The European Council of the European Union (EU) approved its 18th sanctions package on July 19, mainly targeting Russian oil revenues and sanctions evasion schemes.[1] The EU announced a landmark oil cap to contain Russian oil prices at 15 percent of the average market price that will automatically adjust semi-annually, and noted that the current price cap is set at $47.60 per barrel – well below the previous $60 per barrel cap.[2] The EU imposed a full transaction ban on any transactions related to the Nord Stream 1 and 2 pipelines, which will prevent the completion, maintenance, and operation of the pipelines. The EU also ended Czechia’s exemptions for Russian oil imports. The EU sanctioned an additional 105 vessels of the Russian shadow fleet, increasing the overall number of sanctioned tankers to 444. The EU sanctioned Russian and international companies managing the shadow fleet, an oil refinery in India in which the Russian state oil company Rosneft is a main shareholder, the captain of a shadow fleet vessel, a private operator of an international flag registry, and one entity in the Russian liquefied natural gas (LNG) sector. The EU also imposed an import ban on refined petroleum products made from Russian crude oil and imported from any third country, with the exception of Canada, Norway, Switzerland, the United Kingdom, and the United States. The Russian government reportedly accounted for some decrease in oil and gas revenue as part of Russia’s upcoming national budget, although the EU oil cap and shadow fleet sanctions will likely further degrade Russian oil revenues beyond what the Kremlin previously expected.[3] The EU measures target both Russia’s current ability to sell oil at advantageous pricing and undermines Russia’s long-term ability to sell oil to Europe. The EU noted that oil revenues constitute one-third of Russia’s overall revenue, and that recent declines in Russia’s oil revenues in combination with a decrease in market earning potential poses a risk to the Russian federal budget.
Russian officials continued to falsely claim that sanctions do not have an impact on the Russian economy in response to the EU’s new sanctions package. Kremlin Spokesperson Dmitry Peskov claimed that the EU’s new sanctions package is illegal, that Russia has already gained immunity and adapted to life under restrictive measures, and that Russia will analyze the effects of the new package and minimize their effects.[6] Peskov added that each new sanctions package disadvantages those who authorized it. Russian Security Council Deputy Chairperson Dmitry Medvedev responded to the EU’s newest sanctions by claiming that the package will not change Russia’s position and that the Russian economy will survive and Russia will continue to fight Ukrainian forces.[7] Medvedev threatened to target Kyiv City and other Ukrainian cities with increasing force in response to the EU’s sanctions package. Medvedev claimed that Russia must learn to “hate” the EU and its “Russophobia” as much as Russia’s ancestors did and that “how this ends for Europe is known.” CEO of the RDIF and Presidential Special Representative for Investment and Economic Cooperation with Foreign Countries, Kirill Dmitriev, claimed that the EU’s newest sanctions package is hurting Europe more than Russia and limiting European energy supply by closing Russian markets to European companies.[8] Head of the Russian State Duma Committee on Financial Markets Anatoly Aksakov claimed that the new EU sanctions on Russia’s financial system are just a fluctuation in the air, as Russian banks have already been under restrictions from the EU.[9]
Select Russian officials are acknowledging the impact of sanctions on the Russian economy despite the Kremlin’s efforts to disguise and dismiss such impacts. The Moscow Times reported on July 17 that Russian Energy Minister Sergei Tsivilev recently told the Russian Federation Council that Russian oil companies are struggling to procure parts to repair refineries due to Western sanctions.[10] Russian Central Bank Chairperson Elvira Nabiullina notably stated at the St. Petersburg International Economic Forum (SPIEF) on June 19 that Russia has exhausted many of its “free resources“ since the start of Russia‘s full-scale war against Ukraine and needs to think of a new growth model.[11] Russia’s Minister of Economic Development, Maxim Reshetnikov, stated at SPIEF that Russia is on the “brink of recession.”[12] Russia’s ongoing sanctions evasion schemes, including via the PRC, are a key aspect of the Kremlin’s strategy to offset Western sanctions and relieve pressure on the Russian economy. Russia has created a network of actors to circumvent Western sanctions and is reconfiguring its economic policy and business models to withstand sanctions in the long term, although more extensive Western sanctions will complicate this effort. The EU’s newest sanctions are a positive step, but wider Western compliance and enforcement are necessary to inflict maximum economic pressure on Russia.
Ukrainian President Volodymyr Zelensky appointed former Defense Minister Rustem Umerov as Secretary of the National Security and Defense Council on July 18.[13] Umerov stated that he will oversee the coordination of arms deliveries, joint production efforts, and defense partnerships, as well as advance Ukraine’s negotiation track with Russia.[14]
Key Takeaways:
- The European Council of the European Union (EU) approved its 18th sanctions package on July 19, mainly targeting Russian oil revenues and sanctions evasion schemes.
- Russian officials continued to falsely claim that sanctions do not have an impact on the Russian economy in response to the EU’s new sanctions package.
- Select Russian officials are acknowledging the impact of sanctions on the Russian economy despite the Kremlin’s efforts to disguise and dismiss such impacts.
- Ukrainian President Volodymyr Zelensky appointed former Defense Minister Rustem Umerov as Secretary of the National Security and Defense Council on July 18.
- The Kremlin continues to advance its long-term censorship efforts to assert greater control over the Russian online information space.
- Ukrainian forces recently advanced near Novopavlivka. Russian forces recently advanced in northern Sumy Oblast and near Pokrovsk.