New round of anti-Russian sanctions to shift Eurasian transit to Azerbaijan Analysis by Caliber.Az

European Union governments have agreed to an 11th package of sanctions against Russia. The sanctions, along with a ban on the re-export of certain goods and technologies through third countries, include a set of measures to ban international activities of Russia's transport and logistics infrastructure. Among other things, there is a complete ban on the transport of goods by trucks with Russian trailers and semi-trailers in order to prevent the sanctions from being circumvented. To the same end, the European Commission (EC) is diversifying road logistics by shifting it toward the "Middle Corridor".

A pilot project for the transshipment of cargo in semi-trailers with tractor units along the Europe-Caucasus-Asia (TRACECA) route through Azerbaijan was recently launched.

The European Union officially imposed the 11th sanctions package against Russia and EU ambassadors agreed on the details on June 23. "The eleventh package of anti-Russian sanctions, which has come into force, should prevent Russia from evading the sanctions imposed earlier. The EU, together with its allies, will continue to work to ensure that the sanctions are as strong and effective as possible," Estonian Foreign Minister Margus Tsahkna announced the previous day.

The new package is mainly aimed at discouraging evasion of previous and new sanctions, including the EU Council's intention to limit the supply of certain goods and technologies to third countries. In particular, the package includes the possibility of extending the export ban to third countries through which sanctioned goods can enter the Russian Federation.

In this regard, the European Commission has added 87 structures and companies that support the Russian military-industrial complex to its sanctions list: these include companies from China, Uzbekistan, the UAE, Syria, and Armenia, which has multiplied its supplies of foreign electronic products and equipment to the Russian market in the past year. Thus, despite Yerevan's attempts to evade responsibility for its involvement in the re-export of dual-use goods, the country is still on the EC's sanctions list.

The EU is also extending the ban on exports to Russia of luxury cars, all new and used cars with a capacity exceeding 1,900 cubic metres, electric and hybrid cars. In addition, as part of the 11th round of sanctions, the broadcasting licences of Russian TV channels RT Balkan, Oriental Review, Tsargrad, New Eastern Outlook, and Katehon will be suspended.

Measures are also envisaged against Russian individuals, organizations, and companies added to the updated blacklists: in particular, there are plans to freeze the assets of 100 individuals and legal entities - judges, and top military officials "involved in the illegal deportation of Ukrainian children", businessmen, media representatives, as well as Russian IT companies that provide services to Russian intelligence. Similar measures will be taken against banks operating in the occupied Ukrainian territories.

The new EU sanctions moves could have a tangible impact on Russia's steel sector: a total ban is being imposed on imports into EU countries of raw steel and rolled products made from Russian resources. In the meantime, suppliers of steel products from third countries will be obliged to provide relevant certificates to prove that the resource base of imported steel is not of Russian origin.

At the peak of economic growth in 2010, Russian suppliers of rolled steel products accounted for about 30% of world exports. By 2023, the Russian steel industry's share of global steel trade had dropped to 7% - the Russian Federation is now in 5th place.

China was the clear leader in terms of production volumes - about 53% of global production and rapidly growing exports. Before the war in Ukraine, about a quarter of the Russian steel industry's production was destined for Europe, but this and other Western markets are now completely closed to Russian rolled steel. Moreover, the 11th sanctions package cut off the possibility of supplying the West with Russian iron raw materials and semi-finished products processed into finished products in third countries.

However, the most extensive and versatile of the EU sanctions have covered the transport and logistics sector. In particular, oil transportation via the northern branch of the Druzhba pipeline to Poland and Germany (except for Kazakh oil) is banned, as is the entry of any tankers from Russia into European ports. The same ban on calls to EU ports has been imposed on any vessels violating the rules of the oil embargo and the price cap.

Moreover, the Estonian proposal extends the prohibition of Russian ships entering Gulf of Finland ports to anchorages outside the jurisdiction of the ports. Finally, as part of the 11th package, a complete ban on road transport of goods in the EU and in the reverse direction by means of trailers and semi-trailers registered in Russia has been introduced.

This step closes regulatory loopholes for the transshipment of goods by trucks registered in third countries but carrying goods in Russian trailers and containers. The enormous scale of freight transport in the vast Eurasian area, of which road transport accounts for about 50%, should be taken into account here.

It is noteworthy that this decision affects not only Russian hauliers, but also neighbouring countries, including the Central Asian (CA) states. For the past decades, the Central Asian countries have been transporting cargo to Europe by road and rail via the routes of the "Northern Corridor", which runs through Russian territory.

Judging by the points of the new sanctions package, the transit route for heavy goods vehicles through Russian territory will soon sink into oblivion. Against this background, Brussels intends to promote Western cargoes, especially high-tech goods and equipment through alternative routes. At that, the European Commission gives priority to the expansion of cargo transportation along the Transport Corridor Europe - the Caucasus - Asia (TRACECA) initiated by the European Union 25 years ago.

By the way, thanks to the EC's efforts since the second quarter of last year there has been a diversification in the transit of energy and non-commodity (agricultural raw materials, chemical and mineral products, grain, metal concentrates) goods from Central Asian countries to the European Union.

Moreover, the volume of containerised cargo transhipped from Kazakhstan, other CA countries, and China through the Caspian Sea by ferries, feeder vessels, and further by railways of South Caucasus via the Trans-Caspian International Transport Route (TITR), as well as via TRACECA, has increased manifold.

Already by the end of 2022, the volume of cargo transported through Azerbaijan within TRACECA amounted to 51.420 million tons with an increase of 29.8%, while the share of transit cargo transported through the corridor in the reporting period exceeded 13.634 million tons, ensuring an increase of 54.5%.

And now similar steps are being taken to shift a very large flow of road freight traffic to the Middle Corridor. The Permanent Secretariat of the TRACECA Intergovernmental Commission recently organised pilot truck and semi-trailer shipments along a multimodal route from Lithuania to Poland and on to Slovakia, Hungary, Romania, and Bulgaria, with ferry transshipment via the Black Sea to Georgia, Azerbaijan, and then across the Caspian Sea to Kazakhstan.

This entire combined land and sea route is planned to take 16 days, with close coordination between the customs authorities of the nine countries and the administration of the seaports of Varna, Batumi, Baku, and Kuryk.

For the last two years, Azerbaijan and its TRACECA partners Türkiye, Kazakhstan, and Georgia have been closely cooperating to simplify cross-border and customs procedures, optimise tariff policies and prepare for the introduction of single electronic permits for road transport.

All this work is consistently supported by the European Commission and other relevant EU structures, given the high interest of the EU in land connections with Central Asia and the South Caucasus within the framework of the "Middle Corridor" transport initiatives. Moreover, there is now a convergence of efforts between the two main trans-Caspian routes to jointly attract additional cargo.

"In February this year, TRACECA and TITR signed a memorandum of cooperation to develop transport routes, attracting new goods and cargo. Also within the framework of the memorandum, we will exchange information related to transport and the strengthening of socio-economic conditions in the regions of Europe, the Caucasus, and Asia, which in turn will create a favourable investment climate," said the Secretary General of TITR Gaidar Abdikerimov the other day.

The same day representatives of Kazakhstan and Azerbaijan signed an agreement to establish a logistics company for the development of TMTM, and Georgia will soon join this agreement as well. The single company will consolidate tariffs and handle all cargo on the TITR, and its main task will be to carry out transit freight traffic between China and Europe.

This year, the parties to the agreement intend to reduce the cargo delivery time on this route from the current three weeks to a guaranteed 18 days, and subsequently to 10-15 days. Another of the documents signed by Astana and Baku concerns the digitalisation of freight traffic on the TITR, which will simplify and accelerate logistics many times over and expand the multimodal component of freight transport.