Analysis-EU faces a complex task as it tries to agree Russia sanctions

[February 02, 2022]  By Robin Emmott and John Irish

BRUSSELS (Reuters) - The European Union says it is ready to impose "massive" economic sanctions on Russia if it invades Ukraine, but officials and diplomats say the threat depends on complex negotiations involving 27 member states that are far from complete.

An invasion in the next few days, they say, would probably be too soon for EU negotiators who are still trying to find a package of measures that all can agree.

Moscow denies it is planning an invasion and has accused the West of hysteria over a Russian troop buildup near Ukraine's borders.

"Energy dependency makes a deal more difficult for the EU than for the United States. Getting political agreement is harder," said a senior EU diplomat. "There's no free lunch. We have a deep relationship with Russia so there will be economic pain, and for some more than others."

It was not immediately clear which EU countries have been the most hesitant in negotiations or when the bloc might be ready to move on sanctions which it says would have "massive consequences and severe costs".

Talks are being held in secret between EU capitals and the bloc's executive body, the European Commission, not as a group in Brussels.

"Conversations are under way with member states. We don't want to do this in public. Moscow is good at exploiting divisions," said a second EU diplomat.

EU economies are more exposed than the United States. Their exports to Russia declined by a fifth in the two years following Russia's annexation of Crimea from Ukraine in 2014 that led to Western sanctions being imposed on Moscow, according to EU data.

Germany's position as the EU's biggest consumer of Russian gas will be crucial in negotiations. Diplomats see no big difference so far between France and Germany, the EU's traditional big powers, on the need for tough sanctions.

Russia is the EU's fifth-largest trading partner overall, and Russia supplied 44% of the gas the EU imported in 2020. But gas makes up from 75% to 100% of the value of gas imports in Bulgaria, Hungary, Slovakia, Slovenia, Romania, Latvia, Estonia and Finland, according to EU data.

Germany and Italy are among the biggest exporters to Russia, with sales in sectors from manufactured goods to mining.

Many governments want to know what constitutes a trigger for sanctions, something privately raised by EU foreign ministers at a meeting last month. Hungarian Prime Minister Viktor Orban, visiting Moscow, said sanctions were counterproductive.

"For now we're just working on the package. The question of when we would activate them, that hasn't been decided," said a third EU diplomat.

Russian intervention in Ukraine could range from covert action such as orchestrating a coup to cyberattacks and a full-blown invasion, Western military experts say.

 Chess pieces are seen in front of displayed Russian and EU flags in this illustration taken January 25, 2022. REUTERS/Dado Ruvic/Illustration/File Photo

SOFTER ON OLIGARCHS?

Mindful of the delays to a first round of EU sanctions imposed on Belarus in 2020 over a crackdown on mass street protests in the former Soviet republic, the European Commission is drawing up proposals on sanctions after exploring what is workable in meetings with member states.

Once all 27 have been consulted, discussions between EU states can start, with the goal of having something ready to present to EU leaders if Russia invades.

EU diplomats and officials say the EU's sanctions would not be identical to those of the United States and that nothing is off the table, including punitive measures over the SWIFT global interbank payments system used for Russian money flows.

There would be a clear grading system, or "escalation ladder" of severity of sanctions, depending on Russian actions.

Hitting Russian individuals with travel bans and asset freezes would be a first response. But the EU does not yet have a list of names, even if there is general agreement that - unlike the United States - Putin himself would not be a target because of a desire to keep diplomatic channels open.

Also unlike the United States, which want to target Russia's economic elite with funds in the West, the EU says it would need clear evidence of oligarchs' wrongdoing or risk legal challenges to the sanctions in European courts.

There is more agreement on imposing sanctions on Russian defence companies or introducing export controls on Western technology, possibly linked to artificial intelligence.

Other measures could include extending a list of state-owned enterprises banned from doing business with the EU, sanctions on specific Russian products and on the Russian financial and banking sectors although Austrian, Hungarian, Italian and French banks have local branches in Russia.

The energy sector sanctions remain the most difficult because Russia could restrict gas supplies to Europe. Germany has signalled it might take punitive measures over Nord Stream 2, a recently completed pipeline from Russia to Germany, but Berlin faces tough choices before it acts.

Targeting Russia's coal sector is also under discussion.

(Additional reporting by John Chalmers, Editing by Timothy Heritage)

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