Russia Announces Initial Retaliatory Sanctions Targets; Waiting for the Other Shoe to Drop

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Russia published its initial list of parties subject to its “retaliatory special economic measures.” Putin established the program by decree on May 3, designed to address the unlawful taking of property and property rights by unfriendly parties. The order tasked officials to come up with targets in ten days and develop additional criteria.

We speculated that Germany’s seizure of Gazprom operations, which included storage facilities, would be a prime initial target. We were correct. We’ve embedded a machine translation1 of the May 11 document describing the implementation measures at the end of the post. TASS gives an overview:

The list includes 31 companies from Germany, France and other European countries, as well as from the USA and Singapore. In particular, it includes former European subsidiaries of Gazprom, traders and operators of underground gas storage facilities.

In particular, Russian authorities, legal entities and citizens will not be able to conclude transactions with the sanctioned entities and organizations under their control, fulfill obligations to them under completed transactions, and conduct financial transactions in their favor. This includes the concluded foreign trade contracts. These bans were earlier established by a decree of Russian President Vladimir Putin.

The resolution sets additional criteria for transactions that are prohibited from being performed with companies from the sanctions list. These are transactions concluded in favor of the sanctioned persons, or providing for the making of payments, transactions with securities with the participation or in favor of such companies, or transactions involving the entry of ships owned or chartered by sanctioned persons, in their interest or on their behalf, into the Russian ports.

If you look at the list, 12 of the 31 entities bear the Gazprom name. TASS lists some of the others:

Gazprom Germania is an international group of companies that, through its subsidiary Gazprom Marketing & Trading, is engaged in natural gas trading in the UK spot markets, as well as the sale of liquefied natural gas in Southeast Asia. Through its subsidiary Gazprom Schweiz AG, it trades natural gas in countries Central Asia and the former Soviet Union, as well as in Austria, Italy and Serbia. Natural gas is traded in Germany mainly through Wingas and in the Czech Republic and Slovakia through Vemex Gazprom Germania.

Gazprom Germania is also the operator of several large gas storage facilities in Germany and has several projects in Serbia, Austria and the Czech Republic.

EuRoPol GAZ is a joint venture between Gazprom and Poland’s PGNiG, which owns the Polish section of the Yamal-Europe gas pipeline.

So even though the first paragraph in the extract above is ambiguous, one can assume that Wingas entities, along with Vemex (per Vemex Gazprom Germania) and EuRoPol, are Gazprom ventures. Adding all those names brings the list of Gazrpom-related businesses to 21.

One has to assume the other ten were stolen or stolen from. They include:

astora GmbH, “one of Europe´s largest operators of natural gas storage facilities

Industrickraftwerk Greifs wald GinbH in the electricity generation and distribution business

But others are a mystery, at least to web searches, like IMUK AG (Switzerland), ZGG Zarubezhneftgazehim Trading (Austria) and PremiumGas SpA (Italy)

Further digging shows that Gazprom had entered into a long term supply contract with WIEE (three more listed entities), which operated in the eastern EU. See this tidbit from Russian Energy Strategy in the European Union, the Former Soviet Union by Stylianos A. Sotiriou (if I ever have time, I may have to buy this books and read it rather than rely on serendipity via Google Books):

Now so far this is all very entertaining, but what does it mean? It appears Europeans in the gas and possibly also electricity business won’t know for sure until Russia counterparties tell them their contracts are cancelled or they otherwise won’t be doing business with them. Remember that the sanctions are sweeping in terms of subjecting all Russian individuals and legal persons to them. And their application goes beyond the entities listed to include “organizations under their control.”

Note that we aren’t the only people wondering what this means in practice. From a later story in TASS:

The Federal Network Agency of Germany took note of energy companies, including ex-subsidiary of Gazprom, Gazprom Germania, being included in the retaliatory sanctions list of Russia, but does not yet know the details, representative of the regulator told TASS.

“We still do not have information on the type of sanctions. The government and the Federal Network Agency, as the trustee of Gazprom Germania, are taking the necessary measures and are preparing for various scenarios,” the statement said.

“We are analyzing these announcements. We don’t have details yet,” the German Economy Ministry said in a separate statement.

Not that Russia cares much about the tender feelings of Germany, but they got lucky by virtue of Ukraine cutting gas supplies to Germany first. From Al Jazeera yesterday:

Russian gas flows to Europe via Ukraine fell by a quarter after Kyiv halted use of a major transit route blaming interference by occupying Russian forces, the first time exports via Ukraine have been disrupted since the invasion….

The transit point Ukraine shut usually handles about 8 percent of Russian gas flows to Europe, although European states said they were still receiving supplies. The Ukraine corridor mostly sends gas to Austria, Italy, Slovakia and other east European states.

Kremlin-controlled Gazprom, which has a monopoly on Russian gas exports by pipeline, said it was still shipping gas to Europe via Ukraine, but volumes were seen at 72 million cubic metres (mcm) on Wednesday, down from 95.8 mcm on Tuesday.

GTSOU, which operates Ukraine’s gas system, said on Tuesday it would suspend flows through the Sokhranovka transit point, which it said delivered almost a third of fuel piped from Russia to Europe via Ukraine.

Note that when Ukraine first said it was going to cut gas supplies on this section of the network because reasons (the reason being the Donbass militias and Russian forces are about to take all of Lugansk), Gazprom said they didn’t see any problem and hadn’t got a force majeure notice, which Ukraine then sent in.

The priceless or cheeky part, depending on your point of view, is that Ukraine’s excuse for shutting off the pipes is that Russian forces were allegedly stealing gas and sending it to the separatists in Donbass. First, Ukraine has been syphoning transiting gas forevah, so pilfering was never an obstacle to transit, as long as they were the ones pilfering. Second, as Al Jazeera pointed out, Ukraine provide no evidence of the theft.2

Given that Germany appears to have heisted Gazprom’s storage operations in Germany, and potentially in other countries, along with related trading businesses, Russia could take the view that any gas that could be delivered to the former Gazprom storage (and through any related pipelines) will not longer be supplied. We’ll see soon enough how sweeping a view Russian officials take.

In the mean time, this is bad news for Germany and potentially other countries who played along with gas operations heist. As of early May, Germany’s vice chancellor Robert Habeck said Germany had reduced the Russian share of its gas to 35%. The wee problem is that Germany was well on its way to filling up all of its gas storage facilities, and estimated that that supply would last to the winter. But since then, Germany has been providing some of its stored gas to neighbors Poland and Bulgaria, who are refusing to pay for gas in roubles, which has led Gazprom to reduce its supply to Europe. That is interfering with Germany’s stockpiling. So if Russia cuts supply on top of Ukraine’s reduction, Germany could face a gas crisis months ahead of schedule.

This is a long-winded way of asking our eagle-eyed readers to pipe up in comments when they learn who in Russia is doing what to whom with respect to these retaliatory sanctions. And for those of you who read Russian, it would be helpful to compare Western accounts to the Russian version.

_____

1 One oddity is the capitalized “RESPONSIBLE” special economic measures, when even the Kremlin’s English translation of the President’s May 3 executive order repeatedly called them “retaliatory special economic measures”. The Russian is ОТВЕТНЫХ, which my Yandex translator says is “response” which I take in context to mean “responsive”. Here’s the implementation paper in Russian, for those of you able to and interested in having a look.

2 Gazprom did say it would be “technically possible” to redirect the interrupted supply to the Sudzha route, as Gazprom had done in 2020 to allow for repairs. But it isn’t clear how quickly that might happen.

00 May 11 iniital retaliatory sanctions list
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34 comments

  1. LawnDart

    Saw this about an hour ago
    (1/2) Related:

    Russian court seizes Boskalis vessels helping to build platforms for Novatek’s Arctic LNG 2 plant

    MOSCOW. May 12 (Interfax) – A Murmansk Region court, in a lawsuit filed by Novatek subsidiary Arctic LNG 2, has seized vessels belonging to Boskalis LLC, a Russian subsidiary of Dutch dredging and heavy lift company Boskalis, that were working on the project to build a liquefied natural gas plant.

    The court granted Arctic LNG 2’s motion for an injunction and seized the dredger Nordic Giant and pontoon vessel Arctic Scradeway, and barred the capital of the Big Port of St. Petersburg to take any registration actions in the seaport registries regarding these vessels. The seized vessels will be transferred to the custody of Onego Shipping Ltd with permission to use them. Onego Shipping is a St. Petersburg company owned by Alexander Kulikov.

    https://interfax.com/newsroom/top-stories/79060/

    Reply
    1. The Rev Kev

      I guess that they suspected that the Dutch were going to pull a swifty with those ships and transfer their registry to a more awkward country that would make them leave the region.

      Reply
  2. LawnDart

    (2/2)

    Gazprom subsidiaries in Germany stopped receiving gas from Russia – German minister


    BERLIN. May 12 (Interfax) – Gazprom’s German subsidiaries stopped receiving gas from Russia yesterday, but the market is able to compensate for the absence of these deliveries, German Minister for Economic Affairs and Climate Action Robert Habeck said.

    When asked whether the sanctions imposed on Gazprom’s former and current subsidiaries in Europe will complicate gas deliveries, Peskov said, “The sanctions against these companies are blocking […]. Therefore, there will be no relations with these companies. They are simply prohibited.”

    https://interfax.com/newsroom/top-stories/79066/

    Reply
  3. LawnDart

    Bonus: with the writing on the wall, this sure looks like a fire-sale to me–

    Lukoil buying Shell Neft, incl. lubricants plant, 411 filling stations

    MOSCOW. May 12 (Interfax) – Lukoil has signed an agreement with subsidiaries of Shell (SPB: RDS.A) plc to acquire 100% of Shell Neft, which is engaged in retail oil product sales and lubricants production in Russia, the Russian oil company said.

    https://interfax.com/newsroom/top-stories/79064/

    Reply
  4. Sibiryak

    One oddity is the capitalized “RESPONSIBLE” special economic measures, when even the Kremlin’s English translation of the President’s May 3 executive order repeatedly called them “retaliatory special economic measures”. The Russian is ОТВЕТНЫХ, which my Yandex translator says is “response” which I take in context to mean “responsive”

    Ответных ( nominative singular form: ответный) can be correctly translated as “retaliatory” in this context.

    (Ответ is a basic Russian noun meaning “answer”, “response” or “reply”. )

    Reply
  5. Xiaolei Mu

    A little correction:

    It’s called “Industriekraftwerk Greifswald GmbH”.

    Greifswald has among others a university of good repute with a famous department of medicine. GmbH is the abbreviation for “Gesellschaft mit beschränkter Haftung”. Because I lack business knowledge, I don’t know how to translate that into English.

    Reply
    1. Art_DogCT

      ‘GmbH’ translates literally to, “Company with limited liability”. At least superficially it would seem to be similar to the US ‘LLC’, “limited liability company”. Those with experience in both legal systems will be able to weigh in on the similarities and differences.

      Reply
  6. Polar Socialist

    Re: ОТВЕТНЫХ

    The base word is отве́т which means “a reply”, “an answer” or “a responsibility”. It’s turned in to an adjective by adding -ный ending, and that is translated as “responding”, “answering” or “retaliating”. “responsible” would be отве́тственный. The -ных ending in here is the adjective plural prepositional case required by the “О” (about, of, on) preposition in the title.

    But I did suck at the grammar when studying Russian language decades ago, so don’t quote me on that.

    Also notice that in the original text the ukase referred to is always number 252, even if the machine has translated it as 232 in the third paragraph, where it gets the translation right; “retaliatory”. As well as in the fourth paragraph.

    Reply
  7. orlbucfan

    Well, they’re tearing up the Arctic in their greedy hunger for more petroleum. Wonder when the same backwards, greedy, stupid, human mindset will “discover” petroleum in the South Pole?

    Reply
    1. Paula

      The idea that the USA will ramp up their fracking of methane gas, at much higher prices of course, to supply the EU with what Russia will not, simply doesn’t look good for Americans who already suffer the toxic effects of fracking. World stage, national stage, regional stage,: USA and NATO could have done better but chose not to, and average Americans are and will pay the price as will many in the EU and globally as the warming continues exacerbated on many fronts, including war. I have a hard time understanding why USA cannot let other countries decide their own destiny, their own political system, choose their own leaders. Every time USA gets leaders who really care about the average people of their countries, they get marginalized like Sanders or assassinated. And in other countries, a CIA coup is waged. Guess I am naive, but see more clearly in the interview of Michael Hudson, the reasons why, however repugnant they are. Been sold a lie my whole life. I don’t know if that is what they are calling “woke.” And do not care.

      Reply
  8. The Rev Kev

    I’m not even going to attempt to pretend that I understand all the ramifications of what the Russians are doing here. So I hope that you will permit a surmise of what the Russian’s intent is here using some eleventy-eleven dimension thinking. This all sounds like that this will give Russia the ability to counter-sanction everything that was stolen from them thus essentially making those assets worthless if unable to be used. But if I was Russia, I would be designing sanctions so that it reduces the gas outlets in places like Germany via those stolen assets. Why so? In order to push the Germans into a situation that the only way to receive any gas imports would be from Nord Stream 2.

    Consider. Even though is complete. it has been mothballed by the Germans under Washington’s demands. Any money that Russia used to build it is g-o-n-e, gone. Yes, Germany broke that contract but where will Russia find a court to prosecute them in? Germany? The UK? The US? The Netherlands? In any case Germany would be likely to declare it a matter of force majeure so will avoid paying them. Even if they did have to pay them, as they are sanctioning them, they cannot send Russia that money without breaking their own sanctions. But Germany may agree with opening up Nord Stream 2 anyway. Why?

    The Ukraine, again probably under Washington;s orders, have cut one third of the gas going west without warning. If they start to lose big time, they are just as likely to bomb those pipelines in their own country and try to accuse the Russian of doing it but this would leave the EU swinging in the wind energy-wise. The NS2 goes under the sea so would be relatively safe and Russia will sign up for opening it with Germany as not only does it preserve its gas payments, but it denies the Ukraine not only the free gas that they swipe but any transit fees that they get. It’s all a possibility.

    Reply
    1. Paul Damascene

      Your reasoning seems sound anyway, but my impression is that the vast majority of the investment capital for NS2 was German.

      Reply
      1. Harry

        I think some Finnish too and I thought Austrian. Thats the last time I back a Finno-German consortium in geopolitics. Always back the Yanks.

        Reply
  9. DJG, Reality Czar

    Premium Gas SpA is a wholesaler of petroleum products, located in Foggia, Puglia, Italy. The company seems not to have a web site under the name Premium Gas. Most likely, it does have a web site, under some other name.

    https://www.informazione-aziende.it/Azienda_PREMIUM-GAS-SOCIETA-A-RESPONSABILITA-LIMITATA-SEMPLIFICATA

    “Commercio all’ingrosso di prodotti petroliferi e lubrificanti per autotrazione, di combustibili per riscaldamento”.

    “Seller in wholesale” ( = U.S. “distributor”) of petroleum products and lubricants for automotive uses, and of fuels used for heating.

    So? Engine oil / oil for household / building furnaces.

    It sounds like small potatoes, being in a smaller city in Puglia, but it may be a major entry point for Gazprom products into Italy. I can’t tell.

    Reply
  10. Polar Socialist

    For what it’s worth, according to Russian Telegram channels, all 31 companies are (nationalized) Gazprom subsidiaries.

    Apparently sanctioning EuRoPol GAZ effectively means closing the Yamal pipeline trough Poland. That means three of the seven (including NS2) pipelines closed for now. Of the remaining four, two go trough Ukraine.

    Reply
      1. Harry

        This is a fascinating game of chicken. Reminds me of the story about the US aircraft carrier and the Canadian lighthouse. Somebody has miscalculated.

        Reply
      2. digi_owl

        While uncle Sam is patting them on their back for showing such courage.

        Makes me think of the Yakuza ritual of cutting off a finger joint for some reason.

        Reply
  11. Thuto

    Oops this was meant as a reply to the last paragraph of Rev Kev’s comment upthread.

    Re: Ukraine cutting the gas supply.

    I share your suspicion that this was done at Washington’s behest, or at the very least, with its approval. This is v2.0 of Victoria Nuland’s infamous “fcuk the EU” comment, with the stakes dialled up considerably and Europe being thrown into the economic meat grinder as collateral damage for what American politicians are now admitting is a proxy war between Russia and the US. I can’t help but think that this is a political experiment to turn up the heat on the EU to achieve the objective of forcibly accelerating the bloc weaning itself off Russian gas and spinning up fresh demand for supply to plug the 1/3 reduction in incoming Russian gas. I further suspect this abrupt announcement to cut the gas under the flimsiest of pretexts is linked to two recent announcements:

    1. Bulgaria announced its replacing Russian gas with LNG from the US and is expecting its first shipment next month. I guarantee there’s pandemonium in the EU right now, especially in Germany, so any port in a storm right? Well, the big gas producers like Qatar, Algeria etc aren’t going to plug this emergency gap, which leaves the US as the last port standing, the supplier of last resort to save the day, with ships “coincidentally” already headed to the EU so any emergency orders would need to be put in pronto.

    2. The announcement by Brussels of a €15billion aid package to cover Ukrainian government expenses over the next three months. That’s €5billion a month to (more than) offset whatever losses Ukraine will suffer from reduced transit fees from this decision, which, in effect, would mean Europe underwriting a lethal experiment directed at its economy. Russia will be blamed for Ukraine cutting off the gas, the oligarchs and Zelenky’s inner circle will make out like bandits and get handsomely rewarded for this demand generation scheme for US LNG.

    I also share your cynicism that once the US establishes a foothold in the EU gas supply market and the supply/logistics teething problems are ironed out, and the military situation becomes increasingly dire for Ukraine, they’re going to blow up those transit lines.

    Reply
  12. CzechAgain

    Despite the breathless build-up (here at NC) on the sweeping extent and awesome power of this decree, I think this is far more of a damp squib than was anticipated. I warned (as I recall) here that one should be looking at how this is implemented, i.e. to whom these retaliatory sanctions apply and if/whether there will be any exemptions granted.
    And what we get is … a bunch of former Gazprom subsidiaries, effectively nationalized by Germany? Now I realize that the long-term impact is not the number of entities, nor even exactly which ones, but rather that this is the first major engagement in the Gaz Conflict. Together with other things going on, it does seem to amount to the first major reductions in gas imports to the core of Europe.
    But the fact is: this is a very limited opening salvo, it applies only to a distinct group of entities (very distinct), does not expand the application to other sectors (strategic or otherwise), commodities, metals, etc.
    Say what you want, but my read is this is very far from an escalation and, if anything, more akin to a climbdown compared to other moves. And esp compared to what some seemed to believe this decree portended.
    Again, yes, I understand this is not the end. But this is a far, far shorter list than I expected and certainly what I thought was implied by reporting on it. To me, this reads as weak. (I’m sure many here will disagree of course – have at it)

    Reply
    1. Yves Smith Post author

      Match for that straw? Your opening remark is a fabrication.

      It appears you don’t know our history of examining technical matters with respect to finance and international negotiations. I suggest you read our considerable record before casting unwarranted aspersions. Taking interest in a topic does not amount to advocacy, witness for instance our extensive analysis of the Greek bailout negotiations in 2015.

      The fact that we’ve bothered to write about the decree seriously does not mean that we ever said it would necessarily be used to inflict large scale harm. We said it had the potential to but it depended how Russia defined the nexus of the sanctions related to predicate acts (thefts).

      We never said it was awesome. We said from the get go it could be significant since it provides for the termination of all Russian transactions with a thieving party and persons/entities it does business with. However we clearly stated that Russia would not use it against the perps of its biggest theft, that of the heist of its $300 billion in FX reserves, because Russia would want and need to maintain relations with Western banks. If nothing else, it would like to be able to recycle the dollar and euro surpluses it is continuing to accumulate.

      We did correctly anticipate that Russia would go after the Gazprom asset heist.

      We also very clearly said that the way the initial decree was written that it would extend to certain parties that did business with whoever stole from Russia, but how that would be interpreted was up in the air.

      The sanctions require Russian persons to no longer do business with these entities and effectively go one hop in business relations beyond that. We won’t know what that means until Russia and Russian persons either just stop doing business and/or send cancellation notices to affected parties.

      Finally, Russia’s patten has been to escalate gradually and the ten days that Putin gave for coming up with a list does not mean this list is the final one. In his edict he require that additional criteria be stipulated too.

      Note this list was delivered in eight. days That may be because Putin has wanted his comparatively simple gas for roubles scheme to be detailed in ten days too and it wasn’t and there was some unhappiness about that.

      I am in no position to know whether Russia has other examples of sanctions-related thefts besides the FX reserves heist and Gazprom. For instance, Russia could conceivably target US defense contractors for commodities purchases (among other things), at least if they contract directly with the US government, since the US government ordered the sanctions. However, the critical materials they buy from Russia are (presumably) widely traded commodities, and it’s not clear that they or their suppliers have a direct enough nexus to Russian “persons” for cutting those ties to have a price/convenience impact on US arms makers. But this discussion should make clear that the retaliatory sanctions as written allow Russia to deem any business that gets revenues from the Federal government as one that could be sanctioned.

      If Finland does join NATO, Russia is likely to respond somehow and this sort of thing could be part of that response.

      Reply
  13. Melvin

    Short version: Germany seizes gas pipelines and distribution facilities.

    Russia turns off gas, rendering them useless.

    Reply
  14. YassineA

    re : Gazprom Marketing & Trading France SAS

    The official website states that it is a company providing gas supply to business from SMEs to big companies that was founded in 2011.

    As it is a SAS company (sociétés par action simplifiée), its annual financial statements public and the last five one can be downloaded from .

    The turnover varied between 7M € and 11 M€ from 2012 to 2018 but then shot up to 269 M€ in 2019 and 312 M€ in 2020, which could be explained by signing a contract with large industrial customer. However, what is weird is that payroll stayed the same between 2018 and 2020 at around 3 M€. And even weirder is that the company was profitable between 2012 and 2018 and then started losing money in 2019 and 2020.

    Reply
  15. Paula

    I have a hard time blaming countries like Russia or any others defending themselves against a world takeover of resources. USA wants to take over the threshing floor of the world and control all of us who depend on it. I am not communist nor socialist. And not too sure of democracy any more. I think it totally wrong for world to depend on USA. See this agriculturalist, with his beautiful Georgia accent and what he has to say about feeding the world. https://www.youtube.com/watch?v=qpvegapd1T4

    Reply
    1. Samuel Conner

      Thanks for that link. One can hope that a new generation of ag students coming through the schools will learn these methods.

      The “you can’t feed the world that way” objection has another and perhaps more compelling response — one can’t feed the world via present day industrial ag methods for much longer either — those methods are not sustainable.

      Reply

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