The EU wants to sever trade relations with Russia. Analysis

The European Union is discussing the introduction of a full trade embargo against Russia, the Politico newspaper reported, citing sources. At the same time, the EU wants to lower the ceiling on Russian oil prices. How effective the planned restrictions are is described in the Izvestia article.

Lowering the "ceiling"

• The head of the European Commission, Ursula von der Leyen, has already threatened Russia that the "ceiling" of Russian oil prices will be lowered in the 17th package of anti-Russian sanctions, as well as strict restrictions against the Russian financial sector. The EU member states have already approved this package, and now the EU Council must approve it. This is expected to happen in May.

• The price ceiling of $60 per barrel of oil was introduced back in December 2022. Restrictions were also imposed on petroleum products. Thus, the maximum price for diesel fuel should not exceed $100.

• The main purpose of this "ceiling" of prices is to reduce Russia's income from the sale of energy resources. However, lowering the ceiling is unlikely to have significant consequences for the Russian economy. Back in 2023, it was reported that Russia had reoriented its supplies to friendly countries. They accounted for more than 80% of exports. In addition, in recent years, oil prices have been below the established ceiling on average, so the effectiveness of this restrictive measure has been low.

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• Russia has also introduced retaliatory measures against the "ceiling" of prices. As a result, supplies were prohibited if a foreign party directly or indirectly used a mechanism for fixing the marginal price. However, then supplies were allowed at a price below the "ceiling" to countries not included in the "unfriendly" list under previously concluded contracts. It is likely that when the price ceiling is lowered, retaliatory measures will be re-introduced, even more strictly controlling oil supplies to "unfriendly" countries.

Sweden, Denmark, Finland, Latvia, Lithuania and Estonia were the first to talk about lowering the "ceiling" on oil prices. These countries believe that the European and, in general, the international oil market is already well provided for compared to 2022, so restrictions on Russian energy resources will not affect the initiators of sanctions. However, there is still a risk of supply shock due to lower marginal prices. Everything will depend on the level to which they want to lower the "ceiling" of prices.

"The most extensive sanctions"

• At the summit of the European Political Community (ENP) in Albania on May 16, new formats of restrictions were considered to weaken the Russian economy. Among other things, according to Politico, there was an idea to completely sever trade relations with Moscow. Another radical option to combat the Russian Federation is the introduction of 500 percent duties on Russian goods. Such "punitive duties" were previously proposed by Republican U.S. Senator Lindsey Graham.

• Trade between Russia and the European Union is kept to a minimum. At the same time, European countries continue to buy European gas, and this volume of purchases has continued to grow recently. Thus, in 2024, the EU imported 18% more Russian gas compared to 2023. Therefore, in the context of unpredictable economic relations between Brussels and Washington, the imposition of a trade embargo against Russia could hit European countries hard. In addition, there are great difficulties in agreeing on this decision, because Slovakia and Hungary are likely to oppose it. Even if the restrictions are adopted in one form or another, interested European countries will continue to purchase, bypassing the sanctions, as has been the case over the past few years.

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• Currently, Russia's main trading partners are concentrated in Asia. The trade turnover with this region reached $540 billion last year. At the same time, the volume of trade with the EU countries for the same period amounted to $141 billion. This is 14% lower than in 2023. A decrease is also projected at the end of this year. Consequently, the introduction of "punitive duties" will only accelerate the process of reducing trade turnover between Moscow and Brussels and reorienting Russia to other markets.

• The Handelsblatt newspaper, citing a European diplomat, had previously reported that the European Union had reached the limit in sanctions against Russia. The new package will not be tougher than the 16th for the Russian economy. However, after the yet-to-be-approved 17th package, the EU plans to develop the 18th.

• Thus, the introduction of new sanctions is primarily a political move, which no longer has such a strong impact on economic relations between Russia and the EU, which are showing a decline. With the new restrictions, the European Union first of all intends to remind itself, because it has been relegated to the background in the negotiation process on Ukraine. In Brussels, they want to retain the role of someone who is able to manage international relations through economic pressure. However, the EU has no more levers of pressure on Russia.

During the preparation of the Izvestia material, we talked and took into account the opinions of:

● Political scientist Inna Litvinenko;

● Maxim Chirkov, Associate Professor of the Department of Economic Policy and Economic Measurements at GUU;

● Political scientist Georgy Bovt;

● Ekaterina Novikova, Associate Professor of the Department of Economic Theory at the Plekhanov Russian University of Economics.