Since Russia launched its military campaign in Ukraine in February 2022, the West has helped Ukraine in its fight against Russia through two main measures: military assistance to Ukraine and economic sanctions against Russia.
The European Union has recently announced its 11th round of sanctions against Russia. However, this time the measures mainly target companies based in countries that Brussels believes are being used to circumvent previous measures.
The reason for the change in the target of this round of sanctions is a significant increase in imports of Western goods into countries bordering Russia in recent months, which are believed to be destined for Russia later.
According to economic analysts, the fact that sanctions have been imposed on third countries shows that the initial restrictions were not as effective as expected, and Russia is quite successful in finding alternatives.
The European Union's 11th package of sanctions against Russia will be aimed at combating loopholes and circumvention, according to European Commission President Ursula von der Leyen. Photo: TASS
Import through intermediaries
This is an unprecedented situation, according to Alexandra Prokopenko of the Center for East European and International Studies in Berlin.
“We are witnessing an unprecedented economic experiment. Because no country has ever been subject to so many sanctions. There are now more than 13,000 completely different sanctions against Russia. That is more than the sanctions imposed on Iran, Syria, North Korea and Cuba combined,” Prokopenko said.
Meanwhile, Europe is trying to make sure companies understand that they are circumventing sanctions so they can take appropriate action.
“Some companies may be violating sanctions unknowingly. For example, they receive an order for bearings to Kazakhstan and happily export them, not knowing that those bearings are going straight to Russia and being used in machinery and equipment for the conflict between Russia and Ukraine,” said Berit Lindeman, secretary general of the Norwegian Helsinki Committee.
Customs data from 12 EU countries, Norway, the UK, the US and Japan show that circumvention of export sanctions against Russia reached a staggering $8.5 billion in 2022.
Among the countries studied, Germany appears to be the largest exporter of sanctioned goods to Russia; Lithuania is second. Together, these two countries supply half of the Western goods that Moscow would otherwise be denied access to.
A cargo train from China to Uzbekistan and Kazakhstan on August 13, 2022. Photo: GIS Report Online
Research shows that European businesses, especially German ones, use third countries to sell their products to Russia.
Analysis of export data for sanctioned goods, including luxury items such as jewelry and perfumes, often favored by Moscow’s elite, advanced technology, such as advanced semiconductors and quantum computers, machinery and transport equipment, shows that Western exports of these items to Russia fell sharply but to neighboring countries soared in early 2022.
Almost half of these goods are shipped through Kazakhstan, and the rest are distributed in Georgia, Armenia, Kyrgyzstan and other countries.
Importantly, the list of sanctioned products includes dual-use goods, which can be used for both civilian and military purposes, such as drones, vehicles and certain chemicals.
Turn to Asia
After a brief financial crisis, Russia rerouted much of its trade to Asian economies and weathered the initial sanctions.
Energy plays a key role in stabilizing Russia’s economy. The country’s exports will decline steadily in 2022, but the Kremlin will earn even more from gas sales to Europe than in 2021 due to faster price increases, the Russian central bank said.
Asian economies have served as alternative destinations for Russian exports as well as new sources of imports. Trade links with China, India, Türkiye, the Gulf states and Central Asian countries have boosted the Russian economy.
Bilateral trade between Russia and China will increase by 29% in 2022 and 39% in the first quarter of 2023. In 2022, Russia's trade with the United Arab Emirates will increase by 68% while trade with Türkiye will increase by 87%. Russia-India trade will increase by 205% to $40 billion.
China and India have become big buyers of Russian oil following Western sanctions. Photo: NY Times
Export diversion has been a lifeline for Russia’s energy sales, which account for a large part of its trade. In January 2022, European countries imported 1.3 million barrels of Russian oil per day, while Asian customers bought 1.2 million barrels. By January 2023, Russia’s sales to Europe had fallen below 100,000 barrels per day, but exports to Asia rose to 2.8 million barrels.
Asian exporters are also filling some of the void left by Western suppliers of advanced manufacturing equipment and high-tech products. Chinese companies now account for 40% of new car sales and 70% of smartphone sales in Russia.
After the domestic auto industry was hit by Western investment withdrawal, Russia turned to importing used cars from Europe and Japan through third countries, with new cars mainly coming from China.
Meanwhile, Central Asia plays an important role in importing machinery and chemical products. As of October 2022, the annual increase in exports to Russia from China, Belarus, Türkiye, Kazakhstan, Kyrgyzstan and Armenia was almost equal to the decrease in exports to Russia from Europe, the US and the UK.
While sanctions have dented Russia’s growth potential, its economy has been buoyed by a major realignment of trade, particularly with China, India, the Middle East and Central Asia. These geo-economic realities could complicate future Western sanctions .
Nguyen Tuyet (According to Euro News, East Asia Forum, Al Jazeera)
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