The economy today

EU sanctions against Russia: limited room for maneuver

Audio 04:09

EU flags fly at the headquarters of the European Commission in Brussels.

(illustrative image) REUTERS/Yves Herman

By: Anne Verdaguer Follow

3 mins

The foreign ministers of the European Union are discussing this Monday, July 18, a toughening of sanctions against Russia.

This is the seventh wave of sanctions against Moscow since the start of the war in Ukraine, which will mainly target Russian gold.

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7th wave of sanctions

On February 23, on the eve of the invasion of Ukraine by the Russian army, the Council of the European Union adopted the first package of sanctions against Moscow.

Since then, other measures have been taken to try to prevent Russia from financing the war, they affect in particular the financial sector and in particular transactions on the assets and reserves of the Central Bank of Russia, restrictions have also been decided on purchases of Russian sovereign debt and financial flows from Russia, as well as the exclusion of certain Russian banking establishments from the SWIFT secure messaging system.

To this must be added, after the sixth package of sanctions adopted last June, the banning of 90% of Russian oil imports by the end of 2022. Germany, very dependent on Russia for energy, has given in and has already cut its share of Russian oil imports by two-thirds since February.

Embargoes on coal, as well as the freezing of the assets in the European Union of more than a thousand Russian oligarchs have also already been recorded.

This seventh round of sanctions will mainly affect the ban on the purchase of Russian gold, which will make it possible to cut off a new channel of financing for the war, Russia is the second largest gold producer in the world behind China.

Have these sanctions produced the expected effects?

On Friday, Hungarian Prime Minister Viktor Orban accused the European Union of having "shot itself in the lungs" with the sanctions against Russia.

"Brussels believed that the sanctions policy would penalize the Russians, but it penalizes us even more," said Viktor Orban.

Hungary imports 65% of its oil and 80% of its gas from Russia, and energy prices could rise " 

" warned the German vice-chancellor.

The European Commissioner for the Economy, Paolo Gentiloni, estimated that the sanctions struck the contrary in the heart of the Russian economy.

Experts agree that the first real damage to the Russian economy is expected next fall.

But contrary to initial forecasts, the cumulative decline in GDP should be closer to 15% than 25%.

Because the very structure of the Russian economy, 70% controlled by the state, helps it to adapt.

On the European side, the negative effects are not negligible: in 2021, Russia was the EU's fifth largest trading partner.

By the end of the year, 65% of Russian imports to the European Union will be affected by these sanctions.

It will therefore be necessary to diversify so as not to penalize the European production chains, which have already been undermined for two years.

And with the rise in energy prices, the political stakes will be increasingly important for European heads of state, who are already putting in place measures in favor of purchasing power.

Two weighty advantages over Russia

Europe benefits from significant commercial integration which allows it a certain economic independence.

The other advantage of Europe is its economic weight.

The European Union is the second largest economy in the world and trade within the single market remains greater in volume than trade between the EU and the rest of its external partners

But some countries remain dependent on Russia, and Moscow, which has cut off the gas tap, thinks that the European Union will run out of sanctions.

Europeans agree that the winter will be difficult.

Public support is holding for the moment, but the feeling is spreading more and more that it is the Europeans who are paying for these sanctions today rather than the Russians.

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• European Union

• Russia