Anti-Russian sanctions reveal high-risking balancing act of small states
To sanction or not to sanction?
ANALYTICS 30 May 2023 - 14:53
After Russia’s invasion of Ukraine, the major Western countries levied a comprehensive package of sanctions on Russia, thereby challenging its financial and military capabilities to continue its war in Ukraine. Unlike wars in 2008 against Georgia, and 2014 with Ukraine, this time, the scope of international sanctions against Russia is broader and more importantly, western countries expressed firm commitment to keep the sanctions regime even if it also hurts their own economies.
As a result, in a short period of time, Russia replaced Iran and North Korea as the most sanctioned country in the world. The European Union, the US, the UK and Canada have frozen assets of Russia's central bank in their countries. Major Russian banks have been removed from the international financial messaging system Swift, delaying payments for Russian oil and gas.
To break out of this isolation, the Kremlin invented a “parallel imports” strategy that envisions using the territory of close allies in the neighbourhood to gain access to goods and services that otherwise have been banned from export to Russia.
Consequently, those new supply chains — which are keeping Russians well-stocked with alcohol, luxury goods and other Western products — undermine Europe's efforts to punish Moscow and should be blocked. Moreover, with the imposition of sanctions on Moscow, many individuals based in Russia began massively sending remittances to other post-Soviet states, while medium businesses raced to cash in on reselling unavailable goods to Russia.
Although Russia's economy suffered a lot since several packages of international sanctions were imposed, Moscow found alternative ways to circumvent sanctions by using territories of neighbourhood countries, namely China, Uzbekistan, Armenia and Georgia. Although the sweeping sanctions have been imposed in partnership with 38 other governments that have severely damaged Russia's military capacity and raised the cost to Russia to procure the parts it needs, Moscow is still capable of producing lethal weaponry thanks to regional allies.
The first reports regarding Russia using Armenia occurred in April 2023, when the New York Times revealed a report that Russia had acquired electronic chips and other electronic devices that they have deemed as critical to the development of weapons, including Russian cruise missiles that have struck Ukraine through Armenia and Kazakhstan.
While Russia’s ability to manufacture weaponry has been diminished because of Western sanctions adopted more than a year ago, as the trade restrictions are making it significantly harder for Russia to obtain technology that can be used on the battlefield, much of which is designed by firms in the United States and allied countries.
Illegal chip import is not the only field where Russia feels comfortable circumventing sanctions, as trade operations with neighbouring countries are set to increase more. Hence, on April 12, the United States Treasury Department’s Office of Foreign Assets Control (OFAC) placed more than 100 people and entities across over 20 countries on its sanctions list due to violations of US export controls in helping Russia with its war effort.
According to the Armenian National Statistical Committee, Armenia’s foreign trade turnover surged by 68.8 per cent in 2022 compared to the previous year, reaching $14.1 billion. However, Armenian authorities deny the fact that they are helping in any way to assist Russia in avoiding sanctions. Instead, Armenia explains the growing trade numbers with Russia with the membership of Yerevan and Moscow in the Eurasian Economic Union.
On the other hand, new reports claim that Georgia is another regional state maintaining close trade relations with Russia despite international sanctions. When the war in Ukraine unfolded, Georgia became one of few countries rejecting to join anti-Russian sanctions, citing economic interests. The same position was recently reiterated by Georgian Prime Minister Irakli Garibashvili, putting that imposing sanctions on Russia would “destroy” Tbilisi’s economy and “damage the interests” of Georgian citizens.
Georgia's ruling government is furious due to the mounting pressure from the West criticizing Tbilisi's deepening partnership with Russia amid sanctions and the war in Ukraine. The trade turnover between Georgia and Russia in 2022 exceeded $2.4 billion, which is 52% more than in 2021, according to the National Statistics Service of Georgia.
Notably, according to a new report prepared by a Georgian NGO, some 17,000 Russian companies have been registered since the Ukraine war began. Therefore, Georgia sees the current crisis in Russia as an emerging opportunity to boost its position and avoid the 2008 scenario.
Though the Georgian government insists that goods in transit through its territory are not subject to international sanctions, the opposition, however, accuses the ruling Georgian Dream party of secretly colluding with the Kremlin. Also, Georgia became a favourite destination for Russians seeking asylum from Russia's mobilization in 2022.
Under the current circumstances, Russia will seek new ways of circumventing Western sanctions and use its leverage over small neighbouring states. In line with it, countries like Georgia, Armenia and other post-Soviet states have few counter-mechanisms of opposing Russia's growing expansionism and will unlikely demonstrate efforts to antagonize the northern neighbour.
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