How will US sanctions on Central Asian companies affect the region’s ties with Russia? Feeding the war machine

On August 10, the US Department of Commerce blacklisted 69 Russian companies, including one from Kyrgyzstan and one from Armenia. In fact, such restrictions fit into an already-existing trend. Companies from friendly countries are under threat of blocking sanctions for dealing with sanctioned Russian entities or violating US export control rules.

According to information disclosed in the Federal Register of the United States, the Kyrgyz company is identified as Tro.Ya, with its headquarters located in Tokmok, Kyrgyzstan. Records indicate that Tro.Ya is associated with Nas. Tech, further highlighting their interconnectedness, though the Kyrgyz authorities did not issue any statement regarding the sanction decision.

Moreover, as of August 2023, three more Kyrgyz companies were included in the sanctions list for their business ties to Russia, thus violating the international sanctions. As in the case of other regional states, Kyrgyz companies are accused of exporting dual-use goods under US export control to Russian customers.

With the imposition of wide-range sanctions, Russia became extremely hungry for Western-made electronics necessary for the local defence industry, including Iranian drone production. In this regard, Russia reached out to its Central Asian neighbours to circumvent the sanctions. As such, since Russia’s February 2022 invasion, European Union exports to Kyrgyzstan and Kazakhstan of dual-use technology found in Russian armaments have skyrocketed.

As a result, the US, EU, and UK officials have used diplomatic levers to curb the trade. They have lobbied governments to prevent the flow of sanctioned dual-use Western electronics through their territory to Russia. This came amid reports that the Russian business elite facilitates establishing new side companies in Kazakhstan and Kyrgyzstan to import necessary goods.

For example, Kazakhstani company Aspan Arba became the official distributor of DJI in Kazakhstan in November 2022. “Aspan Arba” obtained a license to import 18,000 DJI drones worth $45 million, and 500 drones were sent to “Nebesnaya Mekhanika” in Russia.

However, despite criticism of the Western media, Kazakh and Kyrgyz authorities are not worried about the newly imposed sanctions, claiming that the re-export of dual-use goods was not illegal. In this context, the EU has moved to tighten loopholes allowing dual-use technology to flow to Russia via third countries.

The new regulations are designed to ensure that such dual-use goods do not “fall off a truck” in Russia en route to a third country. For example, paragraph (h) Art. 3 of EU Council Regulation 269/2014 empowers the Council to impose blocking sanctions against any individuals or legal entities involved in circumventing sanctions against Russia.

Consequently, total exports to Russia from Moscow’s regional allies Armenia, Georgia, Kazakhstan, Kyrgyzstan and Uzbekistan rose by almost 50% to $15 billion last year, according to a Wall Street Journal analysis of UN trade data. Apparently, dual-use goods for military equipment are not the only viable option for Russia to evade the sanctions, as Moscow strengthens economic ties with its neighbours to minimize the consequences of the economic sanctions.

For example, amid the sanctions, Moscow signed a new deal with Uzbekistan to boost the natural gas exports to this country since January 2023. As such, the Russian energy giant Gazprom is to supply 2.8 billion cubic meters of gas to Uzbekistan in light of chronic gas shortages. Gas will be supplied in "reverse mode" across Kazakhstan through the existing Central Asia-Center gas pipeline, with a capacity of 50 bcm a year.

In line with trade operations, Moscow is willing to prompt up activities in logistics and transit with particular attention to creating a multimodal transportation route along the Tajikistan-Uzbekistan-Turkmenistan corridor. This could facilitate the circumvention of international sanctions imposed on Russia.

However, the growing sanctions risks pushed official Astana to limit re-exports to Russia and introduce new customs regulations, thus limiting its role in the process. Therefore, the Russian press has christened the Tajikistan-Uzbekistan-Turkmenistan route as the “Southern Transport Corridor” (STC), hoping it would overcome the obstacles created by Kazakhstan’s new regime of customs verification on its border with Russia.

It is evident that the blocking of companies from friendly countries working with Russia will continue. So far, the United States is blocking firms directly related to sanctioned persons, acting in their interests, or circumventing export controls.

Russia will keep strengthening its economic and logistics ties with the Central Asian countries because it is a dependable circumvention of the sanctions imposed on it. Finding routes to circumvent the sanctions is a natural outcome of the sanctioned regime. Therefore, the Ukraine war and the Russian business elite are not an exception.