Due to the russian invasion of Ukraine, the European Commission announced the seventh package of sanctions against the russian federation. The new package of sanctions is aimed at increasing the effectiveness of the previous six packages of sanctions and also implies the prohibition of the import of russian gold to the EU, particularly through third-party countries.
The following sanctions package implies the extension of personal sanctions against natural and juridical persons involved in russian aggression, strengthening control over the export of dual-use and advanced technologies. Furthermore, the European Commission proposes extending the validity of the already imposed sanctions for six months. EU ambassadors will meet to validate the “golden package” this week. Restrictive measures have been adjusted so as not to hinder food import from russia amid the increase in food prices and the food crisis. The European Commission began to develop plans for a ban on russian gold last month. The United States, the United Kingdom, Japan, and Canada announced the refusal to buy gold from the russian federation at the end of June at the G7 meeting.
It is expected that they are to be joined by Germany, Italy, and France. It is not yet clear whether the restrictions will affect only the export of gold from russia or the import to russia as well.
What consequences will the “golden package” of sanctions against russia have?
This measure will allow intensifying the freezing of russian assets by the EU countries and working out the mechanism of transferring the seized gold and currency reserves of the Central Bank of the russian federation to Ukraine as reparations for the future recovery of the country after the war.
The russian federation annually produces about 10% of the world’s gold. Gold sales are russia’s second most profitable export after energy carriers, with exports of up to $15.4 billion per year. In 2019, about 90% of russian gold export went to the UK. Gold is the most critical asset of the russian central bank, which has already been restricted from accessing some currency assets in the West due to Western sanctions. Since the beginning of the war, the demand for russian gold has increased as russian oligarchs rushed to buy it, hoping to get their money out from under sanctions.
At the beginning of 2022, the value of monetary gold in the international reserves of the russian federation exceeded $132 billion. The share of gold in reserves was 21%. According to the Ministry of Finance of the russian federation, due to sanctions, russia lost access to about half of its foreign currency reserves – $300 billion out of $640 billion.
The imposition of sanctions against russian gold will de facto close the EU and US financial markets to russia. It will affect putin’s ability to finance his armed forces and the oligarchs’ attempts to avoid the consequences of financial sanctions by buying gold on international financial markets. According to US experts, Russia will lose $19 billion annually due to the ban.
Simultaneously, the appendix to the project of sanctions states that the embargo is imposed on the import or transfer of gold from russia to the EU or third-party countries in the form of powder, unprocessed or semi-finished, as well as on gold coins and waste or scrap gold.
Therefore, gold jewelry from russia will be de facto excluded from sanctions, potentially leaving loopholes through which money will continue to flow to the kremlin.
