West is exploring possible lifting of sanctions as exports to countries neighboring Russia soar

The EU and its allies are investigating a surge in exports to economies close to Russia to prevent companies from evading Western sanctions imposed on Moscow.

David O’Sullivan, the newly appointed EU sanctions officer, told the Financial Times that large increases in trade with countries in Russia’s neighborhood raise questions about whether sanctions-hit products entered the country through the back door.

“We are seeing a massive drop in trade flows from the EU to Russia and unusual spikes in trade with other third countries, especially those in close proximity to Russia,” he said.

“Did they suddenly develop a lot of new needs for this material and it all stays there, or does some of it seep into Russia in one form or another?”

O’Sullivan did not name individual countries, stressing that he started with the “presumption of innocence” when it came to examining changes in trade flows.

According to an analysis by the European Bank for Reconstruction and Development, among the countries with a sharp increase in Western imports and an increase in exports to Russia are Armenia and Kyrgyzstan. Turkey’s exports to Russia have also risen sharply.

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The EU and partners, including the US and Britain, will share information on possible sanctions evasion at a meeting on Thursday to push for tighter controls, O’Sullivan said.

EU, US and UK exports to Russia fell by more than half in May-July last year, adjusted for inflation, compared with the average in 2017-19, according to EBRD data showing the impact of sanctions disclose.

However, this drop coincides with a jump in sales of more than 80 percent from Europe and the USA to Armenia and Kyrgyzstan. Those two countries, in turn, more than doubled their exports to Russia over the same period, pointing to a possible trade diversion via new routes, the bank said.

EU exports of products such as vehicles, electronics, agricultural machinery and pumps to Central Asia increased, mainly driven by Kazakhstan, the bank added.

One of the possible drivers behind changing trade patterns is that Western companies are voluntarily withdrawing from direct sales to Russia, even if products are not subject to sanctions. But Beata Javorcik, the EBRD’s Chief Economist, said there has also been an increase in flows of goods that could “potentially” be subject to sanctions.

The Armenian government said it “takes all measures to prevent any attempt.” [of] evasion of sanctions”. The Kyrgyz government did not immediately respond to requests for comment.

Turkey, which replaced some of Moscow’s old trading partners after the Ukraine war, saw its exports to Russia increase by 97 percent in May-July last year compared to 2017-19, according to the EBRD analysis.

Javorcik said the EBRD’s data did not indicate that the increase in trade from Turkey to Russia was related to products subject to sanctions. “Turkey just sells a lot more of everything to Russia,” she said.

Some imports could be dual-use. A few months into the war, the Ukrainian army began reporting that some of the microchips they found in captured Russian military equipment were being repurposed from everyday household appliances. At the same time, EU exports of household appliances to Russia’s neighboring countries increased sharply.

According to data from the EU’s Eurostat database, Kazakhstan imported 1 million washing machines in December 2022. A spokesman for Kazakhstan said: “We have not seen evidence that certain companies in Kazakhstan are being used to circumvent western sanctions, but we have will continue to monitor this and will act quickly and decisively if we identify any wrongdoing.”

According to Silverado Policy Accelerator, a think tank, China has also stepped in to fill the void left by Western exports, including by shipping ever-increasing quantities of semiconductors into the country.

EU ambassadors are set to sign a tenth package of sanctions this week, including a series of measures aimed at closing loopholes in the existing regime – including a ban on the transit through Russia of goods that can be reused for military purposes.

Mark Gitenstein, the US ambassador to the EU, said on Wednesday there were “ports” where “extensive bypassing is taking place”, although he declined to give names.

Additional reporting by Henry Foy in Brussels