Since Russia launched its military campaign in Ukraine last February, the European Union (EU) has imposed 11 packages of sanctions targeting Moscow’s oil, coal, steel and timber, but has still favored minerals that the bloc desperately needs for its climate goals.
Accordingly, 34 raw materials classified as “critical” still flow freely from Russia to Europe in large quantities, providing significant financial resources for state-owned enterprises and businesses owned by Russian oligarchs.
In the 16 months from March last year to July this year, Europe spent 13.7 billion euros importing raw materials from Russia that are not subject to sanctions, data from the EU's statistics agency (Eurostat) and the Joint Research Centre (JRC) show.
In the first seven months of this year alone, more than €3.7 billion was spent on this purpose, including €1.2 billion on Russian nickel imports. The European Policy Center estimates that up to 90% of the nickel used in the “old continent” comes from Russian suppliers.
While some Western allies have targeted Moscow’s mining sector – the UK recently banned Russian copper, aluminium and nickel – businesses in EU member states have continued to trade.
Changes in the global economy, the climate crisis and the rise of electric vehicles mean that Russia's mineral supplies will become increasingly important. Photo: bne IntelliNews
“Why are critical raw materials not banned? Because they are critical, right? To be honest, they are,” the EU’s special envoy for sanctions, David O’Sullivan, admitted at a conference in September.
The EU needs “critical” raw materials – used in electronics, solar panels and electric cars, as well as traditional industries such as aerospace and defence – to reach its 2050 climate neutrality target. But all of these are in chronically scarce and uneven global supply, while demand is high.
Meanwhile, Russia is the leading supplier. “Given its landmass across both Eurasia and the Middle East, Russia has a large share of strategic reserves of critical raw materials, on par with China,” said Oleg Savytskyi of Razom We Stand, a Ukrainian NGO.
Goods still "smuggled" to Europe
Europe’s continued imports from Russia not only help fill Moscow’s “war chest” but also benefit Kremlin-backed oligarchs and state-owned companies.
Analysis of Russian customs data shows that Vsmpo-Avisma, the world's largest titanium producer, exported at least $308 million worth of titanium to the EU through its subsidiaries in Germany and the UK between March 2022 and July 2023.
The company is part-owned by Russian defense industry conglomerate Rostec. Both Rostec and Vsmpo-Avisma are headed by Chairman Sergei Chemezov, a close ally of Russian President Vladimir Putin.
Chemezov and Rostec are both on the EU’s “blacklist” for supplying tanks and weapons to the Russian military. Brussels has not sanctioned Vsmpo-Avisma directly, but the US has banned exports to the company since late September, because Vsmpo-Avisma is “directly involved in the production and manufacture of titanium and metal products for the Russian military and security agencies.”
Nickel plates at the Kola Mining and Metallurgical Company, a unit of Russia's Nornickel Group, in the town of Monchegorsk, Murmansk region, February 25, 2021. Photo: Getty Images
Among Vsmpo-Avisma’s biggest European customers is Airbus, the aerospace giant partly owned by the governments of France, Germany, and Spain. Between the start of the Russia-Ukraine conflict and March 2023, Airbus imported at least $22.8 million worth of titanium from Russia; the value and volume quadrupled compared to the same period a year earlier.
Nornickel, the world leader in nickel and palladium mining and smelting, exported $7.6 billion worth of nickel and copper and more than $3 billion worth of palladium, platinum and rhodium to the EU through its subsidiaries in Finland and Switzerland between March 2022 and July 2023.
In 2022, nearly 50% of Nornickel's sales went to Europe. Brussels has not punished Nornickel or its chairman and largest shareholder, billionaire Vladimir Potanin.
Russian aluminium giant Rusal also uses tax havens to smuggle its products into Europe. Rusal owns the EU’s largest aluminium refinery in Ireland and a smelter in Sweden.
Trading companies based in Jersey and Switzerland have brought at least $2.6 billion worth of aluminum into the EU in the 16 months since Russia launched its campaign in Ukraine. In August 2023, Rusal said Europe still accounted for a third of its revenue. Rusal’s main shareholder is tycoon Oleg Deripaska, who is under sanctions from the EU and its Western partners.
Difficulty in "quitting"
The European Commission (EC) – the EU’s executive body – has not commented publicly on whether it would propose a ban on critical raw materials, but has said sanctions must be carefully designed to hit the target while still protecting EU interests.
Weaning Russia off strategic and critical raw materials is difficult. Replacing suppliers and building new international partnerships is a painstaking process. Finding a raw material, such as titanium or copper, that is similar in quality and price to that from Russia is also a challenge.
Imposing tariffs or cutting ties too quickly could lead to a spike in global prices, hurting European buyers while benefiting Moscow. A ban could also prompt India, Iran and China to increase purchases, further depleting the supply of raw materials vital to EU industries.
Tymofiy Mylovanov, rector of the Kyiv School of Economics (KSE), said the ban would be difficult to implement due to challenges in global demand and Europe's dependence on Russia.
“Overall, for these specific raw materials, the revenue lost by Russia due to the inability to export to the EU will be smaller than the impact of the ban on EU production,” said Mylovanov, who is also a former minister of trade and economic development of Ukraine.
European Commission Vice President Valdis Dombrovskis (left) and Internal Market Commissioner Thierry Breton at a press conference on March 16, 2023 discussing the European Commission's enactment of the Critical Raw Materials Act (CRMA). Photo: S&P Global
While the EU has reduced its imports of copper, nickel and aluminium from Russia over the past two years, its sales of nickel and aluminium have remained stable, with Russian nickel sales to the EU worth $1 billion in the first half of 2021 and $1.1 billion in the same period two years later, according to the UN International Trade Database.
The EU is currently trying to reduce its dependence. In March, the EC introduced the Critical Raw Materials Act (CRMA) – a new law aimed at reducing the EU’s dependence on third countries for raw materials classified as critical.
The CRMA aims to ensure that no third country supplies more than 65% of the EU's annual raw material consumption. It also sets a target for the bloc to mine 10%, process 40% and recycle 15% of its annual raw material consumption by 2030.
“War in Europe is a risk that has not been seen in decades when Russia was known as a reliable supplier,” said Hildegard Bentele, a German MEP who was part of the group that presented the CRMA. “The EU should act immediately to help European companies reduce and replace critical raw materials delivered by Russia as soon as possible.”
The EU’s High Representative for Foreign Affairs and Security Policy is expected to propose a 12th package of sanctions in the coming weeks, which will then be discussed by member states. Brussels hopes the package will put new pressure on the Russian economy and reduce its fighting power on the battlefield in Ukraine. But again, restrictions on vital raw materials appear to be off the table .
Minh Duc (According to Investigate Europe, Euronews)
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