Oil embargo, SWIFT, Yandex CEO and National Depository part of EU’s sixth sanction package
As far as the oil embargo is concerned, the phasing out of Russian oil will take from six months for crude oil to eight months for other refined petroleum products. The latest EU oil ban proposal allows a temporary exemption for pipeline supplies, the key demand of Hungary, which was blocking the adoption of the sanction package.
“A temporary exception is foreseen for imports of crude oil by pipeline into those EU member states that, due to their geographic situation, suffer from a specific dependence on Russian supplies and have no viable alternative options,” the EC commented.
Bulgaria and Croatia will also benefit from temporary derogations concerning the import of Russian seaborne crude oil and vacuum gas oil respectively.
In 2021 the EU improted €71bn worth of Russian oil and oil products in 2021, out of which €65bn would be phased out by the end of 2022 under the sixth sanction package, RBC business portal estimated.
As analysed by bne IntelliNews, even more damaging than the oil embargo itself would be a ban on insuring and reinsuring tankers carrying Russian oil that was also being prepared by the EU. The formulation on the insurance of tankers remains vague, however.
The official EU journal states that it is "appropriate to prohibit the insurance and reinsurance of maritime transport of such goods to third countries" but that the "appropriate transitional periods should be provided for". The sixth sanction package also prohibits the "insurance and reinsurance of maritime transport" of "crude oil and certain petroleum products, which originate in Russia or are exported from Russia" to third countries.
In addition to the oil embargo, the EU will disconnect three Russian banks Sberbank (Sber, Russia’s largest state-controlled bank), Credit Bank of Moscow and the Russian Agricultural Bank from the specialised financial messaging service (SWIFT). The Belarusian Bank for Development and Reconstruction will also be cut off SWIFT.
As far as SWIFT is concerned, previously the EU has already disconnected from the financial messaging system the sanctioned VTB Bank, Russia's second-largest state-controlled bank, Otkritie (restructured by the central bank and primed for IPO prior to invasion), restructured state-controlled "military bank" Promsvyazbank, military-affiliated Novikombank, Bank Rossiya with links to Kremlin, the state development bank VEB.RF, and private Sovcombank.
Russia's largest lender Sber has previously been added to the US SDN list and sanctioned by the UK, and the latest EU move is unlikely cause the operational conditions for the bank to significantly deteriorate.
However, one significant change from the latest EU sanctions would be the addition of the Russian Agricultural Bank to SWIFT sanctions, as the bank is one of the main issuers of the UnionPay system credit cards in Russia. After Visa and MasterCard have pulled out of Russia, Chinese UnionPay remains the only option for Russian banks to issue payment cards accepted internationally both offline and online.
National Settlement Depository
Another heavy sanction forming a component of the financial part of the sixth package is the sanctioning of the National Settlement Depository (NSD), a subsidiary of the Moscow Exchange and Russia’s central securities depository.
Most notably, the NSD is used by the Finance Ministry to service foreign debt and has been central in the ministry's manoeuvring out of sovereign default and the most recently proposed bonds-for-rubles scheme.
The NSD “plays an essential role in the functioning of Russia’s financial system and its connection to the international financial system, thus directly and indirectly enabling the Russian government in its activities, policies and resources,” the EU commented.
Now that the Finance Ministry is unable to service its debt in US dollars after the expired general licence of the US Treasury, it will also be hit on NSD’s restrictions to use euros. The NSD has already stopped euro operations, according to Kommersant daily.
Yandex CEO Volozh
The EU has sanctioned Arcady Volozh, the CEO and the founder of Russia’s internet major Yandex and most valuable digital company in the country prior to the invasion of Ukraine.
Volozh has already announced resigning from all positions in Yandex and its board. Yandex previously saw a cascade of top-level resignations that followed the sanctioning of Yandex Deputy CEO Tigran Khudaverdyan.
Although Yandex has previously tried hard to maintain its independence from the Kremlin, the EU commented that state-owned banks such as Sberbank and VTB are shareholders and investors in Yandex.
EU also reminds that in 2019 Yandex backed down to Kremlin pressure and after dodging a takeover attempt from Sberbank agreed to a restructuring that gave a “golden share” to a newly formed Public Interest Foundation built to “defend the Russian Federation interests”.
“Through the Public Interest Foundation, the Government of the Russian Federation is able to have a veto over a defined list of issues, such as the sale of material IP and the sale or transfer of Russian users’ personal data to foreign companies, both of which are deemed to affect Russia’s “national interest”. Yandex is also responsible for promoting state media and narratives in its search results, and deranking and removing content critical of the Kremlin, such as content related to Russia's war of aggression against Ukraine,” the EU commented.
Last month Yandex had to deny the unofficial reports that its founder and CEO Arcady Volozh was negotiating with Israeli authorities to accept a large number of his IT specialists in Israel with a possible opening of an HQ in Tel Aviv.
Previous reports already claimed that Yandex could split into a domestic unit that will operate in the heavily sanctioned economy and a rebranded relocated international unit run by former execs of the company.
Yandex is Russia’s leading developer of AI and driverless technologies. Prior to Russia's military invasion of Ukraine, Yandex was hailed as a global technological runner-up, looking to boost the monetisation of its technologies on the one hand, and leverage these technologies to support its international expansion on the other.
Veteran oilman Khudaynatov
The EU also sanctioned the veteran oilman and ex-CEO of Russia’s largest crude producer Rosneft Edouard Khudaynatov. As followed by bne IntelliNews, Khudaynatov’s companies are involved in joint ventures with Rosneft, such as Vostok Oil, and owns major oil deposits in Russia. He was already sanctioned by the US back in 2017.
Khudaynatov’s "Independent Oil and Gas Company" (NNK or Neftegazholding) is one of the largest Russian private companies and one of the top oil producers, which carries out prospecting, exploration and development of oil and gas fields, oil refining, as well as production and marketing of petroleum products. In 2015, the company revenues amounted to $2.2bn, the EU sanction report estimates.
In the last few years, Rosneft has also paid Khudaynatov $9.6bn in exchange for a company that owns an oilfield in Taimyr, the EU notes. Both Rosneft and NNK “requested and obtained from President Putin benefits in relation to their extraction activities in the Arctic”.
Thus the EU argues that Khudaynatov is associated with the CEO of Rosneft, Igor “Oil Czar” Sechin, and President Putin. “Khudaynatov and Sechin worked together in Rosneft, and their companies are jointly conducting business activities in the energy sector. He worked on Putin’s first presidential election campaign in 2000, which he managed in the Tyumen region, where he had been a regional Duma member since 1997,” the EU notes.
Although the EU report does not mention this, the Guardian reminds that Khudaynatov is also linked to two luxury superyachts allegedly belonging to Putin.
Heavy vehicle producers Kamaz and UAZ, Sukhoi jets
Together with dozens of the military industrial complex producers the EU sixth sanction package includes heavy vehicle producers Kamaz and UAZ. UAZ “provides the Armed Forces of the Russian Federation with UAZ Patriot vehicles, which were used by the Russian army during unprovoked and unjustified military aggression against Ukraine”, while KAMAZ-5350, KAMAZ-6350, KAMAZ 6560 vehicles were also used by the Russian army.
This is notable, as Kamaz domestic heavy trucks are crucial for cargo transportation and a number of other industries, from construction to waste management.
In addition, the EU also sanctioned Sukhoi aircraft manufacturer for the use of its combat aircrafts by the Russian military. Up to 20 Sukhoi’s civil SuperJet 100 medium-halt airplanes were planned to be supplied to Russian domestic carriers cut out of foreign jet supplies, according to Vedomosti daily.
Among the 65 individuals sanctioned under the sixth EU sanction package is Alina Kabaeva, the chairwoman of the Nationa Media Group (NMG), former Russian gymnast and a former member of the State Duma who is "closely associated with President Vladimir Putin”.
As followed by bne IntelliNews, in May the UK also sanctioned President Putin's alleged “girlfriend”, along with his ex-wife and cousins.
Previously Putin has already been personally sanctioned, but unconfirmed reports claimed that ex-Olympic gymnast-turned-politician Kabaeva was exempted from the US Treasury’s sanctions due to fears of a furious reaction from the Russian president.
The EU sanction list does not mention Kabaeva’s alleged relationship with Putin directly, but states that “she is associated with a listed person responsible for and actively supporting actions undermining the territorial integrity, sovereignty and independence of Ukraine, as well as stability and security in Ukraine”.
Marina Mordasheva and Aleksandra Melnichenko
Following the US and EU sanctions against Russian steel tycoon Alexey Mordashev (Mordashov), the EU sanctioned his wife Marina Mordashova (Mordasheva). The EU notes that Mordashev has transferred his shares in the travel giant TUI and the gold company Nordgold, together worth more than €1.5bn, to his wife Marina Mordashova through various offshore companies, including Unifirm Limited, Ondero Limited and Ranel Assets Limited.
In addition, the EU sanctioned the Serbian and Croatian national Aleksandra Melnichenko, the wife of the previously sanctioned Andrey Melnichenko, the owner of the major fertiliser producer EuroChem and coal company SUEK.
“Aleksandra Melnichenko takes good advantage of the fortune and benefits from the wealth of her husband. Together with him, she owns two penthouses with a value of more than $30mn. In March 2022, Aleksandra Melnichenko replaced her husband as the beneficial owner of Firstline Trust, managed by Linetrust,” the EU official journal claims.
As reported by bne IntelliNews, Russian Orthodox Church leader Patriarch Kirill was removed from the EU’s sanctions list at the demand of Hungary. The EU ambassadors agreed to drop the Russian religious leader from the list of people penalised after a threat of a veto by Budapest.
The EU also sanctioned servicemen and commanders of the 64th Separate Motorised Rifle Brigade of the 35th Combined Arms Army of the Russian Federation, “which killed, raped and tortured civilians in Bucha, Ukraine. These atrocities constitute crimes against humanity and war crimes”. The Head of the National Defence Control Centre Colonel-General Mikhail Mizintsev nicknamed “the Butcher of Mariupol” is sanctioned as well. He is identified as the commander overseeing the siege of Mariupol, where he has drawn on tactics previously used in the siege of Aleppo, Syria, in directing Russian forces’ bombardment of Mariupol.
The EU will also suspend the broadcasting activities in the EU of three more Russian state-owned outlets: Rossiya RTR/RTR Planeta, Rossiya 24 / Russia 24 and TV Centre International.
The sixth sanction package also officially imposes the previous ban on the provision of accounting, public relations and consultancy services.
Notably, the EU now also bans the provision of cloud services to Russia. This will add more pressure on the short- to medium-term deficit of hardware and processing capacities, with the private and public IT/AI/tech projects having to compete for scarce imported resources such as servers and other data processing tools.
The EU is also expanding a list of dual-use items under trade restrictions for Russia and Belarus, as well as including 80 chemicals which can be used to produce chemical weapons.
The fifth EU sanction package enacted in April included an embargo on €4bn worth of Russian coal imports, an asset freeze of “several” Russian banks, a ban on Russian trucks and ships in European ports, a ban on high-tech goods exports to Russia of up to €10bn, and additional import limitations for up to €5.5bn of Russian goods.
The fourth package of EU sanctions enacted on March 15 included: an import ban on steel products; a ban on new investment into the Russian energy sector; a ban on transactions with certain Russian state-owned enterprises (SOEs); and an export ban on luxury goods amongst other things. The list of sanctioned oligarchs was also extended.
Previously the EU also added 14 more Russian top executives and billionaires to the sanctions list in addition to initial sanctions against six Russian oligarchs.