Welcome to Wider Europe, RFE/RL’s newsletter focusing on the key issues concerning the European Union, NATO, and other institutions and their relationships with the Western Balkans and Europe’s Eastern neighborhoods.
I’m RFE/RL Europe Editor Rikard Jozwiak, and this week I’ll be discussing two issues: whether the EU will go for a full ban on Russian aluminum imports and how Estonia is leading the way on confiscating frozen Russian assets.
Brief #1: Will The EU Target Russian Aluminum Next?
What You Need To Know: Last week, the EU passed its latest sanctions package on Russia to coincide with the second anniversary of the full-scale invasion of Ukraine.
As I discussed in a previous briefing, the measures introduced were weak, consisting largely of additional asset freezes and visa bans.
The rather feeble package also prompted internal criticism within Brussels, especially from more hawkish EU member states, with the argument that the European Union must be more ambitious in sanctioning the Kremlin in the future.
Speaking to several EU diplomats, who wish to remain anonymous because they don’t have the authority to speak on the record, the European Commission has promised to start work on a new sanctions package with immediate effect. And this time it will try to include sectoral sanctions that would have a much greater impact on the Russian economy.
One of those sectors is aluminum. Estonia, Latvia, Lithuania, and Poland have pushed for both import and export bans on the metal for a while now.
Officials from the four nations noted in a discussion paper, seen by RFE/RL, that “Europe’s imports of aluminum not only fund Russia’s war economy but also benefit Kremlin-backed oligarchs and state companies.”
It is estimated that the European Union still imports the metal from Russia to the tune of 2.3 billion euros ($2.5 billion) per year. The bloc also exports various aluminum products to Russia, worth some 190 million euros.
The only sanction the bloc has enacted in this field has been a very specific and targeted import ban on aluminum wire, foil, tubes, and pipes produced in Russia.
That still leaves 85 percent of the aluminum business — including the lucrative construction and automotive industries — untouched so far.
Deep Background: This could change as the aluminum industry in Europe is now calling for more sanctions on Russia.
Representatives of Europe’s aluminum industry in Brussels have argued that on moral grounds “business as usual” with Russia cannot continue.
But there are also compelling economic reasons.
Before Russia’s full-scale invasion of Ukraine in February 2022, imports of Russian aluminum represented well over 30 percent of the EU’s total. Now, Russian aluminum represents only around 8 percent of the bloc’s imports due to the industry decoupling from Moscow voluntarily. By relying on it less, there is less to lose by sanctioning.
Aluminum is also quite different from other raw materials, such as the much rarer uranium used in the nuclear industry. It is easy to obtain, produced all over the world, and easy to transport.
Given that the EU is now producing even more aluminum and importing it from new partners in Iceland, Mozambique, and Norway, supply is far outstripping demand.
Drilling Down
- There are still a number of issues that need to be overcome. While the dependency on Russian aluminum in general has reduced across the EU, a few EU member states — most notably Greece — still rely on Moscow for most of its imports of the metal. And as always with sanctions, all 27 EU member states need to sign off on them.
- Officials from the European Commission have also said there are three areas that Brussels, out of principle, won’t target with sanctions: food, drugs and medical equipment, and critical raw materials. Aluminum is classified as a critical raw material by the EU, even if there might be an abundance of it on the market right now.
- The European Commission is aware of another obstacle. If sweeping sanctions on aluminum were to be introduced, some member states could ask for exemptions. Greece would be an obvious candidate. This is what happened when the EU introduced sanctions on Russian steel imports in 2023. A few EU member states won derogations, allowing them to ignore the measures until 2028, distorting the bloc’s internal single market and giving those countries a competitive advantage.
- In the steel industry, there are certificates of origin, which establish the country where the alloy comes from and where it was manufactured. What concerns the EU is that there is no such thing in the aluminum industry, which makes it easier for Moscow to circumvent sanctions. A system similar to the one for steel could be created for aluminum, but it would probably require a sustained global effort to be effective, and this could prove time-consuming.
- Future sanctions in this field will also depend on EU-U.S. cooperation and coordination. The United States doesn’t have any sanctions on Russian aluminum, but it has slapped a 200 percent tariff on the metal. Washington and the EU could also impose sanctions on RUSAL, the Russian state-owned aluminum giant.
- The United States has previously targeted the company. In 2018, the White House imposed sanctions on the company’s then boss, oligarch Oleg Deripaska, and all his businesses due to “Russia’s malign activity.” (While the measures were lifted one year later, it does show that sanctions targeting aluminum haven’t always been off the table.) With Deripaska on the EU’s blacklist since April 2022 due to his economic support of Russia’s war in Ukraine, some EU officials believe that there is room to go even further.
Brief #2: Will Estonia Lead The Way In Confiscating Frozen Russian Assets?
What You Need To Know: Recently, the European Union took the first step in actually using some of the money from Russian assets frozen in the bloc to financially support Ukraine.
As a first, cautious step, the EU is using the proceeds of blocked funds from the Russian central bank and the Russian National Wealth Fund. A decision to transfer some of these earnings to Ukraine has been agreed in Brussels, although the second step — actually sending the money to Ukraine — hasn’t been cleared yet by the bloc’s member states.
There are misgivings, though, especially in larger countries: What impact could this have on the euro as a global currency? And what about private property rights, which are considered fundamental in the EU?
Estonia has gone further, just passing a draft law in its first reading in parliament that would allow the proceeds from frozen assets belonging to Russian citizens to be sent to Ukraine as compensation for war damages. A second reading is due in March or April, and the law is expected to be adopted in the second half of the year.
Estonia has frozen Russian assets worth some 36 million euros ($39 million), through its own measures and the implementation of EU sanctions.
While it is still a relatively small amount, Brussels and some other EU member states are watching Estonia’s experience with interest.
The Baltic country could set a precedent and go even further by not only confiscating earnings from assets but also the assets themselves.
Or as the country’s Foreign Minister Margus Tsahkna, a supporter of the proposed law, put it before participating in the EU’s Foreign Affairs Council on February 19: “If the law is passed, there won’t be any excuses anymore that we cannot do it legally. Then it becomes a matter of political will.”
Deep Background: What does the Estonian proposal look like? If enacted, the measure is an option, not an obligation, and it would be Estonia’s Foreign Ministry that decides to use funds, registered assets, or any other type of asset of a person or entity under international sanctions. (While the target here is clear, it is not just Russian individuals or firms but funds belonging to people and companies from any sanctioned country.)
The people or entities that would be targeted under the measure are those with a connection to the policymaking of the state that has committed (or just assisted in) an unlawful act.
In the case of Ukraine, that means people “undermining or threatening the territorial integrity, sovereignty, and independence” of the country. As for entities, assets can be confiscated if the companies are more than 50 percent state owned.
Drilling Down
- For this to fly, there have to be sufficient safeguards — because it is a mechanism of “last resort.” According to the draft law, it should be applied when a state — in this case, Russia — fails to compensate for the damage caused to another state — in this case, Ukraine. This, of course, hasn’t happened yet and doesn’t look likely to happen any time soon. But it means Moscow would be given a chance to pay damages to Ukraine before the measure could kick in.
- There are also legal safeguards. In each case, there would probably be a preliminary review in an Estonian court before anything was decided and then follow-up inspections on the procedure and how the money was disbursed. And the people or entities targeted would have the opportunity to contest the decision in Estonia.
- Perhaps the most crucial part of all this is the “right to claim” for those whose assets have been confiscated. This gives the individual the right to get their money back in the future from the state that is judged to have caused their damage in the first place (in this case, Russia). To do that, according to the draft law, “the persons are not required to actively act in the name of ending the military aggression” but to refrain from “showing their support of the military aggression.” Then, according to the proposed law, they should try to persuade the offending state — in this case, Russia — of its “obligation to compensate for damage.”
- Before any transfer of money takes place, Estonia would also need to conclude a treaty with the aggrieved state or with some kind of international compensation body. Such a deal would have to include the purpose of using the compensation, for example, repairing damaged schools or hospitals.
- But how well does this sit with international law? In a resolution passed in November 2022, the United Nations General Assembly acknowledged Russia’s obligation to compensate for the unlawfully caused damage in Ukraine. This resolution is nonbinding, however, and it leaves lots of room for countries to interpret it differently. In the explanatory note to the draft law, the Estonian government makes its case by stating: “At this point, it should be taken into consideration that any country is a legal construct and acts and bears liability through its people. Stripping the persons who have contributed to the aggression in the aggressor state, the activity of which also endangers the security of Estonia and all of Europe, of their assets, which are located outside of their home country, is justified in the current situation, in which there is a war in the heart of Europe for the first time in more than 80 years.”
Looking Ahead
The Hungarian parliament is set on February 26 to approve Sweden’s NATO accession, which would complete the Nordic country’s ratification process in all 31 countries of the military alliance. Sweden might even officially join NATO as member number 32 later this week in a flag-raising ceremony in Brussels.
The death of Russian opposition politician Aleksei Navalny will dominate the European Parliament plenary in Strasbourg this week. On February 28, his widow, Yulia Navalnaya, will address the chamber, which later that day is set to debate how the EU should respond to the Kremlin. The following day, February 29, lawmakers are expected to pass a nonbinding resolution on how the bloc should support other political prisoners and civil society activists in Russia.
That’s all for this week. Feel free to reach out to me on any of these issues on Twitter @RikardJozwiak, or on e-mail at [email protected].
Until next time,
Rikard Jozwiak
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