Western sanctions imposed on Moscow over its invasion of Ukraine mean big business elsewhere in the former Soviet Union, as middlemen race to cash in on reselling unavailable goods to Russia.
Those new supply chains — which are keeping Russians well-stocked with alcohol, luxury goods and other Western products — undermine Europe's efforts to punish Moscow and should be blocked, Gabrielius Landsbergis, Lithuania’s foreign minister, told POLITICO.
“Circumvention of EU sanctions is not only a shortsighted decision — it undermines the basic principles of our union,” Landsbergis said in response to data that shows a handful of countries in the Caucasus and Central Asia are booming as hubs for indirect trade with Russia.
Customs records from the Trade Data Monitor platform, seen by POLITICO, show neighboring Georgia has seen the volume of its trade with Russia shoot up almost 22 percent in the year since Moscow began its all-out invasion of Ukraine, while the amount of alcohol it exports to Russia is up by more than 120 percent.
Kazakhstan’s exports to Russia skyrocketed over the same period, rising about 57 percent in U.S. dollar value.
Armenia, which maintains close trade ties with Russia, saw its GDP grow by an unexpected 11 percent last year, while exports to Russia rose five-fold and transfers from Russia increased sevenfold year-on-year, according to the World Bank. The country noted a budget surplus and its currency, the dram, was one of the world's top performers.
Business boost
“There are new trade flows through third countries where you can see exports to Russia have gone up, and also imports from the West have gone up,” said Janis Kluge, a senior associate at the German Institute for International and Security Affairs.
The bulk of these so-called parallel imports are consumer goods where producers say they don't want to sell their products to Russia, but instead sales to countries with a close relationship with Russia are soaring, according to Kluge. "It's a multibillion-dollar business that has increased and is driving really strong expansions in exports from Russia's neighbors."
One Moscow restaurant owner told POLITICO on condition of anonymity that his bar is stocked with Western alcohol brands. “Beer comes in directly still. Spirits come from Kazakhstan, Coca-Cola from Georgia,” he said.
A spokesperson for Coca-Cola said that while the firm does not authorize exports to Russia, "our actions to prevent any unauthorized imports are limited by regulatory factors linked primarily to free trade within the Eurasian Economic Union" — the single market of former Soviet states that includes Russia, Belarus, Kazakhstan and Armenia, but not Georgia.
The EU, U.K. and U.S. have restricted high-end alcohol exports and put up barriers to Western firms receiving payment from Russian banks; many major beverage companies said they have voluntarily pulled out of Russia.
According to Temur Umarov, a fellow at the Carnegie think tank’s Eurasia Center, these new revenue flows are giving a major boost to countries around the former Soviet fringe.
“There have been several reports that Russian businessmen are reaching out to partners in Kazakhstan, Kyrgyzstan and even Uzbekistan — which is not a part of the Eurasian Economic Union — trying to ask them to order things from European countries and other parts of the world from where it’s not easy to import to Russia any more,” he said.
As a result, “the economic situation has become much more dynamic and energetic in Central Asia," he said. "Many businesses and organizations are trying to use this momentum to fill the niche because they see demand for consumer products in Russia.”
The existence of these routes will also raise concerns that, as well as consumer goods, more sensitive, dual-use products like microchips that could help support Russia's arms industry might be getting through via middlemen as well.
Putin on the pressure
While parallel imports are generally seen as a legal gray area, they fly in the face of the spirit of EU sanctions.
“EU member states should send a clear message both to third countries and to European companies,” said Landsbergis. “In Lithuania, companies choosing circumvention face huge public pressure because our society has made a clear choice: Values matters and cannot be traded for business as usual with aggressor.”
Vilnius is now calling for the EU to appoint a full-time commissioner to oversee the drafting and enforcement of sanctions against Russia and its partners.
David O'Sullivan, the former EU ambassador the U.S., is the bloc's sanctions envoy, but has yet to set out much of his agenda. Without the support of both U.S. financial institutions and private companies, however, it may be almost impossible to stop money flowing out of Russia and goods being sucked in.
“Only if we accept the temporary possible negative impact on European business for the sake of peace, can we finally be uniform in our sanctions policy and implementation,” Landsbergis said, POLITICO reports.
