EU foreign ministers have signed off on an eleventh package of sanctions against Russia. The package introduces few new sanctions, but aims to make the previous 10 packages more effective by closing loopholes and targeting sanction-busting companies. 

As bne IntelliNews has reported, the sanction regime has been leaking from the start. Crude oil exports to Europe have almost entirely been redirected to Asia, and Russia’s production remains at pre-war levels. More surprisingly, technology sanctions have failed as Russia continues to import almost as much technology from the West as before the war, via convoluted trade routes via “friendly” intermediaries. An examination of an unexploded Russian missile in the Ukrainian battlefield this week found it contained over 50 electronic parts that were almost all made by US manufacturers.

Recent data reveals that Russia has so far very successfully managed to dodge most of the sanctions imposed on it. A study conducted by the Kyiv School of Economics and the Yermak-McFaul group demonstrates that Russia imported $20.3bn worth of technology and military goods through third countries between March and December 2022, only 15% less than the previous year. A significant portion of the dual-use items originated from US-based companies, highlighting the continued reliance of the Russian military on Western components.

The new package of sanctions is expected to come into force soon and third countries are facilitating this trade. The draft was unanimously approval by ambassadors from all 27 EU member states on June 21 and comes in parallel with the high-profile Ukraine Recovery conference in London on June 21-22. The key aspect of the new package is a mechanism designed to prevent the re-export of sanctioned military and dual-use goods to Russia via third countries.

Increasingly enforcing the sanctions has become a game of whack-a-mole as Russia has proved itself adept at finding new routes to dodge sanctions as old ones are closed down. European officials have raised concerns about exploding trade between Russia and countries such as Armenia, Georgia, Kyrgyzstan, Kazakhstan, the United Arab Emirates, Turkey and China, which all seem to be conduits for banned goods travelling from the West to Russia.

There have been anomalies in trade patterns, such as a significant decrease in vehicle exports from the EU to Russia, while those exports to Kazakhstan have soared. Estonia has seen its imports of semiconductors surge to several hundred million dollars by two companies that have Russian owners. And Kyrgyzstan has been importing huge quantities of washing machines from the West that contain microchips that can be used to make missiles.

However, enforcement of the sanctions will remain very difficult to achieve in practice and will be taken on a case-by-case bases, the EU said. The specific details of the ban mechanisms have not been published.

Implementation of the eleventh package will be a key issue. The draft has been hotly debated within the EU, as it in theory will target European companies facilitating Russian trade for secondary sanctions. The passage of the bill has been stymied by Greece and Hungary, which have been lobbying for some of their companies to be removed from Ukraine's sanctions list.

The eleventh sanctions package also includes personal sanctions against more individuals and entities, a ban on transit through Russia, restrictions on the use of Russian cargo trailers in the EU, additional limitations on oil transit, and further restrictions on the export of goods to Russia, including intellectual property and licences. The final version of the package reflects compromises and concessions that were necessary to reach an agreement, The Bell reports.

Notably, the exclusion of sanctions against five Chinese companies involved in transferring prohibited technologies to Russia suggests that the EU received assurances from Beijing to address the issue internally. Additionally, the proposed ban on ships convicted of transporting sanctioned goods into European ports had to be largely abandoned by the European Commission, due to successful Greek lobbying because half of Russia’s oil exports are still carried by Greek ships. But after Ukraine removed five Greek shipping firms from its list, Athens gave its go-ahead for the package.

Hungary was also threatening to hold up the package over the inclusion of its biggest bank OTP Bank in the Ukraine sanctions list. Hungary eventually supported the sanctions packages despite the inclusion of OTP bank on the Ukrainian list, but Budapest indicated that it would revisit the issue during discussions concerning a new round of financial assistance for Ukraine from the European Peace Facility.

Germany has been blocking the package under pressure from Beijing, protesting against the inclusion of eight Chinese companies in the draft lists, which the EU suspects were involved in the sale of Russian goods that could potentially support Russia's war efforts. German Chancellor Olaf Scholz was recently in Beijing to meet Chinese President Xi Jinping, who promised to put pressure on these companies to cut business ties with Russia. Five names were removed from the list, although three registered in Hong Kong and suspected of having Russian owners, remain on it.

Separately, a measure to prohibit access to EU ports for ships engaged in ship-to-ship transfers suspected of carrying Russian crude oil or petroleum products remains in place.

In addition, the package expands the list of individuals and entities banned from the EU and subject to frozen assets. This includes 71 more individuals and 33 entities involved in the illegal deportation of Ukrainian children to Russia. The EU suspension of broadcasting licences for five Russian state-controlled media outlets is extended as part of the package.