Sanctioned EU goods keep finding their way to Russia. Middlemen in third countries help with this. Some of them have experienced almost miraculous trade explosions.
At first glance, the Russia sanctions of the EU like a great success. Exports to Vladimir Putin’s empire have fallen significantly since the beginning of his Ukraine campaign. Exports of machinery, for example, have fallen according to EU data from 370,000 tonnes in the fourth quarter of 2021 to 50 tonnes in the second quarter of 2024, and that of cars fell even more drastically from 228 to six tonnes. In June, according to Ukrainian Russia expert Alexander Kolyandr of the Centre for European Policy Analysis (CEPA), Russia paid Europe a mere 2,553 euros for microchips – less than 0.01 percent of what it had imported in June 2021.
But despite the strict Western sanctions regime, Moscow still manages to get Western materials for its industry, including weapons production. “In fact, every time a cruise missile hits my hometown of Kharkiv in eastern Ukraine, newly produced Western microchips are found in the rubble,” writes Kolyandr, who now lives in London.
Not only China: Other countries also act as hubs for trade with Russia
How can that be? Suspicion fell early on on China, which not only increased its oil and gas imports from Russia, like India. Companies from the People’s Republic also supplied Russia with consumer goods that compensated for the loss of Western brands. And goods that can be used for military purposes, from drones to chips to ball bearings, also find their way from China to Russia. Some of these are produced in the People’s Republic, others are re-exported via China; Hong Kong has become a hub for such shadow transactions.
But China is by no means Russia’s only channel to the outside world. About half a year after the start of the war in Ukraine, EU exports to a whole range of countries that are not part of the sanctions regime began to rise rapidly – such as Georgia, Armenia, Turkey, the United Arab Emirates and the Central Asian states of Kazakhstan, Kyrgyzstan and Uzbekistan. All of these countries have close trade relations with Russia. “This indicates that in all likelihood the same sanctioned goods that are not allowed to be delivered directly to Russia are now being exported there again via third countries,” said Kolyandr. Sanctions officials in Europe and the US shared this view.
Kazakhstan: Import and export of electronics has exploded since the start of the war
The British magazine Economist For example, it examined the trade flows of sanctioned goods through Kazakhstan. “Last year, the Central Asian republic’s tiny technology industry seemed to be celebrating a triumph,” the authors said. The country has just 50 tech companies. Their exports to Russia have miraculously increased from 40 million US dollars in 2021 to 298 million dollars in 2023. Surprise: At the same time, electronics imports from Europe have increased, according to the report, from 250 million euros to 709 million euros. “Have Kazakh companies magically expanded, or have Russian companies found a detour to their old European suppliers?” asks the magazine. “Judge for yourself.”
According to the report, the fastest increase in exports from the EU to Kazakhstan and Armenia can be seen in the heavily sanctioned product groups of chemicals, electronics and machinery, with an increase of 50 percent between 2021 and 2023 – while at the same time direct exports of these products from the EU to Russia shrank by three quarters. Kolyandr has an even more absurd example: the export of ship propellers and parts that are on the sanctions list has increased sharply to some of the countries mentioned above. “This also applies to the landlocked mountainous republics of Armenia and Kyrgyzstan, which are not exactly known for their maritime strength.”
USA uncovers networks of Russian middlemen
It is difficult to say which European companies are simply looking for new markets because of war and sanctions, and which are deliberately circumventing these sanctions by going to third countries. In many cases, it is mainly the middlemen who do good business. And the European exporter does not always know whether and to whom his goods will be resold.
But in 2023 the US imposed sanctions against a network of EU companies, including two Finnish logistics companies, organized by the Russian wholesaler Mayak. It is said to have brought prohibited equipment such as drone cameras and lithium batteries to Russia through Uzbekistan and Armenia. In June, the US uncovered Economist Two similar networks were set up again, which delivered products from European tool manufacturers to Russia for Russian traders via Turkey and Kyrgyzstan respectively.
EU and USA want to close loopholes
The EU, the US and other Western countries have long been trying to crack down on these businesses, but investigations are often difficult. In June, the EU issued its 14th sanctions package, which for the first time makes exporters responsible for what happens to their goods in the destination country. Failure to comply with the new regulations is now also a criminal offence. Latvian expert Ēriks Selga recommended in July a Europe-wide sanctions authority based on the model of the EU anti-money laundering authority. This would be much more efficient than investigations by individual member states, whose legal views and investigative approaches vary greatly.
Kolyandr warns against having excessive expectations, however. “Tighter controls and higher fines will force Russians to take many intermediate steps to circumvent the bans – but a complete ban is impossible to enforce or maintain.” A “complete, watertight sanctions system” should therefore not be promised in the first place.
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