Backdoors of Russia
That is why the EU is tightening the noose of sanctions
By Diana Dittmer
02/24/2023, 4:38 p.m
Despite harsh sanctions against Russia, Western goods still find their way into Putin’s empire. Outliers in the foreign trade data of countries such as Armenia, Kyrgyzstan and Kazakhstan show which detours refrigerators, washing machines, cars or semiconductors take.
Things are happening in quick succession: the ninth package of sanctions has only been in force for a few months the EU is already casting the tenth package of measures into shape against Russia. This time in focus: so-called parallel imports via third countries. While the flow of goods from the US and the EU to Russia has dried up, those to countries that do not support anti-Russian measures are booming. The catch is that the goods don’t seem to be the end of the line here. Outliers in foreign trade data suggest that their real destination is Russia.
Parallel import is a technical and legal term for non-legal imports. Countries like Armenia and Kyrgyzstan are suspected of serving as a back door for Russia to get supplies into the country. They belong to the common currency union with Russia. This means that goods from there can be imported duty-free. Turkey, China and India also seem to play a role in supplying the Putin state with household items, cars, semiconductors and the like, as changes in demand for goods show. Economics Minister Robert Habeck found clear words for this on Thursday evening: “This is not a trivial offense. If it can be proven that it was a conscious decision, it will be criminally relevant or will be prosecuted.”
In a paper by his ministry, it was previously said that the data indicated that EU-sanctioned goods were exported “to a significant extent” from the EU and thus also from Germany to certain third countries and from there to Russia. ntv and RTL were the first to report on a so-called 10-point plan by the Ministry of Economic Affairs. The aim should be to make intentional violations a punishable offense throughout Europe in the future. Companies should only be allowed to export to certain third countries if they submit transparent end-use declarations as part of the export declaration.
An analysis by the European Bank for Reconstruction and Development (EBRD) shows the orders of magnitude involved. Exports from the EU, the USA and the UK to Russia fell by more than half in the period from May to July 2022 when adjusted for inflation. At the same time, however, those after Armenia and Kyrgyzstan have increased by more than 80 percent.
Strikingly, exports from both countries to Russia have more than doubled at the same time. The bank concludes from the data that goods bound for Russia have found a new route. The Financial Times recently quoted newly appointed EU sanctions commissioner David O’Sullivan as saying: “(These countries) have suddenly developed a lot of new needs and it’s all staying there, or seeping some of it in one form or another Russia?” Supplying Russia with components for the armaments, energy and space industries is viewed as particularly problematic in the West because they lubricate the war machine of Kremlin boss Vladimir Putin.
Russia is reluctant to admit it, but the country is on a drip. In order to choke off the Russian economy, the western allies are gradually tightening the sanctions noose. According to Yale University, more than 1,000 foreign companies have left Russia since the invasion of Ukraine. The replenishment of many products is faltering. Not only components for the Russian army are now in short supply. The population also lacks the consumer goods they love
The Kremlin looks for loopholes – and finds them
Refrigerators and washing machines are of particular importance here. Eurostat data from the end of last year show how the flow of goods has changed. In the first eight months of 2022 alone, Armenia imported more washing machines from the EU than in 2020 and 2021 combined. In Kazakhstan, too, there was apparently an acute shortage of washing machines. In April 2022 alone, almost six times as many washing machines were bought from the EU as in the previous year.
Refrigerators were apparently also suddenly in high demand: up to and including August last year, the giant Central Asian state imported more than three times as much as from January to August 2021. However, the fact that imports of household goods have increased so exorbitantly has less to do with mountains of laundry and an increasing demand for perishables to do fare. Rather, the household appliances are cannibalized when they arrive in Russia. They contain chips that the army can use for drones, tanks and missiles.
Basically, parallel imports take place in two ways: Either by private individuals from Russia, by buying what is needed or desired in the country in the neighboring countries in Central Asia or the Caucasus and then offering it back in Russia at a higher price. Or there are professional dealers at work who buy container loads of products on a large scale, which can later be found on Russian online sales platforms. The Duma, the Russian parliament, explicitly allowed imports through the back door in the first days of the war. According to “FT”, a list of the Moscow Ministry of Trade contains hundreds of brands that can be imported legally from another country. These include Mercedes, Volkswagen, Tesla, Miele, Philips, Apple and Samsung.
After a year of war in Ukraine, the western allies no longer want to let this go unpunished. The third countries have to weigh profit, danger and consequences for themselves. If they continue to act as a hub for goods destined for Russia, they could end up on the sanctions list. It would be a bad trade. The markets in the USA and Europe are more important than the Russian one.
According to insiders, the representatives of the member states of the EU want to conclude negotiations on the tenth package of sanctions this Friday – the anniversary of the Russian invasion of Ukraine. Except for one detail, they already agreed, it said the day before. According to earlier information from EU Commission President Ursula von der Leyen, the additional trade restrictions against Moscow will particularly affect exports of industrial goods, which Russian industry will then no longer be able to obtain from third countries.
This includes machine parts, antennas, cranes, special vehicles and spare parts for trucks and engines. In addition, there are said to be export restrictions for around 50 new electronic components that can be used for Russian weapon systems as well as drones, rockets and helicopters.