Bloomberg: EU takes aim at key exports to Russia in new sanctions

The European Union has proposed banning the export of machine tools and machinery parts that Russia uses to make weapons targeting Ukraine, according to documents seen by Bloomberg.

The proposal is contained in the EU’s 12th sanctions package, which also includes a ban on diamonds and measures to better enforce the price cap on Russian oil. Member states are set to discuss the proposals this week and they could change before they’re approved, Bloomberg  reports.

Bloomberg previously reported that Russia was importing some of the machinery — including welding machines and numerical control units — from Europe and using them to make ammunition. The race to source ammunition has become crucial as Ukraine braces for a long war. Moscow has been able to sustain its production of ammunition while Kyiv’s allies risk falling short of commitments to provide Ukraine with artillery shells.

The main focus of the new sanctions package is to further crack down on the Kremlin’s ability to circumvent EU sanctions and feed its war machine, as well as curtail Moscow’s sources of revenues.

EU Is Weighing Fresh Sanctions on $5.3 Billion in Russian Trade

Other items used by Russia in its war against Ukraine that contribute to the production of its military systems that the EU proposes to add to its list of restricted goods include chemicals, lithium batteries, thermostats and motors and servomotors for drones.

The package includes a long-awaited ban on Russian diamonds from Jan. 1 as well as a phasing in of an indirect import ban on Russian diamonds processed in third countries, according to the draft.

The ban is being coordinated with the Group of Seven as part of efforts to develop a tracing mechanism and will also include restrictions on imports of Russian diamonds that have been processed in other third countries.

Oil Cap

As part of measures to enforce the price cap on Russian oil — which is $60 a barrel when Western shipping or insurance services are involved — the EU is proposing to:

• Introduce a requirement for attestations to include itemized costs such as insurance as freight in order to get around attempts to falsify attestations or mask the actual cost of Russian crude. The $60 threshold applies to the price of oil without transportation and other costs and there are concerns those costs are at times artificially inflated to fall under the cap.
• Enhance information sharing to identify vessels that are carrying out deceptive practices such as ship-to-ship transfers to conceal the origin or destination of the product.
• Introduce a notification system that requires authorization to sell or export tankers and second-hand carries as a way to curtail Russia’s ability to develop a so-called shadow fleet of vessels it uses to transport oil outside the cap. Some sales to entities and people in Russia will be banned.

Russian oil is now trading well above a $60-a-barrel cap that the EU and others in the G-7 imposed last December. The threshold has largely been circumvented by the use of a huge shadow fleet of tankers that Moscow has amassed that means it doesn’t have to use western ships, insurance or other services that are prohibited for cargoes that cost above $60.

One complaint about implementation of the cap itself has been that some of the actual cost of oil has been assigned to inflated costs of shipping and freight instead, allowing for nominal compliance with the threshold. The need to break down the numbers would make that trickier.

The proposals include import restrictions on liquefied propane, pig iron and spiegeleisen, copper wires, aluminum wires, foil, tubes and pipes.

The new round of restrictions would hit some €5 billion ($5.3 billion) in exports and imports with Russia, Bloomberg previously reported.

If approved, the proposals would also see more than 30 companies added to a list of entities with which trade is restricted, including firms in Kazakhstan, Uzbekistan, Singapore and several Russian machine-building companies.

The EU is also proposing to:

• Ban Russians from holding posts in European companies that provide crypto-asset wallets, accounts and custody services
• Ban providing software licenses for the management of enterprises and software for industrial design and manufacture
• Require that firms in Europe owned or controlled by Russians or Russian entities seek authorization to transfer funds out of the EU
• Introduce a requirement that exporters introduce clauses in their contracts prohibiting the re-export of Russia to certain goods.