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Russia evades Western punishments, with the help of friends

WASHINGTON — Something strange happened to smartphones in Armenia last summer.

Shipments from other parts of the world to the small ex-Soviet republic began to increase to more than 10 times the value of phone imports in the previous months. At the same time, Armenia registered an explosion in its smartphone exports to a beleaguered ally: Russia.

The trend, which was repeated for washing machines, computer chips and other products in a handful of other Asian countries last year, provides evidence of some of the new life lines keeping the Russian economy afloat. Recent data shows increases in trade from some of Russia’s neighbors and allies, suggesting that countries such as Turkey, China, Belarus, Kazakhstan and Kyrgyzstan are stepping in to provide Russia with many of the goods that Western countries have tried to steal. cut as punishment by Moscow. invasion of Ukraine.

Those sanctions, which include restrictions on Russia’s biggest banks along with limits on the sale of technology its military could use, are blocking access to a variety of products. Reports regularly leak out of Russia about consumers frustrated by poor-quality or expensive products, ranging from milk and appliances to computer software and medicines, said Maria Snegovaya, senior fellow for Russia and Eurasia at the Center for Strategic and International Studies, at an event at the think tank this month.

Even so, Russian trade appears to have largely recovered to where it was before the invasion of Ukraine last February. Analysts estimate that Russia’s imports may already have recovered to pre-war levels, or will soon, according to their models.

In part, that could be because many nations have found it difficult to leave Russia. recent research It showed that less than 9 percent of companies based in the European Union and the Group of 7 nations had sold one of their Russian subsidiaries. And maritime tracking firms have seen a surge in activity from shipping fleets that may be helping Russia export its energy, apparently bypassing Western restrictions on those sales.

While Western countries have not banned the shipment of consumer products like cell phones and washing machines to Russia, other sweeping sanctions were expected to clamp down on its economy. They include a cap on the price Russia can charge for its oil, as well as restricted access to semiconductors and other critical technology.

Some companies, including H&M, IBM, Volkswagen and Maersk, halted operations in Russia after the invasion, citing moral and logistical reasons. But the Russian economy has proven surprisingly resilient, raising questions about the effectiveness of Western sanctions. Countries have struggled to reduce their dependence on Russia for energy and other commodities, and the Russian central bank has managed to prop up the value of the ruble and keep financial markets stable.

On Monday, the International Monetary Fund said it now expected the Russian economy to grow 0.3 percent this year, a sharp improvement from its earlier estimate of a 2.3 percent contraction.

The IMF also said it expected the export volume of Russian crude to remain relatively strong under the current price cap, with Russian trade continuing to be redirected to countries that had not imposed sanctions.

Most container ships have stopped transporting goods such as phones, washing machines and car parts to the port of St. Petersburg. Instead, these products are transported by truck or train from Belarus, China, and Kazakhstan. Fesco, the Russian shipping operator, has added new ships and new ports of call for a route with Turkey which transports Russian industrial products and foreign household appliances and electronics between Novorossiysk and Istanbul.

Sergey Aleksashenko, the former deputy finance minister of the Russian Federation, told an event this month that 2023 would be “a difficult year” for the Russian economy, but “there would be no catastrophe and no collapse.”

Some parts of the Russian economy are struggling, he said, pointing to car factories that closed after failing to source parts from Germany, France, Japan and South Korea. But military spending and higher energy prices helped prop it up last year.

“We cannot say that the Russian economy is in tatters, that it is destroyed, that Putin lacks funds to continue his war,” Aleksashenko said, referring to President Vladimir V. Putin. “No, that’s not true.”

Russia stopped publishing trade data after its invasion of Ukraine. But analysts and economists can still draw conclusions about its trade patterns by adding up the trade that other countries report with Russia.

Matthew Klein, an economics writer and co-author of “Trade Wars Are Class Wars,” is one of those drawing conclusions about this Russia-sized hole in the global economy. According to his calculationsthe value of global exports to Russia in November was only 15 percent below the pre-invasion monthly average.

Global exports to Russia probably fully recovered in December, although many countries have yet to release their trade data for the month, he said.

“Most of that recovery has been driven by China in general and Turkey in particular,” Klein said.

It is not clear how much of this trade violates sanctions imposed by the United States and Europe, but the patterns are “suspicious,” he said. “It would be consistent with the idea that there are ways to try to circumvent some of the sanctions.”

Silverado Policy Accelerator, a Washington nonprofit, recently issued a similar analysisestimating that the value of Russian imports from the rest of the world had exceeded pre-war levels by September.

One of the case studies in that report was the jump in Armenian smartphone sales. Andrew S. David, Silverado’s senior director of research and analysis, said the trends reflected how supply chains had changed to continue to provide goods to Russia.

Samsung and Apple, formerly major providers of Russian mobile phones, withdrew from the Russian market after the invasion. Exports of popular Chinese phone brands including Xiaomi, Realme and Honor also initially fell as companies struggled to understand and cope with new restrictions on sending technology or making international payments to Russia.

But after an “adjustment period,” Chinese brands began to take off in Russia, David said. Overall, Chinese exports to Russia hit a record in December, helping to offset a sharp drop in trade with Europe. Apple and Samsung phones also seemed to be starting to find their way back to Russia, diverted via friendly neighboring countries.

“Armenia is certainly not the only one,” David said. “A lot of things are coming from west-central Asia, Turkey and the former Soviet republics.”

Shipments to Russia of other products, such as passenger cars, have also recovered. And China has increased semiconductor exports to Russia, even though Russia’s total imports of chips remain below pre-war levels.

A big open question is how effectively the Western price cap will keep Russia’s oil revenues low this year.

The cap allows Russia to sell its oil globally using Western maritime financing and insurance, as long as the price does not exceed $60 a barrel. That limit, which is essentially an exception to the G7 sanctions, is designed to keep oil flowing in global markets while limiting Russian government revenue.

Some analysts have suggested that Russia is finding ways around the effort by using ships that are not dependent on Western insurance or financing.

Ami Daniel, chief executive of Windward, a maritime data company, said he had seen hundreds of cases where people from countries including the United Arab Emirates, India, China, Pakistan, Indonesia and Malaysia bought vessels to try to install what seemed be a non-Western trade framework for Russia.

“Basically, Russia has been preparing to be able to trade outside of the rule of law,” he said.

Mr. Daniel said that his company had also seen a strong rebound in shipping practices that appeared to be Russian efforts to contravene Western sanctions. They include transfers of Russian oil between ships on the high seas, in international waters not under the jurisdiction of any country’s navy, and attempts by ships to mask their activities by turning off satellite trackers that record their locations or by transmitting false coordinates.

Much of this activity had taken place in the mid-Atlantic Ocean. But after media coverage of suspicious practices in this region, the center moved south, off the West African coast, Daniel said.

“They are exploding,” he said of deceptive shipping practices. “It’s happening on an industrial scale.”

So far, the oil price cap appears to be achieving its goal of lowering the price Russia can charge while keeping global supplies flowing. But whether this fleet of shadow ships is large enough to allow Russia to buy and sell oil outside the cap remains to be seen, Ben Cahill, a senior fellow at the Center for Strategic and International Studies, said during a panel discussion in January.

“If that fleet is big enough for Russia to really operate outside the reach” of the Group of 7 countries, the cap probably “won’t have the kind of leverage that lawmakers wanted,” Cahill said. “I think we should know in a couple of months.”

alan rapport contributed reporting.