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EU plots new ways to cut Russia’s cash as sanctions stall

EU plots new ways to cut Russia’s cash as sanctions stall

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EU plots new ways to cut Russia’s cash as sanctions stall

EU countries are concocting creative new ways to stifle Russia’s cash flow after two years of sanctions failed to cripple Moscow’s war machine.

The ideas took shape Thursday during two parallel meetings of EU ministers in Brussels. Notably, the methods discussed would allow the EU to target various Russian exports — including its cash cow, fossil fuels — without requiring unanimity from all EU members. They would also bolster the EU’s energy security before winter sets in.

The need for unanimity on sanctions has prevented the EU from taking more aggressive action against Moscow’s war chest. Hungary, in particular, has regularly delayed or derailed sanctions proposals, holding up attempts to penalize Russian oil and gas — a vital lifeline that provides almost half of the Kremlin’s tax revenues — arguing it would raise prices for Europeans.

Now, officials are exploring tactics that would evade the Hungarian hurdle altogether.

The move reflects a strategic shift for the EU. At the war’s outset, officials repeatedly stressed the need for unanimity as it took one unprecedented step after another to hammer Russia’s profits. But as the war grinds into its third year with no end in sight, patience is wearing thin.

Countries are “fed up with Hungary” and its intransigence on sanctions, said one EU diplomat, who like others was granted anonymity to discuss the private negotiations.

Tariff tactics

One option under discussion involves slapping tariffs, not sanctions, on various Russian exports. 

Unlike sanctions, tariffs don’t require unanimity as they fall under trade policy. Sanctions count as security policy, meaning they need sign-off from every EU country.

Sweden put forward the proposal, calling tariffs “the logical next step,” according to a document seen by POLITICO.

“The EU pace of policy innovation is high,” the document says, arguing that tariffs would complement the EU’s existing sanctions.

EU trade chief trade chief Valdis Dombrovskis confirmed the Commission was exploring the idea, saying Brussels will look into a “broader use of tariffs on imports from Russia.”

“We’ll be assessing this and providing member states with options to move forward,” Dombrovskis told reporters Thursday after an EU trade ministers’ meeting in Brussels. 

He did not specify which Russian products might face penalties. In theory, even nuclear fuel or services could be targeted. A second EU diplomat told POLITICO the focus, for now, is on hitting Russian agricultural and food exports.

The EU has already dipped its toe in the tariff waters with Russia, hiking penalties on Russian grain imports. While Austria voted against the grain tariffs and Hungary abstained, the measures still got adopted, showcasing a path EU countries could take in other areas. 

Hungary did not immediately respond to a request for comment.

Securing supplies

Tariffs are not the only way the EU wants to hit Russia’s war chest.

EU energy ministers on Thursday discussed a proposal to set up “a high-level working group” led by the European Commission to slash their remaining reliance on Moscow’s fossil fuel imports.

Months after Moscow’s invasion two years ago, Brussels proposed a strategy to phase out Russian fossil fuels by 2027, called REPowerEU. Since then, countries have slashed their dependence on Moscow for gas by around two-thirds and banned seaborne oil imports.

But countries like Hungary, Slovakia and Austria still remain deeply reliant on Russia for energy supplies via pipeline, while EU countries have increased their imports of Russian liquefied natural gas.

“The REpowerEU plan is working … but the work is not yet over,” EU energy chief Kadri Simson said after the meeting on Thursday.

The working group idea garnered support from 12 EU countries, said Belgian Energy Minister Tinne van der Straeten, who chaired the meeting as Belgium controls the EU’s rotating presidency. No one opposed it — including Hungary. The Belgian EU presidency will now organize a “policy debate” among countries on the topic next month, she added.

According to three EU diplomats, energy ministers also discussed creating an “Action Plan” to eliminate Russian imports by 2027 alongside the new working group. The plan could include both regulatory initiatives and sanctions. Among the ideas discussed were closing loopholes the foreign countries use to evade sanctions, and new incentives to stop companies buying Russian gas in the future.

The action plan likely won’t come instantly. One senior EU official told POLITICO that while the Commission is “ready to give support and guidance” to EU countries on the matter, a more formal plan would only likely surface after a new Commission is installed following next week’s EU election. 

Still, the timing of the discussions is far from coincidental.

Hungary is about to assume the EU’s rotating presidency in July, and the working group proposal would put the Commission in charge of discussions to quit Russian gas just before Budapest takes over, according to three EU diplomats.

Just a few weeks ago, Hungary displayed its ongoing opposition to targeting Russian gas, teasing a possible veto of the EU’s first attempt to sanction Russian LNG.

All in all, the idea behind the new slate of ideas, said the first EU diplomat, is not only to hammer Moscow’s revenues but also to increase leverage on the Kremlin. 

Right now, the diplomat noted, Moscow retains a “nuclear button.” It could, in theory, cut off all LNG exports to Europe at the height of winter in January, just as the bloc is expected to lose Russian gas deliveries via Ukraine after a transit deal expires.

If they do these things together, “then we’re fucked,” the diplomat said. 

“People are thinking of options to blackmail them to stop them pressing the button.”

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