How the EU tweaked its sanctions to unblock Russian fertiliser shipments

Good morning and welcome to Europe Express.

An EU summit that many feared would drag on long into this morning ended at a reasonable hour last night, after Poland finally confirmed its backing for the implementation of a minimum tax deal, unlocking a wider package including funding for Ukraine. Ambassadors also agreed the fine details of the ninth sanctions package against Russia (first reported by the Financial Times last week), and we have more below on the painful way that particular sausage was made.

Away from Brussels, Intercontinental Exchange has warned that it may pull its gas trading market out of the Netherlands if the EU implements its long-debated gas cap. In other energy-related news, we have also explained what is at stake today as EU legislators and member state officials grapple with a “jumbo trilogue” to hammer out the final negotiations on the bloc’s “Fit for 55” climate law.

And the corruption scandal roiling the European parliament is only growing bigger. After parliament president Roberta Metsola pledged a raft of anti-graft reforms designed to ensure that the chamber “is not for sale”, the European Public Prosecutor’s Office requested the lifting of immunity on two MEPs related to “suspicion of fraud detrimental to the EU budget”. One of the MEPs is Greek Socialist Eva Kaili, the disgraced former vice-president charged by Belgian prosecutors with corruption, money laundering and participation in a criminal group. The other one, also Greek but from the centre-right European People’s Party, is Maria Spyraki. Both are presumed innocent until proven guilty.

Between a dock and a hard place

For six months, the EU has vehemently denied claims that its sanctions against Moscow are hampering shipments of Russian food and fertilisers to food-insecure third world countries. Yesterday the question came to a head — and almost blew up the bloc’s latest sanctions package.

Across ports in Germany, the Netherlands and other countries, vast amounts of Russian fertiliser is stuck on ships or in cargo yards, as customs officers are reluctant to clear the shipments. That is not because the companies or the goods are subject to sanctions. But because the ultimate owners are.

For months, the EU and its member states have written letters to port operators, shippers and insurance companies making clear that Russian fertiliser is kosher. There have been non-papers written and guidance issued. Yet still the shipments remain stuck.

Matters came to a head early this month when member states, including Germany, France and the Netherlands, called for amendments to the EU’s sanctions, warning that the current regime is leading to hold-ups in vital shipments to poor countries.

“It interferes with our messages on EU and member states’ initiatives on food security, and especially with our initiatives on the fertilisers crisis,” they wrote.

As a means to unblock the (container ship) jam, the European Commission proposed what they thought an obvious remedy as part of the ninth sanctions package being debated by member states.

Why not allow five sanctions-hit fertiliser oligarchs (and one of their wives) to have sanctions on their assets and transactions lifted specifically “for the sale, supply, transfer or export of agricultural and food products including wheat and fertilisers, to third countries in order to address food security.”

The five men included Dmitry Mazepin, owner of Agrofert, and Andrei Guriev, who runs PhosAgro. Mazepin told the FT this week that western lawyers were guilty of sanctions “over compliance”.

As a means to get the cargoes moving, this fix makes sense — in theory. But, the Poles and Lithuanians thundered, in practice it would carve a Kremlin-sized loophole into the sanctions and allow these tycoons to go about their business as if the war was not raging, simply by claiming that all their dealings were in the name of food security.

Throughout the afternoon, as the hawks refused to budge, the derogation softened. Specific oligarchs were replaced by a vague “persons listed who held a significant role in international trade in agricultural and food products”, and exemptions were ruled to be “a specific case-by-case assessment . . . for each transaction separately”.

But early evening brought another twist. Other countries that had supported the oligarch exemptions began threatening to block the package, arguing that the watered-down language made the whole exercise pointless.

To the relief of the EU leaders who were loath to add the debate to their burgeoning summit agenda and instead get home to bed, their ambassadors finally chiselled out a deal. The question now, for Mazepin and his oligarch friends as much as the Dutch and German port owners, is whether the convoluted compromise makes any difference.

Chart du jour:

Up they go again. The European Central Bank lifted interest rates by half a percentage point, while warning investors to expect a repeat of similar-sized moves in the coming months.

Jumbo Trilogue

It’s no surprise that legislators are calling the final negotiations for the EU’s “Fit for 55” climate law a “jumbo trilogue” with a raft of the most contentious issues due to be wrapped up in the next 24 to 48 hours, writes Alice Hancock.

On the table for discussion between the European parliament and member states are revisions to the bloc’s emissions trading system, which enshrines the “polluter pays” principle at the heart of EU climate policy, the introduction of a new, similar system that will require homeowners and car users to pay for their emissions and the final elements of a carbon border tax.

All are part of EU legislation first announced in 2021 that is designed to cut the bloc’s greenhouse gas emissions by more than 55 per cent by 2030 compared to 1990 levels.

Negotiations start today at 11am and are expected to run well over time.

“This is the biggest trilogue I ever experienced. It is the biggest environmental and climate law that Europe has ever dealt with,” said Peter Liese, a centre right MEP who is negotiating for the parliament.

Even in more prosperous times passing the legislation to create jobs in clean technology and reduce the influence of the fossil fuel industry was not going to be easy.

As far back as January 2020, the EU’s Green Deal commissioner Frans Timmermans was warning that it would be a “tectonic shift” and the situation is far harder today.

As Liese added, with rampant inflation and a difficult geopolitical context “we need breathing space for industry and breathing space for citizens at this critical time”, which could mean that the final agreements were less ambitious in climate terms.

At least the carbon price — now almost three times what it was in January 2021 — has made the ETS, which requires that companies buy permits to cover their greenhouse gas output, a significant pot of money.

According to the think-tank E3G, the ETS has generated revenues of €1tn during the past decade, an amount that has not escaped the attention of the European Commission.

In a letter to EU leaders ahead of yesterday’s summit, commission president Ursula von der Leyen said that ETS revenues could make up part of the EU’s state aid answer to the massive tax breaks now on offer in the US for green technologies through its $369bn Inflation Reduction Act.

“We need complementary European financing, including through revenues from ETS, to move all together in the same direction,” she said.

What to watch today

1. Trilogue negotiations between European legislators and member states on the EU’s Fit for 55 climate law

2. Eurozone purchasing managers’ index data release to provide a fresh update on the health of the continent’s economy

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