EU eyes economic sanctions on Russia, with trade deals intact

July 26, 2014 - 12:20:25 am
People near a Rosneft gasoline station in Stavropol, southern Russia. Rosneft, Russia’s No. 1 oil producer, said yesterday its second-quarter net income rose by almost five times, year-on-year, to 172bn roubles ($4.9bn), beating analyst forecasts, thanks to a stronger rouble. 

BRUSSELS: The European Union reached outline agreement yesterday to impose the first economic sanctions on Russia over its behaviour in Ukraine but scaled back their scope to exclude technology for the crucial gas sector.

The sanctions on access to capital markets, arms and hi-tech goods are also likely to apply only to future contracts, leaving France free to go ahead with the controversial delivery of Mistral helicopter carriers being built for Russia.

After months of hesitation, the 28-nation EU toughened its stance towards Moscow after last week’s downing of a Malaysian airliner, killing 298 people, in an area of eastern Ukraine held by Russian-backed separatists. But the narrowing of the proposed measures highlighted the difficulty of agreeing to tough sanctions among countries which have widely different economic interests and rely to varying degrees on Russian gas.

After a discussion that lasted all day Thursday and part of yesterday, ambassadors asked the executive European Commission to draw up a legal text setting out economic sanctions for possible agreement as early as next week.

Key measures included closing EU capital markets to state-owned Russian banks, an embargo on arms sales to Moscow and restrictions on the supply of dual-use and energy technologies. They would not affect current supplies of oil, gas and other commodities from Russia.

European Council President Herman Van Rompuy wrote to EU leaders saying the discussion among ambassadors had led to “an emerging consensus on some key principles.”

One was that “the measures in the field of sensitive technologies will only affect the oil sector in view of the need to preserve EU energy security,” the letter said, according to an EU source.

The Commission had proposed restricting equipment for deep-sea drilling, shale oil and Arctic energy exploration.

If the sanctions had applied to gas technology, they could have affected Gazprom’s huge South Stream pipeline project to Europe and Novatek’s Arctic Yamal liquefied natural gas (LNG) facility. That in turn would have hit large EU energy suppliers and manufacturers with an interest in the project, including in Germany, Austria and Italy. The prospect of EU sanctions sent shares in French energy services firm Technip plunging 8 percent on Thursday.

Gazprom’s main partners in South Stream are Italy’s Eni, France’s EDF, Austria’s OMV and Germany’s Wintershall, a subsidiary of German chemical giant BASF. A second agreement cited by Van Rompuy was that “the principle of non-retroactivity will apply across all targeted sectors, notably in the field of arms trade and restrictions on access to capital markets”.

France was determined to uphold existing contracts with Russia to preserve a €1.2bn 2011 deal to supply two Mistral helicopter carriers. 

A third agreement was that the ban on exports of dual-use technology — that can be used in both military and civilian products —would be limited at this stage to military end-users. Van Rompuy assured leaders that the package would maintain an overall balance across all sectors and all EU countries. He asked leaders to delegate authority to their ambassadors to agree on the sectoral sanctions without a special EU summit. One official said there was “an overall preliminary agreement on the concept” at the meeting but ambassadors would hold more discussions next week on the basis of the legal text.

REUTERS

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