More sanctions: the EU will close "holes" to bring down the price of Russian oil and more

The new package of sanctions increases the pressure on Russia and Putin's war machine, further depriving it of the resources it so desperately needs to continue its war against Ukraine.

The package also aims to deprive Russia of the ability to circumvent existing bans through third countries where it gains access to components, technology and electronics used in the production of weapons. The new package will also include restrictions against Russian diamonds and oil sales, which will deprive the aggressor's budget of large profits.

This time, Western countries are not just imposing new restrictions on the Russian economy, but are planning to negotiate more rigorously with third countries, through which parallel imports and sanctioned goods continue to flow to Russia.

What is the next package of EU sanctions and what will be the consequences for Russia - in the article of OBOZ.UA.

To cut off the supply of goods for "military use"

Having started the war in Ukraine, Russia was subjected to US and EU sanctions. However, today it can be stated that the aggressor receives almost everything it needs to continue producing deadly weapons, providing itself with technology.

In the first half of 2023 alone, Russia imported more than $0.5 billion worth of banned chips from Western companies, which it uses to produce missiles and other weapons. An analysis of trade data shows that such products manufactured in the EU and the US are supplied through third countries such as Turkey, the United Arab Emirates, Armenia, Kyrgyzstan, or Kazakhstan.

The new package of proposed measures from the European Union includes restrictions on the export of welding machines, chemicals and other technologies used for military purposes. Among the importers of such products are enterprises of the Russian military-industrial complex that develop and manufacture components for Su and MiG aircraft.

A ban on software licensing and restrictions on imports of processed metals and aluminum products, construction products, transportation-related goods, and diamonds are being considered.

The package of measures also aims to deprive Russia of the ability to circumvent existing bans through third countries, where it gains access to components, technologies and electronics used in Russian-made weapons. The EU intends to add even more goods to the existing transit ban and to persuade trading companies to include clauses in their contracts with third-country firms that prohibit exports of "military use" goods to Russia.

Necessary components for weapons come even from America

The US authorities have arrested three Russian citizens who have been charged with organizing the supply of American electronics for the needs of the Russian army.

According to prosecutors, the arrested shipped more than 300 batches of electronic products banned for export to Russia and needed for its precision weapons, worth about $10 million.

The electronics were shipped to several international intermediary corporations located in other countries, including Turkey, Hong Kong, India, China, and the United Arab Emirates, from where they were then shipped to Russia, the US Department of Justice said.

The electronic components that the defendants sent to Russia were later found in a number of samples of Russian weapons captured on the battlefield in Ukraine. Among them were lightweight multi-purpose guided missiles, such as the Izdorovye 305E, Ka-52 helicopters, Orlan-10 drones, and T-72B3 tanks.

Gas has been "nailed down", oil is next

Before the war, the oil and gas sector brought Russia up to half of all budget revenues. As for gas, the Russians have done quite well on their own. They have abandoned their largest partners, the European Union, and lost the status of a reliable and predictable trading partner. Thus, in 2023, Russia will be able to supply only 26 billion cubic meters of gas to the EU, which is five times less than before the full-scale war against Ukraine.

These developments have already led to a 24.7% reduction in gas production by Gazprom in the first half of 2023. Supplies to domestic and foreign markets fell by 26.5% overall.

China came to the rescue, but it will not be able to completely replace Europe for Gazprom. Even in the most favorable scenario, the country accounts for just over half of the volumes that used to go to Europe. But the prices are much lower, and it will take years and huge investments to increase supplies.

To help Gazprom in some way, Russia will increase gas tariffs for Russian industry by almost 30 percent in the next two years. The first increase is scheduled for December 1. Next year, the indexation will also affect the population. The consequence of such aid could be an acceleration of inflation and bankruptcy of industrial enterprises.

The situation with oil is somewhat different. The international community, realizing that a complete embargo on Russia will not lead to the desired results, is imposing a "price sanction" - a ceiling on the purchase of Russian oil at $60 per barrel. This is intended to minimize revenues from its sale. But thanks to the actions of countries such as China, India, Turkey, and Brazil, Russian oil has moved from Europe to Asia and South America, albeit at a significant discount. These countries now account for two-thirds of Russia's oil exports. Russia has also created a shadow tanker fleet that can transport oil bypassing Western restrictions.

In May 2023, the US Treasury Department released a report. If before the outbreak of a full-scale war, Russia's oil revenues alone accounted for 30-35% of the budget, this year oil revenues have fallen to 23%. That is, by more than 10%. In general, oil and gas revenues fell by almost half during this period. But this did not last long. Already in July 2023, the average price of Russian oil broke through the ceiling. In September, revenues from oil exports already reached $18.8 billion. This is the highest figure since July 2022.

Sanctions circumvention often looks like this. An Indian or Chinese tanker starts in the Baltic or Black Sea with Western insurance and crude oil that costs no more than $60 per barrel. On the high seas, the cargo is resold to intermediaries several times, each time the price increases, and when the tanker docks in India, the oil suddenly costs much more than when it left Russia.

With significant volumes of Russian oil now trading above the $60 ceiling, the EU, as part of the 12th package of sanctions, plans to introduce ways to combat the overpricing of Russian crude and the shadow fleet of hundreds of ships that Moscow uses to transport oil. These steps, if implemented, will lead to an even greater reduction in revenues to the Russian federal budget.

The sanctions roof is still leaking oil

Russian Deputy Prime Minister Novak said that Azerbaijan has offered to transit and process Russian oil at its own facilities. The parties are also discussing the issue of increasing reverse supplies of Russian crude through the Tikhoretsk-Baku pipeline.

This may mean that Russian oil will be labeled as Azerbaijani and will try to avoid sanctions, including price ceilings under US and EU station rules. Russian oil companies will also enter new Azerbaijani oil field development projects.

In addition, in September, Russia supplied crude oil to Brazil for the first time in two years, the Brazilian authorities confirmed. The shipment was the largest since 2010. Germany continues to import significant volumes of Russian oil via India, which is processed, for example, into diesel fuel. In the first seven months of this year, imports of petroleum products from India increased more than tenfold compared to the same period last year, according to the Federal Statistics Office.

This year, the Czech Republic is importing the largest volume of Russian oil since 2012. Barbora Putcová, spokesperson for Mero, the state-owned operator of Czech oil pipelines, told Czech News Agency: "The Czech Republic is using more and more Russian oil. In the first half of this year, the Russian share was about 65% of all imported oil."

It is possible to collapse the price of Russian oil

The new sanctions package of the European Union is aimed at actually reducing Russia's revenues from oil sales and eliminating loopholes in the supply of dual-use goods through third countries, - this opinion was expressed by economist, coordinator of expert groups of the Economic Expert Platform Oleg Getman in an exclusive commentary for OBOZ.UA.

"Officially, a new package of sanctions against Russia will be announced a little later, but the information that has already appeared in the media reveals several interesting facts that can be highlighted," says Oleg Getman, "Much attention in the 12th package is paid to eliminating those loopholes that help Russia to circumvent previously imposed sanctions. First and foremost, we are eliminating the possibility for the aggressor to obtain dual-use goods through third countries. The Europeans plan to strictly monitor and cement all the loopholes through which Russians are currently able to obtain components and technologies for the production of their weapons," said Oleh Hetman.

But the largest "repair of the leaking sanctions roof" is waiting for the oil sector, where Russia still has the opportunity to make large profits, which it uses for the war against Ukraine. According to Oleh Hetman, this sector is waiting for serious sanctions from the EU.

"Russia's oil business needs to be sanctioned so much that they cannot earn anything at all," the expert continues. "The Russians are trying in every possible way to bypass the ceiling of $60 per barrel. They have formed their own tanker fleet, mix their oil with raw materials from other countries and then sell it as non-Russian. That is why most of the sanctions in the 12th package are aimed at eliminating all these loopholes that the Kremlin has managed to create. The monitoring of Russian oil transportation will be strengthened. One of the most important measures of the new package is a ban on Russian ships that do not have Western insurance from entering the territorial waters of NATO and G-7 countries. This will significantly reduce price manipulation, which will lead to a real reduction in profits.

As soon as the ceiling at $60 is actually cemented, the main thing that is planned will be done - a gradual reduction in the price of Russian oil to the level of its cost, which is somewhere around $40 per barrel. In other words, eventually make Russians earn nothing from oil at all. In this scenario, in wartime, the Russian authorities will have few options for maneuvering to improve the economic situation. To cover the deficit, Putin's regime has already burned through its foreign exchange reserves and is using money from the National Welfare Fund, Russia's main reserve fund. An active process of cutting funding for important programs has begun: spending on infrastructure, housing and utilities, healthcare, education, and social services is being reduced. All of this will eventually lead to a collapse in the economy," states Oleg Getman.