Since Vladimir Putin invaded Ukraine, the West has imposed thousands of sanctions on Russia, giving it the dubious honor of being the most sanctioned country in the world. The international sanctions, which affect everything from individual finances to major industries in the Russian economy, are designed to isolate Russian consumers. Major brands like Apple and McDonald’s have ceased operations in the country.
Yet two and a half years after the invasion of Ukraine, the Russian economy is showing surprising resilience and is expected to grow faster than most of the world’s advanced economies, although experts say this trend is unsustainable in the long term. With efforts to contain the Russian economy in the spotlight, the G7 countries committed at their latest summit in mid-June in Italy to take “strong action against those who help Russia evade our sanctions.”
“We are committed to increasing the cost of Russia’s war based on the comprehensive set of sanctions and economic measures already in place. “While our measures have had a significant impact on Russia’s ability to build its war machine and finance its invasion, its military continues to pose a threat not only to Ukraine, but also to international security,” the summit’s final communiqué said.
“We will continue to take action against actors in China and third countries that materially support the Russian war machine, including financial institutions, consistent with our legal systems, and other entities in China that facilitate Russia’s acquisition of items for its defense industrial base,” the statement added, consistent with what White House spokesman John Kirby had announced the day before.
A few days later, the European Union agreed to its fourteenth round of sanctions, which for the first time targeted supplies of liquefied natural gas. Last week, the US Treasury Department announced sanctions against 400 Russian and foreign individuals and entities involved in the chain supporting Moscow’s war against Ukraine or responsible for circumventing the sanctions.
In a statement, the department led by Janet Yellen said the sanctions, announced a day before Ukraine’s Independence Day, target entities both inside and outside Russia, including China, Switzerland, Turkey and the United Arab Emirates, whose products and services enable Moscow to continue its war effort and evade Washington’s sanctions. The United States is targeting numerous transnational networks that facilitate sanctions evasion for Russian oligarchs through the creation of foreign companies and trusted services and that engage in tasks such as acquiring munitions and military equipment for Russia. “Companies, financial institutions and governments around the world must be careful not to support the military-industrial supply chains” of Vladimir Putin’s government, Treasury Deputy Secretary Wally Adeyemo said.
Imports rebound
The Russian economy has been partly supported by such imports. According to internal Russian customs data, imports have rebounded to near pre-war levels, albeit at considerably higher prices. These imports have helped support sensitive industries, such as aerospace and automotive.
Observers have called the situation a “sanctions loophole,” a loophole that allows everything from semiconductors to airplane parts to iPhones to be shipped and re-exported to Russia through companies in China, Turkey or the United States. Also through Armenia, Kazakhstan and other former Soviet republics.
These imports include highly controlled items, such as electronic chips intended for Russian war operations, including those made by American producers such as Xilinx and Texas Instruments, or Intel processors. The information shows that companies in Hong Kong or China often buy this technology and re-export it to Russia.
In a webinar on how Russia manages to avoid sanctions, held on May 29, Robin Brooks, a senior fellow at the think tank The American Brookings Institution stressed that “the Russian invasion of Ukraine reflects a crisis of governance within the EU. “The EU has become a facilitator of war.”
Brooks, who closely monitors the impact of export controls, cited concrete examples such as German automobile exports to Kyrgyzstan, which have increased by 5,100 percent since the start of the war. “It’s not because the people of Bishkek [Kirguistán] suddenly decided they liked Mercedes. These are cars that go to Russia. Most of these things don’t even make it to Kyrgyzstan. You just put Kyrgyzstan on the map,” Brooks explained at the seminar.
According to the expert, export data show that this trend occurs in “every European country” and “compensates for about half of the decline in direct exports to Russia.”
Studies show that the Russian military has taken advantage of these loopholes to obtain crucial Western military technology. According to a report by think tank According to the London-based defense agency RUSI, more than 450 foreign-made components have been discovered in Russian weapons found in Ukraine. Recently, the US and the EU have stepped up their efforts against companies and banks in these intermediary countries that trade with Russia.
In a speech to German business leaders in Berlin in late May, U.S. Treasury Deputy Secretary Wally Adeyemo urged companies to prevent Russia from importing critical components from or through China. “The United States is putting increasing pressure on banks to address the issue of re-exporting dual-use products from or through China. Without this, war materiel will flow endlessly to Russia,” said Maria Shagina, a senior sanctions researcher at the International Institute for Strategic Studies.
However, some of the countries most important to Russia’s efforts to circumvent sanctions are resisting Western pressure.
In an interview with the Financial Times published in late May, the chairman of the Dubai Multi Commodities Centre, the oil state’s main trading hub, said that sanctions against Russia had no impact outside the West and that attempts to stop the flow of oil business had simply been redirected elsewhere. “The fact that the economy is not controlled exclusively by one part of the world makes these sanctions less effective,” Hamad Buamim explains in the article.
Big sale of Greek oil tankers
Russia’s continued imports and economic viability would be impossible without the substantial revenues generated by its energy resources. Moscow has relied on external actors willing to defy the Western sanctions coalition.
In December 2022, the United Kingdom, along with the G7 countries, Australia and the European Union, imposed a price cap of $60 per barrel to prevent Western companies from transporting, servicing or trading in cargoes of Russian crude. The aim was to undermine Russia’s oil trade, which relies heavily on Western-owned and -insured tankers.
To ship crude oil abroad and earn much-needed foreign currency, Russia has turned to an “opaque fleet” of old tankers whose owners are unclear. Greek shipping tycoons, who play a leading role in the global oil trade, have stepped in and sold hundreds of old ships to Russia in a phenomenon dubbed the “Great Greek Tanker Sale.” According to trade journal TradeWinds, Greek shipowners have sold at least 125 tankers and crude oil carriers, worth more than €3.7 billion, to bolster Russia’s “opaque fleet.”
In the final communiqué of the June summit, G7 leaders agreed to take “measures, including sanctions and innovative enforcement activities leveraging respective geographies, to counter Russia’s use of deceptive alternative maritime practices to circumvent our sanctions through its ghost fleet.”
“We call on industry players who facilitate this activity to consider the risks of financial liability and environmental and reputational damage associated with these practices. “We will impose additional sanctions against those who engage in deceptive practices in the transportation of Russian oil and against the networks that Russia has developed to generate additional revenues from violating maximum prices or selling oil through alternative service providers,” the final document said.
As things stand, Western officials and analysts largely agree that the impact of sanctions against Russia has been slower than expected. “So far, we have not achieved our primary objective, which is to get Russia out of Ukraine,” Brooks said at his seminar.
The key to hurting Moscow, he said, is targeting its energy advantages. Measures proposed by Brooks and other sanctions experts included reducing the oil cap to $20 a barrel and banning the sale of Western tankers to undeclared buyers.
“If Europe is prepared to take decisive action, we will see a financial crisis in Russia,” Brooks said.
Translated by Emma Reverter and updated by elDiario.es
