How sanctions work and how Russia tries to avoid them

Today, the Russian Federation is the most sanctioned country in the world, and the European Union plans to introduce the tenth package of sanctions.

The purpose of the sanctions against Russia is to undermine Russia’s ability to wage war and to reduce the access of the leaders of the aggressor country to the materials and financing necessary to wage war.

But are the sanctions effective and efficient? After all, the Russian economy continues to hold. More than a thousand foreign companies have already left Russia or frozen their business, but there are still publications favorable to Russian business.

 

The implemented sanctions contain many exceptions

Part of the Russian crude oil that Europe was supposed to buy will be sold to Asia. In particular, China and India are ready to continue buying oil at reduced prices.

The ban on the import of Russian oil provides for a ban only on the import of Russian oil by sea. Countries that receive oil through pipelines (Hungary, Slovakia, and the Czech Republic) continue to receive it.

 

An opportunity to increase exports to other countries

«Since 2017, China has been the largest buyer of Russian oil. It accounts for 31% of total exports. With the beginning of Russia’s war against Ukraine, the supply of oil to China began to increase. India also intends to double the import of Russian oil, taking advantage of the significant discounts offered by Rosneft, — analyzes Yaroslav Pylypenko, an expert in NGO «Transparency International Ukraine».

There are also countries that are ready to continue economic cooperation with Russia.

The US Treasury Department has published in June 2022, a list of countries with which Russia is establishing parallel imports. These countries include Armenia, Georgia, Kazakhstan, Kyrgyzstan, Tajikistan, Uzbekistan, Turkey, China, Brazil, India, Israel, Mexico, Serbia, UAE, South Africa, Nicaragua, Singapore, and Taiwan.

 

Ways to avoid sanctions

“We’re seeing a spike in Russian tankers turning off transmissions deliberately to circumvent sanctions,” Windward CEO Ami Daniel said in an interview with CNN.

Their shadow activity increased by 600%. It is possible to turn off the systems that transmit the signal about the location of the tanker only for safety reasons. However, Ami Daniel believes that Russian vessels are hiding information to circumvent sanctions.

Andriy Klymenko, head of the monitoring group on sanctions and freedom of navigation, notes that the monitoring group BlackSeaNews and the «Institute of Black Sea Strategic Studies» found a new area of «informal» raid transshipment of Russian bloody oil in the Black Sea — halfway between the Turkish port of Sinop and Novorossiysk. As of January 20, 2023, thanks to publicity, this channel has already been almost covered.

«Another way to avoid restrictions on the sale of Russian oil is the so-called mixing. That is, the trader sells a barrel in which a certain percentage of oil is produced in Russia, and the rest is supplied from other sources. Such cargo is technically not of Russian origin. Another option for mixing is a manipulation of the ownership of oil by Russian producers,» says Yaroslav Pilypenko, an analyst at the NGO «Transparency International Ukraine».

 

Sanctions are implemented slowly

The disconnection of seven Russian banks from the SWIFT payment system occurred a week after the full-scale intrusion began; the embargo on gold, and coal — for the fifth and sixth months; approval of the eighth package of sanctions took three months.

All of this gives Russia time to adapt to future sanctions and incentivizes Western firms to increase trade with Russia before sanctions are implemented.

«Also, the reason that sanctions do not work in such volumes and not at such a speed that is required is the low responsibility for non-compliance or circumvention of sanctions. To obtain the desired result, the application of sanctions in the existing directions only needs to be strengthened. Especially for the financial sector, in terms of disconnecting more banks from SWIFT and closing loopholes that allow Russia to bypass sanctions. It would be especially effective to include Russia on the «blacklist» of the Financial Action Task Force on Money Laundering (FATF). Also, it is necessary to introduce additional sanctions against international platforms and payment systems that help Russia. After all, first of all, payment systems are a mechanism that allows international transactions to be carried out without the appropriate authorization (that is, it is not possible to establish the origin of funds)», — stressed the deputy director of the financial company Activitis, Iryna Popova.

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Therefore, the insufficient number of sanctions for the financial sector, the gaps, and loopholes in the sanctions create insufficient influence on the Russian economy and cannot force the Russian Federation to stop the war of aggression against Ukraine.

In addition to strengthening sanctions, the EU must ensure that Russia cannot adapt to the consequences of the sanctions package and convince countries that have not joined the sanctions regime, including China and India, to also exert economic pressure on the Russian Federation.

Anna Ostymchuk