Possible circumvention of sanctions against Russia by newer, smaller firms

© CBS
Goods exports from the Netherlands to Russia fell sharply following the tightening of sanctions by the European Union in 2022. At the same time, however, exports of sanctioned goods to seven countries with an elevated risk of sanctions circumvention increased. A remarkable number of smaller, newer firms, which were not involved in exporting these sanctioned products prior to 2022, have since begun exporting to these countries. Statistics Netherlands (CBS) reports this on the basis of new research carried out in partnership with the University of Groningen.

The export value of sanctioned goods to Russia was about 86 percent lower in 2023 than it was in the period 2018-2021. Exports of non-sanctioned goods to Russia also fell by a quarter. However, some goods could still end up in Russia via third countries that have continued to export to Russia. Although this form of sanctions circumvention cannot be ascertained directly from CBS figures, it is possible to say which countries have seen a disproportionate increase in imports of sanctioned products from the Netherlands. These countries are identified as having an elevated risk of sanctions circumvention in the study by CBS and the University of Groningen.

 

Sharp increase in exports to seven countries

The survey shows that the following export destinations have an elevated risk of sanctions circumvention: Armenia, Kazakhstan, Kyrgyzstan, Mongolia, Serbia, Türkiye (Turkey), and Turkmenistan. Exports of sanctioned goods to all these countries from the Netherlands have seen a striking increase. Exports from these countries to Russia have not decreased, and in some cases have actually increased.

For example, in 2022 the export value of sanctioned goods to the EAEU+ region (the Eurasian Economic Union countries of Armenia, Kazakhstan and Kyrgyzstan, plus Mongolia and Turkmenistan) was over 74 percent higher than the average for the period 2018-2021, and in 2023 it was over 90 percent higher. In both years, these countries’ exports to the rest of the world grew by around 25 percent.

Increase in exports to Russia from these seven countries

Exports of goods that cannot be exported directly from the EU to Russia due to sanctions, increased from these seven countries to Russia. This could indicate that sanctioned goods from the Netherlands are continuing to reach Russia via these third countries. Turkish exports of machinery to Russia grew the most. In 2022 and 2023, bulldozers, shovels, excavators and similar machinery were the most exported category of machinery (by value) from Türkiye to Russia.

New, smaller firms have entered the market

Prior to Russia’s invasion of Ukraine, it was mainly larger multinationals that exported products to Russia; these exports were restricted further by the sanctions imposed in 2022. These firms have made up for the loss of Russia as an export market mainly by exporting more to countries they were already active in. Some have also sought out new export markets, including countries with an elevated risk of sanctions circumvention. These firms are known as switchers.

In addition, there is another group of firms known as entrants: firms that are now exporting sanctioned products to countries with an elevated risk of sanctions circumvention, but which were not exporting these products at all prior to the tightening of sanctions in 2022. Often these are relatively small and recently established independent SMEs with a small export portfolio, often acting as intermediaries for the export of sanctioned goods, which they do not produce themselves, to countries with an elevated risk of sanctions circumvention.

Sources

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