287 - How to Circumvent Western Sanctions: Russia's Supply Chain Depends on Subterfuge and Smuggling

            Stopping Russian aggression initially seemed relatively easy, even straightforward. That was in 2022, after Putin invaded Ukraine and Europe and the United States cranked up sanctions against Russian gas and oil exports -- to deprive the Putin war effort of foreign exchange earnings -- and then made it illegal to convey to Moscow anything that could be used to manufacture missiles, radar equipment, and the like. Even the sale and transfer of microwave ovens were prohibited, along with other consumer goods that had embedded microchips that could be repurposed by Russian engineers.

            Fast forward to mid-2024:  Russia's GDP is still robust, after experiencing a dip just after the first imposition of sanctions. GDP has been growing at nearly 4 percent or so a year. In other words, depriving Russia of income has worked like the proverbial curate's egg  -- only in parts. China and India have enjoyed vast supplies of discounted petroleum and petroleum products. North Korea is benefitting, too, as are such Chinese and Russian satellites such as Belarus, Cambodia, Laos, and Venezuela.

            More important, Putin's war machine -- and therefore his ability persistently to pummel Ukraine, has been enabled openly by the supply of vast amounts of 155 mm artillery shells from North Korea (which had been stockpiling them) and inexpensive but workhorse drones from Iran. The latter despotism also added materially to the number of long-range missiles that Russian has been able to send against Ukrainian cities and electricity generating sub-stations. Russia long ago would have run out of howitzer provisions, drones, and missiles if it had not managed to obtain them from other components of the Axis of Evil, as President Reagan termed enemies of America.

            China may also be assisting Russia with technological inputs, despite Washington's efforts to prevent such transfers and Chinese protestations that Beijing was not sending prohibited materials to Moscow.

            To cripple the Russian war effort, Europe and the United States have systematically and steadily imposed a range of stiff sanctions on Moscow since 2022.  The transfer of thousands of items are banned, almost to little avail. Chemicals, electronics, and various kinds of machinery are not supposed to be supplied to the Russians.

             The Economist estimates that the panoply of European and American sanctions have only curtailed 25 percent of Russia's needs. Advanced microchips are arriving to sustain Putin's offensive capability, keep its aircraft flying, and propel and guide its missiles and drones to their baleful destinations. Basic ball bearings are banned, but they arrive. Russian radar depends on foreign, even American-produced, microchips and electronic assemblies. So do its computers and its ability to propel assaults against Kyiv's cities. London's Royal United Services Institute reports that half of the battlefield equipment Putin's men use against Ukraine contains components "made in Europe or America."

            Turkey is a member of NATO.  But President Recep Tayyip Erdogan's troublesome regime lets a variety of goods, many of them tiny but valuable, find their way to Moscow via such despotisms as Azerbaijan and, until recently, quasi-democratic Armenia. An importer (real or on paper) in Ankara, for example, purchases essential war materiel (perhaps parts or devices) and smuggles them as innocuous items to Azerbaijan or Georgia, with a subsequent transfer to Russia.  Or, often, Turkey turns a blind eye as items ostensibly destined for Azerbaijan are allowed by Turkish customs officials to make their way through Istanbul or Ankara airports, or via ports like Izmir on the Adriatic Coast, onward to a Russian factory making war equipment.

            There are many other good routes. The formerly Soviet polities of Central Asia, especially Kazakhstan, are also greatly profiting from illicit, sanctions evading, clever trading. Kazakhstan has refused to recognize Ukraine as part of Russia and has not broken relations with Ukraine.  Nevertheless, exports from Kazakhstan to Russia rose from $40 million in 2021 to $298 million in 2023. At the same time imports of electronics from Europe into Kazakhstan increased from $273 million to $924 million over the same period. Good money is clearly being made. Could those numbers indicate help for Putin's war effort?  Kazakhstan has never been known for anything but oil pumped up from the Caspian Sea, and lots of sheep. Its electronic industry was, before the Russian invasion of Ukraine, fairly rudimentary. But now it is a seeming powerhouse.

            Likewise, the other Central Asian nations of Uzbekistan and Turkmenistan, and possibly Kyrgyzstan and Tajikistan, are also doing well by helping Russia evade sanctions. Their exports to Russia have all increased, and the range of the products transshipped to Moscow are all swelled, profitably.

            Overall, the drop in Europe's exports to Russia since the invasion is largely (but not fully) matched by the totals reaching inner Russia via former Soviet satellites, and Turkey. The last country is now even making as well as passing fancy electronic gadgets to Russia, and is even selling drones both to Russia and Ukraine.

            Enforcing sanctions prohibitions is obviously a losing proposition for the U. S. Treasury and European industrial powers such as Britain, France, and Germany. Rounding on the Central Asians and the Caucasus countries such as Georgia and Azerbaijan is an enormous and unrewarding work in progress.  It should be easier for NATO to strong-arm Turkey, its second-largest military force, but twisting Erdogan's arm has either not been tried effectively or -- as with so many dealings with that electoral autocrat -- proven impossible.

            One would imagine that cutting Russia off from the SWIFT bank clearing and processing system that the rest of the Europe and much of the industrial world uses would have helped curtail Russian imports and payments for them. But it has not, Russia using various workarounds.

            Europe has listed 2,200 firms and individuals with which and whom no one may conduct business. But commerce continues, just as trade with Russia has found ingenious pathways for critical goods and for effective reimbursements.

            Brussels and Washington need to work much more assiduously and energetically to end the clandestine supplying of Putin's war.  Busting Turkey may be key.