“It’s a Game of Cat and Mouse” – EU Sanctions Envoy
David O’Sullivan, the European Union’s sanctions envoy, traveled to Astana on March 17 for the fifth time in three years to speak to Kazakhstan’s authorities about the country’s compliance with the sanctions regime imposed by the West on Russia for its war efforts in Ukraine. Vlast spoke with O’Sullivan about the European Commission’s upcoming 20th sanctions package, currently being negotiated by member states, and the overall effectiveness of the European sanctions regime in curbing Russia’s military actions. In our interview, O’Sullivan commended Kazakhstan for its efforts to prevent sanction circumvention, but stressed that there is still work to be done. How would you assess the effectiveness of European sanctions after four years since the start of the war? The sanctions have been extremely effective. I think if you look at the Russian economy, all the key indicators are flashing red: The economy is nearly in recession – it’s gone from 4% growth a couple of years ago to almost zero, if not even negative growth – inflation is running very high, the interest rate is extremely high, nearly 16%. And the public finances are in deep trouble because the revenue from oil is decreasing. They have used much of the easy money that they had stored away, like the National Welfare Fund, to fund the war. And they’re now running out of money. They’ve had to put up taxes. They’re having to tighten the belt across many economic sectors. Companies have been forced to take out loans and now they aren’t able to pay the banks back. All the elements of some kind of economic crisis are falling into place for Russia. It’s just a question of exactly when this will happen. Therefore, I think the sanctions have been very effective in undermining Russia’s ability to sustain this war over time. Of course, sanctions alone will never stop someone who is determined to maintain a war economy at any cost to the civil economy, which is what [Russia’s President Vladimir] Putin is doing. So far, the 20th sanctions package, which was originally supposed to be in place by the four-year anniversary of the full-scale invasion, has been held up by the Hungarian government. Will this deadlock be resolved in the near future? This has been blocked by one of our member states, particularly related to the Druzhba pipeline. There are discussions ongoing as we speak, there’s a European Council meeting of heads of state and government on Thursday and Friday in Brussels, and I would hope that it will be possible either before then or on that occasion to find a solution and to be able to move forward. The main issue with Druzhba is that the pipeline was damaged by Russian bombs and has to be repaired. Once it’s repaired, the oil will flow again. We are talking about non-sanctioned oil. How have sanctions impacted Russian trade flows? When I first started in this job three years ago, we noticed a very clear change in the pattern of trade. Goods, which previously went from Europe directly to Russia, were [redirected and transited] through other countries, in Central Asia and the Caucasus, but also Turkey, Serbia, and the UAE. I have been working with these countries, particularly as regards those goods that find their way into military components, such as missiles and drones. I think we have succeeded in stopping those flows and in forcing Russia to find other ways of trying to circumvent our sanctions. Yes, we have been able to address issues of circumvention. Having said that, I want to be clear, we will never end circumvention. Where there are sanctions, there will be circumvention. You can even get a degree at a Moscow university in sanction circumvention. By the way, we recently sanctioned the gentleman in charge of the course, so he can speak from personal experience. We are very determined to prevent the circumvention. We are continuously making progress. We shut down circumvention, they find new ways, we shut it down. It's a game of cat and mouse. How has the sanctions regime affected the EU’s relationship with Kazakhstan’s government? Kazakhstan is a sovereign country, of course, and it has its relations with Europe. We’re the number one trading partner and the number one source of foreign direct investment in this country. But Kazakhstan also has close ties with Russia, and we respect that. All I can do is explain the risks of allowing Kazakhstan’s territory to be used for circumvention, either of the trade sanctions or indeed of the financial sanctions. Kazakhstan has a promising future economically, there’s a lot going for this country. And it’s going to need Western direct investment, as well as trade with Europe. So Kazakhstan’s authorities have to balance these two constraints. We don’t expect them to apply our sanctions. But we do expect that Kazakhstan will understand why we are doing the sanctions: There’s an existential crisis in Europe with this Russian aggression against Ukraine, which really puts into question the entire security architecture of Europe, where we had successfully managed not to have a major war for the best part of the past 80 years. My appeal to the authorities in all countries is not to apply our sanctions, but to understand why we’re doing it. And therefore, we ask not to allow these countries to be used as a platform for circumvention, particularly when it comes to goods which will end up in weapons. This resonates with most countries, for example Kazakhstan, which is a strong supporter of peace and coexistence in Europe, and not the use of military might to change political situations. Potential sanctions on Russian entities, such as the Black Sea port of Novorossiysk, which is the endpoint of the Caspian Pipeline Consortium, or Rosatom, which became the main contractor for the construction of the country's first nuclear power plant, could be negatively impacting Kazakhstan’s state budget. Does Kazakhstan need to further consider the risk of sanctions when doing business with Russia? Look, the sanctions exist because of Russia’s unprovoked aggression against Ukraine and the particularly brutal war that they have been conducting. We should never lose sight of that fact. When people talk to me about the consequences of sanctions, I say: ‘Well, the sanctions are the consequence of the unprovoked aggression.’ The minute the unprovoked aggression ceases and we resolve the issues, and Mr. Putin takes his troops back home, we won't need sanctions. That's where the primary responsibility lies. We have never sought, we have never asked Kazakhstan or any other country to comply with our sanctions. We fully recognize Kazakhstan’s close, historic, political, cultural, and economic links with Russia. But Russia is an unpredictable actor. To the extent that countries deepen their economic relations with Russia, they are running a certain risk. I can never promise you that we will never act against certain interests of Russia, which might have an impact on Kazakhstan. It is not our intention to do anything to damage Kazakhstan’s fundamental interests. And we have not targeted Rosatom until now. There has been talk about it, but we haven’t done so. Any economic links with Russian entities which are directly supporting the military effort against Ukraine create a vulnerability. That’s a choice countries have to make. How does the EU ensure that the Caspian Pipeline Consortium, which runs through Russian territory but is only supposed to transport Kazakh oil, does not end up delivering any sanctioned oil? It’s a matter for our member states, of course, who are responsible for enforcement. But when you are selling this oil, you have to show a certificate of origin, which explains where it came from. If there's any doubt, this can be verified and we’re very strict. Following your recent visit to Bishkek, you said that the EU “might have to act” due to Kyrgyzstan’s spike in trade with Russia and companies based in the EU. How might that play out? We have taken action where we felt it was necessary. In the case of Kyrgyzstan, we have two issues: One is the financial system, which has been seriously interfered with by Russian banks and crypto companies. That’s why we’ve sanctioned several banks and the A7A5 cryptocurrency. And we see some growing problems, which weren’t there before. On the trade side, we see a big increase in the import into Kyrgyzstan of a couple of products, which are very important for the military-industrial complex, and high re-exports of those same products to Russia. So this is an issue which I've raised with the Kyrgyz authorities, and we may decide in the 20th package to take preventive action in that situation. But I would hope that we could then have a good dialogue with the Kyrgyz authorities and find ways to avoid this happening again in ways that we don't need to take this kind of action. Could similar action ever be taken against Kazakhstan-based entities? We have listed some entities based in Kazakhstan. But the numbers of re-export were much higher two or three years ago when I first started. They have progressively diminished over the last couple of years, and we now feel that the situation is, relatively speaking, under control. That’s not to say that there won’t be new other issues, because that’s always possible. I’m not saying everything is perfect. There’s plenty of work still to be done, but for the time being, we’re relatively satisfied with the way the trade figures look. Sign up for our English-language newsletter.
