‘Sanctions hole’: how secretive routes supply Russia with western tech and consumer goods, 12 June 2024

Since Vladimir Putin’s invasion of Ukraine, the west has imposed thousands of sanctions on Russia, and handed it the dubious distinction of being the most heavily sanctioned country on Earth...

But two years on, Russia’s economy is showing surprising resilience and is forecast to grow faster than most of the world’s advanced economies, although experts say that it is unsustainable in the long term. With efforts to constrain the Russian economy in the spotlight, the US said...it would announce a sweep of new “impactful” sanctions and export controls at the G7 in Italy...

With reports that the US treasury will target financial institutions that help in the transfer of war-related imports – attention is likely to turn to banks in the club of countries that have not imposed sanctions and are facilitating the supply of goods and services to Russia.

The Russian economy has been partly sustained by such imports.

Internal data from the Russian customs agency shows imports rebounding to close to their prewar levels, researchers say, although at considerably higher prices. Those imports have helped sustain vulnerable industries, such as aviation and the car industry.

Observers have referred to this as a “sanctions hole” – where anything from semiconductors to aeroplane parts to iPhones can be routed and re-exported into Russia through firms in China, Turkey or the UAE, or via Armenia, Kazakhstan and other former Soviet republics.

They include highly scrutinised items like microchips for use in the Russian war effort – among them those made by US producers such as Xilinx and Texas Instruments, or processors from Intel. The technology is often bought by companies in Hong Kong or China and re-exported to Russia, the data shows.

“Russia’s invasion of Ukraine exposed a governance crisis in the EU. The EU has become an enabler of the war,” said Robin Brooks, a senior fellow at the Brookings Institution during a webinar on Russian sanctions evasion.

Brooks, who has been tracking the effectiveness of export controls, pointed to examples such as German exports of cars to Kyrgyzstan, up 5,100% since the beginning of the war...

Studies have revealed that the Russian military has exploited these loopholes to obtain critical western military technology...

The US and EU have recently stepped up their efforts against companies and banks in middle countries trading with Russia...

“The US is increasingly putting pressure on banks to address the issue of re-export of dual-use goods from or via China. Without it, battlefield items will flow to Russia unabated,” says Maria Shagina, a senior sanctions researcher at the International Institute for Strategic Studies.

But some of the countries crucial to Russia’s sanction evasion efforts are resisting western pressure...