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Turkey Cuts Trade Ties with Russia, Hungary to “Rethink” Relationship as Western Pressure to End Sanctions-Busting Mounts

Ten packages of sanctions have been imposed on Russia, but most of them are not working well. Russia has managed to almost entirely dodge those on oil exports, import of technology and has earned more money from trade last year than it has done in its entire post-Soviet history. At the same time as bne IntelliNews reported, efforts to seize oligarch money in the West are going poorly.

At the same time, EU foreign policy chief Josep Borrell admitted on March 10 that the West is running out of sanctions options. The latest tenth package of sanctions contained little more than the addition of 122 names to the Specially Designated Nationals and Blocked Persons (SDN) list, many of them insignificant media personalities.

A second issue is that further sanctions increasingly hurt Western commercial interests and their economies more than they harm Russia’s, which has to a large extent sanction-proofed its economy thanks to the strength of Putin’s Fiscal Fortress.

“There is not much more to do from the point of view of sanctions, but we can continue to increase financial and military support,” Borrell told the Euractiv news website after an informal meeting of EU development ministers in Stockholm, adding that the bloc was “getting to the end of the ladder.”

As a result, the focus is switching from imposing new punitive sanctions on Russia to making the existing ones work better, with some recent success.

Hungary is rethinking its relations to Russia as it becomes increasingly likely that the war in Ukraine could be protracted. Hungarian Prime Minister Viktor Orban said that he was reconsidering his pro-Russia stance as a result of “shifting geopolitical realities”.

“I understand the need to rebuild Russian-European relations after the war but that’s far from realistic,” Orban said on March 9. “That’s why Hungary’s foreign and economic policy needs to think hard about what sort of relations we can establish and maintain with Russia in the next 10 to 15 years.”

Hungary is especially reliant on Russian energy imports of oil and gas, and since it is far from the sea and has been locked into the Soviet-era oil and gas pipelines, switching to new energy sources has proved to be especially hard. Germany was also locked into the same Soviet energy system, but as it has a coast it hired five floating LNG (FLNG) platforms last year that allowed it to completely reduce its dependence on Russian gas, and is in the process of building more permanent land-based LNG terminals.

Turkey has also been playing both sides, and refused to join Western sanctions on Russia.

However, Turkish customs officials abruptly stopped permitting the transit of sanctioned goods bound for Russia through Turkish ports on March 9, Russia’s Kommersant FM reported, citing Russian logistics operators. Exports to Russia from Turkey topped $738mn in August, a new all-time record, the Moscow Times reports.

“We are not expecting to receive any official orders or decrees, because then Turkey would have to admit that it was linked to facilitating [illegal] shipments of sanctioned goods to Russia over the past year,” Valeriya Savenkova, commercial director of Transasia Logistics, told Kommersant FM, as cited by the Moscow Times. “As of today, Turkey’s system for processing transit and export shipments to Russia isn’t working.”

Kommersant FM’s source cited pressure from US officials as a probable reason for Turkey’s sudden policy switch.

Turkey is also heavily dependent on Russian oil and gas and the TurkStream gas pipeline that delivers Russian gas to the south-east is both a source of cheap energy and a strategically important piece of infrastructure for Ankara. Moreover, Russia was already one of Turkey’s major trade partners before the war, but it has opportunistically benefited from the sanctions as trade between the two has soared in the last year, a time when Turkey was desperate for foreign exchange earnings due to a currency crisis.

Crackdown 

At the weekend the EU said it plans to ask those third countries where there has been a sharp increase in imports of European technologies and dual-use goods to start monitoring that trade, Bloomberg reported on March 11.

Bloomberg sources say that with the help of increased trade monitoring, the EU aims to determine whether sanctioned goods reach Russia. The EU request will include extended trade tracing information for hundreds of goods and technologies that could be used for military purposes.

However, it remains uncertain if any of the countries approached by the EU will comply. Moreover, the European Commission told Vedomosti that EU customs cannot block the re-export of sanctioned goods to Russia through Turkey, but does control the movement of European goods inside Europe and will step up the fight against sanctions circumvention, implying countries aiding Russia may see export controls imposed on them.

As bne IntelliNews reported, Russian and Western diplomats have been frenetically touring the world in recent months trying to shore up support for their respective positions. Africa and Central Asia have been especially the focus of interest.

The West is increasingly playing a game of whack-a-mole as it tries to shut down sanction-dodging as Russia reroutes exports via “friendly” countries. As has been widely reported, Russia has successfully dodged the crude oil embargo by rerouting all its oil exports to Asia. It is having more problems with oil products, which were targeted on February 5, and Russian diesel is currently building up in tankers idling at sea in oceans around the world.

Surprisingly, Russia has also been able to almost entirely evade sanctions on the technology trade and has supplied itself with all that it needs in the last year, as bne IntelliNews reported.

The EU also recently warned Georgia to stop transiting sanctioned goods to Russia and threatened it with halting its progress towards EU accession and maybe even reversing some of the EU-backed investments.

National Security Advisor Jake Sullivan also told Georgian President Salome Zourabichvili that her country should not take part in helping Russia to dodge Western sanctions last week, the White House press service said in a statement on March 11.

“Sullivan underscored the need for Georgia to avoid becoming an avenue for evasion or backfill,” according to a read out of the meeting.

Georgia has an ambivalent attitude to Russia. It is currently emerging from a crisis after the ruling Georgian Dream party tried to introduce a “foreign agents” law, sparking mass protests that clashed with police on March 7. An estimated 85% of the population are for a closer integration with Europe and the government was forced to withdraw the law two days later. Zourabichvili was openly against the foreign agents law and promised to veto it if it passed.

But exports of sanctioned goods via Georgia to Russia have soared in the last year as Georgia has become more economically dependent on Russia than at any time since independence in 1991 last year, as the country is too distant from Europe to have few alternative trading partners.

The story is the same in Central Asia, which is as far from the sea as it is possible to be. US Secretary of State Antony Blinken was recently in Kazakhstan and Uzbekistan at the end of last month, calling for an end to sanction-busting re-exports to Russia. The Kazakh foreign minister paid lip service to the demand but US pressure is unlikely to have much impact.

Even more than Georgia, Central Asia’s extreme distance from the rest of the world and its long-standing economic and cultural links to Russia make it almost impossible for it to do business with anyone else, as bne IntelliNews discussed in an article on the geography of diplomacy.

The Central Asian republics would love to trade more with Southeast Asia, but the southern route is blocked by instability in Afghanistan, leaving Russia to the north as the only viable trade partner.

Kyrgyzstan and Uzbekistan in particular have seen exports to Russia from places like China soar in the last year as well.

Source: BNE

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