Targeting Russia’s military supply network in Asia, the UK issued its most comprehensive sanctions package on the Russian Federation since 2023. As Russia’s full-scale invasion of Ukraine approaches its 1000th day, Moscow continues to circumvent Western sanctions to buy components for the manufacture of weapons and enjoys selling oil and gas to generate revenue to fund its war efforts in Ukraine.
New UK sanctions against Russia
The UK Foreign Office announced its “largest sanctions package against [the country] since May 2023” on November 7, targeting 56 organizations and individuals that support Russia’s military-industrial complex.
The targeted organizations included suppliers from China, Turkey, and Central Asia who supplied “vital military equipment” for Russia’s war effort in Ukraine.
“Today’s action targets entities based in China, Turkey, and Central Asia involved in the supply and production of goods including machine tools, microelectronics, and components for drones, all of which Russia needs to support its illegal invasion of Ukraine,” the UK Foreign Office’s statement said.
“We are striking at the very core of Russia’s foreign interference apparatus. Today’s measures will push back on the Kremlin’s corrosive foreign policy, undermine Russian attempts to foster instability, and disrupt the supply of vital equipment for Putin’s war machine. Putin is nearly 1,000 days into a war he thought would only take a few. He will fail, and I will continue to bear down on the Kremlin and support the Ukrainian people in their fight for freedom,” said Foreign Secretary David Lammy.
The “Africa Corps,” a Russian-affiliated mercenary organization that operates in unstable nations including Libya, Mali, and the Central African Republic, was also the target of the shipment. The first G7 country to penalize Russian mercenaries working in Africa is the United Kingdom.
The U.K. government stressed that these actions are a part of a larger effort to help Ukraine’s security and limit Russian influence globally.
Russia’s economy and its trade with China
Despite traders’ increasing difficulties receiving payment, a recent OSW note shows that the new, stricter financial sanctions have most negatively impacted Russia’s small and medium-sized businesses, while large Chinese and Russian companies continue to find ways around them.
With the exception of brief disruptions caused by the development of new payment methods, trade volumes between Russia and its trading partners have remained largely unaffected.
The Central Bank of Russia (CBR) reported that during the first eight months of 2024, while exports showed a slight decrease of more than 1% year over year, imports only decreased by about 8%. Even though these developments appear to be relatively restricted, longer delivery times and the rising cost of imported products have caused harm. This is because they are contributing to ongoing inflationary pressure, which has forced the CBR to raise prime interest rates to 21% in October, which is hampering investment and growth.
Cars, electronics, and Indian steel imports have been the most negatively impacted industries, with payment processing becoming increasingly difficult. Despite the apparent return of most funds to payers, trade-related consequences persist. Remarkably, according to the CBR, 43% of Russia’s imports were paid for in rubles in June, with the yuan coming in second at 40%. Although economists claim this is just transitory, the yuanization of the Russian economy has resulted in a recent yuan liquidity shortfall on the Russian market.
Due to their tiny market share in Russia, Chinese banks have demonstrated a cautious attitude toward reducing the risk of sanctions. For example, since April 2024, the Bank of China has cut its net assets in Russia by over 40%. Following the Moscow Exchange’s placement on the sanctions list, the Industrial and Commercial Bank of China (ICBC) assumed management of yuan clearing. According to reports, China Construction Bank and Agricultural Bank of China have also reduced their business dealings with Russian organizations out of concern for possible secondary sanctions.
While customs data shows minimal changes in imports from Russia’s largest suppliers, CBR data from the first eight months of 2024 reveals an 8% decrease in imports. However, maintaining this durability to withstand sanctions has required increasingly innovative (and cunning) approaches. Using foreign countries to register subsidiaries and intermediaries to process payments has been a crucial strategy for corporations to avoid direct exposure to Russian sanctions. In more extreme situations, Russia has utilized cash, cryptocurrencies, barter agreements, and websites that connect importers and exporters in China with “clean” yuan.
Russia’s oil sales and shadow fleet
According to the CREA analysis, Russia continues to make substantial revenues from the sale of its oil in spite of sanctions and an oil price restriction. In October, Russia’s monthly export earnings from fossil fuels fell 4% to EUR 620 million per day. For the first time in four months, Russia’s monthly export earnings from seaborne crude oil increased by 10% in October to EUR 210 million per day.
In October, France imported EUR 233 million worth of Russian LNG, making it the EU’s biggest importer of Russian fossil fuels.
Despite previous sanctions aimed at it, Russia’s shadow fleet is still operational. 399 ships, including 222 “shadow” tankers, exported Russian crude oil and oil products in October. According to the evaluation, 30% of these “shadow” vessels were at least 20 years old.
Strict implementation of the price cap would have reduced Russia’s export earnings by 8% (EUR 23.98 billion) between the start of the EU sanctions in December 2022 and the end of October 2024. Complete implementation of the price cap would have reduced sales by 8% (about EUR 0.8 billion) in October alone.
Russia’s oil export earnings would have been cut by 25% (EUR 71 billion) between the beginning of the sanctions and the end of October 2024 if the price cap had been set at USD 30 per barrel, which is still significantly higher than the country’s average production cost of USD 15 per barrel. In October alone, a price restriction of USD 30 per barrel would have reduced Russian revenues by 22%, or EUR 2.67 billion.
Sanctions evasion vs. sanctions enforcement and restrictions tightening
Russia has so far been able to avoid the technological bans and oil price cap sanctions that were meant to knock the country’s economy to its knees, so sanctions on Russia are still falling short of expected results and not fully enforced.
Additionally, the emphasis on getting around sanctions has strengthened commercial ties with non-Western nations. Not just China and Central Asian countries have turned against Russia as a result of the sanctions regime. Because of the benefits of increased trade with Russia, Central Asia has benefited greatly from Russia’s war in Ukraine. As they weigh the advantages of opening up commerce with Russia against the potential negative consequences from the West, smaller countries like Kazakhstan and Armenia find themselves increasingly caught between superpowers.
The fact that Russia continues to circumvent sanctions, sell gas and oil, buy sanctioned electronics for use in weapons production, and, at the same time, attack and bombard Ukrainian cities shows that Western countries need to seek harsher measures to achieve the sanctions’ primary goal of depleting the Kremlin’s financial resources to fund its war against Ukraine.
After Donald Trump’s victory in the U.S. presidential election, this demand becomes more urgent, as the Russians are already saying that they hope for a gradual lifting of sanctions under Trump’s presidency. Time is rapidly ticking out, and Ukraine anticipates more decisive action from its allies. Probably, in the next two months, we will witness how Western countries, particularly the EU, will continue to support Ukraine in the face of military pressure from Russia.
