EU targets Russia with toughest sanctions package in years

The bloc is set to impose new banking, energy sanctions in a move that could exacerbate tensions with China.

Volodymyr Zelensky with European leaders in Kyiv in May. Picture: AFP

The European Union agreed to impose its toughest sanctions on Russia since its large-scale invasion of Ukraine, blocking attempts to revive the Nord Stream gas pipelines, lowering a price cap for Russian oil sales and hitting banks from third countries in a move that could exacerbate tensions with China.

The sanctions package comes as President Trump has started increasing pressure on the Kremlin after months of seeking a peace deal between Ukraine and Russia. The White House now appears closer to the European view that the Kremlin won’t end the war. European capitals hope Washington will soon join them in tightening economic pressure on Moscow.

The sanctions aim to weigh on Russia’s economy, which has withstood Western pressure for the past three years but now faces growing headwinds. In recent months, manufacturing activity is declining, consumers are tightening their belts, the state budget is strained and interest rates are at 20 per cent to contain inflation.

The sanctions lower for the first time the price cap on Russian oil exports. The cap permits the provision of Western transport, trade and insurance services for Russian exports only if the purchase price is below the cap. The new cap will be $47.60 per barrel, down from $60 and will be revised every three months to stay 15 per cent below the market price for Russian exports. Russian crude oil was selling at $59.42 per barrel on Thursday according to Argus, a price-reporting agency.

The cap proved highly effective when introduced in late 2022 but its impact has waned since. EU diplomats expect other G-7 countries such as Japan and the UK to join the EU in lowering the price cap although Washington has said it won’t.

The sanctions also sought to crack down on two of the ways Russia has worked around the price cap—deploying a shadow fleet of older uninsured vessels and selling crude to countries such as India and Turkey who have sold refined products to Europe.

European Commission President Ursula Von der Leyen gives a press conference on the 18th package of sanctions against Russia. Picture: AFP

The bloc will sanction 105 more vessels considered to be part of Russia’s shadow oil fleet and some of the people and companies which operate them, and ban petroleum products based on Russian crude exports. EU foreign policy chief Kaja Kallas said those sanctions will hit Russian oil giant Rosneft’s biggest refinery in India.

The EU will ban 22 additional Russian banks from the Swift financial-transfer network, the world’s most widely used system, and impose total transaction bans on several banks already listed on Swift.

The full list of entities targeted by the new sanctions hasn’t yet been published.

The EU sanctions also aim to end any effort to revive the Nord Stream pipelines carrying Russian gas to Europe, once widely considered Russian President Vladimir Putin’s key geopolitical endeavor in the West. Any transactions related to the projects will be banned.

The pipelines were blown up by a team of Ukrainian divers, soldiers and intelligence operators in September 2022 but Russia has pushed in talks with the US for Nord Stream to be revived, a move that has attracted interest among US investors.

The EU sanctions also aim to end any effort to revive the Nord Stream pipelines carrying Russian gas to Europe, once widely considered Russian President Vladimir Putin’s key geopolitical endeavor in the West. Picture: AFP

Nord Stream is the largest offshore pipeline system in the world, built to channel Siberian gas from Russia to Germany beneath the Baltic Sea. The older pipeline, Nord Stream 1, came online in 2011. The second pipeline Nord Stream 2 was built after Putin first invaded Ukraine in 2014.

Despite pressure from the first Trump administration to abandon Nord Stream 2, former Chancellor Angela Merkel joined forces with Putin to finish the pipeline. The pipeline was completed in late 2021, when the Biden administration lifted the Trump-era sanctions. Sanctions were then reinstated days after Putin ordered his full-scale invasion of Ukraine in February 2022.

Had both pipelines become operational, they would have covered 60 per cent of Germany’s gas consumption. They were built to circumvent Ukraine, where overland pipelines have been channeling Russian gas to Germany ever since the height of the Cold War.

Soon after he took office, German Chancellor Friedrich Merz told EU Commission President Ursula von der Leyen that he wanted sanctions against the once-critical infrastructure to prevent it being revived, according to German and EU aides.

European leaders first threatened to impose Friday’s sanctions package almost two months ago, with Merz saying the measures would take effect in days if Putin didn’t accept a US cease-fire proposal.

Neither Washington nor Brussels immediately followed through. The White House repeatedly delayed any new sanctions push while Brussels spent weeks seeking to win unanimous approval for the measures.

Last week however, Trump announced new US weapons for Ukraine and gave Russia 50 days to stop fighting or face “very severe tariffs” on its trade.

“We are striking at the heart of Russia’s war machine,” said von der Leyen. “The pressure is on. It will stay on until Putin ends this war.”

Ukrainian President Volodymyr Zelensky called the new EU package “essential and timely” amid intensified Russian attacks on his country. Kremlin spokesman Dmitry Peskov called the package unlawful and said it would hurt European economies.

“But at the same time, of course, we have already acquired a certain immunity from sanctions,” he said.

As part of the package, the EU targeted some two dozen non-Russian companies for helping Putin’s war effort, including two Chinese regional banks, the first time the bloc has hit Beijing’s financial institutions.

In a recent visit to Brussels, Chinese Foreign Minister Wang Yi warned EU officials against taking the measure, telling Kallas that Beijing would retaliate, according to a person familiar with the discussions.

The EU’s decision to move ahead adds to growing bilateral strains ahead of next week’s EU-China summit.

Kallas said on social media Friday that the Chinese banks have aided Russian sanctions evasion. A Chinese Foreign Ministry spokesman said Friday that Beijing has never provided lethal weapons to Russia.

“China will take actions to safeguard the legitimate rights of Chinese companies overseas,” the Chinese spokesperson said.

Wall Street Journal