Shady export leaks suggest Russian sanctions work

(Reuters Breakingviews) – Kazakhstan appears to be in the throes of a sudden craze for European goods. Imports from the European Union were up nearly 90% in 2022 compared to the year before, and the trend continued in the first half of 2023. The spike is raising suspicions that the former Soviet republic and Russia’s neighbour is helping Moscow evade export bans. That may be true, but the cracks mostly demonstrate the sanctions’ impact, and why they can be tightened.

EU exports to Kazakhstan, Uzbekistan, Georgia, Azerbaijan, Armenia and Kyrgyzstan jumped 80% in the 18 months starting in January 2022, according to Eurostat numbers. There are clear signs that some of the goods may be redirected to Russia. Kazakhstan, for example, doubled imports of European machinery and transport equipment last year, without clear signs of a major surge in related local investment.

These numbers, however, require context. EU exporters did ship nearly 17 billion euros’ worth of goods to Kazakhstan in the 18 months starting in January 2022. And if exports had grown at the 17% pace of previous years, some 6 billion euros would remain unexplained. But even if all of that had been redirected to Moscow, it would pale in comparison to the 43 billion euro fall in EU exports to Russia over the same period, which deprived the country of crucial equipment and technology.

Meanwhile, Russia’s efforts to circumvent a G7 price cap on its oil shipments are another sign of Western sanctions’ overall effectiveness. A $60 price ceiling has been slapped on Russian crude transported by Western-owned or -insured ships, but some of it may now be shipped via third countries, or mixed at sea with other oil to hide its provenance. A “dark fleet” of old tankers has been adept at hiding its location and destination, so it can keep insurance coverage. But with Urals crude trading above $60 since early July, Russia has had to grant major discounts to China and India. And the country’s export revenue fell in July to the second-lowest level since the beginning of the war in February 2022.

Russia’s efforts to get around the sanctions can be used by Europe and the United States to tighten the regime. This could start with better scrutiny and embargoes on exports to Central Asia, lowering the oil price cap further, and a ban on the sale of old tankers. Sanctions need to be tighter not because they aren’t working but because they are. The proof is in the sour pudding that Vladimir Putin is eating.

European Union exports to Kazakhstan surged by 85% to 16.6 billion euros in the 18 months from January 2022 to June 2023, compared to the same period the year before, Eurostat numbers show.

EU exports to Russia declined by 30% to 75.7 billion euros over the same period.