EU Imposes Secondary Sanctions on Russian Steel in Eighth Sanctions Package. Is Türkiye the Target?

Frustrated with their inability to sink the Russian economy as sanctions blowback continues to bite the so-called collective West, the US and EU have been trying to find new ways to impose costs on Russia. The latest is in the scraping-the-bottom-of-the-barrel eight round of EU sanctions on Russia, of sanctioning a third country that tries selling a product to the EU that has Russian steel in it. Except there could be some method in this seeming madness. It may be another measure to punish Türkiye, which in the eyes of the US and the other NATO members, has gotten altogether too cozy with Russia.

Since your humble blogger is not a steel expert, any reader input very much appreciated.

As much as the US/NATO countries fulminated about how other countries should not do business with nasty Russia and have saber-rattled about imposing secondary sanctions, so far they’ve gotten a lot of mileage without trying secondary sanctions, which risk being ignored, or in the case of China, retaliation. Bank sanctions, sanctions on Russian tankers, and self sanctioning has had plenty of impact on commerce, but not in the way the West intended in terms of who is bearing the big costs. For instance, African countries have made clear that sanctions on financial institution have made it hard for them to buy fertilizer, yet the US takes the position that they haven’t sanctions Russian fertilizer, so they have nothing to do with the other impediments to buying it (much the less the resulting increase in hunger).

As The Diplomat explained in March:

Secondary sanctions are highly controversial. Unlike primary sanctions, which prohibit companies and individuals in the sanctioning country from engaging with their counterparts in the sanctioned country, secondary sanctions have extraterritoriality and presuppose that the third nation has adopted a neutral position. As a result, secondary sanctions are often interpreted as U.S. overreach.

China, India, the Saudis, Türkiye, and the Global South have for the most part ignored US pressure to stop doing business with Russia, particularly purchases of energy. Notice on this supposedly top-priority initiative, the G-7 is not attempting to impose secondary sanctions. The US has repeatedly tried arm-twisting countries to follow the G-7 oil cap scheme, which is still scheduled to go into effect, despite the most likely result being a spike in oil prices and a fracturing of the oil market. It will soon be a misnomer to call many important Russian raw materials “commodities” if markets for them become balkanized.

So what to make of the generally-ignored steel sanctions in the eighth EU package? Two factors to keep in mind: steel has generally been in global oversupply. European steel is set to be very uncompetitive as a result of high energy costs. Thus just the way the EU cutting itself off from Russia energy will lead to de-industrialization, blocking access to Russian energy-intensive products will only make matters worse.

Politico depicted the steel sanctions as leaky:

Ukrainian officials are demanding that the EU crack down on sanctions loopholes. A gaping one still allows Europeans to trade steel worth billions that enriches some of Russian President Vladimir Putin’s closest allies….

There are more than 3,500 different types of steel products used in manufacturing, construction and the car industry. The EU banned Russian finished steel products, but Russian semi-finished steel products, known as “semis,” are not on the sanctions list…

A handful of European companies, in particular those in the “re-rolling business” rely heavily on Russian imports.

These days, European companies are buying Russian steel semis about 30 percent cheaper than the same product made in the EU, according to the industry player, in large part because of energy prices skyrocketing within the bloc since Russia invaded Ukraine.

Even the normally detail-oriented Hellenic News did not mention the secondary sanctions but found other problems:

The European Council has adopted its eighth sanctions package against Russia for its invasion of Ukraine, which expands its ban on the import of Russian steel products to include semi-finished steel, the European Commission said in an Oct. 6 statement….

The EU previously banned imports of finished steel from Russia as part of sanctions imposed in March, while some semi-finished and raw material suppliers had also been previously hit by sanctions imposed on specific companies and individuals…

However, nine large companies, including European steel rerollers and traders, sent a joint letter to the EC Sept. 27 underlining the risk “of sanctioning input materials for the rerolling business model in Europe.”

According to the letter, any import ban on semi-finished steel products, such as slabs, billets, and blooms from Russia would have consequences for the industry, such as unemployment and price spikes, as there were no other real options for substituting the supply with alternative producers.

However, Twitterati caught the secondary sanctions:

But who imports steel from Russia and exports things that might contain steel to Europe? Looks like this is aimed at Türkiye. This is dated but one assumes Türkiye remains a significant export market for Russian steel:

2020 data shows that Türkiye’s leading exports to the EU sure look like they’d have a fair bit of steel in them:

The EU’s imports from Turkey were worth €62.6 billion and were led by machinery and transport equipment (€24.1 billion, 38.5%), clothing (€8.3 billion, 13.3%), and agriculture and raw materials (€5.3 billion, 8.5%).

Recall that the US and EU are furious that NATO member Türkiye signed a big economic deal with Russia and is also agreed to buy a second batch of the Russian S-400 anti-aircraft system. The US threatened to sanction Türkiye banks and kick them off SWIFT if they adopted Russia’s Mir card and they all backed off. Nevertheless, Russia and Türkiye are looking at other arrangements, albeit likely more combersome.

Former British civil servant David thinks this scheme is fraught:

The obvious issues are how the fact that the steel is of Russian origin would be known/policed in practice (are all steel products coming into the EU going to be tested? Are they going to disassemble washing machines?) and whether they even have the right to do this under WTO rules. This effectively makes other nations into agents of the EU in enforcing sanctions. How are the Chinese going to like this?

Keep your eyes out as to if and when other shoes drop. Türkiye has never gotten much respect from Europe despite its geopolitical importance. Ironically, one big reason Türkiye might continue to accept this abuse is that it will want NATO and the EU as a counterweight to Russia if Russia takes Odessa.

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  1. vao

    I had a look at the EU decision itself — which following legal tradition, only mentions the differences with previous decisions (and they are numerous, dating all the way back to 2014). It makes for painstaking reading.

    It interestingly specifies that for iron and steel semi-finished products, the general deadline for the ban is 2023-09-30, and for a few specific semi-finished products 2024-04-01 and 2024-10-01, while pig iron will remain wholly unsanctioned. It looks as if the lobby of re-rolling manufacturers had its way.

    One can find here a clearer explanation of what all those product codes mentioned in the EU decision refer to, and what the sanctions on iron and steel mean — although it deals with the impact on the EU as such, and does not consider Turkey at all. Start with this post instead of plunging into the EU prose.

    1. vao

      And for the complete list of products whose import from Russia is banned, look at that other EU decision (a really long list).

      I am surprised to see paper and wood pulp sanctioned — aren’t European paper mills winding down production one after the other? Time to grab those rolls of toilet papers before they become unaffordable…

      1. The Rev Kev

        It would be wise. There was a recent RT article explaining how because of sky-rocketing energy prices, that ‘Some (German toilet paper) companies have already declared insolvency or cut production due to skyrocketing energy prices, as industry leaders call on the government to introduce price caps.’

        As for banning Russian steel, maybe like oil it could go to China & India, have the Russianess purified out of it, and then be shipped back to the EU. The EU/NATO has said that they want to build up a monster army to threaten Russia with but they will need boat-loads of steel to do that to build tanks, artillery, ships, APCs, etc. so where will they get it all from?

  2. Michael Ismoe

    the US/NATO countries fulminated about how other countries should not do business with nasty Russia ….

    Unless the west needs a gas pipeline, then it’s OK. Unless the west needs fertilizer, then it’s OK. Unless the west needs some of those tons of wheat in Odessa, then it’s OK.

    Do these people ever look in a mirror?

    1. Colonel Smithers

      Thank you and well said, Michael.

      A personal anecdote may help answer your question.

      From 2007 – 16, I worked in regulatory and trade policy as a bankster lobbyist and often worked with EU institutions.

      Within a month of starting, I was invited to a reception at a palace in Brussels, in part to meet people I would be engaging. I was the only non white person invited. The other non whites were waiters and waitresses etc. One could detect some guests were puzzled. I wondered if they ever came across non Europeans in life, professional or social. Over the years, this sort of thing often occurred, I often wondered if European officialdom knew there was a world outside Europe, and still do as the parochialism persists. At least, British officials were / are more worldly.

  3. Jesper

    As others already mentioned it looks very difficult, next to impossible, to enforce.

    Almost looks like some civil servant has suggested this sanctions package as a joke in the belief that our elected leaders would finally realise the futility of sanctions. But maybe eight time is the charm….

    On a related note (the energy crisis) and the making of steel:

    What is green steel?

    Essentially, green steel is the manufacturing of steel without the use of fossil fuels.

    I wasn’t too impressed by it before as I suspected that the greening of steel might lead to use of fossil fuel in other places where electricity could have gone instead.
    Burning stuff to generate heat is usually more energy effective than burning stuff to generate electricity as the conversion of heat to electricity always comes at a loss.
    With electricity prices going up then the electric arc furnaces might be too costly. There were, possibly still are, some talks about a few electric arc furnaces to open in Sweden but we will see what comes out of it. It is likely to be good PR so maybe it will happen.

  4. hondje

    Interesting. In Pueblo, Colorado there is an Evraz Steel mill ( the infamous CF&I ) that is undergoing a furious expansion both in production capacity and energy access. Evraz is Abramovich and associates. They’ve brought an absolutely staggering amount of solar online to be able to have green-ish steel, so from my armchair the European steel industry is already migrating to the US.

  5. Cetra Ess

    My first thought was steel requires huge amounts of energy to do anything with, particularly coal, which EU will not have for the next few years as it’ll be repurposed. Ergo, will the EU be without steel this winter? Where will they be getting theirs from?

    And it seems to me EU can’t even receive the unfinished steel from Turkey anyway if it doesn’t have the energy to do anything with it, so with or without the sanctions Turkey isn’t going to be able to push its steel.

    Statista says Turkey and the US get finished steel imports from EU:

    And Turkey and Russia are the largest exporter of finished steel to the EU.

    So Russia just exports the steel, doesn’t depend on imports from anyone, is unscathed.

    As of 2022 the US imports most of its steel from Canada, Mexico and Brazil. Two of these are currently on the American hate list. Hrm.

    And the US exports only to Canada and Mexico, not to the EU.

    And who is the world’s largest steel exporter? Why, not even Russia, it’s China, of course, #2 on the American hate list:

    Worldwide exports:

    Worldwide production:

    All evidence to me seems to be these sanctions aren’t aimed at Russia at all, not directlly or indirectly, but at coercing Europe and world markets into rejigging its interdependencies in the American favour. I suspect these sanctions aren’t unplanned, either, have likely been in the works for decades, but the Americans were just waiting for Merkel to leave and for (induced) opportunity to knock before implementing.

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