Russian imports beat sanctions and importing countries beat Russia

In 2022, two illusions have replaced each other in the West. First – that the sanctions will block the importation of almost all necessary goods into the Russian Federation and deprive the Putin regime of the ability to wage war. Today it is difficult to understand on what basis it was calculated that Russia’s non-Western trading partners would join the boycott.

Second the illusion lasted longer. Since by the end of last spring, imports of goods to Russia had fallen by more than half, for some time it was believed that returning to pre-war levels would be an impossible task.

Quick success

Indeed, in the recent years before the invasion of Ukraine, “unfriendly countries”, i.e. the United States, Great Britain, Canada, Japan, Korea and EU countries, accounted for more than 50% of Russian imports, and at the beginning of 2023 only 20%. In February this year imports of goods to Russia from the United States amounted to 11% of what it was in February last year, from Japan – 38%, from the EU – 52%.

But imports to Russia are looking pretty good right now. In the first quarter of 2023, its value amounted to USD 86 billion, which is almost the same as the year before (USD 89 billion). The most reliable forecasts of Russian imports in 2023 (USD 305-310 billion) are at the level of pre-war 2021 (USD 304 billion).

Of course, since then prices have gone up and fewer goods are physically imported. Comparisons in terms of nomenclature and quality will also be unfavorable. But the sheer scale of rapidly expanding and diverted trade flows is impressive: a clear success for Russian businessmen and officials.

The regional government experts from the Development Center of the University of Economics with a certain dose of playfulness presented the drama of foreign trade in 2022-2023 as a competition in which “33 heroes” (the whole set of “unfriendly countries”) and “3 China” (China, India, Turkey) met myself ).

In the last 12 pre-war months (February 2021 – January 2022), KITs accounted for only 28.9% of Russian imports of goods (China – 25.2%, India – 1.5%, Turkey – 2.2%). And according to the charts of the HSE CR, the share of “rich” in Russian imports of goods is decreasing month by month, while the share of “KITs” is growing and now probably exceeds them.

Beneficiary honeymoon

We will talk about the reverse side of the triumph of “KITs” later, but now we note that even for “friendly countries” trade with Russia requires a certain trick. After all, we ourselves cannot be sanctioned. Dexterity is economically justified, and especially high prices are required when supplying all kinds of rare things needed by the military industry.

For example, microchips.

According to Bloomberg, pass through Turkey, Kazakhstan, Serbia and the United Arab Emirates. And these deliveries more or less replace imports of chips from Europe, the US and Japan, which have so far been done directly. The same can be said of many other items of military use, although it is estimated that imports of consumer goods are recovering faster than, for example, imports of industrial electronic components for the automotive industry.

The club of beneficiaries of trade with sanctioned Russia is much wider than the “3 KIT”. It is impossible to list them all, but Kazakhstan and Belarus stand out among them in the space of the former Soviet Union.

Shipments of goods from Kazakhstan to Russia increased by 25% last year. Of course, not only because of the re-export of microchips. The country’s Western trading partners noticed that something was wrong and put pressure on Astana. And not entirely unsuccessful – Kazakhstan’s trade with one European Union in 2023 is one and a half times greater than with Russia. The Kazakhs promised that they would no longer allow goods subject to sanctions to pass through. It looks dubious, but the honeymoon of the reckless withdrawal of profits from the supply of goods to the Russian Federation for this country may indeed be delayed.

Lukashenka, of course, has no such problems. He himself is sanctioned from head to toe. And he has a simple way to profit from trade with the Russian Federation – by inflating prices. According to its officials, in physical terms, deliveries to Russia are now 10.5% higher than a year ago, and in dollars they have increased by as much as 40.5%. No matter how hard the sanctions hit the Russian Federation, Putin must compensate the fraternal regime for the losses they cause.

It is obvious that the capabilities and desires of the countries of the former Soviet Union are not large enough to seriously compensate Russia for the loss of Western trade. The main burden of this mission really fell on “3 KIT”. As well as the main benefits and facilities resulting from its implementation. But each of these three powers is happy in its own way.

The secret of the whales

In a material sense, India got the most unexpected gain. Suddenly, she got huge amounts of Russian oil, which Europe refused, and her direct imports of goods to Russia did not increase at all. In the past financial year (ended March 31), India imported US$41.6 billion worth of Russian goods (more than fourfold), while its exports to the Russian Federation amounted to only US$2.8 billion or even decreased.

The Indian economy is not producing the goods that Russia needs. The rupee is not convertible. And the transition to settlements in this monetary unit turned out to be so unprofitable for the Russian Federation that negotiations on this matter have recently been completed. Therefore, payments for oil are made in dollars, and the proceeds can somehow be recovered (outside India) only partially and using complicated and expensive schemes. Clearly, the most realistic way to spend the Indian oil money is to invest it in the Indian economy. Agree, for India this is a good option.

The arrangement of Russian trade with Turkey is very similar at first glance. Last year, imports of goods from Russia to Turkey doubled (to $59 billion), while exports to Russia doubled, but were still six times smaller.

But the Turkish regime is known for its creativity and has benefited politically and materially from its contacts with all sides of the conflict. It lures Putin with promises to create a “hub” through which the Russian Federation will allegedly be able to supply gas to Europe. And with Europe and the United States, he is bargaining for some political gain in exchange for a decrease in Turkish trade with Russia. And it seems to be trading well, as imports from Turkey to Russia fell from $1.3 billion last year in December to $0.7 billion in April.

If you look closely, the real support and supplier of Russia was not the “3 KIT” at all, but China itself. Imports of Chinese goods in January-April 2023 increased by 67% year-on-year and amounted to USD 33.7 billion, which is now one third of all Russian imports of goods.

True, a new model of trade: the need to supply “friendly countries” more than before, so that they can at least sell something – manifested itself here too. The price of Russian exports to China for the same four months amounted to USD 39.5 billion and was USD 5.8 billion higher than the price of imports from China to Russia.

However, in the case of China, the disparity was not as drastic as in the case of India and Turkey. Over the last 12 peaceful months, China supplied the Russian Federation with 1.13 times more goods than it bought ($75.4 billion and $75.4 billion respectively). and USD 66.5 billion). And now the proportions are reversed – Russian imports from China are 1.17 times less than Russian exports to China. Not a very favorable ratio, but bearable.

You need to be patient and much more. For example, only China may become the only recipient of Russian gas from Yamal, which no longer goes to Europeans. Except for the imaginary Turkish center, of course. This means that Putin will have to ask the Chinese even more stubbornly for permission to build Siberian Force 2 for them. Gas from it is sold to the Chinese cheaper than Turkmen and Uzbek gas.

Therefore, for the sake of the new pipeline, it is necessary to come up with additional benefits and facilities for the discerning buyer. And if you’re lucky, instead of 150 million cubic meters. m, which once went to Europe, it will be possible to add at least 50 million cubic meters. m in China. You don’t have to tinker. You have to pay for Chinese goods, and the Chinese need nothing but Russian energy resources and wood.

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With great effort, the managers of the Russian Federation performed something like a miracle – they overcame the unprecedented sanctions and returned Russian imports almost to their previous physical volume. Nobody predicted that they could do this. And they themselves did not foresee how strange situations they would find themselves in and how inconvenient their dependence on small, blunt and expensive suppliers would become.