Profiting from the war: Kremlin bypasses EU and US embargo via Armenia

The authoritarian regime of Russian President Vladimir Putin is circumventing the embargoes and trade sanctions imposed by the EU, the US and the UK because his aggression against Ukraine by going through neighbouring countries of the former Soviet Union – especially Armenia.

This is clear from the statistics on the sharp jump in imports from the West over the past year and, those on exports from the Organisation of Independent States (CIS) to the Russian Federation.

In 2022, the economy of tiny Armenia, which has a population of 2.8 million, has grown by as much as 14.2 per cent of GDP – unprecedented growth for EU and Western countries. Yerevan’s exports have close to doubled, by 1.8 times, to $5.36 billion, and imports by 1.5 times, to $8.77 billion, Interfax reported.

In January, Armenian Prime Minister Nikol Pashinyan predicted that GDP growth for the previous year would be at least 12.5 per cent to 13 per cent: “We planned a growth of seven per cent for 2022.”

Where is the answer to Armenia’s lightning GDP growth? The answer must be sought much further north. “The growth of our economy is affected by the influx of Russian citizens to Armenia,” Pashinyan said, referring to Russians fleeing Putin’s mobilization. But Pashinyan’s explanation is quite cunning – how much money will the Russians fleeing in a hurry bring to the economy? The truth is that Yerevan has become one of the hubs for re-exports to and from the Russian Federation, along with Belarus, Georgia, Kazakhstan and other former Soviet countries.

Thus, according to the Deutsches Zentrum für Südkaukasus analysis of the official statistics of the Republic of Armenia, in 2022 imports of goods from the EU to the Caucasian country reached 1.3 billion euro, which is almost double growth compared with 2021, when the sum was only 753 million euro. At the same time, Armenia’s exports to the Russian Federation reported a triple jump – from $840 million in 2021 to $2.4 billion in 2022.

Smartphones and white goods are rapidly being exported to Russia

The explanation for the statistics showing increased trade is the result of Armenia having become the main hub for Moscow for circumventing bans on imports of goods from the G7 countries.

“Goods are circumventing sanctions at the expense of imports from third countries — for example, exports from Armenia to Russia jumped 49 per cent in the first half of 2022,” US broadcaster ABC News said in March 2023. “Armenia imported more washing machines than EU in the first eight months of 2022 than in the past two years,” Bloomberg said, analysing Eurostat data.

According to the Financial Times, manufacturers have become “much more wary of sharply increased microchip orders from Armenia”, which is engaged in re-exports to Russia: “The country is now one of the main centres of duty-free parallel imports”. As some American companies “already stopped deliveries to Armenia”.

According to a report by US analytical centre Silverado Policy Accelerator released on January 22, 2023, one of the main suppliers of new cars for the Russian market is Armenia.

Also, beginning in summer 2022, Russia has been sharply increasing imports of Apple and Samsung smartphones from Armenia. “A strange thing happened to smartphones in Armenia over the summer,” The New York Times said on January 31 2023: “Shipments from other parts of the world increased more than 10 times compared to recent phone import volumes.”

“At the same time, Armenia recorded exploding levels of smartphone exports to its ally under siege – the Russian Federation,” the NYT said.

Kyiv hints that Armenia will lose from trading with the aggressor

The authorities in Kyiv have called on the countries of the former USSR to stop trading in sanctioned goods with the aggressor. On March 1 2023, the Main Intelligence Directorate of the Ministry of Defence of Ukraine said that Moscow was conducting negotiations with Yerevan “for the re-export of Russian production to international markets”: “The supply is planned to be carried out under the guise of Armenian production and exported to third parties”.

Mykhailo Podolyak, an adviser to the Office of the President of Ukraine, said: “We recommend all countries, including Armenia, stick to at least firm neutrality.

“In the medium term, it is not good to work with the Russian Federation, it is extremely unprofitable,” Podolyak said.

According to Podolyak, if initially the commercial cooperation with Moscow brings additional income, then in the medium term “this will lead to large-scale economic losses and serious reputational damage”.

“It is better to join the informal coalition of civilised countries, whose market as a whole is larger than that of the Russian Federation, and so we recommend that you stick to the sanctions policy,” he said.

Kyiv’s former partners in the USSR and CIS clearly do not consider business with Moscow taboo.

While supporting Putin in his standoff with Azerbaijan, Armenian PM Pashinyan has shown loyalty to the Kremlin.

In September 2022, at a news conference with Putin, Pashinyan was asked the uncomfortable question of secondary sanctions against Yerevan, due to the re-export of goods to the Russian Federation.

Pashinyan replied that it was necessary to “look for new opportunities” in the face of “emerging challenges”: “Thanks to the decisions taken by the President of the Russian Federation and the government of Russia, we managed to deal with these threats together.”

Pashinyan also had to be put on the spot by German Chancellor Olaf Scholz, who, after meeting Pashinyan on March 2 2023, said that it was important for Berlin whether “we can be sure that our sanctions in the economic sphere are not evaded”: “This is what we are asking for”.

Earlier in February, Latvian Prime Minister Krišjānis Kariņš also accused Yerevan of not complying with the sanctions against Moscow.

In Armenia “some types of trade are growing very sharply, disproportionate to what it was before” and goods, “are being redirected to Russia”, Kariņš said.

Armenian companies under sanctions in the US because of Russia

In fact, US sanctions on countries that play the role of helping Putin’s Russia are already becoming a fact. Since autumn 2022, a number of Armenian corporations have been sanctioned for representing the interests of their Russian partners in world markets.

Thus, on September 30 2022, the Office of Foreign Assets Control (OFAC) of the US Treasury Department included Armenian company Taco LLC in its sanctions list because of its interaction with the Russian Radioavtomatika, which specialises in procuring foreign items for Russia’s defence industry

The Russian corporation purchased foreign equipment for the military industry by circumventing the Moscow embargo by paying Taco to supply spare parts and arrange the procurement process through Armenia, OFAC found.

On November 14 2022, the US Treasury Department turned its attention to Russian company AO PKK Milandr, which specializes in microcircuits. Milandr has registered a subsidiary in Armenia, Milur Electronics, to “place orders with foreign factories, manufacture integrated circuits and carry out sales abroad”. In order to circumvent the sanctions, Milur was used by the Russians as a “front company for doing business with foreign partners”.

Its allies meet Russia’s needs for EU goods

By the way, they benefit from the “deals with the devil” not only of Yerevan, which is clearly among the leaders in this list of Putin’s allies. It is not just Armenia that is making hundreds of millions of euro and dollars from helping Russia, mired in its war against Ukraine, to procure the goods and technology it needs.

The Financial Times said in December that Russian “import specialists” are looking for all kinds of “loopholes”, using “connections” and “bribes” to persuade countries such as Türkiye, Armenia and Kazakhstan to supply the Russian Federation with goods that already are prohibited for delivery from the EU.

According to Eurostat, in the first nine months of Putin’s full-scale invasion of Ukraine, supplies of goods from the EU to Russia collapsed by almost half, by 47 per cent. But in the same months, it is not clear why imports from the EU to CIS countries (which currently have the best relations with Moscow) such as Belarus, Kazakhstan, Georgia, Uzbekistan and Kyrgyzstan sharply increased by as much as 48 per cent.

Why did the countries of the former USSR suddenly start buying more goods in the EU than they are able to consume? “The CIS countries play the role of transit centres for the re-export of goods to Russia,” Deutsche Welle said recently.

US convinced Türkiye, UAE and Oman to stop re-exports to Russia

In truth, it is not only the countries of the former USSR that have been found to be profiting from the re-export of goods to the Russian Federation.

“The significant volume of goods that come from Türkiye to Russia are re-exports,” Le Monde said, adding that “the cargoes are unloaded in the ports of Mersin, Istanbul, Izmir.”

“They are then transferred to containers of local companies or subcontractors to be sent by sea to Novorossiysk or trucked through Georgia to Russia,” Le Monde said.

In January 2023, the US Treasury Department warned Nato member Türkiye and Middle Eastern partners such as the United Arab Emirates (UAE) and Oman that they risk losing access to the US market if they ignore the sanctions regime against Russia.

Washington has hinted to the Arab Turks that “their financial ties to Moscow are hindering efforts to stop the war in Ukraine,” Bloomberg quoted White House sources as saying.

Ankara has denied that it supplied Russia with electronics that could be used in the military industry. But from the beginning of March 2023, the Customs Service of the Republic of Türkiye blocked the transit of embargoed goods to Russia, Kommersant FM said.

“The government has ordered us to stop the transit of such goods from March 1 2023,” a high-ranking source in Ankara confirmed to Bloomberg.

“The authorities have issued a list of foreign goods whose re-export to Russia is prohibited,” Reuters quoted Cetin Tecdelioglu, head of the Istanbul Ferrous and Nonferrous Metals Exporters Association, as saying.

A source in the EU confirmed to Reuters that Ankara has “promised to the Russian Federation not to send the goods from the sanctions list, which are under the export control of the EU, the US and the United Kingdom”.

The EU, the US and the G7 countries have strengthened control over compliance with the embargo against Russia, removing “loopholes” for circumventing sanctions by monitoring goods and trade flows. According to Bloomberg, Western countries have also sharply reduced supplies of semiconductors, integrated circuits, and technological goods to Russia.

All of this shows that in the past year of the Kremlin’s full-scale war in Ukraine, Armenia has been actively helping Moscow to circumvent Western sanctions, not only by supplying goods for general use, but also equipment for the Russian military industry.

In this way, Yerevan plays the role of one of the key strategic partners of the Putin regime in its confrontation with the West and provides an “economic rear” for Russian aggression against the Ukrainian state.

PM Pashinyan, regularly repeats that “the Russian Federation is the closest and strategic ally of the Republic of Armenia”. Thus, the authorities in Yerevan, who are trying to create the impression of a reorientation towards the West, are in practice helping the Putin regime.

(Photo of Pashinyan and Putin: Office of the Prime Minister of Armenia)

– Partnership Ukraine-Bulgaria