Next sanctions round will test EU unity on how hard to hit Russia

So far, EU unity has been impressive in slapping four rounds of sanctions on Russia.

Moving to the next level of restrictive measures, however, will prove harder and expose some old diplomatic faultlines: Germany is highly wary of Polish and Baltic exhortations to go for Russian President Vladimir Putin’s jugular and sever the all-important energy income that helps fuel his war in Ukraine.

After an early wobble when EU countries initially failed to impose sanctions against the SWIFT payments system, the bloc’s subsequent solidarity in hitting Russia has flabbergasted even the EU’s harshest critics. And the European measures have played a significant role in seriously undermining the Russian currency and financial markets.  

A fifth round of sanctions is likely to prove a Rubicon, though. Ukraine, whose civilians are being killed in indiscriminate Russian bombardments, insists that Putin’s oil and gas revenues must be in the crosshairs and that all Russian banks should be covered by sanctions. In a document obtained by POLITICO, Ukraine called for a full energy embargo “that could significantly reduce funding for the war and push Putin to sit down at the negotiation table.”

Oil and gas revenue is the elephant in the room when it comes to financing Russia. Kyiv fulminates that Putin can always keep his grip on power and fund his war when he is earning more than $600 million per day in energy sales and, indeed, Iran shows how a highly sanctioned country has kept afloat on hydrocarbon sales.

Diplomats say that Poland and Baltic countries — those with the toughest line on the Kremlin — are broadly supportive of Kyiv’s approach, and stress the importance of sanctioning oil and gas. “Money that we are using to pay for oil and gas from Russia is used to support the war against Ukraine,” Lithuanian Foreign Minister Gabrielius Landsbergis told POLITICO. “This has to stop.”

This sets up a clash with Berlin, the EU’s economic kingpin, which is highly dependent on Russian energy and pursued years of political appeasement with Putin rather than diversifying supplies. Supported by Hungary and many others, Germany has said that hitting oil and gas is a no-no. Sanctions require unanimity, and apart from Poland and a few other supporters, a full ban on oil and gas seems far from being reached for now.

A key meeting of ambassadors takes place on Friday, which is expected to be a “stock-taking” exercise. But one official said it is possible that Friday’s meeting could descend into a confrontation as some eastern countries, led by Poland, are demanding swifter action. 

A summit of EU leaders next Thursday and Friday is seen as the next big milestone in terms of the EU’s decision-making process, but multiple diplomats and European Commission officials said the Commission could move quicker if things were to dramatically escalate in Ukraine.  

Time to consolidate

To a degree, the debate on sanctions has moved into a second phase, diplomats said. “The work continues, but of course many member states are more cautious than in the first stages of the war,” said one EU diplomat. 

The EU’s approach to sanctions in the past weeks has proved far more effective than in 2014 when, after Putin’s first invasion of Ukraine and annexation of Crimea, the Poles and Baltic countries were furious that Western European countries refused to roll out serious sanctions. This time the West has moved, but the oil question threatens to revive the EU’s main diplomatic schism of 2014 when Warsaw and Vilnius argued that Western nations didn’t understand the need for preventative deterrence.

Still, EU diplomats stress it is too simplistic to speak of an East-West divide on the sanctions, especially because there’s a large group of both Eastern and Western countries who are being constructive on the sanctions overall, but want to avoid mistakes.

“These faultlines are more complex,” said another EU diplomat. “They have been present from the beginning, but are starting to show more now that the sanctions are going further and further.”

Germany is critical to the sanctions’ calculus and some directly accuse Berlin: “Unfortunately Germany [is] still blocking far-reaching sanctions, but you can’t have your cake and eat it,” said one of the diplomats. 

Other diplomats stressed Berlin is simply applying more scrutiny to the legal texts presented by the Commission, which are often the product of sleep-deprived officials whose initial drafts more recently presented legal problems. “The Germans have increased their level of scrutiny and this is driving the Poles crazy,” another diplomat said.

The U.S. and the U.K. have already imposed oil bans to stop fueling the Kremlin’s war effort. Top EU officials such as the EU’s trade chief Valdis Dombrovskis, a former Latvian prime minister, also insisted direct energy sanctions should be on the table.

While the EU has not ruled out ultimately targeting oil and gas, there is currently no such proposal put forward. “We’re not at that point,” said an EU official.

That doesn’t mean EU capitals are shying away from taking an economic hit for the greater good. The fourth sanctions package, published on Tuesday, includes the ban of a wide range of European luxury goods from the EU and the import of Russian steel products to the EU.

This directly affects a wide range of European sectors, like Italian fashion brands, French top-end winemakers and Belgian diamond trades and was unthinkable before the war. As late as mid-February, just before Russia launched its invasion of Ukraine, Italy’s junior trade minister, Manlio Di Stefano, told POLITICO that given Italian exports of luxury goods to Russia, sanctions could only be a “last-resort solution.”

But there’s a limit to how much pain they are willing to endure.

Legally watertight

Taking the foot off the gas pedal on sanctions is about more than national interests, EU diplomats stress.

Brussels has to ensure its swift adoption of sanctions can survive any future legal challenges. “We have to make sure Putin’s friends can’t sue themselves out of these sanctions,” said another EU diplomat. This requires time, something officials didn’t have when the last package of sanctions was announced by Commission President von der Leyen on Friday and discussed over the weekend. 

“The Commission is working at warp speed to get new sanctions packages out, but seems to put speed over quality” said another EU diplomat.

Diplomats also argue the EU cannot fire all its ammunition at the same time. Brussels has to keep some options in its back pocket, they warn. “Throwing out everything on the table now will damage the diplomatic process,” said another EU diplomat.

This week, the large majority of countries wants to focus on fixing the loopholes and making sure the sanctions agreed are properly implemented. This also gives some time for the current sanctions to hit the Russian economy.

“I plead for not constantly talking about further sanctions,” German Transport Minister Volker Wissing said at a Die Welt event on Tuesday. “We have to deal with how to enforce the sanctions that have been decided, because we must not back down an inch.”

At the same time, the European Commission is preparing the groundwork for a fifth package. 

As has been the case since the beginning of the war, officials do not want to specify specific “triggers” that would prompt fresh sanctions. 

“We’re in constant contact with member states … we are ready to work on more, but we’re not setting some specific triggers, as there was no specific triggers for the fourth or third package. The very fact of Russia’s aggression warrants continued pressure on Russia to stop,” said the EU’s trade chief Dombrovskis following a meeting of finance ministers on Tuesday.

Hans von der Burchard, David M. Herszenhorn, Stuart Lau and Nette Nöstlinger contributed reporting.