Mon. Jul 15th, 2024

Brussels, 19 May 2023

When we talk about ‘sanctions’ we actually refer to ‘restrictive measures’, which is the correct legal term. They are at the heart of our strategy to pressure Russia to end its war against Ukraine. The EU’s measures have no extraterritorial effect, meaning they only apply to European entities. But we see that sometimes they are being circumvented, undermining their effectiveness. And so the debate has moved to what we should do about it. Often, the answer lies at home.

As EU, we don’t want to buy Russia energy exports, because we don’t want to finance its war against Ukraine. We also don’t want to sell technological products and components that Russia needs for its war machine. These are our decisions that are binding EU economic operators. Even if we would like other countries to do the same, we cannot force them, because our ‘sanctions’, are not extraterritorial. That’s why trying to avoid the circumvention of our restrictive measures is a delicate issue. We need to tread carefully and avoid antagonising countries that are not subject to European law.

Our restrictive measures have been effective overall. For example we have almost stopped buying any oil and gas directly from Russia, ending our energy dependence. And we have stopped exporting many critical goods and materials to Russia. But in recent months we have seen an abnormal increase of third countries importing goods that are banned by the EU, including high-tech products. For example, EU exports of vehicles to Russia reportedly fell by 78% in 2022, while exports from the EU to Kazakhstan surged by 268%.

This week member states discussed the EU’s 11th sanctions package against Russia which is essentially about closing loopholes and how best to address the issue of circumvention and the rerouting of trade in banned products. The proposal under discussion would, among other measures, enable targeted measures against entities that intentionally circumvent EU measures while still upholding the principled opposition of the EU against extra-territorial sanctions

This week we also had a discussion on the specific issue of India’s growing oil purchases from Russia and the growing exports to the EU of refined products that are most likely based on cheap Russian oil. This is a good example of the dilemmas that this issue entails and the need to base ourselves on facts.

It is a fact that India, but also China, is importing ever larger volumes of Russian oil since the G7 introduced its price gap at the end of 2022 and is doing so at a clear discount,. The figures are clear: India’s oil imports from Russia have gone from 1,7 million barrels per month in January 2022 to 63,3 million barrels per month in April 2023. Put differently, before Russia’s invasion of Ukraine, the share of Russian oil in India’s overall oil import stood at 0,2%. Last month, that share had risen to 36,4%.

This is certainly a remarkable increase, but we must be clear: one cannot blame nor question the right of India to do so, because Indian operators are not subject to European laws. The G7 price cap is aimed at reducing Russia’s oil revenues and, with that, the financial means of the Kremlin to finance its war machine. As I said in the Financial Times:

“That India buys Russian oil, it’s normal. And if, thanks to our limitations on the price of oil, India could buy this oil much cheaper, well, the less money Russia gets, the better.”

The issue is more about what to do and by whom about another fact that cannot be denied, namely that India is exporting ever growing volumes of refined products, based on Russian oil, including to the EU which has precisely banned the imports from Russia of these products, as well as the oil from which they are produced.

Here again the facts are clear: the export of refined products like jet fuel or diesel from India to the EU has risen from 1,1 million barrels in January 2022 to 7,4 million barrels in April 2023. Logically, we are concerned by this. But, once again, it is not the Indian government that is to be blamed. Once refined, these products are no longer treated as Russian but as Indian and we cannot prevent Indian refineries selling them to an EU operator, or to an intermediary.

But it is clear that in practical terms this does undermine the effectiveness of our restrictive measures. We in the EU don’t buy Russian oil, but we buy the diesel obtained by refining this Russian oil somewhere else. This has the effect of circumventing our sanctions and our member states should take measures to deal with this.

All this does also raise moral issues. Oleg Ustenko, an economic adviser to Ukrainian President Volodymyr Zelenskyy, had a point when he said:

“We have enough evidence that some international companies are buying refinery products made from Russian oil and selling them on to Europe…It’s completely legal, but completely immoral. Just because it’s allowed doesn’t mean we don’t need to do anything about it.”

But who is responsible for this – the seller or the buyer? When I raised the issue of Indian exports of refined products based on cheaper Russian oil, it was not to criticise the Indian government but to say that we cannot close our eyes to how EU companies themselves are circumventing the sanctions by purchasing refined oil coming originally from Russia

This story shows that we first have to look at what economic operators within the EU are doing. If Indian refiners are selling, that is because European companies are buying, directly or through an intermediary. We should be well aware of how complex real life is and try to look for solutions on that basis.

Source – EEAS

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