has proven to be extremely effective. Applied to Russia, it could thwart the tech ambitions of Russian President Vladimir Putin. “The export controls would prevent Putin from diversifying his economy beyond oil and gas,” the US official said.
It remains unclear to what extent Russian raw material exports should be sanctioned. The federal government has not made a decision on whether the Nord Stream II Baltic Sea pipeline will go into operation.
The money house could also be affected by punitive measures.
(Photo: imago images/Russian Look)
However, the sanctions talks not only deal with offensive, but also with defensive measures. Concerns are growing in Brussels and Berlin that Russia could completely stop its gas supplies in the event of European sanctions. The Kremlin has rejected such fears – even during the Cold War, the flow of gas was never cut off. But doubts as to whether Moscow’s commitments can still be relied on are growing.
Gas reserves are already dwindling: the storage facilities in Germany are only 41 percent full. The value is well below the usual fill level at this time of the year. The problem: The supply cannot be increased in the middle of a running heating period. Winter is the phase in which the stores are emptied. The federal government repeatedly emphasizes that there is no acute danger to the gas supply.
Nevertheless, the risk of bottlenecks is higher than ever. Industry experts say that the low storage level will only not become a problem if the winter stays mild – and the conflict with Russia does not escalate.
Should the situation escalate, liquefied natural gas (LNG) could prove to be a lifesaver. Government circles point out that LNG from Qatar and the USA has been very helpful in recent weeks. One reason: Europeans are now willing to accept high prices. LNG is more expensive than pipeline-bound gas because the liquefaction of the gas is complex.
Germany’s dwindling gas reserves make it harder to put pressure on Russia.
(Photo: Reuters)
Attempts by the federal government to persuade supplying countries such as Norway and the Netherlands – Germany’s second and third largest suppliers of natural gas – to increase their exports have so far not been successful. Norway’s Prime Minister Jonas Gahr Store recently said during a visit to Germany that Norwegian production was “currently working at full capacity”. If deliveries from Russia continue to fail, “we cannot fill the gap”.
The Dutch are also reluctant: They want to stop production in the Groningen gas field this year. They decided that in 2018 after there had been several earthquakes in the region that were attributed to gas production. The Dutch Ministry of Economic Affairs reacted with astonishment to the request from Germany in December to increase production and supply more natural gas to Germany.
The ministry said that this was not conveyable to the Dutch population. It is incomprehensible that the Germans prevented the development of a gas field in the North Sea in the German-Dutch border area, but at the same time wanted more gas from the Groninger field. This leaves Europe vulnerable. “Deterrence works when it is credible,” warns Maria Shadina, sanctions expert at the Finnish Institute of International Affairs.
So far, Russia has doubted the determination of the Europeans. “We have been discussing since November which sanctions should be imposed in an emergency – and in doing so we are sending the message to Moscow that we shy away from the costs of a conflict.”
More: In the Russia dispute, we need tough negotiations – and, if necessary, severe sanctions