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Tag: Enforcement

  • Middle East braces for chaos as Iran and West square up

    Middle East braces for chaos as Iran and West square up

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    Western warplanes and guided missiles roared through the skies over Yemen in the early hours of Friday in a dramatic response to the worsening crisis engulfing the region, where the U.S. and its allies are facing a direct confrontation with Iranian-backed militants.

    The strikes against Houthi fighters are a response to weeks of fighting in the Red Sea, where the group has attempted to attack or hijack dozens of civilian cargo ships and tankers in what it calls retribution for Israel’s military offensive in Gaza. Washington launched the massive aerial bombardment of the group’s military stores and drone launch sites in partnership with British forces, and with the support of a growing coalition that includes Germany, the Netherlands, Australia, Canada, South Korea and Bahrain.

    Tensions between Tehran and the West have boiled over in the weeks since its ally, Hamas, launched its October 7 attack on Israel, while Hezbollah, the military group that controls much of southern Lebanon, has stepped up rocket launches across the border. Along with Hamas and Hezbollah, the Houthis form part of the Iranian-led ‘Axis of Resistance’ opposed to both the U.S. and Israel.

    Now, the prospect of a full-blown conflict in one of the most politically fragile and strategically important parts of the world is spooking security analysts and energy markets alike.

    Escalation fears

    Houthi leaders responded to the strikes, which saw American and British forces hit more than 60 targets in 16 locations, with characteristic bravado. They warned the U.S. and U.K. will “have to prepare to pay a heavy price and bear all the dire consequences” for what they called a “blatant aggression.”

    “We will confront America, kneel it down, and burn its battleships and all its bases and everyone who cooperates with it, no matter what the cost,” threatened Abdulsalam Jahaf, a member of the group’s security council.

    However, following the overnight operation, Camille Lons, a visiting fellow at the European Council on Foreign Relations, said there may now be “a period of calm because it may take Iran some time to replenish the Houthis stocks” before they are able to resume high-intensity attacks on Red Sea shipping. But, she cautioned, their motivation to continue to target shipping will likely be unaltered.

    The Western strikes are “unlikely to immediately halt Houthi aggression,” agreed Jonathan Panikoff, a former U.S. national intelligence officer for the Near East. “That will almost certainly mean having to continue to respond to Houthi strikes, and potentially with increasing aggression.”

    “The Houthis view themselves as having little to lose, emboldened militarily by Iranian provisions of support and confident the U.S. will not entertain a ground war,” he said.

    Iran also upped the ante earlier this week by boarding and commandeering a Greek-operated oil tanker that was loaded with Iraqi crude destined for Turkey, intercepting it as it transited the Strait of Hormuz. The vessel, the St. Nikolas, was previously apprehended for violating sanctions on Iranian oil and its cargo was confiscated and sold off by the U.S. Treasury Department. Its Greek captain and crew of 18 Filipino nationals are now in Iranian custody, with the incident marking a sharp escalation in the threats facing maritime traffic.

    Israeli connection

    Washington and London are striving to distinguish their bid to deter the Houthis in the Red Sea from the war in Gaza, fearful that merging the two will hand Tehran a propaganda advantage in the Middle East. The Houthis and Iran are keen to accomplish the reverse.

    The Houthi leadership claims its attacks on maritime traffic are aimed at pressuring Israel to halt its bombing of the Gaza Strip and it insists it is only targeting commercial vessels linked to Israel or destined to dock at the Israeli port of Eilat, a point contested by Western powers.

    “The Houthis claim that their attacks on military and civilian vessels are somehow tied to the ongoing conflict in Gaza — that is completely baseless and illegitimate. The Houthis also claim to be targeting specifically Israeli-owned ships or ships bound for Israel. That is simply not true, they are firing indiscriminately on vessels with global ties,” a senior U.S. official briefing reporters in Washington said Friday.

    Wider Near East crisis

    The Red Sea isn’t the only hotspot where American and European forces and their allies are facing off against Iran and its partners.

    In November, U.S. F-15 fighter jets hit a weapons storage facility in eastern Syria that the Pentagon says was used by the Iranian Islamic Revolutionary Guard Corps and the Shia militants it supports in the war-torn country. The response came after dozens of American troops were reportedly injured in attacks in Iraq and Syria linked back to Tehran.

    Israel’s war with Hamas has also risked spreading, after a blast killed one of the militant group’s commanders in the Lebanese capital, Beirut, earlier in January. Hezbollah vowed a swift response and tensions have soared along the border between the two countries, with Israeli civilians evacuated from their homes in towns and villages close to the frontier.

    All of that contributes to an increasingly volatile environment that has neighboring countries worried, said Christian Koch, director at the Saudi Arabia-based Gulf Research Center.

    “There’s a lot at stake at the moment and the Kingdom of Saudi Arabia and others are extremely worried about further escalation and then being subject to retaliation,” he said. “Now, the danger of regional escalation has been heightened further, which could mean that Iran will get further involved in the conflict, and this is a dangerous spiral downwards.”

    While long-planned efforts to normalize ties between the Saudis and Israel collapsed in the wake of the October 7 attack and the subsequent military response, Riyadh has pushed forward with a policy of de-escalation with the Houthis after a decade of violent conflict, and sought an almost unprecedented rapprochement with Iran.

    “Saudi Arabia has had one objective, which is to prevent this from escalating into a wider regional war,” said Tobias Borck, an expert on Middle East security at the Royal United Services Institute. “It has attempted over the last few years to bring its intervention in the war in Yemen to a close, including through negotiations with the Houthis and actually from all we know from the outside, [they] are reasonably close to an agreement.”

    The Western coalition is therefore a source of anxiety, rather than relief, for Gulf States.

    “Saudi Arabia and UAE are staying out of this coalition because mainly they don’t want to have the Houthis attack them as they had been for years and years with cruise missiles,” said retired U.S. General Mark Kimmitt, a former U.S. assistant secretary of state for political-military affairs. However, American or European boots on the ground are unlikely to be necessary, he added, because “our capabilities these days to find, fix and attack even mobile missile launchers is pretty well refined.”

    Far-reaching consequences

    At the intersection of Europe and Asia, the Red Sea is a vital thoroughfare for energy and international trade. Maritime traffic through the region has already dropped by 20 percent, Rear Admiral Emmanuel Slaars, the joint commander of French forces in the region, told reporters on Thursday.

    According to data published this week by the German IfW Kiel institute, global trade fell by 1.3 percent from November to December, with the Houthi attacks likely to have been a contributing factor. 

    The volume of containers in the Red Sea also plummeted and is currently almost 70 percent below usual, the institute said. In December, that caused freight costs and transportation time to rise and imports and exports from the EU to be “significantly lower” than in November.

    In one indication of the impact on industrial supply chains, U.S. electric vehicle maker Tesla said Friday it would shut its factory in Germany for two weeks.

    Around 12 percent of the world’s oil and 8 percent of its gas normally flow through the waterway, as well as hundreds of cargo ships. Oil prices climbed more than 2.5 percent following the strikes, fueling market concerns of the impact a wider conflict could have on oil supplies from the region, especially those being shipped through the Strait of Hormuz, linking the Persian Gulf with the Indian Ocean and the world’s most important oil chokepoint. 

    The Houthi attacks on the Red Sea, one of the world’s busiest waterways, have already caused major shipping companies, including oil giant BP, to halt shipments through the Red Sea, opting for a lengthy detour around the Cape of Good Hope instead. 

    According to Borck, the impact on energy prices has been limited so far but will depend on what happens next.

    “We need to look for two actors’ actions here. One is the Houthis, how they respond, and the other one is, of course, looking at how Iran responds,” he said. While Tehran has the “nuclear option” of closing the Strait of Hormuz altogether, it’s unlikely to do so at this stage. 

    “I don’t think the Strait of Hormuz is next. I think there would be quite a few steps on the escalation ladder first,” he added.  

    But Simone Tagliapietra, an energy expert at Brussels’ Bruegel think tank, warned that a growing confrontation with Iran could lead to tougher enforcement of sanctions on its oil exports. The West has turned a blind eye to Tehran’s increasing sales to China in the wake of the war in Ukraine, which has relieved some pressure on global energy markets. 

    A crackdown, he believes, “could see global oil prices rising substantially, pushing inflation higher and further complicating the efforts of central banks to bring it under control.”

    However, Saudi Arabia and the UAE could help compensate for such a move by ramping up their own production — provided they’re willing to risk the ire of Iran.

    Gabriel Gavin reported from Yerevan, Armenia. Antonia Zimmermann from Brussels and Jamie Dettmer from Tel-Aviv.

    Laura Kayali contributed reporting from Paris.

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    Gabriel Gavin, Antonia Zimmermann and Jamie Dettmer

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  • Sanctions aren’t working: How the West enables Russia’s war on Ukraine

    Sanctions aren’t working: How the West enables Russia’s war on Ukraine

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    BERLIN — At its summit this week, the European Union is threatening to name and shame more than a dozen Chinese companies that, it claims, are supplying critical technology to equip Russia’s war machine.

    But what about the Western companies that make dual-use and other advanced gear that is subject to sanctions and yet, according to an analysis of wreckage found on the Ukrainian battlefield, is used in Russian Kalibr missiles, Orlan drones and Ka-52 “Alligator” helicopters?

    Radio silence.

    So here’s a trivia question for you: Which company is the leading maker of the so-called “high-priority battlefield items” trafficked to Russia that the Western coalition wants to interdict?

    If you said Intel, then go to the top of the class: According to the sanctions team at the Kyiv School of Economics, the U.S. semiconductor giant again leads the pack this year. It’s followed by Huawei of China. Then come Analog Devices, AMD, Texas Instruments and IBM — all of which are American.

    Russian imports of microelectronics, wireless and satellite navigation systems and other critical parts subject to sanctions have recovered to near pre-war levels with a monthly run rate of $900 million in the first nine months of this year, according to a forthcoming report from the Kyiv School’s analytical center, the KSE Institute.

    All of this indicates that, while Western sanctions imposed over Russia’s full-scale invasion on February 24, 2022, had a temporary impact, Moscow and its helpers have largely succeeded in reconfiguring supply chains — with the help of China, Hong Kong and countries in Russia’s backyard like Kazakhstan and NATO member Turkey.

    That in turn begs the question as to whether, as the EU strives to deliver a 12th package of sanctions against Russia in time for a leaders’ summit on Thursday, the bloc is serving up yet another case study for the definition of insanity often attributed to Albert Einstein: doing the same thing over and over again and expecting a different result.

    For Elina Ribakova, director of the international program at the KSE Institute, the Western private sector must also be held to account. It should, she argues, be required to track its products along the entire value chain to their final destination — just as banks were forced to tighten anti-money laundering controls and customer checks after the 2008 crash.

    “We have a policy in a void. We have put it on paper but we don’t have any infrastructure for the private sector to comply — or for us to check,” Ribakova told POLITICO. “We need to have the private sector enforce and implement this.”

    Intel, responding to a request for comment, said it had suspended all shipments to Russia and Belarus, its ally, and that it was compliant with sanctions and export controls against both countries issued by the U.S. and its allies.

    “While we do not always know nor can we control what products our customers create or the applications end-users may develop, Intel does not support or tolerate our products being used to violate human rights,” the company said in a statement. “Where we become aware of a concern that Intel products are being used by a business partner in connection with abuses of human rights, we will restrict or cease business with the third party until and unless we have high confidence that Intel’s products are not being used to violate human rights.”

    Anecdotal evidence

    The KSE Institute’s findings bear out, in a systematic way, the anecdotal findings of POLITICO’s own reporting this year: In our investigations, we showed how U.S.-made sniper ammunition finds its way into Russian rifles, and how China has positioned itself as Russia’s go-to supplier of nonlethal, but militarily useful, equipment. 

    As for Europe, while its companies may not feature among the top makers of critical technology sold to Russia, its industrial businesses are facing growing scrutiny over the supply of machinery and spare parts — often via third countries like Kazakhstan that have seen suspicious surges in imports.

    It’s here, also, that Europe has fallen down.

    In imposing sanctions, it’s a case of “all for one” — the bloc has jointly agreed on and implemented measures affecting everything from energy to banking.

    But enforcement is a matter for individual member countries. Some are on board with the program. Others, like Hungarian Prime Minister Viktor Orbán, overtly sympathize with Russia. And others, still, are conflicted — as when it emerged that the husband of hawkish Estonian premier Kaja Kallas owned a stake in a freight firm that still did business in Russia.

    Then there are countries like neutral Austria, with historical ties to the Soviet military-industrial complex that have left politicians and law enforcement with a huge blind spot.

    That’s important because, as independent researcher Kamil Galeev put it to POLITICO, Russia today still upholds an organizing principle dating back to the early Soviet era that civilian industry should “be able to switch 100 percent to military production should the need arise.”

    Justice delayed

    Despite evidence of widespread breaches, only a handful of sanctions cases are being pursued by European law enforcement. Among them, German prosecutors have secured the arrest of a businessman suspected of supplying precision lathes to two Russian companies that make sniper rifles.

    But the wheels of justice turn slowly: The arrest in August of Ulli S. — prosecutors, following German tradition, have not published his full name — relates to the initial imposition of Western sanctions over Russia’s occupation of Crimea and eastern Ukraine in 2014.

    The press had already cracked the case by the time the suspect appeared in court, naming DMG Mori — a Japanese-German joint venture — as the supplier. One customer was Kalashnikov, maker of the famed AK-47 rifle. The other was Promtekhnologia, which has been sanctioned by the U.S. and featured in POLITICO’s sniper bullets investigation. Promtekhnologia makes the Orsis sniper rifle promoted by action movie actor Steven Seagal — now a Russian citizen — and used by President Vladimir Putin’s men in Ukraine.  

    DMG Mori, formerly called Gildemeister, suspended sales to Russia after the full-scale invasion. But, because it has closed down its operations in the country, it says it is no longer able to keep control over its machines made there (although an internal probe did find that they were being used for civilian purposes). The German Federal Prosecutor did not respond to a request for comment.

    The real bad actors 

    It’s not just in stopping imports to Russia that sanctions are falling short of their stated intention.

    Vladimir Putin’s former wife, Lyudmila (left), and her new partner have splashed the cash on luxury property investments in Spain, Switzerland and France a POLITICO investigation found | Yuri Kochetkov/EPA

    Russians with close ties to Putin — and their money — continue to be more than welcome in Europe despite the death and destruction his regime has unleashed. His former wife, Lyudmila, and her new partner have splashed the cash on luxury property investments in Spain, Switzerland and France, as a POLITICO investigation found at the start of the year.

    And when the European Council — the intergovernmental branch of the EU — does sanction Russian business leaders suspected of aiding and abetting the Putin regime, it has often relied on slipshod evidence that makes the decisions easy to challenge in court, POLITICO has also found.

    Nearly 1,600 Western multinationals continue, meanwhile, to do business in Russia. Many that announced they would pull out have struggled to do so, as POLITICO discovered when it investigated Western liquor companies that said they had quit Russia — only to find that their booze was still freely available. And some companies that did stay, like Danone and Carlsberg, have been shaken down by Putin and his cronies — a case of Russian roulette, if ever there was one.

    With the EU apparently lacking the means, or the political will, to do more to economically isolate Russia, the bloc is sending its sanctions envoy, David O’Sullivan, on a mission to apply moral suasion to countries that are, as he diplomatically puts it, “not aligned” on sanctions.

    On the high-priority battlefield technology, Sullivan told POLITICO’s EU Confidential podcast last month that the EU has had “a limited success — but in an area which is absolutely critical to the defense of Ukraine.”

    More broadly, he said: “The sanctions are a sort of slow puncture of the Russian economy. Perhaps not the blowout that some people initially predicted, but … the air is escaping from the tire and sooner or later the vehicle is going to become impossible to drive.”

    To be fair, O’Sullivan isn’t overselling the efficacy of sanctions. And he may ultimately be proven right. 

    But he only will be vindicated if Western governments do a better job of holding their own businesses to account in stemming the flows of technology, equipment and spare parts that sustain Putin and his war of aggression.

    That will come down to whether they have the will to enforce their decisions. And the evidence so far is that they don’t.

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    Douglas Busvine

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  • Bulgarian millions, fake paperwork and the ‘cockroach strategy’: How Europe failed to sap Russia’s energy profits

    Bulgarian millions, fake paperwork and the ‘cockroach strategy’: How Europe failed to sap Russia’s energy profits

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    BRUSSELS — In early August, Bulgarian officials spotted something they weren’t sure was legal.

    Barrels of Russian oil were arriving in the country priced above a $60 limit allies had adopted to sap Moscow of critical revenue for its war in Ukraine.

    Bulgaria was in an unusual position among its partners. It had been given an exemption to European Union sanctions barring most imports of Russian oil, ostensibly to ensure the country wouldn’t face acute energy shortages even though the EU’s broader policy aimed to crush Russia’s main cash artery following its full-scale assault on Kyiv.

    But could Bulgaria still import Russian oil if it was above the price cap? Customs officials in Sofia wanted to know for sure, so they reached out to EU officials asking for “clarification,” according to a private email exchange dated August 4 and seen by POLITICO. 

    The answer: Let it in. 

    “Crude oil imported based on these derogations does not need to be at or below $60 per barrel,” came the EU’s reply. 

    Green light in hand, Bulgaria proceeded to import Russian crude exclusively above the price cap from August until October, according to confidential customs data seen by POLITICO. The shipments were worth an estimated €640 million, according to calculations by the Centre for Research on Energy and Clean Air (CREA) think tank. The cash went to Russian energy firms, which pay the taxes helping fill the Kremlin’s war chest. 

    The sanctions gap is emblematic of the broader flaws that have corroded the EU’s attempt to stymie the billions Russia earns from energy exports. Roughly a year after adopting the initial penalties, legal loopholes have combined with poor enforcement and a mushrooming parallel trade to keep Moscow’s fossil fuel revenues flowing, and feeding almost half of Vladimir Putin’s war-hungry budget.

    Russian oil is likely winding up as fuel in Europe via new routes. Enforcement across the Continent is scattered and reliant on inconsistent data. And a whole new black market has sprung up to insure, ship and hide Russia’s fuel as it travels the world.

    The sanctions, in other words, have come up short. Russia’s oil export earnings have dropped just 14 percent since the restrictions were imposed. And in October, Russia’s fossil fuel revenues hit an 18-month high.

    It also appears the EU has run out of steam to do much about it. The latest EU sanctions package, set to be finalized at a leaders’ summit this week, is mostly focused on administrative tweaks that experts say will do little to curb widespread evasion. Absent are any efforts to drop the level of the oil price cap further.

    “The whole sanction mechanism works only if you keep adopting on a regular basis decisions that close loopholes and impose new sanctions,” Ukrainian Foreign Minister Dmytro Kuleba told POLITICO. “Every actor in the world has the capacity to adapt.”

    The Bulgarian oversight

    The reason behind Bulgaria’s price cap loophole is arguably a clerical oversight.

    When the EU wrote the G7 nations’ price cap into law, officials expressly forbade EU shipping firms and insurance companies from trafficking Russian oil above the $60 threshold to non-EU countries. The aim was to squeeze the Kremlin’s revenues while keeping global oil flows steady.

    But officials never thought to impose similar rules on shipments to EU countries, partly because Brussels had banned Russian seaborne crude oil imports that same day.

    Except for Bulgaria.

    The backdoor has meant millions in extra revenue for Moscow. According to CREA, Russian oil export earnings from Bulgarian sales between August to October — a third of which came from sales above the price cap — raised around €430 million in direct taxes for the Kremlin. All Russian-origin shipments delivered during this time — priced between $69 and $89 per barrel — relied on Western help, including from Greek ship operators and British and Norwegian insurers.

    And it was all technically legal.

    The situation “reveals that Bulgaria has aided Russia to exploit this glaring loophole to maximize the Kremlin’s budget revenues from these oil sales without any apparent benefits for Bulgarian consumers,” said Martin Vladimirov, a senior analyst at the Sofia-based Center for the Study of Democracy (CSD) think tank, which has studied the issue.

    More broadly, Bulgaria’s exemption from the Russian oil ban has been lining the pockets of both Russia’s largest private oil firm, Lukoil, which dominates Bulgaria’s fuel production with its sprawling Black Sea refinery, and the Kremlin itself. 

    More broadly, Lukoil’s crude oil imports to Bulgaria raked in over €2 billion in export revenues for Russia since the sanctions went into effect in February, according to a new CREA and CSD analysis. And the Kremlin has made €1 billion in direct taxes from the sales, POLITICO revealed last month. 

    There is now mounting pressure to mend these money-making fissures.

    Bulgaria has vowed to cut short its opt-out from the Russian oil ban by six months, provisionally moving the deadline up to March.

    And Kiril Petkov, the former prime minister who leads one of two parties controlling Bulgaria’s current governing coalition, told POLITICO the price cap workaround should “absolutely” be closed too. He vowed to pressure the government and ask the European Commission, the EU’s executive in Brussels, to do so, while insisting that Bulgaria is accelerating its efforts to shake off its Russian energy ties, unlike nearby countries like Slovakia. 

    Bulgaria proceeded to import Russian crude exclusively above the price cap from August until October, according to confidential customs data seen by POLITICO | Robert Ghement/EPA-EFE

    “We do not like the $60 loophole that was created by the EU Commission derogation,” Petkov said. “We don’t want Putin to receive any euro that he doesn’t have to.”

    The Bulgarian case “highlights one of the many loopholes that make sanctions less effective at lowering Russian export earnings used to finance the Kremlin’s war chest,” according to Isaac Levi, who leads CREA’s Russia-Europe team.

    Bulgaria’s finance ministry and Lukoil didn’t respond to requests for comment.

    ‘Not all rainbows and unicorns’ 

    A major challenge is poor monitoring and enforcement. 

    In October, a report commissioned by the European Parliament found EU sanctions enforcement is “scattered” across over 160 local authorities, while capitals have “dissimilar implementation systems” that include “wide discrepancies” in penalties for violations.

    That assumes you can find a breach to begin with. Even those involved in shipping oil get only limited access to information on trades, according to Viktor Katona, chief crude analyst at the Kpler market intelligence firm.

    Insurers, for example, rely on a single document from firms buying and selling oil cargoes pledging the sale is not above $60 per barrel, which amounts to a “declaration of faith,” he said. 

    The EU’s upcoming 12th package of sanctions is trying to crack down on this problem with new rules forcing traders to actually itemize specific costs. The goal is to prevent buyers from purchasing Russian oil above the limit and then hiding the extra costs as insurance or transport fees. But few in the industry have high hopes the added paperwork will stop the workaround. 

    Several EU countries with large shipping industries are also reluctant to tighten the price cap, making things even trickier. During the latest round of sanctions, Cyprus, Malta and Greece once again raised concerns over calls to strengthen the restrictions, according to two EU diplomats, who like others in the story were granted anonymity to speak freely.

    A diplomat from a major maritime EU nation said stricter sanctions would only push Russia to use more non-Western operators to ship oil. Instead, the diplomat argued, the focus should be on broadening the countries adhering to the price cap. Currently, the G7, the EU and Australia are on board.

    “It would be stupid to push for price caps, and then other shipping registers do not abide by it because they are not EU members,” the diplomat said, adding that “all that will be achieved is the total destruction of the shipping industry.”

    Meanwhile, EU countries are still allowing Russian oil cargoes to cross their waters on their way elsewhere.

    CREA research on behalf of POLITICO found that 822 ships transporting Moscow’s crude transferred their cargo to another ship in EU territorial waters — the majority in Greek, but also Maltese, Spanish, Romanian and Italian waters — since the oil sanctions kicked off last December. The volumes were equivalent to 400,000 barrels per day.

    A Commission spokesperson defended the EU sanctions, noting Russia has been forced to spend “billions of dollars” to adapt to the new reality, including on new tankers, and its oil extraction and export infrastructure as Western demand shriveled.

    That has caused “serious and ongoing economic and policy consequences,” the Commission spokesperson said. And CREA did find that the oil price limit has stripped the Kremlin of €34 billion in export revenues, equivalent to roughly two months of earnings this year.

    Others point out that teething issues are normal — it’s the first time the EU has deployed sanctions at such a scale.

    “Let’s be fair … all of the sanctions measures are unprecedented, so there’s an element of learning by doing it, as well,” said one of the EU diplomats. “We don’t live in a perfect world: it’s not all rainbows and unicorns.”

    Deep dark waters 

    Instead of accepting the tough rules designed to drain its finances, Moscow has sparked a sanctions circumvention arms race, looking for loopholes as part of what one senior Ukrainian official has described as a “cockroach strategy.”

    To ensure it can sell its fossil fuels at whatever price it can get, in violation of the oil price cap and other restrictions, Russia has presided over the creation of a parallel shipping market that, through a mixture of law-breaking and law-bending, is lining the pockets of its state energy firms and oligarchs.

    A “shadow fleet” of aging tankers has emerged, mysteriously managed through a network of companies that obscure their ownership, frequently trading their cargo of fuel with other ships at sea. To help them escape the jurisdiction of Western sanctions while meeting basic maritime requirements, a cottage industry of murky insurance firms has sprung up in countries like India.

    “When they were introduced, the sanctions seemed to be having an effect for a very short time. But now the state of play is most of the sanctions that have been in place have not really worked — or they’ve been very limited in terms of what they’ve been able to do,” said Byron McKinney, a director at trade and commodity firm S&P.

    As Russian trades move increasingly away from Western operators and traders, that makes tracking them even more difficult, said Katona, the Kpler oil analyst.

    “Every single” Russian type of oil now trades above the price cap, he said, while CREA estimates only 48 percent of Russian oil cargoes were carried on tankers owned or insured in G7 and EU countries in October. 

    “It’s like coming to a party and telling everyone not to drink alcohol, but not coming to the party yourself,” Katona said. “How do you make sure that no one’s drinking?”

    At the same time, countries like India have increased their imports of cheap Russian crude by 134 percent, CREA found, processing it and then selling it everywhere. That means European consumers could unknowingly be filling up their cars with fuel produced from Russian crude, bankrolling Moscow’s armed forces at the same time.

    The waning West?

    The EU is well aware of the problem. 

    “Unless you have big players like India and China as part of it, effectiveness sooner or later fades away,” conceded one senior Commission official. 

    “It shows us the limits of what the tools of Western players can achieve at a global level,” the official added, noting it’s “a lesson in how much the [global] power balance has changed compared to 10 or 20 years ago.”

    Expectations are low, however, that India or China — or Turkey, another critical shipping country — will come around to the price cap any time soon.

    And back in Brussels, political leaders seem to be throwing up their hands. When EU leaders gather for their summit on Thursday, the sanctions package they’re expected to endorse will do little to stanch the flow of Russia’s energy cash, omitting any measures targeting Russian oil or lowering the price cap.

    Until such steps are taken, Russia’s finances won’t truly wither, said Alexandra Prokopenko, an economist and nonresident scholar at the Carnegie Russia Eurasia Center.

    “The oil price is now the only real channel of transmission for external risk,” she said. “Russia will feel extremely bad if the average price on its oil is $40 or $50 per barrel — that would be painful for its budget and for Putin’s ability to finance expenditures.”

    Getting to that point, however, was never going to be easy.

    “The Russian economy was quite a big animal,” Prokopenko said, “that makes it hard to shoot it with a single shot.”

    Victor Jack and Giovanna Coi reported from Brussels. Gabriel Gavin reported from Yerevan.

    Claudia Chiappa contributed reporting from Brussels.

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    Victor Jack, Gabriel Gavin and Giovanna Coi

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  • West’s oil price cap fails to empty Russian war chest

    West’s oil price cap fails to empty Russian war chest

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    Western efforts to undermine the Kremlin’s war in Ukraine through a price cap on Russia’s all-important oil income are falling short. Hopes that Moscow could run out of cash for weapons and soldiers’ salaries are fading, industry insiders warn, as Russia sells its oil exports well above a $60-per-barrel price cap imposed by the G7+ nations, boosted by strong Chinese and Indian demand.

    Russia’s main crude blend, Urals, broke through the cap imposed by G7+ countries on the open market in June, and has since pushed above $80 per barrel last month. It is currently trading at around $75 a barrel.

    That means Russian President Vladimir Putin can keep the war going for longer: Strong oil revenues allow Moscow to purchase more arms and bolster the civilian economy. Isolating Russia from global markets has been a key pillar of the U.S. and EU strategy to counter the invasion, along with supplying weapons to Ukraine. Russian spending plans reveal that it will allocate a third of its annual budget to defense next year, indicating its top brass are confident they can outlast and outspend the West.

    Besides higher prices, Russia is also selling more crude by volume, with seaborne exports rising 10 percent last month to 3.37 million barrels a day — well above the pre-war average of 3.1 million, according to data from commodities giant S&P.

    “The price cap has absolutely failed,” Fotios Katsoulas, lead analyst for tanker shipping at S&P, told POLITICO from London. “Across the market we expect that all of the cargoes of Russian barrels are now trading above the price cap.”

    The high prices are driven by a strong global market, he said, with benchmark Brent crude flirting with $100 a barrel in recent weeks. With benchmarks so high, Russian crude offers a tempting discount even at $80 or more.

    Russia has been working to actively subvert the sanctions, taking advantage of a “shadow fleet” of aging tankers willing to carry oil in violation of the sanctions — often obscuring their ownership and even hiding the true origin of their cargo.

    “New companies have been established in the [United Arab] Emirates, India, China and so on, increasing the tonnage they control, buying older vessels, not operating under Western insurance providers,” said Katsoulas, arguing the move means they’re effectively immune to the consequences of violating the price cap. China and India are now the largest destinations for Russian seaborne crude, followed by Turkey.

    A senior economist at one major trading firm, granted anonymity to speak frankly on sensitive regulatory issues, warned there is little Western policymakers can do to enforce the rules without overheating an already frothy market.

    “The U.S. administration probably will prefer to not penalize freight and insurance companies involved in breaking the $60 limit because that would risk even higher crude oil prices,” the trader said.

    You can leave your cap on

    A spokesperson for the European Commission acknowledged that there had been “recent fluctuations in oil prices above the G7+ price cap level,” but insisted “this does not mean that the price cap is not working.”

    “To continue the successful enforcement of the oil price caps across the international coalition, it is indeed vital to counter Russian attempts to undermine its functioning,” the official added, pointing out that the bloc has sought to target rogue ship operators in its 11th package of sanctions against Moscow in May.

    Strong oil revenues allow Moscow to purchase more arms and bolster the civilian economy | Matthew Stockman/Getty Images

    Maria Shagina, a sanctions researcher at the International Institute for Strategic Studies, cautioned against giving up on the price cap. Instead, “we now need to make sure the cap is watertight, that the mechanism is more robust than it is now.”

    “Tighter enforcement would make a difference to the Russian budget — when there was more compliance from January through to August we saw Russian revenues drop 50 percent year on year and they struggled to cope with social spending and war-related spending,” Shagina said. “Now the cap is failing, but it hasn’t ultimately failed. If we tighten the screws we can bring it back to life.”

    That could be difficult without the U.S. Last month, five diplomats from EU countries told POLITICO that despite growing awareness that the restrictions aren’t functioning properly, there is little appetite among the bloc’s governments to change it. “The Americans have said from their point of view that it’s working,” said one envoy, with another pointing out that little would change without U.S. support for tighter rules.

    Ukrainian President Volodymyr Zelenskyy’s top economic adviser, Oleg Ustenko, used an interview with POLITICO in August to urge the West to both tighten the cap to just $30, and to close a “loophole” that allows countries like India, Turkey and China to export fuel refined from Russian crude to the global market without restrictions.

    Responding to a request for comment, the U.S. State Department said that “the coalition continues to watch market conditions closely” and argued that current measures have already “rendered the Russian military-industrial complex unable to produce and maintain critical equipment for operations in Ukraine.”

    Victor Jack contributed reporting.

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    Gabriel Gavin

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  • Rishi Sunak to sign UK-India trade deal without binding worker or environment pledges

    Rishi Sunak to sign UK-India trade deal without binding worker or environment pledges

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    LONDON — Prime Minister Rishi Sunak’s trade deal with India will not include legally enforceable commitments on labor rights or environmental standards, five people briefed on the text have told POLITICO.

    British businesses and unions now fear the deal’s already-finalized labor and environment chapters will undercut U.K. workers’ rights and efforts to combat climate change.

    Sunak’s government is racing to score a win with the booming South Asian economy ahead of the 2024 election. His plans for a return trip to India in October with the aim of sealing the pact are still on track.

    Sunak and Indian Prime Minister Narendra Modi added impetus to negotiations when they met on the sidelines of the G20 in New Delhi early this month. The 13th round of talks continues in London this week.

    Just days after Sunak’s meeting with Modi, Badenoch’s team shared the deal’s labor and environment chapters with businesses, unions and trade experts on a September 13 briefing call.

    Key enforceable dispute resolution powers which the U.K. set out to negotiate are missing from those chapters, said the five people briefed on the text. It means neither London nor New Delhi can hold the other to their climate, environmental and workers’ rights commitments.

    Businesses, unions and NGOs now fear the deal could undercut British firms because Indian firms operate to less stringent and expensive environmental and labor standards. Firms and unions say their access to the negotiations was curtailed earlier this year as talks progressed.

    “Industry also wants binding commitments — partly for greater certainty, partly because businesses are made up of people who themselves want to be properly treated and to avoid climate catastrophe,” said a senior British businessperson from the services sector briefed on the chapters. They were granted anonymity to speak candidly about the negotiations.

    “Suppression of trade unions, child labor and forced labor are all widespread in India,” said Rosa Crawford, trade lead at the Trades Union Congress (TUC) — the largest coalition of unions in Britain. “But the labor chapter that the U.K. government has negotiated cannot be used to clamp down on these abuses and could lead to more good jobs being offshored to exploitative jobs in India.”

    The Department for Business and Trade said it does not comment on live negotiations and that it will only sign a deal that benefits the U.K. and its economy.

    ‘Everyone was deeply unhappy’

    At the outset of the talks, the British government committed to negotiating enforceable labor and environment chapters as it laid out its strategic approach. “We remain committed to upholding our high environmental, labour, food safety and animal welfare standards in our trade agreement with India,” the government said in January 2022.

    Indian and British officials say the labor and environment chapters are now closed and are not up for discussion. The U.K.’s first post-Brexit trade pacts with Australia and New Zealand have dispute settlement mechanisms in both these chapters. Three people POLITICO spoke to for this piece said it was an achievement in itself that Britain was able to get such chapters in a deal with India.

    Businesses, unions and NGOs have all been concerned after Kemi Badenoch closed the key forums in February to carry out a required review of their activities | Dan Kitwood/Getty Images

    But, as the U.K.-India deal stands, if either country were to weaken its environmental standards or workers’ rights “the other party would not have recourse to initiate consultations on changes in laws,” said a person familiar with the content of the chapters. “There is no dispute settlement in the environment and labor chapters.”

    British firms and unions are also concerned that the pact the EU is negotiating with India has enforceable chapters “bound by sanctions in case the parties don’t comply,” the same person said. Those EU-India chapters are not yet finalized.

    British stakeholders “are totally up in arms,” said a former trade department official familiar with the briefing. “Everyone was deeply unhappy.”

    India has changed its labor laws to deprive workers of the right to strike. Over the past year several Indian states, including Karnataka, Tamil Nadu and Uttar Pradesh, have weakened their workers’ rights laws making 12-hour daily shifts and overnight shifts for women legal as Apple iPhone maker Foxconn sets up multiple semiconductor factories and assembly plants throughout India.  

    Adding enforceable chapters would only slow down negotiations, said an Indian government official. “If you put in too much of these things into a trade deal, then it delays the process.” The U.K. and India are already “bound by” their international commitments on labor and climate, they added.

    The deal “is dire for working people because trade unions were excluded from the trade talks,” said the TUC’s Crawford. Nearly three years ago, ministers pitched the idea of involving unions in 11 influential Trade Advisory Groups (TAGs) that gave input on ongoing trade negotiations.  

    Businesses, unions and NGOs have all been concerned after Britain’s trade chief Kemi Badenoch closed the key forums in February to carry out a required review of their activities. International Trade Minister Nigel Huddleston received officials’ recommendations to restructure the groups in mid-August. A final decision is expected before the end of the year.

    With 40-50 people on the U.K. government’s current briefing calls about the India trade deal there’s little businesses or unions can do to feed into negotiations. Officials can “only really be in transmit mode,” said a business representative familiar with the briefings.

    “What this means in real terms is that decisions are being made about the future of people’s livelihoods, people’s health, and the environment we all depend on without any input from those who will be impacted,” said Hannah Conway, trade and agriculture policy advisor at the NGO Transform Trade.

    “It’s crucial,” she said, “that the government addresses its democratic deficit on trade policy by undertaking meaningful consultation with civil society and businesses.”

    “It’s high time the government rethinks its approach,” said the TUC’s Crawford, “and includes unions in trade talks — that’s how you get trade deals that work for working people.”

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    Graham Lanktree

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  • EU’s Breton says Twitter ‘can’t hide’ after platform ditches disinformation code

    EU’s Breton says Twitter ‘can’t hide’ after platform ditches disinformation code

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    Twitter has abandoned the EU’s code of practice on disinformation, Thierry Breton said late Friday, but Europe’s internal markets commissioner insisted that “obligations remain” for the social networking giant.

    “You can run but you can’t hide,” Breton said in a tweet, after confirming that the platform owned by Elon Musk had left the bloc’s disinformation code, which other major social media platforms have pledged to support.

    “Beyond voluntary commitments, fighting disinformation will be a legal obligation under DSA as of August 25,” Breton said, referring to the Digital Services Act — new social media rules that include fines of up to 6 percent of a company’s annual revenue.

    “Our teams will be ready for enforcement,” the commissioner said.

    The code of practice on disinformation is a voluntary rulebook that includes obligations for platforms to track political advertising, stop the monetization of disinformation, and provide greater access to outsiders. Participation in the code is designed to help offset some of these companies’ obligations within the separate and mandatory DSA.

    Twitter is one of eight social media platforms that fall under the scope of the DSA. The others are Facebook, TikTok, YouTube, Instagram, LinkedIn, Pinterest and Snapchat.

    Breton has publicly vowed that he would personally hold Musk to account for complying with the EU’s content rules.

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    Jones Hayden

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  • EU hits Meta with record €1.2B privacy fine

    EU hits Meta with record €1.2B privacy fine

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    U.S. tech giant Meta has been hit with a record €1.2 billion fine for not complying with the EU’s privacy rulebook.

    The Irish Data Protection Commission announced on Monday that Meta violated the General Data Protection Regulation (GDPR) when it shuttled troves of personal data of European Facebook users to the United States without sufficiently protecting them from Washington’s data surveillance practices.

    It’s the largest fine imposed under the bloc’s flagship General Data Protection Regulation (GDPR) privacy law and it comes on the eve of the fifth anniversary of the law’s enforcement on May 25.

    Amazon was previously fined €746 million by Luxembourg and the Irish regulator also imposed four fines against Meta’s platforms Facebook, Instagram and WhatsApp ranging between €405 million and €225 million in the past two years.

    The Irish privacy watchdog said that Meta’s use of a legal instrument known as standard contractual clauses (SCCs) to move data to the U.S. “did not address the risks to the fundamental rights and freedoms” of Facebook’s European users raised by a landmark ruling from the EU’s top court.

    The European Court of Justice in 2020 struck down an EU-U.S. data flows agreement known as the Privacy Shield over fears of U.S. intelligence services’ surveillance practices. In the same judgment, the top EU court also tightened requirements to use SCCs, another legal tool widely used by companies to transfer personal data to the U.S.

    Meta — as well as other international companies — kept relying on the legal instrument as European and U.S. officials struggled to put together a new data flows arrangement and the U.S. tech giant lacked other legal mechanisms to transfer its personal data.

    The EU and U.S. are finalizing a new data flow deal that could come as early as July and as late as October. Meta has until October 12 to stop relying on SCCs for their transfers.

    The U.S. tech giant previously warned that if it would be forced to stop using SCCs without a proper alternative data flow agreement in place, it could shut down services like Facebook and Instagram in Europe.

    Meta also has until November 12 to delete or move back to the EU the personal data of European Facebook users transferred and stored in the U.S. since 2020 and until a new EU-U.S. deal is reached. However, it’s unlikely the tech firm will have to delete or move data as European and U.S. negotiators are expected to finalize the new deal before early November.

    “This decision is flawed, unjustified and sets a dangerous precedent for the countless other companies transferring data between the EU and U.S.,” Meta’s President of Global Affairs Nick Clegg and Chief Legal Officer Jennifer Newstead said in a statement on Monday.

    Clegg and Newstead said the company will appeal the decision and seek a stay with the courts to pause the implementation deadlines. “There is no immediate disruption to Facebook because the decision includes implementation periods that run until later this year,” they added.

    Max Schrems, the privacy activist behind the original 2013 complaint supporting the case, said: “We are happy to see this decision after ten years of litigation … Unless U.S. surveillance laws get fixed, Meta will have to fundamentally restructure its systems.”

    The Irish Data Protection Commission said it disagreed with the fine and measure that it was imposing on Meta but had been forced by the pan-European network of national regulators, the European Data Protection Board (EDPB), after Dublin’s initial decision was challenged by four of its peer regulators in Europe, from Germany, France, Spain and Austria.

    According to internal discussions released on Monday, the Irish regulator earlier this year vehemently argued against imposing a financial penalty on the social media giant, saying that such a decision would be disproportionate for the alleged privacy abuses. Dublin also argued any such fine against Meta could be viewed as discriminatory since U.S. tech firm Google had not faces similar penalties for other transatlantic data protection cases.

    But Ireland was overruled by other European regulators. In a stinging rebuke, the pan-EU body of privacy regulators EDPB said it took the view that “Meta committed the infringement at least with the highest degree of negligence,” the discussions released Monday showed, arguing in favor of a fine. The EDPB backed claims from the four EU privacy regulators that Meta should also be forced to delete historical European data affected by the decision.

    This article was updated to include comments from Meta and Max Schrems and to add details about the decision.

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    Clothilde Goujard and Mark Scott

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  • Who are the bad guys? Police brutality shapes Greek election

    Who are the bad guys? Police brutality shapes Greek election

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    ATHENS — The biggest crime in Greece? The state of the police force.

    That’s according to opposition politicians, who are putting security and law enforcement center-stage ahead of this month’s national election.

    Syriza, the leftist main opposition party, accuses the conservative New Democracy, which is hoping for another term in office after the May 21 vote, of allowing the police to become run by organized crime gangs. The conservative government maintains a lead in the polls, although a second round will likely be needed and is penciled in for July 2.

    “The Greek police are collaborating with the crime instead of fighting crime,” Syriza leader Alexis Tsipras said, adding that the “Greek mafia is in the police.”

    For sure, Greek police have been in the headlines for all the wrong reasons of late, thanks to the alleged involvement of police officials in mafia gangs profiting from illegal brothels and casinos; the murder of a 16-year-old Roma boy during a police chase; an alleged rape in a central Athens police department; and complaints of police brutality.

    The Greek police force has a long history of corruption and excessive use of force but since New Democracy was elected in 2019 — at least in part on a law-and-order platform — complaints have soared.

    In recent protests following a deadly train crash, police were accused of using unjustified violence during peaceful rallies, with several videos exposing the brutality. In one case, police officers sped toward a group of peaceful protestors on motorcycles and threw firecrackers at their feet. Prosecutors have ordered an investigation after a police tow truck drove at high speed into dumpsters being wheeled into the middle of a street by protesters.

    The chief of police, Konstantinos Skoumas, was replaced in March. In an open letter, Skoumas defended his record and blamed politicians for forcing him out, saying he wouldn’t be “anyone’s scapegoat,” and arguing that his actions “caused strong resentment in certain centers of power, which, as a result, led to the violent termination of my term of office.”

    The opposition blames both the police and the interior ministry that oversees it. “Impunity, the cultivation of an omertà mentality, the lack of accountability, are unfortunately characteristic of the way the Greek police operates, with the tolerance, if not the complicity, of the ministry,” said Giorgos Kaminis of the socialist Pasok party.

    Minister of Civil Protection Takis Theodorikakos hit back, calling Syriza’s accusations “slanderous” and “nationally damaging,” as they could potentially scare away tourists.

    “Our daily concern in practice is the safety of citizens, which is why we put an end to the lawlessness and delinquency,” he said on a recent visit to a police station. “This is why in 2022 the Greek police arrested 7,000 illegal migrants in the Attica [region that includes Athens], and now we are placing 600 new special guards at the Attica police stations,” Theodorikakos said, adding that Greece is a safe country.

    Government spokesman Akis Skertsos said on Monday that there has been a reduction in all medium and low crime rates during the government’s term. Comparing January to August of 2019 to the same period in 2022 there has been a 15 percent reduction in thefts and 35 percent reduction in robberies.

    Complaints on the rise

    In 2022, preliminary data from the Greek Ombudsman showed a 50 percent rise in citizens’ complaints against the police compared to 2019, the last pre-pandemic year, and a 14 percent rise in incidents of racially motivated police actions.

    “The tone set by the political as well as the natural, operational leadership of the security forces undoubtedly plays a vital role” in these increases, Greek Ombudsman Andreas Pottakis told POLITICO. Pottakis said the government’s attitude toward the police was “overly supportive” and could “be misinterpreted” by officers, making them think they have “carte blanche” to do whatever they want.

    GREECE NATIONAL PARLIAMENT ELECTION POLL OF POLLS

    For more polling data from across Europe visit POLITICO Poll of Polls.

    One of the government’s first tasks after taking office four years ago was to revive a police motorcycle unit that had been disbanded under the previous Syriza government over human rights violations. Many of the 1,500 recruits were drafted from the ranks of military special forces, bypassing the police academy.

    New Democracy’s efforts to establish the first university police force in Europe also failed. Α special unit with 1,000 officers was set up in September but still hasn’t set foot on campuses. The idea is so unpopular that on the rare occasions officers from the unit have ventured near universities, they have been accompanied by riot police. Some 600 officers meant for the uni police have already been transferred to other departments, the police confirmed.

    Last month, an officer fired his gun into the air outside Athens University of Economics and Business in the center of the capital during clashes with hooded, masked youths.

    Theodorikakos, the interior minister, said such incidents happened because, in the pre-election period, some people want to “blow up the political climate.” He added that some people “even want him dead,” a comment that was heavily criticized by the opposition.

    “Let’s stop playing games at the expense of the seriousness of the issues, as [Prime Minister Kyriakos] Mitsotakis did with the university police,” said Pasok leader Nikos Androulakis. “He made a body which was paid for by the Greek taxpayers, did nothing of substance, and instead of apologizing he continues doing the same.”

    Abuses of power

    Police have also been accused of resorting to violence and intimidation to hamper journalists covering demonstrations and the refugee crisis on the country’s islands.

    “We have cases of police officers arresting and even stripping lawyers and journalists off their clothes or humiliating them even though their professional identity is made known,” Pottakis, the ombudsman, said. “Young people are mainly targeted. The age element seems to act as an encouragement.”

    Last December a 16-year-old Roma boy died after being shot in the head by police chasing him after he fled a petrol station allegedly without paying for €20 of fuel.

    A 19-year-old girl reported she had been raped in a station by two policemen who filmed their actions in the main central police department last year. The officers involved said the sex was consensual. They have been suspended pending an investigation.

    “We are heading from one fiasco to another,” said Syriza MP Christos Spirtzis. “Where are the internal investigations that have been conducted? There is no information, no one has been punished.”

    Such investigations have, however, been launched. In January, Supreme Court prosecutor Isidoros Dogiakos and Interior Minister Theodorikakos ordered an investigation into the relationship between senior police officials and members of the mafia, after leaked conversations showed gang leaders negotiating with officers about continuing their activities undisturbed.

    Posters of the communist party in Thessaloniki | Sakis Mitrolodis/AFP via Getty Images

    This was not the first report linking the police with organized crime.

    Active and retired police officers stand accused, together with mafia members, of widespread corruption, with the criminal organization alleged to be running a protection racket involving 900 businesses — from clubs to brothels and casinos — with a turnover of at least €1 million per month.

    Investigative website Reporters United revealed that one official implicated in the racket was promoted to director of the Attica Security Department, one of the most important positions in the fight against organized crime. Police later said they weren’t aware of the allegations against the officer.

    “Citizens’ trust relationship with the police is broken when those who break their oath are not punished,” the ombudsman said.

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    Nektaria Stamouli

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