That’s the crux of research by Bloomberg Economics, which focuses on Kazakhstan to study how trade flows have shifted since Vladimir Putin ordered the invasion of Ukraine. It shows that Europe’s curbs on transportation to Russia have drastically rewired commercial ties, rather than cutting them altogether.

“Trade ties with Russia have remained stronger than the headline data suggest, and so the impact of sanctions on Putin’s war economy has been less than appears,” economists Alex Isakov and Gerard DiPippo wrote in their report. “Shipments have still fallen markedly, but not by as much as the bilateral data suggest.”

While Moscow does obtain prohibited goods from the European Union, they found that only 7% of Kazakhstan’s increased sales to Russia in 2023 can be linked to such items. Tools and cars are among other categories of exports that have risen. The EU sanctions include aircraft, firearms and some semiconductors. 

Russia relies on shell companies to seek out goods for military production. Trade through intermediary countries, when it first emerged in the wake of the conflict, alarmed European officials, worried that parts of ordinary consumer goods such as washing machines could be redeployed. 

The Bloomberg economists honed in on Kazakhstan, which is one of the likely hubs along with Turkey for so-called transshipment of goods to Russia, for a granular look at how exports via intermediary nations have soared.

“For Kazakhstan, we find that most of the increase is likely driven by workarounds for transportation restrictions rather than trade in sanctioned goods,” they said.

That points to the impact of limits on transportation and logistics services imposed by the EU. Road freight was banned, and Russian-owned aircraft were outlawed from the region’s airspace.

The study ultimately points to the unintended consequences that sanctions can have, and to shortcomings in the current EU approach. 

Tightening up such limits will help — including a new measure called the “no re-export to Russia” clause for contracts, Isakov and DiPippo say. 

Even so, Robin Brooks, who will join the Brookings Institution in Washington as a senior fellow in March, says that the continuing trade flows underscores how Europe needs to do more.

“The question is, why do sanctions not work?” he said. “In the case of the EU, it’s because there are vested interests — there are some very rich people and some very big businesses who are not interested in having them work — and governments are unfortunately listening to them.”

More stories like this are available on bloomberg.com

©2024 Bloomberg L.P.

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Published: 01 Mar 2024, 12:24 AM IST