29 Jul 2014

More Russian sanctions – but will they hurt?

European Union ambassadors have been locked in talks this morning, taking their first formal collective look at Tier 3 economic sanctions.

Among the points of dispute still are the details of which products are covered by the ban, how long should the sanctions last, and how long until they are reviewed?

Should it be about three months or one year before the sanctions could potentially be lifted? What should trigger a relaxation of sanctions?

Not on the table for discussion: ending gas and oil imports to Europe. That would be unthinkable for those east European countries who are massively dependent on Russian energy – though those same countries are braced for Russia to squeeze the supply hose and mess with their supplies in retribution for the expected EU sanctions.

The EU is working on long-term efforts to immunise these countries from Russian pressure over energy supplies, but that will not be quick or easy. In the meanwhile it’s activated “reverse flow” emergency provision of energy to member countries, but that would mitigate, not obliterate, the effects of any Russian retaliation.

Somewhere in the “fiches” attached to European Commission documents sent to individual countries are highly confidential “impact assessments” for sanctions now under discussion. That will include an assessment for how badly the City might be hit by restrictions on Russian banks seeking capital.

We’re told that Germany is five times more exposed than the UK on hi-tech energy exports, France 10 times as exposed on defence contracts. No-one’s saying how exposed the UK might be. I hear the figure in the fiche may be put as a percentage of GDP rather than in cash.

Other areas of dispute are said to be on how the sanctions will be monitored. But the hope in Brussels is that the commission’s outline plan will be accepted very soon.

Will the new sanctions be effective? You can read one assessment of past EU sanctions efforts here.  Some believe that the action on individuals and cronies is a better bet and was what tipped the balance in Mayanmar, for instance, when sectoral economic sanctions had been applied for many years.

Those same crony sanctions are proving difficult to get through meetings of the 28, with individual countries challenging the grounds for acting on certain people (difficult to get past some EU lawyers perhaps too).

Though they may sound ephemeral, some old diplomatic hands think that Russia’s equivalent of the men in grey suits –  Armani-clad oligarchs – will only truly come in the door to tap President Putin on the shoulder and call for a change of tack if their own lives and those of their families are changed for the worse.

A relatively small shift in their companies’ accounts or the cost of borrowing won’t trigger the necessary reaction.

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