Since the invasion of Ukraine, the EU has imposed many rounds of ever-tighter sanctions against Russia and its currently debating about its 12th round. Some people claim these sanctions have not worked. Yet, the European Union was ready to dismantle any allegation. According to the High Representative for Foreign Affairs and Security Policy Josep Borrell, within a year, the European sanctions have limited Moscow’s options causing financial strain, cutting the country from key markets and significantly degrading Russia’s industrial and technological capacity. Restrictions are meant to have a long-term impact on Russia’s budget, as well its industrial and technological bases. Previous predictions have called for a declining role as a major global arms supplier. While Russia still retains its competitiveness in areas such as missile and air defense systems, some trends have suggested that Russian arms exports was going to fall. Available evidence has also signaled that Russia’s biggest customers, including India and China, will most likely become less reliant on Moscow’s arms exports due to ongoing import substitution and diversification efforts in these countries, which have been strengthened since 2022 because of the growing instability of Russia’s defense industrial base affecting Russian arms deliveries worldwide. A late 2022 OECD report shows that Russia’s GDP was foreseen to shrink by 2.5 percent, saving only the public expenditure related to the war effort, thus defence spending. Moreover, the credit rating agency Moody’s has downgraded 95 Russian firms, including most energy companies.
However, if sanctions do work, there won’t be the necessity to advance further rounds. Instead, the European institutions will draft another measure to target companies based in other states, which are being used to circumvent earlier measures. As a matter of fact, Russia has been able to counter the EU restrictions, simply turning to non-sanctioning countries or bypassing the restriction and getting supply from third countries. In the first case, imports from China to Russia have increased by 27 percent, in particular for machinery, electrical equipment and cars. On the other side, there have been a growth in imports of Western good to countries bordering Russia. Albeit morally wrong, it is not illegal for the intermediaries to reexport components outside of sanctions purview. A staggering 98 percent of electrical and components are routed through third countries, often manifesting in military equipment ranging from Kalibr missiles to T-72 tanks. Hence an increasing number of Western-made components are finding their way into Russian military equipment. Indeed, many companies produce items that can be dual-use. Moreover, Russia has introduced a system to make it more difficult and costly for foreign companies to leave the Russian market.
As regards American sanctions, these appear to be less effective than the European ones. According to the Royal United Services Institute, the Russian military uses more than 450 different types of foreign-made components, and only 80 of them are subject to US sanction controls. Intel, the US semiconductor giant, is still providing materials to Russia despite the sanctions, according to the Kyiv School of Economics. Furthermore, American Nvidia have severed their ties with the sanctioned Sberbank, the leading Russian lender. Again, Analog Devices, AMD, Texas Instruments and IBM continue ignoring the sanctions and providing their products to Russia, directly or via third countries.
Then, Moscow has opened its relations to the pivotal East and the pivotal South, namely the countries of Asia, Africa and Latin America. China is obviously the first convict, positioning itself as go-to supplier of nonlethal, but militarily useful, equipment. Given China’s open defiance of Western sanctions, it is hard for export control officials to conduct pre-shipment screenings of these target items. In addition, Iran is actively assisting Russia in setting up manufacturing lines for drones at the Alabuga Special Economic Zone in Tatarstan. Meanwhile, cargos with shipping labels for Central Asia are transported to Russia by various trucking companies, thus involving Georgia, Kazakhstan, Azerbaijan as well as some Baltic States, in particular Belarus. Hong Kong has also a special status as a transshipment port, which contributed to volumes of dual-use items getting into Russian hands. Furthermore, there are countries like neutral Austria, with historical ties to the Soviet military-industrial complex, that have left politicians and law enforcement with a huge blind spot.
Moreover, according to the Free Russia Foundation, which analyzed Russian customs data, from June to December 2022, a dozen shipments of drone technology threaded their way through the Netherlands, Turkey, and the UAE to Russian soil. Thanks to the contribution and work of the Kyiv School of Economics (KSE) Institute, we can know which companies are ‘making the sanctions worthless’ and we can attest that nearly 1,600 Western multinationals continue working with and for Russia. For instance, in 2022 a Canadian firm shipped through CTL Dis Ticaret Limited Sirketi, a company conveniently founded by Russian national Pavel Pertsov, high-end GPS systems with antijamming capabilities. Turkish firm Azu International piped at least $20 million worth of components, including coveted US-origin microchips, into Russia. German company DMG MORI remains an active participant in the Russian market and Taiwan- based computer manufactures Acer supplied at least $70.4 million worth of computer hardware to Russia between April 8, 2022 and March 31, 2023, according to customs.
In conclusion, further research proved that the Russian economy shrank by just -2.1 percent last year, and the International Monetary Fund even forecasts a modest growth of 0.7 percent in 2023. In fact, after a drop in 2022, Russian imports of critical components, from simple transistors to microchips and more specialized microprocessors, have reverted to levels commensurate with statistics before the war. Although the European Union has threatened to name and shame more than a dozen Chinese companies that, it claims, are supplying critical technology to equip Russia’s war machine, a lecture should be given to European organizations as well. To be noticed, Russians with close ties to Putin, and money, keep doing business in Europe. For example, Putin’s former wife Lyudmila, and her new partner have splashed the cash on luxury property investments in Spain, Switzerland and France. Therefore, a new summit is programmed on Thursday 14, in which the EU leaders will decide concerning a possible 12th package of sanctions against Russia. Whether or not sanctions are working can be assessed only once all players do follow these restrictions. Due to the globalization of economy, the only way to make these measures work is to integrate advanced tracking mechanisms and sanction repeat violator countries.
By The European Institute for International Law and International Relations
References
KSE Institute: https://leave-russia.org/staying-companies
