The EU and its allies are scrutinizing a rise in exports to Russia’s neighboring economies as they seek to prevent companies from evading western sanctions imposed on Moscow.
David O’Sullivan, the EU’s newly appointed sanctions envoy, told the Financial Times that the huge increase in trade with countries in Russia’s neighborhood raised the question of whether products hit by sanctions were entering the country through the back door.
“We see a very large flow of trade from the EU to Russia and an unusual surge in trade with other third countries, especially with those close to Russia,” he said.
“Did they suddenly develop a lot of new needs for this material, and it all stayed there, or did some of it get leaked to Russia one way or another?”
O’Sullivan did not name individual countries, stressing that he was starting with a “presumption of innocence” when investigating changes in trade flows.
Armenia and Kyrgyzstan are among those that have increased western imports and increased exports to Russia, according to an analysis by the European Bank for Reconstruction and Development. Turkey’s exports to Russia have also increased.
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The EU and its partners including the US and UK are set to share intelligence on possible sanctions dodging at a meeting on Thursday as they seek to push for tighter controls, O’Sullivan said.
EU, US and UK exports to Russia fell by more than half in the period May to July last year when adjusted for inflation, compared to the average in 2017-19, according to EBRD data that provides the impact of sanctions.
But the decline coincided with a more than 80 percent increase in sales from Europe and the US to Armenia and Kyrgyzstan. The two countries, which more than doubled their exports to Russia during the same period, indicate the possibility of redirecting trade through new routes, the bank said.
Exports of products including vehicles, electronics, agricultural machinery and pumps from the EU to Central Asia increased, mainly driven by Kazakhstan, the bank added.
One of the possible drivers of changing trade patterns is that western companies voluntarily withdraw from direct sales to Russia even if their products are not subject to sanctions. However, Beata Javorcik, chief economist at the EBRD, said there were also flows of goods that could “potentially” be subject to sanctions.
The Armenian government said it was “taking all measures to prevent any attempt [of] bypassing sanctions”. The Kyrgyz government did not immediately respond to a request for comment.
Turkey, which replaced some of Moscow’s old trading partners after the Ukraine war, posted a 97 percent jump in exports to Russia in the May to July period last year compared to 2017-19, according to EBRD analysis.
Javorcik said the EBRD’s data did not show that the increase in trade from Turkey to Russia was related to the sanctioned products. “Turkey just spelled more about Russia,” he said.
Some imports may use dual. A few months after the war, the Ukrainian army began to report that some of the microchips found in captured Russian military equipment were reused from everyday household appliances. Meanwhile, EU exports of white goods to neighboring Russia are on the rise.
According to data from the EU’s Eurostat database, Kazakhstan imported €1 million worth of washing machines from the EU in December 2022, four times the amount it did in December before Russia’s full-scale invasion of Ukraine. A Kazakhstan spokesman said: “We have not seen evidence that certain companies in Kazakhstan are being used to evade western sanctions but will continue to monitor this, and will act quickly and decisively if we make a mistake.”
China has also stepped in to fill the void left by western exports, including by sending increasing amounts of semiconductors to the country, according to Silverado Policy Accelerator, a think-tank.
EU ambassadors aim to sign a tenth package of sanctions this week, including measures aimed at closing loopholes in the existing regime – among them a ban on the transit of goods through Russia that could be reused for military use.
Mark Gitenstein, the US ambassador to the European Union, said on Wednesday that there is a “paradise” where there is a “circumvention done in a major way”, although he declined to name it.
Additional reporting by Henry Foy in Brussels