The mysterious middlemen helping Russia’s war machine | Sanctions are as watertight as a sieve

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>RUSSIA IS PLANNING for decades of Western sanctions, a senior foreign-ministry official, Dmitry Birichevsky, said last week. The evidence suggests that might not be too much of a problem. The economy is growing smartly, at an annualised rate of 4% in the second quarter, after a whopping 5.4% the quarter before, despite one of the toughest regimes ever imposed. Trade continues to flourish. How come?

>For a clue, look at Kazakhstan. Last year, the Central Asian republic’s tech industry appeared to pull off a triumph. Since the war in Ukraine began, European firms have been banned from selling most tech products in Russia; they were previously the country’s biggest tech suppliers. But Kazakhstan’s tiny tech industry, some 50 firms with a production capacity of $100m in 2021, seems to have filled the gap. Its exports to Russia rose from $40m in 2021 to $298m in 2023. Of course, all was not as it seemed. Electronic imports from Europe also increased, from €250m ($273m) to €709m. Did Kazakh firms magically expand, or have Russian firms found a roundabout route to their old European suppliers? You be the judge.

>Three strands lie behind the boom in intermediated trade. The first is trade in banned goods, which clearly flouts sanctions. The EU has adopted 14 packages of sanctions, most recently on June 24th. They ban firms making anything that could be used on a battlefield from exporting to Russia. That includes semiconductors and drones, but also ball-bearings and microwave ovens. Even so, more than half of the battlefield equipment that Russia acquired between February and August 2022 contains components made in Europe or America, according to the Royal United Services Institute, a think-tank in London.

>The economies of Central Asia and the Caucasus seem to be benefiting from the war. Collectively, the economies of the five Central Asian republics grew by 6% in 2023, up from 4% in 2022, while Armenia’s economy expanded by 8%, up from 5% in 2022. A booming logistics sector has cropped up overnight, and cargo is growing by 20% each year.

>For Europe’s policymakers, this is all bad news. “We expected some leakage,” says one official, “but not on the scale we now know about.” In December, the EU’s 12th round of restrictions targeted firms in Armenia and Uzbekistan for the first time. Bureaucrats have since threatened more sanctions on third countries and Europeans exporting to them, but have taken action only against a few firms. For each firm added to the blacklist, another is registered elsewhere.

!ping RUS&UKRAINE&CONTAINERS

Unsurprising yet still disappointing. This whole situation really puts into question the idea that, in terms of IR, economic hard power (liberalism) – which Europe vanguards – is on equal footing with realism when it comes to influencing the world stage. Then again, the EU might simply be too politically fractured and thus “soft” to ever implement anything resembling a hard-line version of liberalism which in this case would probably be to impose equal sanctions on the entire Eurasian Economic Union. On the other hand, who knew globalisation would mean economies are by definition interlinked and isolating a single one is difficult? Crazy thought I know.