How Russia Evades Western Sanctions Shady trade routes and oil tankers keep the Russian economy ticking over. Sonny Loughran
https://quillette.com/2024/10/15/how-russia-beats-western-sanctions/
Russia currently exists in a state of economic purgatory. Since Vladimir Putin’s invasion of Ukraine in February 2022, Western powers seeking to limit his nation’s warmaking capacity have instituted one of the harshest sanction regimes the world has ever seen. Imports of Russian oil, above a certain price, have been outlawed, as have exports of sensitive materials, such as semiconductors, engine parts, and communications equipment,that might find their way into Russian weaponry. The country’s banks have been cut off from SWIFT—the main system banks use to coordinate international payments. And some $280 billion worth of Russian assets remain frozen in European banks.
Despite this, Russia’s war continues. The Russian economy grew at a rate of around 4 percent in the second quarter of 2024, down from a first quarter high of 5.4 percent. And despite predictions that the Russian military would suffer crippling shortages, Putin’s war machine has proved surprisingly efficient at rearming itself. In fact, the Russian arms industry is booming. The Royal United Services Institute (RUSI), a UK defence think tank, estimates that Russia’s domestic production of Kh-101 cruise missiles has increased eightfold over the last year. And Russian military spokespeople have boasted of supply lines that deliver tanks, drones, and artillery shells in their thousands.
Though the Russian boasts are surely hyperbole, Russia’s military resilience continues to embarrass the world’s economists. Shortly after Russian troops crossed the border into Ukraine, the International Monetary Fund predicted that the sanctions would cause Russian GDP to shrink by more than a tenth by the end of 2023. The Economist speculated about the possibility of a coup. Analysts at Reuters opined that Russia would probably collapse under such financial pressures. How then, has the Russian war machine kept on rolling?
The answer is that trade flows of restricted goods have shifted in response to the global sanctions. Those European technology companies, for example, that were previously Russia’s biggest suppliers, are now banned from supplying Russian customers. They have not, however, been banned from selling their wares to countries like Kazakhstan—where a once tiny tech industry is enjoying an unprecedented boom. The value of Kazakh tech exports has skyrocketed from $50m in 2020 to more than $500m in 2023. Much of this increase can be attributed to a rise in Russian business: tech exports to Russia have increased sevenfold since 2021—and this boost in trade has resulted from an increase in imports from exactly the same countries that have vowed not to do business with Russian clients. Kazakhstan now imports around €6.6 billion more from Europe than it did in 2021.
Yet, Kazakhstan is not the only nation acting as a middleman in Russia’s war economy. Armenia, Azerbaijan, Georgia, and Turkey—together with most of Central Asia— have become a porous borderland through which European goods can be funnelled into Russian hands. The region now imports €46 billion worth of extra goods from the EU, compared to 2021. That amounts to around three-quarters of the European imports Russia has lost out on since the start of the war. And crucially, the biggest boosts in trade have been in the products facing the heaviest restrictions. Armenia, for instance, imported twice as many chemicals, four times as much machinery, and four times as many electronic goods—all product categories under heavy sanctions—from Europe in 2023 than it did in 2021. As Alexander Kolyandr, of the Centre for European Policy Analysis has explained, through this multi-tiered system, landlocked Kyrgyzstan has started “importing half a million euros worth of naval navigation every month, on average.” These circuitous trade routes have enabled Russia to keep its military relatively well supplied with hardware. And according to the Royal United Services Institute, counterfeit Western tech continues to play a vital role in Russia’s high-end weapons.
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