EU’s Russia sanctions deal collapses over business loophole spat

EU negotiators on Friday failed to finalize new restrictions on companies and oil tankers aiding Russia’s war in Ukraine, three EU diplomats familiar with the talks told POLITICO.

The holdup came after two EU countries, Latvia and Lithuania, refused to back the package because it also extended a provision allowing Western firms to keep working in Russia despite existing sanctions.

The clause was initially intended to benefit companies saying they want to divest from Russia but can’t for various reasons. Critics say the loophole is being abused and giving companies too much political cover to stay in Russia.

The rest of the package focuses mostly on sanctioning companies and vessels involved in circumventing existing EU penalties on Russia. A draft list seen by POLITICO shows plans to more than double the number of oil and gas tankers on its blacklist, bringing the total to 75.

Yet talks fell apart, two of the diplomats said, after the two Baltic nations pushed to block the reauthorization of the “no-Russia clause,” which lets EU companies continue operating in Russia while also receiving authorization to import and export goods that would otherwise be banned. Other member states, including Germany and France, were reluctant to tackle the issue at this stage.

 “It’s unfortunate that we couldn’t adopt the 15th sanctions package today because Latvia and Lithuania didn’t agree to it, ”said a fourth EU diplomat. “At the same time, the [European] Commission has promised to take into account their request on assurances to end certain derogations in the 16th package.”

The carveout was first introduced in December 2022 and has already been extended three times, which opponents say has given firms sufficient notice to phase out their Russian operations.

Meanwhile, Slovakia is seeking to extend another sanctions exemption that allows it to export refined Russian oil to neighboring Czech Republic. Bratislava insists the loophole is needed to ensure its sole refinery — owned by Hungary’s MOL Group — can continue to operate, but Prague has confirmed it wants the arrangement to end.

The sanctions package is expected to come up for discussion next when the EU’s foreign ministers meet on Dec. 16.

Officials have also floated a more ambitious sanctions package for early next year, when Poland takes over the rotating presidency of the Council of the EU from Russia-friendly Hungary.