The Sanctions Dance: How Russia is Finding Loopholes to Keep the Party Going

The impact of Western sanctions on Russia has been widely debated since they were first imposed in 2014 in response to Moscow's annexation of Crimea. Despite a range of measures, including restrictions on financial transactions, trade, and investment, it appears that sanctioned Western goods are still flowing into Russia and out of it.

A recent analysis of United Nations trade data reveals that U.S. and European Union exports of sensitive, dual-use goods to countries in Russia's neighborhood rose sharply in 2022. These countries collectively increased their exports to Russia by nearly 50% last year to around $15 billion, indicating that Moscow continues to acquire crucial Western goods that are mostly restricted by sanctions.

The Eurasian Roundabout

The booming trade route, which analysts at the European Bank for Reconstruction and Development call the Eurasian roundabout, is a sign of Russia's success in finding new ways to acquire sought-after goods despite Western sanctions. European officials say that rerouting exports through neighbouring countries is one of the ways Russian companies are acquiring sanctioned goods.For example, Imex-Expert offers to "import sanctioned goods from Europe, America to Russia through Kazakhstan." Its website boasts "bypassing sanctions 100%." The company did not respond to a request for comment.

Substantial Trade in Dual-Use Items

Digging into the numbers shows a substantial trade in dual-use items. The U.S. and the EU exported more than $8.5 million worth of integrated circuits to Armenia last year, for instance, more than 16 times the $530,000 exported in 2021, according to U.N. data. At the same time, Armenia's exports of the circuits to Russia jumped to $13 million from less than $2,000 in 2021.A similar picture emerges with Western shipments of lasers to Kyrgyzstan and measuring instruments, including tools for checking voltage and power, to Uzbekistan. Both countries saw a boost in those exports to Russia.

Western Sanctions

Washington and Brussels have barred the sale to Russia of various types of these goods since Moscow's full-scale invasion of Ukraine in February 2022. While the amount of trade between the former Soviet republics and Russia is small compared with Russia's trade with China, the new trade route allows Moscow to get its hands on Western technology it has trouble getting elsewhere.Such technologies are critical for Russia's war in Ukraine, experts say. Russia has limited ability to replace Western components with its own products.

India's Role in the Trade Route

Russia has also been using India to reap the benefits of trade. It has been using India as a backdoor to supply Europe, its largest market pre-war, with oil. India recently became the largest supplier of refined crude to Europe. Before Russia's invasion of Ukraine, Europe imported an average of 154,000 bpd of diesel and jet fuel from India. Since the EU's ban on oil products came into effect last month, this has risen to 200,000 bpd. India's diesel exports to Europe rose 12-16% in the last fiscal year, reaching 150,000-167,000 bpd.

Meanwhile, Russia has emerged as a major supplier to India, with Kpler data showing that Russian crude oil arrivals to India are expected to surpass 2 million barrels a day in April, representing almost 44% of the nation's overall oil imports. Russia has been giving oil to India at discounted rates, which has led to concerns raised by the West about India's imports from Russia during the Ukraine war. However, India has taken a strong stand and said that it looks at all options to achieve energy security.

The complex web of trade relationships between Russia, its neighbors, and other countries like India has allowed Moscow to evade the full impact of Western sanctions. While the US and EU have been trying to isolate Russia economically, Moscow has been working to build alternative supply chains and find new markets for its products.

However, the success of this strategy is not without its risks. For one, it could lead to the erosion of the rules-based international trading system, as countries start to ignore sanctions and export controls. This could make it easier for rogue states to acquire dangerous technologies and weapons, posing a threat to global security.

Moreover, the use of India as a backdoor to supply Western goods to Russia could put New Delhi in a difficult position, as it tries to balance its ties with Moscow and Washington. India has been cultivating closer ties with the US in recent years, as part of its efforts to counter China's rise in the region. However, its dependence on Russian energy supplies and its strategic partnership with Moscow could complicate this relationship.

In conclusion, the flow of sanctioned Western goods into and out of Russia is a sign of Moscow's resilience in the face of economic sanctions. However, it also highlights the challenges of enforcing global norms and maintaining a rules-based trading system. As countries like Russia seek to evade sanctions and find new ways to acquire sensitive technologies, it is important for the international community to remain vigilant and work together to uphold the principles of free and fair trade.