“We don’t really know which country our connectors go through,” admits Ekaterina Kim, deputy director of Soyuz, an SME that employs around forty people in Tula. In this industrial city, two hours by train from Moscow, Soyuz produces top-of-the-line microphones with European-made connectors, a small essential part, but covered by the embargo imposed under the sanctions against Russia. She explains that in this gray market she now supplies herself from “parallel imports” orchestrated by clever distributors.
Since the introduction of sanctions, many intermediaries in Russia have specialized in creating these new trading circuits. Russian industry remains heavily dependent on parts manufactured only by Western companies. To obtain them, companies could set up this system known as “parallel import”. They have set up companies in “friendly countries”. These legally established companies are responsible for purchasing European products that are banned from being exported to Russia. These products then pass through the hands of a cascade of interest groups, eventually ending up in Russia.
The result: the deputy director of Soyuz faces six months longer delivery times and 30% higher prices. But the production goes on. This practice is widespread throughout Russia. This can be used to obtain the necessary vaccines for dairy cows and ABS systems for cars. Because for all industries, the main thing is to maintain production.
Turkey and the Emirates deserve special mention
The countries involved in circumventing the sanctions are known. Tom Keatinge, director of the CFCS (Centre for Financial Crime and Security Studies), a research center based in London, points out that Turkey and the United Arab Emirates are at the heart of these cycles. We can add Armenia, Kazakhstan or Georgia.
According to the former banker, the system works mainly thanks to the more or less voluntary ignorance of Western companies: “They are responsible for applying the sanctions, but sometimes do not want to sacrifice their interests, Tom Keatinge regrets. If you suddenly see an increase in orders from a customer from a suspicious country, you should ask yourself why. And who is actually the buyer. If you can’t answer these questions, don’t sell. »
He wants Western intelligence agencies to “ensure there are no re-exports by mapping value chains,” along the lines of the work done by Israeli intelligence to prevent Iran’s nuclear proliferation…
Dividends for Georgia
The countries involved in sanctions evasion are not all objective allies of Russia. They sometimes act out of sheer opportunism. This is the case, for example, in Georgia. In this small Caucasus country, the deployment of 100,000 Russian deserters after the partial mobilization in Russia in September 2022 caused a storm of anger and fear. The walls of Tbilisi bear witness to this: they are covered with pro-Ukrainian slogans. The arrival of these Russians brings back bad memories among local residents when their country was invaded again in 2008. But the reaction of the Georgian government is very different.
For him, this wave of arrivals is a golden affair: it was accompanied by a fivefold inflow of Russian capital compared to the previous year. Trade has also increased by 30% and the country’s growth is close to 10%, although it was expected at 2.5%. “Today, 15% of Georgia’s economy comes from Russia, while before the war it was 6%,” said Beso Namchavadze, an economist with the Georgian section of Transparency International.
The country receives “dividends from its ambiguity”, to use the title of an article by Christophe Cordonnier and Julien Vercueil (1). The ruling party, controlled by an oligarch who made his fortune in Russia, Bidzina Ivanishvili, has indeed chosen not to join Western sanctions. As a result, the country takes full advantage of the shift in trade flows. It is on the shortest route to connect Russia with Turkey by road. At the border posts, the truck columns now stretch for several kilometers.
oil “of unknown origin”
Does Georgia go so far as to commit a crime to help Russia evade sanctions? The opposition party Droa is convinced of this. He published an extensive report listing suspicious behavior. It commemorates Russian cargo ships that arrived in the Georgian port of Poti in autumn 2022 before leaving without having unloaded anything. In the meantime, the documentation accompanying the load would have been replaced. Russian oil would suddenly become “of unknown origin”…
He also mentions the passage of planes from Iran through Georgian airspace capable of transporting weapons and a massive trade in cigarettes traced back to relatives of government officials.
“Such manipulations are not possible without the complicity of the security services and the government! Elene Khoshtaria, former Minister for Euro-Atlantic Integration and founder of the Droa Party, accuses.
An attitude dictated by business interests
Beso Namchavadze is more cautious. Rather, it describes an attitude dictated by business interests. “There is a black market. But the government knows that Georgia risks the same sanctions as Belarus if its role in circumventing the embargo is proven,” he says. So, according to him, Georgia is trying to walk a tightrope and take advantage of the situation without exposing itself too much.
For its part, Russia has enacted a law that officially allows this system of “parallel imports”, thereby freeing itself from international rules on the protection of intellectual property. It goes even further: In order to escape the sanctions against the trade in its oil, Moscow has created a “phantom fleet”.
Tankers change names
“Until now, most of the Russian oil trade has been handled by European ships, that is, Greek and Cypriot,” explains Paul Tourret, director of the Higher Institute of Maritime Economics. But over the past year, Russia has pledged to buy back all available tankers, often at the end of their useful lives.
Officially, they are owned by offshore companies based in the Marshall Islands, Panama or Liberia. They sail by cutting off their transponders, disguising their identification number and using tampered with documents. And they keep changing their names, sometimes in the middle of the ocean. These are methods already used by Venezuela and Iran. Russia takes inspiration from this and turns it into a system that is now working on a large scale.
This includes 34 percent of the tankers that have called at Russia’s main oil export ports since the European embargo on Russian oil came into effect on December 5, according to Michelle Wiese Bockmann, an analyst at British trade magazine Lloyd’s List. “They are either being held anonymously or have previously been used in the Venezuelan or Iranian oil trade,” she explains.
Greek oil tankers handle only 33% of deliveries. According to him, however, before December 5 it was 54%. She estimates that Russia’s ghost fleet now numbers 320 ships of various sizes, but adds that “the number is increasing every week.”
A Gazprom billboard with the flags of Russia and Serbia shows the slogan “Together” on January 17 in Belgrade, Serbia. /Bloomberg via Getty Images
Big discounts for selling Russian oil
This effort does not allow Russia to maintain the same position in the market. Since Europe closed itself off to Russian oil, Russia turned to India, which in a few months became its first customer. China has also become another big customer. “Russia is forced to offer its buyers ever larger discounts of the order of $40 per barrel compared to world market prices when selling its production. His new customers are in a position of strength, arguing that his oil smells of sulfur,” notes Francis Perrin, research director at Iris (Institute for International and Strategic Relations).
Russia is therefore unable to keep the same income. She is forced to tap into her financial reserves. But she can still bring in foreign exchange, which allows her to limit losses.
That explains why the Russian economy has resisted for a year. It is subject to a variety of disruptions: If you want to buy a Lada, you only have three colors to choose from. Obtaining a biometric passport has become difficult due to the lack of electronic chips. A trip from Moscow to Paris now takes about ten hours because there is no longer a direct flight and all prices are increasing…
But the price of the ruble remained stable and Russia’s GDP did not collapse. It ended 2022 down 3%, a far cry from the catastrophe anticipated a few months ago when the International Monetary Fund (IMF) forecast a 13-15% drop.
The cat and mouse game
“We can expect that in the coming months the pressure on those who do not apply the sanctions will increase,” predicts Tatiana Kastoueva-Jean, researcher at Ifri (French Institute for International Relations). It’s a game of cat and mouse between the US Treasury and the countries that are helping Russia. »
In January, US Secretary of Commerce Thea Rozman Kendler traveled to Turkey. She sent several messages. Specifically, according to the Wall Street Journal, she called for Turkish companies to stop servicing Russian planes flying to Istanbul.
The developed countries are gradually trying to plug the holes in the sanctions system. But it remains difficult to isolate an economy that ranks 9th in the world in terms of GDP, is one of the world’s largest producers of commodities, and accounts for one-eighth of the Earth’s land area…
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Russia has to fall back on its financial reserves
Developed countries are preparing a tenth package of sanctions. They are said to strain Russia’s finances and hamper the defense industry.
The measures already in place prohibit the purchase of Russian oil, transactions with Russian banks and the export of dual-use items (including electronic components) to Russia. Flights between the EU and Russia will be suspended and the assets of Russia’s central bank and a list of oligarchs will be frozen.
In order to cope with the decline in its income, Russia has to withdraw the equivalent of two billion euros from its reserve fund every month. Inflation was 12% in January and the main Moscow Stock Exchange index has fallen by a third since the conflict began.