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Some countries are undermining Western sanctions against Russia, study finds

The European Union has just imposed a new package of sanctions against Russia—now the seventeenth. Following Russia's invasion of Ukraine in February 2022, the U.S. and EU had already imposed extensive economic sanctions, combined with far-reaching export bans.

The central aim of these measures is to deny Russia access to technologies that are essential for the manufacture and maintenance of military equipment. However, the fact that Western technology can still be found in drones and missiles used in Ukraine shows that these sanctions only have a limited effect.

Economists from Würzburg, Munich and Princeton have now investigated whether sanctions against military goods have been circumvented in this case: Lisa Scheckenhofer, Feodora A. Teti and Joschka Wanner. They present their in the current issue of AEA Papers & Proceedings.

Sanctioned military goods continue to reach Russia

"In the article, we present evidence that military equipment sanctioned by the West continues to reach the Russian market in a roundabout way by being exported indirectly via countries friendly to Russia," says Joschka Wanner, assistant professor of quantitative international and environmental economics at Julius-Maximilians-Universität Würzburg (JMU).

In concrete figures, the probability of these countries exporting a sanctioned military product class to Russia increased by almost 20 percentage points compared to neutral countries after the start of the war in Ukraine.

For its study, the team used publicly available trade data from UN Comtrade for the years 2021 to 2023. This is one of the world's largest databases for international trade in goods, operated by the United Nations. The sample includes 122 countries, divided into allied, Russia-friendly and neutral countries.

Illegal activities are difficult to detect

When evaluating this data, two aspects presented the research team with particular challenges: "When companies circumvent sanctions, this is an illegal activity that is naturally difficult to detect," says Scheckenhofer.

However, there are indications that logistics companies in Russia-friendly countries stepped up the transportation of Western goods to Russia after the start of the war. Accordingly, an increase in exports by Western allies to these countries and from there to Russia is to be expected.

"In our analysis, we examined both flows in order to identify such patterns," says Scheckenhofer.

The second challenge was to distinguish between a deliberate circumvention of sanctions and a regular shift in trade flows as a result of increased costs. "In order to make a distinction here, we compared the exports of Russia-friendly and neutral countries, both of which have unchanged trade costs with Russia," explains Teti.

Accordingly, in this case too, a disproportionate increase in exports from Russia-friendly countries to Russia in combination with higher exports from Western allies to these countries indicates a violation of sanctions.

The statistical analysis of the UN Comtrade data has a clear result: "After the start of the war, Russia-friendly countries were 20 percentage points more likely to export military goods to Russia than neutral countries," says Wanner.

And even Western countries that had imposed sanctions were still four percentage points more likely to export these sanctioned products to Russia-friendly countries compared to exports to neutral countries.

Decline in violations in 2023

There is at least one "consolation": "We also find evidence that violations of sanctions on military goods were more widespread in 2022 than in 2023," says the research team. This at least suggests that political measures to curb sanctions violations may have been effective.

Nevertheless, according to the authors, the results of this study demonstrate the urgent need to close loopholes for third countries. In order to prevent these countries from circumventing existing trade restrictions, they believe that "proactive measures" such as secondary sanctions are an option. These punish countries that are not themselves part of the sanctioning coalition in the event that they do not comply with the sanctions.