The impact of EU aluminium sanctions would be devastating for Europe’s aluminium industry – Euractiv

A new set of sanctions against Russia is currently under consideration in Brussels – the 14th since Russia began its invasion of Ukraine in early 2022. There are no good ideas for new economic measures against the Kremlin, but that does not justify pursuing bad ones, writes Nike Grupioni.

Nike Grupioni is a member of the Italia Viva (Regeneration) parliament in Rome and a member of the Italian Parliament’s Foreign Affairs Committee.

This is not an easy task. Highly effective sanctions have already been introduced. Easy to implement sanctions have already been introduced. Politically popular sanctions, economically significant sanctions and high level targeted sanctions have all been introduced in previous EU sanctions measures.

What to do? The new sanctions are likely to have diminishing returns in terms of their economic and political impact on the Russian state. This means that there is a real risk that the negative impact on the EU economy will be greater than the negative impact on the Russian economy.

The clearest example is the proposed sanctions against Russian aluminum. Recent US and UK restrictions banning Russian aluminum from using the London Metal Exchange (LME) and Chicago Mercantile Exchange (CME) as a trading platform of last resort suggest that aluminum is now under consideration for sanctions.

It would be a serious mistake for the EU to follow the US or UK path. Sanctions on aluminium from Russia would be politically and economically counterproductive, as the EU market does not follow the same supply patterns as the UK or the US. One-third of the EU’s current primary aluminium comes from Russia. But once it arrives in the EU, it passes through high-added-value European supply chains that support jobs and investment across Europe. Critical downstream European operations, such as foundries and smelters, are spread across the continent, often in manufacturing regions that cannot afford to lose those highly skilled jobs. Fabricated aluminium products underpin the European industrial base, especially in France and Italy, where demand is high. It is better for the European supply chain to meet this demand than to import finished products from, for example, China.

“Any sanctions on aluminium would weaken and potentially completely destroy this high-value European supply chain. Restrictions on such a large source of supply would lead to higher prices and inflation at every stage, from raw materials to finished products, including clean energy infrastructure and consumer goods. The last thing European industry and consumers need is a return to inflation caused by political decisions.”

What will happen to EU demand for aluminum if sanctions shut down European supply chains? The answer is that the EU will become even more dependent on China, the world’s number one aluminum producer. If sanctions lead to increased dependency on another geopolitical adversary (in this case Beijing), it means that the pain felt by European industry and consumers will not serve any security interests.

We need to be realistic about the situation today. In fact, our current dilemma is largely caused by our own success. The EU acted swiftly and effectively to sanction and eliminate industries that are of real importance to the Kremlin, like oil and gas and military supplies. These state-owned or state-controlled companies and industries were naturally the primary targets of EU action.

Primary aluminium exports from Russia are structured quite differently to these sectors. EU aluminium trade comes mainly from Rusal, a private company whose major shareholder is the London-listed international commodities company EN+. It is not Gazprom or Rosneft, which are controlled by the Russian government and collect their revenues. The European aluminium market has nothing to do with the fossil fuel market, which is why EU member states have never sanctioned it and should not sanction it now.

The benefits are purely performative, the drawbacks are real and will have huge implications for competitiveness, but also for security and strategic dependencies. The very survival of Europe’s industrial structure would be at real risk, both in processing countries such as Sweden and Ireland, and in industrial end-use countries such as France and Italy.

Identifying new sanctions to impose on Russia is a difficult task because there are few good options left, but this is no good reason to choose the obviously bad options.