Austria's Tough Stance: Sanctioning Russia

Austria's relationship with Russia has been a complex one, with the former walking a fine line between maintaining neutrality and imposing sanctions in response to Russia's actions. In the context of the Ukraine-Russia conflict, Austria has faced pressure to align with European Union sanctions against Russia. Despite initially opposing new sanctions, Austrian Foreign Minister Alexander Schallenberg affirmed that Austria would support a robust response, including the suspension of the Nord Stream 2 pipeline project, in which Austrian and Russian companies are partners. Austria's neutrality in international affairs has been a long-standing policy, but the country has also expressed support for humanitarian efforts in Ukraine and participated in sanctions against Russia. Austrian banks, particularly those with significant investments in Russia, are expected to be heavily impacted by the sanctions.

Austria's chancellor has stated that the country will remain neutral and not join NATO

Austria's chancellor, Karl Nehammer, has stated that the country will remain neutral and not join NATO. This stance has been a long-standing commitment to neutrality in international affairs, with 75% of Austrians wishing to maintain this position. Nehammer emphasised that Austrian neutrality has served the country well, allowing them to obtain the Soviet Union's withdrawal in 1955. While Austria remains militarily neutral, it is an active participant in international organisations and a full member of the European Union, contributing to its Common Foreign and Security Policy.

Austria's neutrality is rooted in its history. After World War II, the country was occupied by the Allied powers, including the Soviet Union and the United States. To regain independence and get occupying forces to leave, Austria agreed to remain neutral. This neutrality was formally established in 1955 with the signing of the Austrian State Treaty. The treaty prohibits military engagement in foreign conflicts, the permanent stationing of foreign troops in Austria, and membership in a military alliance.

Despite its neutrality, Austria has taken a stance on the Russia-Ukraine conflict. Chancellor Nehammer has supported European Union sanctions on Russia and humanitarian efforts in Ukraine. Additionally, Austria has doubled its defence spending and participated in discussions on imposing further sanctions, including the suspension of the Nord Stream 2 pipeline. However, Austria has resisted including the pipeline in the sanctions package, citing its economic interests in the project.

Austria's neutrality has come under scrutiny following Russia's invasion of Ukraine. Fifty prominent Austrians, including entrepreneurs, academics, and former ambassadors, signed an open letter calling for a discussion on the country's security and defence policy. They questioned whether Austria could remain neutral in the current geopolitical landscape. However, Chancellor Nehammer reaffirmed the country's commitment to neutrality, stating that the discussion was over.

Austria's neutrality is not without its complexities. While it refrains from engaging in military alliances, the country contributes actively to international organisations and peacekeeping missions. It has also taken a position against Russia's aggression in Ukraine, supporting sanctions and humanitarian aid. As the geopolitical landscape evolves, Austria's interpretation of neutrality and its role in Europe and the world may continue to be a subject of debate.

Austria's second-largest bank, Raiffeisen Bank International, will be heavily impacted by sanctions

Austria's second-largest bank, Raiffeisen Bank International (RBI), will be heavily impacted by sanctions against Russia. RBI is the largest of the Western banks in Russia, with a total exposure of €22.9 billion ($26.1 billion) to the country. The bank has come under pressure from European and U.S. regulators to exit Russia and has been the subject of a U.S. inquiry over its Russian links.

RBI had initially intended to spin off its Russian business by September 2023, but it delayed these plans as Austria defended its long-standing ties with Moscow. The bank is at the centre of a strategic debate, as Austrian officials argue that it has been unfairly singled out and should not be expected to leave the country overnight. RBI's slow response has fuelled a row with the European Central Bank (ECB), which supervises the bank and has pushed for it to quit Russia.

RBI's presence in Russia is significant, with around 2,600 corporate customers, 4 million local account holders, and 10,000 staff. The bank provides a payments lifeline to hundreds of companies in Russia, and Russian authorities have expressed their wish for it to stay to enable international payments. RBI's chairman has accused critics of its continued presence in Russia of "black and white moral thinking".

The future of RBI in Russia remains uncertain. The bank has stated that it will continue to pursue a sale or spin-off of its Russian operations and is committed to reducing its business in the country. However, the approval of Russia's central bank, finance ministry, and even Russian President Vladimir Putin will be needed before any exit can take place.

Austria has a vested interest in Russia's banking sector

Austria's relationship with Raiffeisen Bank International has come under scrutiny due to the bank's continued operations in Russia following Moscow's invasion of Ukraine. RBI has been warned by the United States about the dangers of doing business in Russia and has been pressured to distance itself from Russia's war economy. RBI has responded by reducing its operations in Russia, including stopping new business and reducing its loan book. However, the bank has been reluctant to completely sever ties, as Russia generates a significant portion of its profits.

The Austrian government has faced criticism for its handling of the situation, with Washington accusing Austrian politicians and officials of resisting calls to cut ties with Russia. Despite Austria's public support for Ukraine, there is a reluctance to sever decades-old ties with Russia, with hopes of restoring relations in the future. This has created a complex situation for the Austrian government, as it tries to balance its economic interests with its commitment to supporting Ukraine.

The European Union has also played a role in this matter, with Austria pressuring Ukraine to suspend RBI from a Ukrainian blacklist of "international sponsors of war" before approving a new package of Russia sanctions. This incident highlights the challenges faced by Austria in navigating its relationships with both Russia and Ukraine, while also trying to maintain a united front with its EU allies.

Overall, Austria's vested interest in Russia's banking sector, particularly through Raiffeisen Bank International, has been a significant factor in the country's response to the Russia-Ukraine conflict and has led to ongoing discussions about the appropriate course of action.

Austria's foreign minister, Alexander Schallenberg, has stated that Austria will support sanctions against Russia

On February 11, 2022, Austria's foreign minister, Alexander Schallenberg, stated that Austria would support sanctions against Russia. He pushed back against assertions that Vienna was reluctant to punish Moscow in the event of a fresh attack on Ukraine, saying that Austria would support a "robust response," including the suspension of the Nord Stream 2 pipeline. Schallenberg added that the EU had "massive economic leverage" and shouldn't hesitate to use it. He also noted that Vienna was geographically closer to Ukraine than to Austria's own western frontier, and that the crisis in Ukraine had a direct impact on his country.

Schallenberg's comments came as the European Commission was laying the groundwork for potential new sanctions against Russia. Despite Austria's economic ties to Russia, Schallenberg assured that there should be no doubt that Austria supported using "a big stick." He emphasised that the security of Ukraine was Austria's own security and that Austria would be part of any unified response to Russia's actions.

Austria has a vested interest in Russia economically, particularly in the energy sector and the banking sector. Austria's oil and gas company, OMV, is a partner in the Nord Stream 2 pipeline project, which aims to connect Russia to Germany. Additionally, Austria owns 31.5% of OMV and backs the project. Austria also relies heavily on Russian gas, as do other European countries.

In addition to its energy interests, Austria has a significant presence in the Russian banking sector. Raiffeisen Bank International, Austria's second-biggest bank, is one of the only two foreign banks on the Russian central bank's list of systemic institutions. This underscores the importance of Austria's economic relationship with Russia. However, Schallenberg has defended Raiffeisen against criticism, arguing that it is unreasonable to single out the lender for doing business in Russia while many other Western firms do the same.

Despite Austria's economic ties to Russia, Schallenberg has affirmed that Austria will enforce sanctions and has pointed out that many other Western companies continue to operate in Russia. He favours the enforcement of existing European sanctions over the introduction of further measures, stating that sanctions are a "blunt weapon" and that there is a need to give them time to work.

Austria's support for sanctions against Russia is in line with its commitment to international law and its stance on neutrality. While Austria maintains military neutrality, it is not politically neutral. It has provided humanitarian aid to Ukraine, condemned Russian actions in international organisations, and joined other European countries in imposing sanctions on Russia.

Austria's chancellor, Sebastian Kurz, has opposed sanctions against Russia

Austria's former chancellor, Sebastian Kurz, has opposed sanctions against Russia, advocating for improved relations between the EU and the Kremlin. Kurz's stance on sanctions has been a consistent feature of his political career, which began in 2003 when he joined the Young People's Party (JVP).

During his first term as chancellor, which lasted from December 2017 to May 2019, Kurz opposed additional sanctions on Russia, despite rising tensions between the West and Moscow over various issues, including election interference, cyberattacks, and the poisoning of Kremlin critic Alexei Navalny. In an interview with the Swiss-German daily Neue Zürcher Zeitung, Kurz stated, "I'm against additional sanctions as an end in itself. De-escalation is required. It is difficult, but the constant aggravation is not the way we want to go." He also emphasised the importance of dialogue, saying, "Peace on our continent can only be achieved with Russia."

Austria's reluctance to impose sanctions on Russia has been attributed to its economic ties with the country. Austrian oil company OMV is a partner in the Nord Stream 2 pipeline project, which connects Russia to Germany. Additionally, Austria relies heavily on Russian gas and has a significant presence in Russia's banking sector. Raiffeisen Bank International, an Austrian lender, has a total exposure to Russia of 22.9 billion euros ($26.1 billion).

However, it is important to note that Austria has supported some sanctions against Russia, particularly in response to its annexation of Crimea from Ukraine in 2014. Kurz's administration also emphasised its pro-EU stance, even as it sought to improve relations with Russia.

Kurz's opposition to sanctions on Russia has not been without controversy. In 2018, Heinz-Christian Strache, the vice chancellor and leader of the far-right Freedom Party, called for an end to EU sanctions against Russia. Strache's party was the junior partner to Kurz's conservatives in the coalition government. Strache's remarks sparked criticism and highlighted the differing approaches to Russia within the Austrian government.

Despite his opposition to sanctions, Kurz has acknowledged the need for a unified response to Russian aggression. In 2022, he stated that there must be a "clear, unified, and strong response from the West" if Russia were to invade Ukraine. However, he continued to emphasise the importance of dialogue and de-escalation, stating that peace in Europe could only be achieved "with Russia."

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