Sunday, September 01, 2024

EU imports from Russia drop to record lows but signs of sanctions circumvention persist


By Thomas Moller-Nielsen | Euractiv
Aug 28, 2024


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While EU imports from Russia slid to record lows in the second quarter of 2024, signs persist that Brussels’ sanctions on Moscow are being circumvented via trade with third countries.

Data published by the EU’s official statistics office on Wednesday (28 August) showed that the bloc’s imports from its eastern neighbour slid 16% from the first to the second quarter of 2024.

In June, the total value of imported goods dropped to €2.47 billion—the lowest monthly amount since Eurostat, the EU’s official statistics office, began collecting data in January 2002.

This followed April and May, which saw the second and third lowest recorded monthly imports, at €2.66 billion and €2.89 billion, respectively.

Exports registered a similarly steep decrease, dropping 9.5% in the second quarter to reach €2.43 billion in June, the lowest amount since January 2003 and the third-lowest ever recorded.

EU imports from Russia fell dramatically in the immediate aftermath of Moscow’s full-scale invasion of Ukraine in February 2022 but have declined at a more gradual pace since the second quarter of 2023.

Exports, meanwhile, experienced a steep – albeit less dramatic – decline following Russia’s invasion but have fallen at a similarly steady rate since the middle of 2022.

Philipp Lausberg, analyst at the European Policy Centre (EPC), told Euractiv that one likely reason for the trade quasi-stabilisation is that the more recent rounds of Brussels’ 14 packages of sanctions against Moscow have placed much less emphasis on banning the purchase of specific goods, such as oil and coal.

“The last two sanctions package […] focussed more on enforcement and preventing circumvention,” he said. “So I think it makes sense that we’ve reached a low that is more-or-less constant.”

Alexander Kolyandr, non-resident senior fellow at the Centre for European Policy Analysis (CEPS), suggested that another potential reason for the trade “equilibrium” is the relative stabilisation in commodities prices – especially energy prices – since the beginning of 2023.

“Russia is selling LNG [liquefied natural gas], there is no way for Russia to increase [supply], Europe doesn’t want to decrease [purchases of] whatever is coming from Russia – and so the bottom line figure basically depends on the market price of the commodities,” he told Euractiv.
Circumvention trend persists, but costs to Kremlin may be ‘significant’

The Eurostat data comes amid persistent concerns over sanctions circumvention, with trade between European countries and those in Asia, the Caucasus and the Middle East experiencing a steep increase since February 2022.

Kolyandr noted that, from 2021 to 2023, EU exports to Uzbekistan almost doubled from (€2.30 billion to €4.35 billion), sales of goods to Armenia nearly tripled (€757 million to €2.16 billion), and exports to Kyrgyzstan rose more than tenfold (€263 million to €2.73 billion).

“Russia has been proven to be able to circumvent sanctions by trading with third countries,” the analyst said, adding that non-former-Soviet countries such as China and Turkey could also represent key circumvention routes.

Lausberg, meanwhile, said that, although circumvention remains a major problem, “If Russia has to sell via a third country, that third country makes some cash with it that Russia loses.”

“And when Russia buys stuff like high-technology [products] and electronics, it’s more expensive than it used to be,” he added.
Russian economy overheated

Meanwhile, the two analysts noted that the EU and Russia seem to have embarked on diverging economic trajectories, with the latter enjoying much healthier economic growth – though that is not necessarily good news for the Eastern country.

According to the International Monetary Fund, Russia’s economy is expected to grow three times faster than the EU economy this year (3.2% vs 1.1%) after expanding six times more last year (3.6% vs 0.6%).

The country’s manufacturing sector has also experienced a significant boom since the beginning of the Ukrainian conflict, while Europe’s industrial sector remains mired in stagnation or decline.

Lausberg, however, noted that Russia’s strong economic performance is the result of a “rebound” from its steep economic slump in 2022, in no small part thanks to hefty increases in military expenditures – which he said have not only “distorted” the country’s economy but do not represent “an investment in the long run.”

He also pointed out that Russia is still grappling with severe economic problems, including profound labour shortages and elevated prices for high-tech imports.

“In the long [term], you can’t really run an economy with high-cost imports of technology [or] if you don’t have a labour force that can actually deliver what you want to produce,” the analyst said.

Kolyandr also noted the Russian economy continues to show signs of “overheating” (a process whereby supply falls short of meeting heightened demand, generating strong inflationary pressures).

He said virtually every economic metric corroborates the trend, with unemployment currently hovering at about half its historical average and real salaries rising more than two times faster than the country’s GDP.

Echoing what he previously argued about the country’s recent economic patterns, Kolyandr added, “In my view, the Russian economy is mortgaging its future.”

[Edited by Anna Brunetti/Alice Taylor-Braçe]

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