Sanction boomerang: how Turkey helps the aggressor to circumvent sanctions

At the beginning of December, the Council of the EU approved the ninth package of European Union sanctions against Russia for its war against Ukraine. The new restrictions prohibit maritime transportation and the provision of technical assistance, brokerage services, financing or financial assistance related to the maritime transportation to third countries of crude oil (from December 2022) or petroleum products (from February 2023) originating in or exported from Russia.

It will be possible to provide transport and the specified services if oil or oil products are purchased at the established price limit or cheaper. All operations with the Russian maritime registry, which is added to the list of state-owned enterprises subject to the ban on operations, are also prohibited.

In addition, the sanctions include a ban on the export of coal to the Russian Federation, in particular, coking coal (which is used at Russian industrial enterprises), certain electronic components, technical products used in the aviation industry, etc. In turn, it is now prohibited to import steel products into the EU not only from the Russian Federation, but also from third countries, if Russian steel was used for their manufacture. Cast iron pipes and profiles, certain types of steel products were also banned from Russia; a quota was introduced for the import of slabs and square blanks.

But numerous packages of sanctions adopted by Western countries in the previous six months are already working and should have a significant impact on the economy of the aggressor country, but they do not have the expected effect. For example, for 9 months of this year, the cargo turnover of Russian ports has practically not changed compared to the pre-war year 2021. Therefore, the appropriate question is whether the introduced restrictions affect export logistics at all?

Why did European sanctions turn out to be not very effective, and how do Russian metallurgists export their rolled metal?

Due to sanctions from the EU and other Western countries, a surplus of rolled metal has formed on the market of the Russian Federation. Therefore, the Russians want to close their market from the Kazakh products of ArcelorMittal and are looking for opportunities to increase exports.

“They can only sell in some countries where they have to dump. But when you lower the price, you come under an anti-dumping investigation,” Mauro Longobardo, CEO of ArcelorMittal Kryvyi Rih, told NV Business in an interview.

According to him, because of this, a more serious problem arises on the global market – it is Turkish traders who buy large volumes of Russian metal and resell it in other countries already at market prices.

“Therefore, it is necessary to increase the effectiveness of sanctions so that there is no boomerang: if you introduce sanctions, you yourself suffer. The EU imposed sanctions, but cannot sell its products to Turkey, because there is a Russian product there, which is 20% cheaper. Moreover, the Turks resell it all over the world. And they earn a lot of money,” explained Longobardo.

In 2024, EU sanctions will enter into force, which will prohibit the purchase of rolled metal produced from Russian semi-finished products. It is believed that this norm will hit Turkish companies the hardest.

Metallurgy went into the shadows

It is difficult to accurately assess the impact of sanctions on Russian metallurgy, since, starting from June 2022, the Russian Federation stopped publishing production statistics. It is known that in the first five months, steel production there decreased by 2.3%, to 31 million tons. If we take into account the approximate estimate of the World Steel Association, for January-July production amounted to 41.4 million tons or -7% of indicator of the previous year.

Indirect proof that things have worsened for Russian metallurgists is the fact that Metaloinvest, which is the largest producer of iron ore raw materials in Russia, was forced to revise its capacity development strategy, postponing the construction of two new hot-briquetted iron production plants.

Meanwhile, Severstal produced 7.967 million tons of steel in 9 months, which is 8% less than in the same period of 2021. The company said that it will not disclose financial results for January-September of this year “due to the ongoing restructuring of business processes.” As we understand, the need for such restructuring did not arise from a good life.

However, it is obvious that a drop in production of 7 or 8 percent is not at all the result that should be expected from sanctions.

At the same time, it is worth noting that the sanctions introduced by Western countries did not apply to long contracts already in force at that time. Therefore, in the following months, products continued to be delivered under such contracts. For example, in July, supplies of ferrous metals from the Russian Federation to the United States sharply decreased to the amount of 0.6 million dollars against 201 million dollars in June.

According to experts in the field of metallurgy, according to the available data, the import of metallurgical products to the USA from Russia almost stopped as of September, although according to the results of the six months it was still ongoing. This means that the long contracts have ended and the sanctions introduced in the spring have really started to take effect. But the EU nevertheless continues to increase imports.

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