Will Europe Target Privileged Industries in the 10th Sanctions Package?

Pushed by hawkish member states of Poland and the Baltic states, the EU has begun working on the 10th sanctions package with an expectation that it will be ready to enact in time for the one year anniversary of Russia’s invasion of Ukraine on 24 February. The discussions yet again mention banning the import of diamonds in to the EU, reducing nuclear cooperation with Russia including potentially designating the state nuclear agency and often arm of foreign policy ROSATOM, and banning more Russian propaganda outlets and banks from SWIFT. As this package is expected to come after EU alignment on extending the same restrictions on Russia sanctions to Belarus and agreeing on oil products price caps for next weeks EU-Ukraine summit, the real question is, will the anniversary of Putin’s invasion be enough of a catalyst for Europe to target thus far protected industries?

Reduce nuclear cooperation

Diplomatic sources have stated in press that reducing nuclear cooperation between the EU and Russia will be a focus of the next round of sanctions.  Earlier in January this year, Ukrainian Prime Minister Denys Shmyal said he expects Russian nuclear energy company Rosatom to be included in the next round of sanctions. The move comes after Ukrainian nuclear power station Zaporizhzia was occupied by the Russians and Putin transferred the plant’s ownership to a subsidiary of Rosatom. The nuclear plant is considered to be stolen from Ukraine and Rosatom is a leading actor in this by facilitating the seizure and stationing employees at the plant. Additionally, Rosatom develops nuclear weapons for Russia and has been found to aid the arms industry in Russia

The nuclear sector has not been targeted by sanctions until now, a reason being that 20% of the world’s nuclear power plants are Russian-designed and sanctions are feared to cause more energy price volatility in an already volatile time for energy prices. Additionally, Hungary’s foreign minister Peter Szijjarto has said that the country will not support any sanctions targeting or restricting nuclear cooperation between Hungary and Russia as the country is dependent on nuclear power, arguing it would be more damaging to the EU than Russia. For similar reasons the US has thus far not targeted the Russian nuclear industry either.

Ban on the import of diamonds 

A ban on the import of diamonds from Russia has been discussed as part of multiple sanctions packages the past year without becoming part of any of them. Trade restrictions on luxury goods were included in the fourth sanctions package in March 2022, but diamonds were excluded. A key reason for the lack of sanctions thus far is that Belgium has opposed a ban on diamond trade arguing it would be more damaging for Europe, particularly Antwerp, than for Russia and due to a fear of job losses. But for how long can Europe continue to justify the continued import of goods providing important profit for Putin, particularly when other G7 members have taken strides to target the same trade?Russia’s largest diamond miner, Alrosa, is sanctioned by the US, Canada and the UK.

Diplomats from EU member countries, particularly Poland and Lithuania, have endorsed a complete ban on diamond import- or at least, an Alrosa designation, though thus far they have been without success as they have not been able to secure the unanimity required for enacting EU sanctions. However this time may be different, as Belgium’s prime minister Alexander De Croo has repeatedly said he will not veto a ban if it is supported by a majority of members, but there are still a lot of negotiations before getting to that point.

Other proposals

Diplomats from the EU’s hawkish states propose banning more propaganda outlets and cutting off more banks from using SWIFT, and expanding the restrictions on imports of rubber products and compounds. In contrast to the highly debated and controversial proposals of reducing nuclear cooperation or banning the import of diamonds, achieving alignment on banning additional media outlets and non-strategic imports should be easier. On banks, Poland wants a strict new package with more banks including Gazprombank and Alfa Bank cut off from SWIFT. This seems like a strong negotiating position from Poland that once the dust settles will likely result in additional smaller banks cut off from SWIFT, but not major players like Gazprombank to preserve continuing business with Russia in energy and other industries important to world markets.

We will see how the negotiations play out and what proposals will come to fruition, but as always, preparation for what can come can save a lot of cost and heartache rather than getting caught by surprise.