The gap between the EU and the US allows funding to flow into Russia's military and must be closed if the West wants to tighten its grip on the Kremlin.
These problems are also evident in the EU's 14th economic package against Russia, introduced on June 24. The most damaging measures are aimed at sanctions violators and Russian liquefied natural gas (LNG) exports.
Despite the ban on the export of dual-use technologies and products, Russia continues to procure EU-made equipment and technology essential for its weapons systems, often through intermediaries in third countries such as China, Kazakhstan, Kyrgyzstan, Turkey and the United Arab Emirates.
The missiles that Russia fired at Ukrainian cities, including the Children's Hospital in Kiev in July, contained Western-designed components, particularly microelectronics and aviation parts. Indeed, a Ukrainian government investigation has found so far that Russian weapons systems used against the country contained 3,638 Western military components. Unlike the United States, which targets embargo violators in third countries, the EU's efforts are aimed at enforcing compliance in the EU's own private sector. The EU has effectively delegated much of the compliance and oversight to companies.
EU companies have “best efforts” obligations with respect to their overseas subsidiaries and must mitigate and manage Russia-related non-compliance risks by implementing mandatory procedures and checks. In addition, previously recommended due diligence practices for export control compliance are now mandatory for EU companies selling Common High Priority (CHP) products, including dual-use and technology products. Companies must apply due diligence mechanisms to identify and mitigate risks of re-export to Russia.
The requirement extends to ensuring that overseas subsidiaries adhere to the same standards, meaning all companies are responsible for ensuring that their products do not end up on Russian missiles.
However, the EU has stopped short of imposing a total ban on trade with Russia through non-EU subsidiaries owned or controlled by EU companies, limiting it to a best efforts policy. Currently, this policy, adopted in round 12, applies to EU businesses selling certain controlled goods, such as aviation goods, jet fuel, firearms, and other technology. Instead of a blanket ban on overseas subsidiaries of EU companies re-exporting to Russia, the “best efforts rule” was adopted, mainly due to German reservations.
This vaguely defined rule may create uncertainty for businesses, and the EU needs to provide clear guidelines, implementation parameters, and clear responsibilities. However, the EU has historically been cautious about imposing sanctions on third countries, preferring “alternative measures” and focusing on the responsibility of EU businesses for sanctions violations (again, different from the US, which imposed sanctions on a further 400 foreign companies on August 23). The effectiveness of the new anti-evasion measures will ultimately depend on implementation by private companies and enforcement by national authorities.
The second key element of the package targets Russia's LNG industry, which would be the EU's first legal regulation of natural gas. Despite the collapse of pipeline gas trade from the East, the EU remains Russia's fourth-largest buyer of fossil fuels and its largest LNG customer. In 2023, Russia sent more than half (51%) of its LNG exports to the EU, generating revenues of €8.1 billion ($8.9 billion). At the start of 2024, Russia will remain the EU's second-largest LNG supplier, accounting for 17.7% of imports, second only to the United States (47.4%).
Key measures in the package include a ban on the transshipment of Russian LNG through EU ports and on imports to terminals not connected to the EU gas pipeline network. These restrictions are designed to increase Russia's logistics costs, affect its LNG revenues, and limit its ability to use EU infrastructure for shipments to third countries.
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It is estimated that around 22% of LNG flowing into the EU from Russia in 2023 will be transshipped through EU ports and then re-exported around the world, while 8% will be sent to EU member states. To thwart Russian LNG expansion, the EU has banned new investments and the provision of goods, technology and services towards the completion of major Russian LNG projects under construction, such as Arctic LNG 2 and Murmansk LNG. Still, the EU has stopped short of imposing an outright ban on Russian LNG. Unlike the EU's 2022 ban on Russian seaborne oil, the current package only restricts LNG transshipment through EU ports. The ban includes a long grace period of nine months, which will likely weaken its immediate impact.
Moreover, the impact of the ban would be minimal and may even be counterproductive, as only a small proportion of Russian LNG is shipped to Asia via EU ports. It could be absorbed into the European market, increasing Russian LNG supplies within the EU. Ultimately, the EU's continued direct and indirect dependence on Russian LNG and gas pipeline supplies will make it difficult to implement stricter regulatory measures.
The EU has gradually aligned itself with U.S. sanctions but has not targeted middlemen with secondary sanctions or cut off energy ties with Russia.
The EU's reliance on Russian hydrocarbons, which it aims to overcome by 2027, contrasts with a more comprehensive U.S. ban on Russian oil, gas and coal imports, as well as tougher controls on the export of energy-related technologies.
The EU also faces further challenges, such as the need for unanimous agreement among member states and differences in implementation across countries that could make sanctions less effective. The latest measures lack a comprehensive “keep Russia out” policy, highlighting the complexity of balancing sanctions with energy security concerns.
Going forward, the EU's sanctions strategy will require greater vigilance, diplomatic coordination, and a willingness to endure short-term economic challenges for the sake of long-term strategic interests. Without these efforts, the EU will likely fall behind the United States in pressuring Russia.
The first co-author, an academic now living in the United States, grew up in Belarus and still has family there, so his name is being withheld.
The second co-author is Alexander Kolyandor, a non-resident senior fellow at the Center for European Policy Analysis (CEPA) who specializes in Russian economics and politics. He was previously a reporter for The Wall Street Journal and a banker at Credit Suisse. He was born in Kharkiv, Ukraine, and lives in London.
Europe's Edge is CEPA's online journal covering key topics in European and North American foreign policy. All opinions are those of the authors and do not necessarily represent the position or views of the institutions they represent or of the Centre for European Policy Analysis.
Edge of Europe
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