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Peace negotiations

EU Prepares for Sanctions Workarounds Against Russia as Hungary Veto Looms

Strategic Insights

— 1 min read

The European Commission has informed national capitals that it may use capital controls and tariffs against Russia if Hungary blocks the extension of economic sanctions imposed on Moscow in response to its war in Ukraine. This move would allow the EU to maintain pressure on Russia despite Budapest's veto threat, as the bloc's 27 member states need unanimous approval to extend the sanctions. The restrictions, including import bans and price caps, are set to lapse at the end of July if not renewed.

Key Takeaways:

  • The European Commission is preparing alternative options to maintain economic pressure on Russia if Hungary vetoes the extension of sanctions.
  • Capital controls and tariffs are among the workarounds under consideration, which would require only a majority of EU countries for the sanctions to be extended.
  • The EU has already discussed imposing tariffs on Russian and Belarusian fertiliser, with the 17th package of measures expected to be signed off today and formally imposed next week.
  • The commission plans to present legal proposals next month to ban new Russian gas contracts and propose tariffs on enriched uranium, citing efforts to cut EU reliance on Russian fuels.
  • Some EU diplomats have expressed concern that a ban on Russian gas without sanctions could lead to prolonged legal battles and have pressed the commission for assurances on the new measures.

Statistics:

  • €200bn in frozen Russian state assets could be moved to a different legal basis to circumvent Budapest's veto, according to five officials briefed on the discussions.
  • The EU's 17th package of sanctions targets companies in China and elsewhere that are helping Moscow avoid sanctions.
  • The commission has pledged to present legal proposals next month that would allow it to enact a ban on new Russian gas contracts this year and a total phase out by 2027.

Sources:

  • Five officials briefed on the discussions, Financial Times
  • Three diplomats briefed on the sanctions discussion, Financial Times
  • EU diplomats, anonymous, Financial Times

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