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1. Using the financial system to enforce export controls

Author:
Benjamin Hilgenstock, Elina Ribakova, Guntram Wolff, and Anna Vlasyuk
Publication Date:
04-2024
Content Type:
Working Paper
Institution:
Bruegel
Abstract:
Russian imports of battlefield goods that are subject to export controls, including from Western producers, have surged since mid-2022 and reached levels close to those prior to Russia’s full-scale invasion of Ukraine. Russia thus continues to be able to acquire critical foreign components that it needs for its military industry. These imports occur via mainland China, Hong Kong, Turkey and the United Arab Emirates, while other countries including Armenia, Georgia, Kazakhstan and the Kyrgyz Republic have also seen massive increases in imports from the EU and other coalition countries that likely end up in Russia. The implementation and enforcement of export controls faces major challenges, which are multifaceted and centre around complex supply chains, lack of transparency in documentation and opaque financial structures. The issues are familiar from anti money laundering (AML) and countering financing of terrorism (CFT) frameworks, where much progress has been made in the last two decades. A similar approach could help in rendering export controls effective. We propose: First, financial institutions could be tasked to play a role in the monitoring of the trade in export-controlled goods and the blocking of illicit transactions, building on their experience with due diligence in financial transactions. Second, non-financial companies could learn from banks’ efforts in the AML/CFT sphere to implement proper due-diligence procedures and to ensure export controls compliance. Public-sector investigations and appropriate fines are critical to increase the incentives for firms to act. Technology sanctions are going to be part of the economic statecraft toolbox for the foreseeable future. The Russia case will test their effectiveness and credibility, or lack thereof.
Topic:
Sanctions, European Union, Exports, Trade, Imports, Financial Systems, and Russia-Ukraine War
Political Geography:
Russia and Europe

2. Russia’s War Economy

Author:
András Rácz, Ole Spillner, and Guntram Wolff
Publication Date:
02-2023
Content Type:
Policy Brief
Institution:
German Council on Foreign Relations (DGAP)
Abstract:
Sanctions are a strong signal of Western resolve to oppose Russia’s war against Ukraine and have significantly weakened its ability to wage war. But Russia is adapting, turning its economy into a war economy, ramping up military production, and adjusting to sanctions. This Policy Brief looks at Russia’s economic adjustment with a focus on the shifting of resources to war purposes and the effect of sanctions on military production.
Topic:
Sanctions, Economy, Military, and Russia-Ukraine War
Political Geography:
Russia, Europe, and Ukraine

3. Toughening Financial Sanctions on Russia: Enforcing Energy Sanctions and Reducing Shadow Reserves Effectively

Author:
Guntram Wolff, Benjamin Hilgenstock, and Elina Ribakova
Publication Date:
05-2023
Content Type:
Policy Brief
Institution:
German Council on Foreign Relations (DGAP)
Abstract:
Financial sanctions are key in enforcing restrictions on Russian energy exports – in particular the G7/EU oil price cap regime –, due to financial institutions’ critical role in cross-border transactions. While the energy sanctions regime is having an impact on export earnings and budget revenues, evidence for potentially widespread violations is also emerging. Moreover, favorable external dynamics have allowed Russia to accumulate substantial assets abroad – “shadow reserves” –, which need to be kept out of reach of the regime.
Topic:
Governance, Sanctions, European Union, International Order, Energy, Geoeconomics, and Russia-Ukraine War
Political Geography:
Russia and Eurasia

4. Russia’s War in Ukraine: Rethinking the EU’s Eastern Enlargement and Neighborhood Policy

Author:
Guntram Wolff, Alexandra Gritz, Stefan Meister, and Milan Nič
Publication Date:
01-2023
Content Type:
Special Report
Institution:
German Council on Foreign Relations (DGAP)
Abstract:
The stagnating EU accession process needs political will and procedural changes allowing eastern candidates to advance. In the meantime, they should be more supported to use the full potential of existing opportunities for gradual economic and sectoral integration with the EU. An upgraded Eastern Partnership needs a comprehensive security dimension linking resilience, connectivity, and defense policy, as well as cooperation in the area of the Common Security and Defence Policy. The protracted regional conflicts (in Moldova and the South Caucasus) require a more active EU engagement as existing OSCE formats continue to be blocked, and Russia’s role and military presence weaken. New openings for conflict resolution mean higher demand for the EU’s diplomatic, monitoring, and peacekeeping capacities. A new eastern Neighborhood Policy should be designed for the wider region, connecting the Black Sea and the South Caucasus with Central Asia and thus creating viable alternatives to the competing geoeconomic and governance “offers” of China, Russia, and Turkey.
Topic:
Foreign Policy, Governance, European Union, International Order, and Russia-Ukraine War
Political Geography:
Russia, Europe, Central Asia, Ukraine, and Eastern Europe

5. Cutting Putin’s energy rent: ‘smart sanctioning’ Russian oil and gas

Author:
Georg Zachmann, Guntram Wolff, Agata Łoskot-Strachota, Simone Tagliapietra, Axel Ockenfels, Ricardo Hausmann, and Ulrich Schetter
Publication Date:
04-2022
Content Type:
Working Paper
Institution:
Bruegel
Abstract:
In the wake of the Russian aggression against Ukraine, major sanctions have been imposed by Western countries, most notably with the aim of limiting Russia’s access to hard international currency. However, Russia remains the world’s first exporter of oil and gas, and at current energy prices this provides large hard currency revenues. As the war continues, European governments are under increased pressure to scale-up their energy sanctions, following measures taken by the United States, the United Kingdom, Canada and Australia. Given the inelasticity of Russia’s oil and gas supply, the most efficient way for Europe to sanction Russian energy would not be an embargo, but the introduction of an import tariff that can be used flexibly to control the degree of economic pressure on Russia.
Topic:
Oil, Sanctions, Gas, Vladimir Putin, and Energy
Political Geography:
Russia, Eurasia, and Ukraine

6. Cutting Putin’s Energy Rent: ‘Smart Sanctioning’ Russian Oil and Gas

Author:
Ricardo Hausmann, Agata Łoskot-Strachota, Axel Ockenfels, Ulrich Schetter, Simone Tagliapietra, Guntram Wolff, and Georg Zachmann
Publication Date:
04-2022
Content Type:
Working Paper
Institution:
The John F. Kennedy School of Government at Harvard University
Abstract:
Following the Russian aggression against Ukraine, major sanctions have been imposed by Western countries, most notably with the aim of limiting Russia’s access to hard international currency. However, Russia remains the world’s first exporter of oil and gas, and at current energy prices this provides large hard currency revenues. As the war continues, European governments are under increased pressure to scale-up their energy sanctions, following measures taken by the United States, the United Kingdom, Canada and Australia. This piece argues that given the inelasticity of Russia’s oil and gas supply, for Europe the most efficient way to sanction Russian energy would not be an embargo, but the introduction of an import tariff that can be used flexibly to control the degree of economic pressure on Russia.
Topic:
Economics, Oil, Sanctions, Exports, Currency, Energy, and Russia-Ukraine War
Political Geography:
Russia, Europe, Ukraine, and North America