Orbán pressures EU: Could Russia suddenly escape sanctions?
Vladimir Putin and Viktor Orbán (photo: Getty Images)
Russia may be freed from EU sanctions as early as the morning of March 16 if Hungary blocks their extension. Read below why this time Budapest's purely pragmatic demands have been joined by political ones, and what the consequences of not extending the sanctions could be.
Contents
- What exactly is at risk
- Risk of unfreezing funds
- Hungary's political stance
- Consequences of unfreezing assets
While Ukrainian diplomats were strengthening relations with the US in Jeddah, another crisis emerged - this time in Brussels. Some sanctions against Russia could be lifted in the near future. Once again, Hungary is blocking their extension. RBC-Ukraine sources report that there has been progress in negotiations, and it may even be formalized soon. However, this time, it seems things have gone a bit further than Viktor Orbán’s usual bargaining.
What exactly is at risk
If the sanctions are not extended, then starting from March 16, EU Council Regulation No. 833/2014 of July 31, 2014, on restrictive measures in response to Russia’s actions destabilizing Ukraine, will effectively lose its force. This document was later supplemented by all subsequent sanctions packages, which now total 16.
These packages include the freezing assets and banning transactions with the Central Bank of Russia, disconnecting major Russian banks from SWIFT, banning financial services (including investment and tourism), prohibiting the export of dual-use goods and high-tech products (chips, electronics, drones, etc.)
In addition, there are restrictions on the import of Russian goods (steel, coal, oil, gas, gold, diamonds, and aluminum), limits on oil transportation and processing (price cap), closure of EU airspace to Russia,
sanctions against the "shadow fleet," a ban on Russian state media broadcasting in the EU (RT, Sputnik, and others)
And most importantly - personal sanctions entry bans and asset freezes on Russian officials, oligarchs, and propagandists, sanctions against military personnel responsible for aggression. These measures currently target over 2,400 individuals, companies, and organizations.
Infographic – RBC-Ukraine
Ukraine's Presidential Commissioner for Sanctions Policy Vladyslav Vlasiuk is convinced that failure to extend the sanctions would annul all 16 sanction packages. "All sanctions packages against Russia were adopted within a single framework (a single EU regulation - ed.), which requires periodic renewal. No renewal - no sanctions," Vlasiuk told RBC-Ukraine.
However, what exactly might be canceled and how will only become clear once the EU Council reviews the issue. "Theoretically, any sanctions packages imposed on Russia can be lifted. This is a sovereign decision of the entity that introduced them (whether an individual country or a group like the EU - ed.). They have the power to implement, modify, review, or fully or partially lift these restrictions," said Danylo Hetmantsev, Head of the Ukrainian Parliament’s Financial Committee, in a comment to RBC-Ukraine.
Risk of unfreezing funds
All the mentioned restrictions would undoubtedly be beneficial for the Kremlin, but in the medium-term perspective. However, there is a category of sanctions whose removal would have an immediate impact.
Regarding specific areas of sanctions, Russia has repeatedly made it clear that its primary interests lie in lifting energy sanctions, restrictions on the technology sector, visa, and personal sanctions, as well as the unblocking of certain frozen assets (not sovereign ones - ed.), said Danylo Hetmantsev.
Among such sanctions is the freezing of assets belonging to sanctioned individuals: houses, yachts, bank accounts, and other property owned by Russian oligarchs, propagandists, and others targeted by restrictions.
"These decisions are constantly being challenged in various foreign courts with varying success - some win these cases, others lose. There are both relatively small and large amounts involved, but they do not represent the bulk of the assets," Hetmantsev noted.
However, this does not concern the $300 billion in assets belonging to the Russian Central Bank, which are already indirectly being used to support Ukraine through the G7's ERA mechanism. This mechanism essentially functions as a loan of $50 billion, issued against unpredictable revenues generated from immobilized Russian assets. A decision on extending the freeze on these funds is expected to be made in July.
The assets that could now be unfrozen are private ones, meaning Ukraine would not lose anything directly from their release. "They are accounted for separately from the $300 billion. The procedure is entirely different, and no one is seriously working on this issue," said Olena Halushka, Head of the International Center for Ukrainian Victory, in a comment to RBC-Ukraine.
Hungary’s political stance
Unlike in the United States, where sanctions are indefinite by default, in the European Union, they must be renewed every six months. This requires unanimous approval from all EU member states. Nearly every time, some country has leveraged this process to secure certain advantages. Hungary has been the primary offender, and recently, Slovakia has also joined in.
This time was no different. Hungary demanded the removal of eight individuals from the sanctions list.
According to the Russian opposition media "System", the individuals in question include:
- Alisher Usmanov, an oligarch close to Putin,
- Gulbakhor Ismailova, Usmanov’s sister,
- Mikhail Fridman, another oligarch,
- Dmitry Mazepin, CEO of the holding company Uralchem,
- Vyacheslav Moshe Kantor, a shareholder of Acron,
- Mikhail Degtyaryov, Russian Minister of Sports,
- Musa Bazhaev, President of the Allians Group.
According to the Financial Times, Hungary’s ambassador to the EU insisted that Fridman be removed from the list, arguing that he made his fortune in Russia but has lived in London for the past decade. In return, Hungary would agree to extend all other sanctions.
Surprisingly, Luxembourg supported Hungary’s demand to remove Fridman from the list. Last year, Fridman filed a lawsuit against Luxembourg, as his stake in the London-based investment company LetterOne is registered there. He is seeking $15.8 billion in damages, arguing that the losses stem from the sanctions. Lifting sanctions would free Luxembourg from any obligation to compensate him. However, if a compromise is reached with Hungary, there is a chance that Luxembourg may also make concessions.
At the same time, there are serious concerns that Hungary may block the renewal of sanctions for other reasons, considering the positions of Trump and Putin in Ukraine-related negotiations. "We have seen Orbán’s stance that the EU should not obstruct President Trump’s peace initiatives. If Trump’s position is to lift sanctions, Orbán will certainly block their extension," said Olena Halushka.
Hungarian Foreign Minister Péter Szijjártó visited the United States on March 4, where he held talks with Secretary of State Marco Rubio about their "commitment to ending the war in Ukraine and opportunities for closer cooperation".
Péter Szijjártó and Marco Rubio (photo: facebook.com/szijjarto.peter.official)
For now, the US position on Russia remains unclear. Putin has not yet given a concrete response to Ukraine-US agreements in Jeddah, so Trump appears to be waiting for Moscow to make more concrete moves before deciding whether to increase or ease sanctions. Accordingly, Hungary’s stance remains ambiguous.
Despite this, Hungary’s list of demands has been shrinking. Two weeks ago, on February 25, Hungary wanted more than just the removal of eight individuals from the sanctions list. It also demanded new guarantees regarding gas transit negotiations through Ukraine. Hungarian Foreign Minister Szijjártó also accused the European Commission of failing to uphold its commitment to include Hungary in talks on renewing gas transit. However, Brussels later agreed to additional consultations, prompting Budapest to soften its demands - now focusing only on lifting personal sanctions. According to the Financial Times, Hungary is now only demanding the removal of Fridman from the sanctions list.
The decision to extend sanctions at the level of EU member state representatives could happen today, March 14.
If no agreement is reached, the issue will be escalated to the foreign ministers’ meeting on Monday, March 17 - which would be after the sanctions expire.
The best outcome, according to Vladyslav Vlasiuk, would be to reach a compromise. However, there is also a possibility of temporarily suspending Hungary’s voting rights, allowing the sanctions to be extended despite its opposition. Nevertheless, the risks remain.
Consequences of unfreezing assets
If the sanctions are not extended, the Russians will have the opportunity to seize this chance and withdraw some of their assets from the EU. The exact amount is difficult to say. However, when it comes to funds in bank accounts, according to Hetmantsev, it will be possible to withdraw them quite quickly. Everything will depend on the efficiency of the electronic payment and transfer systems.
As for securities, the issue is how long it will take to re-register them in depositories. However, there may be delays with the export of gold.
"One will need to find an airplane that is allowed to land at the airport near the gold storage facility and arrange the necessary flight documents for it (we must remember that there are restrictions against Russian airlines using European airspace - ed.). However, I don't consider this to be a particularly difficult task," Hetmantsev noted.
But even if extending sanctions within the EU fails, the issue may be addressed at the individual member state level. "Certain countries could theoretically replicate some or all of the restrictions at the national level. But there won’t be more than half of all EU members interested in doing so," Vlasiuk said in a comment to RBC-Ukraine.
Hetmantsev shares the same opinion. "In the case of sanctions being lifted at the EU level, it won't be about their 'preservation,' since it's impossible to preserve something that has expired, but rather about making a decision to impose sanctions, in the same amount, more or less, at the national level. This is quite possible because it is the sovereign right of any country to impose any restrictions," said the Member of the Ukrainian Parliament.
Besides everything else, the removal of European sanctions on Russia, if it happens, will have important political consequences. It will demonstrate Europe’s inability to act as a united front - at a time when the role of the EU is more important than ever.
Sources: materials from Euroactiv, Financial Times, Bloomberg, Reuters, and comments from Vladyslav Vlasiuk, Danylo Hetmantsev, and Olena Galushka.
