How Russia is Gaming the Sanctions Regime for Economic Growth

Pictured above, Russian President, Vladimir Putin takes shelter from his Armenian counterpart Vahagn Khachaturyan as he other allies offer shelter from Western sanctions.

January 31st, 2023

A strange thing happened, yesterday: the International Monetary Fund announced that it expected the Russian economy to grow 0.3 percent this year, despite a sanctions regime imposed on them from the West. This marks a significant rise from its previous estimate of a 2.3 percent contraction in the economy.

How is this happening?

Simply put, Russia, with a little help from its friends, is managing to game the sanctions regime to gain access to products that would otherwise be banned from entering the country from places like the USA, UK, and Germany, for instance.

A case in point involves smart phones:

The small country of Armenia saw a meteoric rise in shipments from various parts of the world to the former Soviet republic. At the same time, exports to Russia saw a tenfold increase.

But this is just the tip of the iceberg. From computer chips to home appliances, surges in trade from some of Russia’s neighbours and allies demonstrate that, in addition to Armenia, nations like China, Belarus, Turkey, Kazakhstan and Kyrgyzstan have thrown a lifeline to the beleaguered Western pariah, post Ukraine invasion.

Under the current sanctions program, Russia is banned from access to a variety of products, including high tech goods. The result was that the Russian domestic consumer was being continuously flummoxed over the poor quality of goods, which were being sold for sky-high prices. Even milk and medications were affected.

Today, Russian trade appears to have largely made a comeback to the point where it was before the invasion of Ukraine last February. Analysts estimate that Russia’s imports may have already risen to prewar levels, or will soon do so, soon, depending on their models.

It stands to reason, that many nations have found Russia hard to abondon. Recent research showed that fewer than 9 percent of companies based in the European Union and G-7 nations had divested even a single of their Russian subsidiaries. And maritime tracking firms have seen a surge in activity by shipping fleets that may be helping Russia to export its energy, apparently bypassing Western restrictions on those sales.

According to the New York Times, today, while some companies, including H&M, IBM, Volkswagen and Maersk, stopped operations in Russia after the invasion, citing moral and logistical reasons. But the Russian economy has proved surprisingly resilient, raising questions about the efficacy of the West’s sanctions. Countries have had difficulty reducing their reliance on Russia for energy and other basic commodities, and the Russian central bank has managed to prop up the value of the ruble and keep financial markets stable.
Russia stopped publishing trade data after its invasion of Ukraine. But analysts and economists can still draw conclusions about its trade patterns by adding up the commerce that other countries report with Russia.