The war in Ukraine has created a booming black market as companies across Eastern Europe and Asia cash in by shipping banned goods to Russia.
But now governments in countries like Armenia and Kazakhstan are promising to rein in trade in military hardware and luxury goods out of fear of being hit with retaliatory measures as the EU moves to crack down on sanctions loopholes.
As members of the Moscow-led Eurasian Economic Union, the two former Soviet republics, along with Russia, Belarus and Kyrgyzstan, are part of a single market designed to break down customs barriers and boost trade. That makes restricting the flow of potentially sensitive goods technically difficult, but that has put the pair in the EU's crosshairs as the bloc seeks to strengthen existing restrictions when it publishes its long-awaited 11th package of sanctions against Russia.
Mnatsakan Safaryan, Armenia’s deputy foreign minister responsible for sanctions policy, told POLITICO that while the Eurasian Economic Union mandates the free movement of goods, “We cannot fall under sanctions ourselves by getting involved in shadowy activities and circumvention, bypassing sanctions.”
“We are very much concerned that such developments, getting under sanctions as a country or our companies getting under sanctions, will affect our economy and make it unbearable for Armenia economy-wise and security-wise,” he said.
Risk and reward
According to customs figures collated through the Trade Data Monitor platform, Armenian exports to Russia shot up by 463 percent between 2022 and 2023, and are now worth more than €328 million.
Washington accused the South Caucasus nation of being a "transshipment point" to "illegally redirect restricted items to Russia or Belarus." Several Armenian firms have been sanctioned by the U.S.
A draft of the EU’s latest sanctions package, seen by POLITICO, shows Brussels is planning to follow suit and impose tighter trade restrictions on at least one of those companies — Tako, an Armenian importer of electronic and telecommunications goods already sanctioned by the U.S.
Armenia has now publicly committed to working with the EU and the U.S. to block trade in ‘risky items’ and prevent its businesses ending up on the wrong side of the rules. A list drawn up last month by Yerevan applies strict control measures to goods that could be ultimately used by the Russian arms industry.
As one of the only emerging democracies in the region, with a government that has overseen significant progress on civil liberties and press freedom, Yerevan is distancing itself from its traditional ally Russia and pushing for closer ties with the West.
The EU is now the country’s second-largest trade partner and has stationed a civilian monitoring mission to observe its borders in the wake of incursions from neighboring Azerbaijan. Brussels is building on that to put parallel imports on the agenda.
The EU appointed David O’Sullivan, the bloc’s former ambassador to Washington, as its special envoy for sanctions implementation. In April, O’Sullivan embarked on a tour of the former Soviet Union, visiting Kazakhstan to discuss “unusual trade flows” of manufacturing products, before heading on to Yerevan for talks with Safaryan and his team.
“The Commission has mobilized its trade and customs services to spot the redirection of trade flows from certain third countries acting as possible gateways to Russia,” a senior EU official with direct knowledge of the discussions, granted anonymity to speak frankly on a sensitive political issue, told POLITICO. “Outreach to the countries in question is underway to reach a shared assessment, compare data and discuss remedial measures as appropriate.”
Toeing the line
Kazakhstan is of particular concern after the value of its exports to Russia almost doubled from around €490 million to over €800 million in a year, according to Trade Data Monitor. Even though selling to Russia has proven lucrative for the country’s businesses, Brussels last month lavished praise on Kazakhstan for working to exclude restricted goods.
“We do not support anti-Russian sanctions, but we comply,” Kazakhstan’s Economy Minister Alibek Kuantyrov said last week, pointing out that close trade ties with Moscow puts its companies at risk of being sanctioned.
As with Armenia, the government has put in place strict rules on goods like electronics that analysts fear could be stripped down to their components and repurposed for military uses.
Speaking to POLITICO in April, Lithuanian Foreign Minister Gabrielius Landsbergis said that EU member states should send a "clear message" both to third countries and to European companies. “Our society has made a clear choice: Values matters and cannot be traded for business as usual with aggressor," he said.
According to Safaryan, unpicking decades of close trade ties with Russia is no easy feat, and pragmatism is more useful than ideology. He insisted there's been no pressure from Moscow to keep sanctioned goods flowing.
“Our policy has been based on our dialog with the EU and the U.S.,” he said, “but we also work with Russia to help navigate these issues as our economies are very much connected,” POLITICO reports.
