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How Russia is Bypassing Sanctions: All you want to know

The sanctions campaign did create a geo-economic bulwark against Russia.

How Russia is Bypassing Sanctions: All you want to know
The Russian economy is grappling with a high inflation rate of 12.9%, which is affecting consumers hard. (File photo: Reuters)

By Rajoli Siddharth Jayaprakash

It has been more than nine months since Russia’s invasion of Ukraine. The heightened sanctions campaign initiated by the EU and the United States against Russian financial institutions, oligarchs, banks, and assets abroad has remained unchanged. LNG purchases from Russia have decreased dramatically in European countries (while Belgium and Spain have increased their Russian energy imports) Germany reduced their gas imports from 40% to 9%, and further sanctions were imposed with the intent to cut off Russia’s access to the global markets and bring the Russian economy to its knees, which would inevitably affect their mobilization in Ukraine.

The effect of Sanctions

The sanctions campaign did create a geo-economic bulwark against Russia, creating an immediate shortage in shipping containers, semiconductor chips,industrial spare parts,automobile, railway parts, and aviation spare parts, where the extent of damage on the domestic industry was so drastic that they are unable to use Boeing and airbus aircrafts due to them being cut-off from their manufacturers.

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With more than 1,000 firms and 12,000 high-net-worth individuals sanctioned. The domestic industry is unable to wholly address the immediate demand for finished industrial goods.

How economic stability was ensured

To ensure the economy’s immediate stability, the cenbank, or Russian Central Bank, limited the amount of foreign currency that Russians could withdraw and prohibited Russian brokerages from selling securities to foreigners, making it difficult to sell rubles. Furthermore, Russia made their exporters sell 80% of their foreign currency revenues in exchange for rubles, essentially cutting off foreign currency from entering their markets, this has strengthened the ruble and appreciated the value of the currency.

With oil prices surging more than $100 per barrel, significant revenue has been generated from spot oil and gas trade to India, China, Brazil, Spain, Belgium, the Netherlands, and Turkey at a higher volume than the previous year. while significantly reducing trade with nations that fully sanctioned Russia.

This resulted in a shift, leading to Russia being the largest source for oil and natural gas for India for the month of October due to the discounted spot price. In the same month, Russia became India’s largest exporter of fertilizer. On the Chinese front, there remains an increase in imports, but it is clear that Beijing will not cross the threshold of 20% imports of oil and gas from a single nation, to avoid supply shocks.

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East Asian countries have reduced their reliance on coal imports from Russia while increasing their gas imports. For instance, Japan’s import of LNG increased by 211% in August 2022, compared to August 2021, August. Although, as of October, Japan has imposed export sanctions on Russia.

Russia has recorded a trade surplus. But imports to Russia have drastically decreased. Despite the reduction, Russia is still able to procure raw materials and parts to power its core industries. So the question emerges: How is Russia importing goods?

To address the shortages being faced by the Russian Federation in the above mentioned sectors, they are relying on the nations it sells energy to at a discounted rate to procure shipping containers, semiconductor chips, automobiles, and aviation parts. According to Alexey Bezborodov, a leading expert and a Faculty of world economy at the Higher School of Economics in Moscow, with minimal shipbuilding capabilities, Russia has placed orders for 29 additional container ships for the financial year 2023. These orders would be purchased on behalf of China. This demand for more ships indicates that Russia wants to engage more in global trade.

Recently, India was sent a list of 500 items by Russia covering spare parts and equipment for trains, aircraft, and cars. The delivery of these parts and the time frame remain unclear. Russia’s ministry of industry and trade asked its big firms to send a list of parts and materials needed.

Russia also imports goods via Turkey through the Caucasus or the Black Sea. It is evident as trade with the NATO member has increased by 87% and is set to increase further.

To sum up, it is clear that Russia has alternative sources of procuring materials for operating its core industries from India, China, and other nations, but one must also keep in mind that the global logistics supply chains are still recovering from the pandemic, and the container shortages will continue, not to mention the hectic process of re-exporting goods from the ports into Russia (re-importing from Russia). As a result, delays are imminent, and it is unclear how they will affect its war in Ukraine. The Russian economy is grappling with a high inflation rate of 12.9%, which is affecting consumers hard. However, in Moscow, the public perception towards the war in Ukraine remains unchanged

Author is a PhD scholar at the Centre for Russian and Central Asian studies, Jawaharlal Nehru University, New Delhi

Disclaimer: Views expressed are of the author and not of MP-IDSA or the Government of India. And do not reflect the official position or policy of Financial Express Online. Reproducing this content without permission is prohibited.

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First published on: 02-12-2022 at 16:36 IST