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Which sanctions against Russia are still possible?

April 6, 2022

A fifth sanctions package is being put together this week over Russia's ongoing war of aggression against Ukraine. Wiggle room around energy supplies seems the only space left to maneuver.

https://p.dw.com/p/49Vfd
Gas buring off at BASF Facility in Germany
Gas is key to Germany's economy and thus, Germany is reluctant to ban it all at onceImage: Daniel Kubirski/dpa/picture alliance

Images of murdered civilians from the northern Ukrainian town of Bucha near Kyiv have ramped up pressure on the West once again: It does not want alleged Russian war crimes to go unpunished, nor does it not want to assist Ukraine militarily to the extent that it gets directly involved in the war against Russia.

That's why the current economic and financial sanctions against Russia are to be tightened: "We will decide on further measures in the circle of our allies in the next few days,"German Chancellor Olaf Scholz said already on Sunday. "President Putin and his supporters will feel the consequences."

This Wednesday, fresh EU talks are expected to focus on exactly that question — how to up sanctions in response so the horrors of Bucha go punished. According to EU Commission President Ursula von der Leyen, the bloc is considering a raft of sanctions that could include oil imports and an end to all coal imports from Russia. 

"And they will not be our last sanctions," added von der Leyen on her Twitter account Wednesday morning.

Further sanctions 'extremely difficult'

The foreign accounts of Vladimir Putin and many of his circle have already been frozen, export bans have been imposed on high-tech products, a number of Russian banks have been cut off from payment transactions, and European ports and airspace have been closed to ships and aircraft from Russia. The question now is: What sanctions options remain? And how useful would they be?

"There is relatively little left at the moment," says David Sirakov, the director of the Atlantic Academy from the German state of Rhineland-Pfalz. He says it will be "extremely difficult to enact more sanctions that would not hit the sanctioning parties hard, the West and Germany in particular. This applies first and foremost to gas supplies," Sirakov explains.

When it comes to gas, the German government is seen within the EU as having its foot on the brake. The three Baltic states of Estonia, Latvia and Lithuania completely stopped importing gas from Russia on April 1 and are currently using reserves stored in Latvia. In May, they will be connected to the European gas network via a new pipeline.

Germany, on the other hand, is taking a very different approach. Out of economic fears, it wants to first secure long-term alternative energy supplies, and only then cancel supplies from Russia.

The German chemical industry has warned against sanctioning Russian gas: "Every kilowatt hour, every ton of natural gas that is missing in chemical production correspondingly reduces production in other companies," says Jörg Rothermel of the German chemical industry association VCI.

Without sufficient gas, there could be a shortage of adhesives, coatings and paints. Fertilizers, which are needed in agriculture for food production, along with special plastics would also become scarce.

Night Shot of the BASF chemical facility in Ludwigshafen
Reduced gas supply would reduce chemical production, for example at this BASF facility in LudwigshafenImage: Udo Herrmann/U. J. Alexander/imago images

Should Gazprom Bank be sanctioned?

Financial institutions such as Russia's Gazprom Bank are central to the handling of energy deliveries. The UK sanctioned Gazprom Bank last month — but the EU, so far, has not. Jörg Krämer, the chief economist at Germany's Commerzbank, advises against such a move: "The West would ultimately cut into its own flesh if it sanctioned all Russian banks, because then Western importers would no longer be able to pay their gas bills by bank transfer."

As a result of EU sanctions, most major Russian banks have been cut off from the SWIFT international payment system, which processes transactions worldwide. Gazprom Bank was deliberately exempted from this move.

The Gazprom Bank is additionally seen as a key hinge in the new Kremlin directive that gas supplies are to be paid for in rubles. Gas suppliers in Germany and elsewhere in Europe are continuing to pay in euros or dollars and those payments are forwarded to Gazprom's parent company in Russia, which operates a large part of the Russian gas business.

Some observers argue that Gazprom Bank is taking over the role of Russia's central bank, which has been sanctioned by the West. Others say very little has changed — including Commerzbank's chief economist: "Before, the foreign currencies were held by Gazprom. They are now held by the Gazprom Bank," Krämer says. "That doesn't make much difference in a system where foreign exchange can be centralized by decree."

"Gazprom Germania" sign in Berlin
Gazprom continues to play a major role in Europe despite sanctionsImage: Fernando Gutierrez-Juarez/dpa ZB/picture alliance

More sanctions in the technology sector?

In addition to the financial market, Germany's economy minister Robert Habeck announced on Sunday that he wants to take another look at the technology sector.

"It is certainly still a possibility to bring in product categories there," said political scientist Sirakov. But he added that many sectors in Russia are already crippled because companies can no longer source products from abroad in the wake of the current financial sanctions.

There are already reports of tank factories that can no longer obtain materials because of the sanctions and therefore have had to stop production. It's a matter of time, Sirakov says, "even with the sanctions in place, that this will hit other companies, other production processes in the Russian defense industry."

Sanctions against those in President Putin's inner circle, which involve freezing bank accounts or preventing individuals from travelling abroad, play a subordinate role in the overall sanctions mix. There are still a few sanctions steps to go, Sirakov thinks.

But "the stuff that would really hurt the leadership in Moscow beyond the level that has already been reached, there's not too much left."

This article has been translated from German.