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Since Vladimir Putin’s invasion of Ukraine, the West has imposed thousands of sanctions on Russia, giving it the dubious honor of being the most sanctioned country in the world.

The international sanctions target everything from the finances of individuals to the most important industries of the Russian economy. They are aimed at isolating Russian consumers. Major brands such as Apple and McDonald’s have ceased operations in the country.

But two years later, the Russian economy is showing surprising resilience and is forecast to grow faster than most other developed nations in the world, even if experts say that is not sustainable in the long term. In the face of efforts to restrict the Russian economy, the United States said on Tuesday it would announce a series of new “severe” sanctions and export controls at the G7 summit in Italy this week.

“We will continue to drive up the costs of the Russian war machine,” said White House spokesman John Kirby.

With reports that the US Treasury Department will target financial institutions that help transfer war-related imports, attention is now likely to turn to banks in the club of countries that have not imposed sanctions and facilitate the supply of goods and services to Russia.

The Russian economy was partly supported by such imports.

Internal data from Russia’s customs service show that imports have returned to almost pre-war levels, researchers say, but at much higher prices. These imports have helped vulnerable industries such as the aviation and auto industries stay afloat.

Observers speak of a “sanctions loophole” through which everything from semiconductors to aircraft parts to iPhones can be diverted to Russia and further exported via companies in China, Turkey or the United Arab Emirates or via Armenia, Kazakhstan and other former Soviet republics.

German exports of vehicles and parts in 2023 were 5100% higher than 2019 levels. This is not rocket science. This stuff is obviously going to Russia and has been for over two years. There is silence and indifference in Germany about these ongoing exports…

– Robin Brooks (@robin_j_brooks) May 28, 2024

These include highly scrutinized products such as microchips for Russian warfare – including those from US manufacturers such as Xilinx and Texas Instruments or processors from Intel. The technology is often bought by companies in Hong Kong or China and re-exported to Russia, the data shows.

“Russia’s invasion of Ukraine has exposed a governance crisis in the EU. The EU has become an enabler of war,” said Robin Brooks, a senior fellow at the Brookings Institution, during a webinar on evading Russian sanctions.

Brooks, who monitors the effectiveness of export controls, pointed to examples such as German car exports to Kyrgyzstan, which have increased by 5,100 percent since the start of the war.

“It’s not that people in Bishkek decided they love Mercedes. These are cars that go to Russia. These things usually don’t even get to Kyrgyzstan. Kyrgyzstan is just put on the bill,” Brooks said.

Export data shows that this trend can be observed in “every single European country,” says Brooks.

“It was able to offset the decline in direct exports to Russia by about half.”

Studies have found that the Russian military has exploited these loopholes to obtain important Western military technology. According to a report by the defense think tank Royal United Services Institute, more than 450 foreign-made components were discovered in Russian weapons found in Ukraine.

The US and the EU have recently stepped up their measures against companies and banks in medium-sized countries that trade with Russia.

In a speech to German business leaders in Berlin, US Deputy Treasury Secretary Wally Adeyemo called on companies to prevent Russia from importing critical components from or through China.

“The US is putting increasing pressure on banks to address the issue of re-exporting dual-use goods from or via China. Otherwise, military goods will flow unchecked to Russia,” says Maria Shagina, a senior sanctions researcher at the International Institute for Strategic Studies.

The first direct China-Europe freight train connecting southwest China’s Guizhou province with Moscow, Russia, will depart in November 2021. Photo: Xinhua/REX/Shutterstock

But some of the countries crucial to Russia’s efforts to evade sanctions are resisting Western pressure.

In a recent interview with the Financial Times, the chairman of the Dubai Multi Commodities Centre, the oil state’s main trading hub, said that sanctions against Russia had no impact outside the West and that attempts to stop trade flows had merely diverted them to other countries.

“The fact that the economy is not exclusively controlled by one side of the world makes these sanctions less effective,” said Hamad Buamim.

“Trade continues, it just happens in a different way.”

“Major Greek tanker sell-off”

Without the significant revenues from Russia’s energy resources, it would not be possible to continue importing to Russia and maintain the country’s economy. And here, too, Moscow depends on external actors willing to defy the Western sanctions coalition.

In December 2022, the United Kingdom, along with the G7 countries, Australia and the European Union, introduced a price cap of $60 per barrel to prevent Western companies from transporting, servicing or brokering Russian crude cargoes, weakening the Russian oil trade, which is heavily dependent on Western-owned and insured tankers.

To ship crude oil abroad and earn urgently needed foreign currency, Russia resorted to a “dark fleet” of older tankers with unclear ownership.

Greek shipping magnates, who play an outsized role in the global oil trade, have stepped in and sold hundreds of old ships to Russia in a phenomenon dubbed the “Great Greek Tanker Sale.”

According to the trade magazine TradeWinds, Greek shipowners have sold at least 125 oil and shipping vessels worth over four billion dollars to strengthen Russia’s “Dark Fleet”.

When G7 leaders meet in Italy, they will face a number of issues, and how best to support Ukraine is likely to be high on the agenda. For now, Western politicians and analysts largely agree that the impact of sanctions on Russia has been slower than hoped.

“So far, we have failed to achieve our primary objective of pushing Russia out of Ukraine,” Brooks said.

He argued that the key to damaging Moscow was to target its energy profits. Measures proposed by Brooks and other sanctions experts included lowering the oil price cap to $20 a barrel and banning Western oil tankers from selling to unknown buyers.

“If Europe is prepared to act decisively, we will see a financial crisis in Russia,” Brooks said.

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