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EU agrees new sanctions on Russia, with an import ban on diamonds

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The European Union agreed on Monday to slap Russia with a fresh round of sanctions that includes the long-awaited ban on diamonds, a valuable revenue stream for the Kremlin that has until now remained untouched.

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Starting on 1 January, the bloc’s 27 member states will no longer be allowed to buy natural and synthetic diamonds, as well as diamond jewellery, that come directly from Russia, unless these are meant for industrial purposes.

As of 1 March, the import ban will begin to cover Russian-origin diamonds and jewellery that have been cut and polished in other countries. And by 1 September, it will expand to lab-grown diamonds and watches containing diamonds.

Belgium, the main entry point for Russian diamonds, will use a blockchain-based traceability system to identify and verify the origin of imported diamonds.

The raft of sanctions – the 12th since February 2022 – also aims to close the loopholes that have pierced through the price cap on Russian oil, which the G7 had set at $60 per barrel. Moscow has in recent months sold its product well above the cap thanks to a fleet of “shadow tankers” and the services of little-known trading firms, easily bypassing the commercial constraints the West thought to have under control.

The penalties do not alter the $60-per-barrell limit but introduce new measures to ensure the global sales of Urals oil stay within the price cap, like a notification requirement for the sale of EU-made tankers destined for Russia. The requirement will apply retroactively to track down where the tankers sold over the past year have ended up.

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Moreover, the package adds 29 companies to the list of entities linked to Russia’s military complex, including firms registered in Uzbekistan and Singapore that are suspected of helping the Kremlin get a hold of blacklisted high tech.

No Chinese company was targeted this time, despite previous media reports.

In a new attempt to crack down on the persistent problem of circumvention, European producers of sensitive goods, such as aviation, jet fuels and firearms, will have to comply with a contractual clause that prohibits their merchandise from being re-exported to Russia – and therefore from reaching the battlefield.

“We continue to stand with Ukraine, through thick and thin,” said European Commission President Ursula von der Leyen, celebrating the deal.

The announcement made on Monday was only possible after Austria lifted its reservations. Initially, Vienna had blocked the deal over the addition of Raiffeisen Bank International (RBI) to Ukraine’s list of “international sponsors of war.” The list has no legal repercussions but entails considerable reputational damage.

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Ukraine’s anti-corruption agency had targeted RBI, the largest Western bank in Russia, for allegedly providing services to “oligarchs close to the Kremlin.” Vienna took exception to this reasoning and pushed for the firm’s name to be removed.

The designation was suspended last week, paving the way for a resolution.

The news comes at a critical moment for Kyiv, which is pleading with Western allies to urgently step up their military and financial assistance to help the war-battered nation resist the advancing Russian troops. 

During last week’s dramatic summit in Brussels, EU leaders agreed to start accession negotiations with Ukraine, a sought-after goal by President Volodymyr Zelenskyy. But hours later, Hungarian Prime Minister Viktor Orbán wielded his veto power to prevent the approval of a €50-billion special fund in long-term support for Ukraine. 

Notably, Hungary did not veto the latest round of sanctions.

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A phased-in ban

The ban on diamonds has been at the very top of Kyiv’s demands for more than a year.

Russia is the world’s largest producer of rough diamonds by volume, with more than 90% of its business dominated by a single company, Alrosa. In 2021, the year before the war was launched, Russia exported around $4 billion (€3.77 billion) worth of diamonds, an amount that fell only slightly in 2022 as the international community refrained from imposing any sort of penalty.

The secretive nature of the diamond industry has been credited as the main reason for the delayed action. Diamonds pass through multiple hands until they reach the final customer. For example: Russian rough diamonds are usually cut and polished in India and then traded in Antwerp, Belgium, from where they are shipped to other markets around the world like the United States, Hong Kong, and the United Arab Emirates.

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This means that a retailer will most likely be unable to pinpoint the exact origin of a particular diamond, making it hard to separate Russian from non-Russian gems.

Fearing that a poorly designed ban would quickly fall victim to the underground market, the EU and the G7 have been developing an international traceability system to track down diamonds across the entire supply chain, from the mines to the shops.

Earlier this month, the G7 announced a roadmap in three gradual steps:

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• By 1 January, impose restrictions on the imports of diamonds that are mined, processed or produced in Russia, excluding industrial purposes.

• By 1 March, impose restrictions on the imports of Russian diamonds that are processed in other countries.

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• By 1 September, establish a “robust traceability-based verification and certification mechanism” for rough diamonds. The system should be in place in Western countries that are “major importers” of diamonds, namely Belgium.

The G7 opened the door for cooperation with nations that fall outside the group but have a major stake in the diamond industry, such as India and the United Arab Emirates.

“We will continue consultations among G7 members and with other partners including producing countries as well as manufacturing countries for comprehensive controls for diamonds produced and processed in third countries,” the joint statement said.

The EU sanctions approved on Monday build upon this scheme and provide the legal basis for making the import ban a reality.

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The bloc’s plan will replicate the timetable set by the G7.

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Besides diamonds, the latest penalties restrict imports of Russian-origin pig iron, copper wires, aluminium wires, foil, tubes and pipes, which altogether represent a value of €2,2 billion per year. Purchases of Russian-made liquefied petroleum gas (LPG), which are worth over €1 billion annually, will be banned over a transition period of 12 months.

Meanwhile, export bans are expanded to encompass products such as thermostats, machine tools, lasers, batteries and copper and aluminium goods made in the EU market. Additionally, European companies will be prohibited from providing Russian firms with software for enterprise management and industrial design.

This article has been updated with more information about the sanctions.

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