Russia Skirts Sanctions Over War

  • Russia’s kept its economy humming by skirting sanctions amid the Ukraine war.
  • They include moves like using the CNY and engaging a fleet of secretive ships for exports.
  • It undermines the efforts of the international community to force the Kremlin into ending the war.

Russia’s economy appears to be holding up despite sweeping sanctions after it went to war with Ukraine in February 2022.

The energy giant has managed to maintain its energy revenues with moves that skirt the tough Western sanctions — such as maintaining a fleet of secretive tankers that transport Russian oil globally.

Energy exports aside, Russia has also found ways to counter the West’s unprecedented sanctions, including an EU ban on its crude imports and restrictions to keep the country out of the dollar-based Swift payments system.

More importantly, these moves undermine the efforts of the international community to force the Kremlin into ending the war in Ukraine.

Here are five ways Russia has been able to get around the sanctions.

1. ‘Ghost trades’ could be helping Russia get hold of goods for defense and intelligence services.

Despite sanctions that restrict a swathe of European Union exports from reaching Russia, the country appears to have received at least $1 billion worth of such goods in “ghost trades,” the Financial Times reported on Wednesday.

Such exports include “dual use” goods — products that can be used for defense or intelligence services. They include aircraft components, optical equipment, and gas turbines per the FT.

Just half of $2 billion worth of controlled goods intended for the ex-Soviet Union states of Kazakhstan, Kyrgyzstan, and Armenia reached these destinations, per the FT’s analysis of publicly available data.

The FT surmised the remaining goods may have entered Russia via the intermediary countries.

“Where else could it go?” asked Erki Kodar, Estonian minister for sanctions, told the FT. “Why would those countries suddenly need those goods at this time? Who needs those goods the most in the region? It’s obviously Russia.”

2. A fleet of secretive oil tankers is transporting Russian energy.

A fleet of aging oil tankers that do not turn on their tracking signals is suspected of secretly transporting sanctioned Russian oil globally. 

The dark fleet keeps Russia’s vital energy trade humming and is becoming a cause for worry because the aging ships are accident-prone. Consequently, insurance claims could be an issue — because their owners are often unknown, so authorities don’t know who to chase for damages

Russia has also put together a “shadow fleet” of more than 100 oil tankers to skirt the sanctions, the FT reported in December. 

Reuters also reported in December that new ship owners – predominantly from the Middle Eastern and Asia — have been snapping up aging oil tankers amid sky-high charter prices for tankers willing to transport Russian oil to India and China.

3. Russia’s using the Chinese yuan for trade amid the de-dollarization chatter.

After certain Russian banks were banned from SWIFT, the dollar-dominated messaging service that lets banks communicate about cross-border transactions, the country turned to alternative countries, such as the yuan for trade that was previously transacted in the US dollar.

Russia is just one of the countries taking steps to move away from its reliance on the greenback. Because Russia is an energy giant, some countries that are willing to trade with it are also jumping on the yuan bandwagon.

Russians bought 41.9 billion rubles, or $538 million worth of the Chinese currency in March, triple the 11.6 billion rubles worth of the currency purchased in February, Russia’s central bank said on April 10.

The ruble-yuan trade accounted for 39% of total volumes on Russia’s foreign exchange markets, outpacing the ruble-dollar’s 34% share, the central bank added.

4. Russia’s turning to the gray market for imports after Western companies exited the country en masse.

Many international companies pulled out of Russia en masse over the invasion of Ukraine, leaving Russia with fewer options for imports.

To deal with this situation, Russia legalized parallel imports in May 2022 — three months after the Ukraine war started.

The system allows retailers to ship products into the country without permission from the trademark owner. By August, such gray market sales reached nearly $6.5 billion, said Denis Manturov, the Russian trade and industry minister, according to an Interfax report. 

It also means people in Russia were able to get their hands on the latest Apple iPhone.

In March 2023, Russia’s industry ministry expanded the list of brands that the country can import without permission from the trademark owner, per Reuters.

US toy makers Hasbro and Mattel, Swedish furniture giant Ikea, and luxury labels such as Giorgio Armani and Yves Saint Laurent are included in the expanded list.

5. Russian oil is still getting into Western countries, thanks to intermediaries.

Even though sanctions from the West and its allies have placed tough restrictions — including an EU ban on seaborne crude and a $60 per barrel price cap— on Russian oil, the fuel is still making its way to these countries.

Western nations that banned Russian oil have collectively imported nearly $46 billion worth of Russian oil products, according to a study by the Centre for Research on Energy and Clean Air, or CREA, published in April.

That’s because these countries have purchased refined energy products from other nations — including China, India, and the UAE — that have bought much more oil from Russia, per the study.

“This is currently a legal way of exporting oil products to countries that are imposing sanctions on Russia as the product origin has been changed,” CREA researchers wrote in the report. “This process provides funds to Putin’s war chest.” 

The Kremlin did not immediately respond to Insider’s request for comment.

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