The European Union (EU) unveiled its 12th package of sanctions against Russia at the end of last year as it continues its efforts to curb Russia’s economic assets. On December 18, the package was formally approved, effective immediately.
The primary focus of the new package is military manufacturing, mainly affecting devices and products that could be used in Russian military manufacturing, particularly those that assist in the manufacturing of ammunition. Along with machinery restrictions, the EU added some chemicals, lithium batteries, thermostats, motors, and servomotors for drones to the list of products that companies will no longer be allowed to export to Russia. Along with these military-specific sanctions, the package also includes measures to enforce the Russian oil cap as well as an expanded list of restricted metal products and the ban on imports of Russian diamonds.
The sanctions package also requires EU exporters of security-sensitive goods and technology to include a contractual clause that prohibits the re-exportation to Russia or for Russian use. This restriction covers any sale, supply, or transfer of a product to a third country except to other countries in the EU.
Affected products include goods related to aviation, jet fuel, firearms, and goods on the Common High Priority list. The Common High Priority list includes several types of integrated circuits, wireless communication electronic items, electronic components, electrical plugs and connectors, navigation equipment and digital cameras along with mechanical and non-electronic components and production and testing equipment for electric components and circuits.
European Union announces new ban on Russian-origin diamonds
The new ban on Russian-origin diamonds will be extended to cover diamonds that were mined in Russia but polished or cut in another country such as India. While these had previously not been included in the sanctions due to the difficulty of tracing, new developments in tracing technologies and a broader acceptance by G7 countries of the ban will more effectively restrict the trade of Russian-origin diamonds. The measures are not expected to disrupt the global market for diamonds in a significant way due to the long period of debate surrounding the restrictions that have given affected countries time to prepare for the changes in the supply of diamonds.
As of January 1, 2024, all G7 members implemented a direct ban on diamonds exported from Russia. The ban will be expanded on March 1 to include Russian-origin diamonds polished in a third country. Lastly, from September 1, the ban will also include Russian origin, lab grown diamonds, as well as jewelry and watches containing diamonds.
Manufacturing disruptions in Europe unlikely, but trade disruptions remain a risk
Impacts on manufacturing may not be severely felt in Europe since the restrictions are much narrower than previous packages and are largely focused on exports to Russia rather than imports from Russia or imports of products with Russian-linked materials. However, companies could still be impacted if their products are imported by or move through Russia during the manufacturing process.
Pig iron and spiegeleisen products, copper wires, aluminum wires, foil, tubes, and pipes are included in the restrictions. Most notable in this list is the inclusion of Russian-origin pig iron, spiegeleisen pig iron, and direct reduced iron (DRI). The EU is a major importer of Russian-origin pig iron with over 1.25 million tons imported into the EU from Russia between January and September 2023 alone, in particular the European steelmaking industry. The dependency on Russian pig iron products is one reason why these items were not included in past sanctions packages, but restrictions will now be enforced gradually through quotas before a full ban comes into effect in 2026.
The first quota period began on December 19, 2023, and will last until the end of 2024. The quota is 34.4% below average imports for the same time period in 2023. The second quota period, lasting between January 1, 2025, and December 31, 2025, will be a further 40% below average imports for the same time in 2023.
Ferroalloys are a notable addition to the 12th package of sanctions. The ban allows for contracts in place before December 19, 2023, to still receive deliveries until December 20, 2024. The restrictions will therefore most likely impact general machinery manufacturers and companies that produce components for the construction and building materials sectors. They could also impact automotive, aerospace, and other industries relying on metal components.
The sanctions include restrictions on the import of Russian-origin liquified petroleum gas (LPG) worth over €1 billion. This restriction will have a 12-month grace period for existing contracts and will come into force in December. However, the measures are expected to affect only about 6% of the EU intake of Russian-origin LPG.
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