Introduction
The European Union’s (EU) 19th sanctions package against Russia has further lengthened the restrictive measures against Russian corporations and high-ranking individuals. However, this package also addresses a variety of third-party countries that are now indirectly under threat of sanctions – namely, Central Asian and Chinese companies.
Context
On October 23rd, after prolonged deliberation since the start of the Autumn, the EU adopted the new 19th package against Russia. In the energy trade market, this package fully bans transactions with two major Russian oil companies – Rosneft and Gazprom Neft; bans the import of Russian liquefied natural gas (LNG) and petroleum gas (LPG); and imposes additional sanctions on the shadow fleet chain, with an additional 117 vessels now subject to sanctions. Additionally, this package also expands on crypto and banking transactions between Russia, and this specific expansion puts pressure on Central Asia the most.
Analysis
Fundamentally, the 19th package eliminates all exemptions for importing Russian gas and oil into the EU by imposing a complete transaction ban on Rosneft and Gazprom Neft, two of the country's largest state-affiliated oil producers. One of the last legitimate routes for Russian energy products to enter the European market has been closed as a result. The rule does, however, maintain certain exceptions for oil coming from third nations, particularly Kazakhstan, provided that its proven non-Russian origin is acknowledged. This clause is crucial for Central Asia, since Kazakh oil frequently transits through Russian pipelines (such as the CPC pipeline) to European ports. By preserving this exemption, Moscow's revenue streams are cut off while Kazakhstan's energy exports are shielded from unanticipated disruption.
Regarding the extension of the package on banking and cryptocurrency trade, by introducing an extended listing mechanism, the measure gives the EU the ability to sanction foreign banks and cryptocurrency service providers that facilitate Russian transactions, in addition to Russian financial institutions. Compared to previous packages that primarily ignored foreign middlemen in favour of targeting Russia's domestic financial system, this represents a major change. Banks in Central Asia that have facilitated redirected financial transfers or trade are now at risk of being sanctioned. Their access to the SWIFT payment system and EU correspondent banking networks may be restricted if there is evidence that they have circumvented sanctions, cutting them off from international finance.
Practical consequences
The repercussions for Central Asian nations are diplomatic as well as economic. More attention is being paid to nations like Kazakhstan, which has attempted to strike a careful balance between upholding relations with Russia and conforming to Western compliance standards. To put greater pressure on Russia’s economy, the EU expects its partners to enforce export controls and stop the re-export of dual-use goods. Stricter oversight of Kazakh customs data and end-user verification may result from this expectation.
Trade disruptions may occur in Kyrgyzstan and Uzbekistan, whose economies rely on cross-border industries, as EU pressure mounts on suppliers suspected of evading sanctions. Slower customs clearance for goods headed for the EU, increased compliance costs for banks processing cross-border payments, and the requirement to modify local laws to prevent EU blacklisting are all possible outcomes for these nations.
As of now, several banks within Central Asia have already been subjected to the sanctions: VTB (Russian daughter-branch bank in Kazakhstan), Tolubay and Eurasian Savings Bank (Kyrgyzstan), and several banks in Tajikistan.
Key Takeaways
- Currently, Central Asian nations must balance preserving their long-standing economic ties with Russia with retaining access to Western markets. The package emphasises that non-compliance now has regulatory repercussions, and that neutrality no longer confers immunity from economic pressure.
- The sanctions shift the structure in the trade orientation of Central Asia. Through programs like the Trans-Caspian International Transport Corridor (TITR), also referred to as the Middle Corridor, the EU is encouraging Central Asian nations to diversify their trade routes as Russia grows more isolated. This could eventually lessen the area's reliance on Russian infrastructure and forge new alliances with the EU, Turkey, and the Caucasus.
- Regional companies may face legal and regulatory issues because of the 19th package, especially those that are interested in conducting business internationally. Due to the expanded definition of sanction circumvention, a business located in Central Asia may face penalties for indirect participation.
Conclusion
The 19th package presents both risks and opportunities for the companies in Central Asia. Central Asian states can avoid punitive measures while attracting Western investments that value legal predictability and market access. Especially for those who are interested in conducting business from Central Asia in Europe - it is important to bear in mind the new sanctions package terms and address the KYC seriously.
