The countries of Central Asia and the South Caucasus have made enormous strides in trade development through the intermediary trade of goods from Western countries to Russia. After the introduction of sanctions, the volume of trade of the European Union with Russia’s eastern neighbors increased several times, while trade with Russia has also increased. Intra-EFTA trade increased by 40% in 2022.
Moreover, the countries of Central Asia and the Caucasus have boosted their budgets thanks to the influx of labour, capital and remittancesas well as the sale of their own oil and gas, the demand for which has increased significantly following a sharp drop in EU gas supplies from Russia.
In 2022, Finnish goods exports to Central Asia have grown enormously. In Kyrgyzstan, they have increased by more than 800%. The strongest positive dynamics for this indicator were seen in the second half of 2022, once supply chains had a chance to react.
According to the European Bank for Reconstruction and Development (EBRD) report titled “Eurasian circularity: trade flows to Russia through the Caucasus and Central Asia“, published in February 2023, EU and UK exports to Armenia, Kyrgyzstan and Kazakhstan increased by 15-90% in 2022, depending on products.
As the report also pointed out, this coincides with the sanctions that led to a 50% drop in Western exports to Russia, implying that the two figures are linked.
The disparity between flows to Russia and those to its southern neighbors continues to grow. “With many Western companies leaving the Russian market, and Russian ports under sanctions, Central Asian economies are enjoying significant success in trade with Russia and Chinaboth through the export of their own products, such as textiles and consumer electronics, and through transportation and re-export services“, says the report.
While Kazakhstan and Turkmenistan are generating unprecedented revenues from their oil and gas production, Kyrgyzstan, Tajikistan and Uzbekistan benefit from significant increases in labour, capital and remittances. For example, the volume of individual financial transfers to Kyrgyzstan reached an all-time high of US$2.7 billion in 2022.
Central Asian and South Caucasian countries’ intermediary trade with Russia, although it does not bring them significant profits, remains an important source of cash flow for them, with low margins due to large volumes. offered. Fashion and other products such as iPhones remain readily available in Russia at an average markup of just 5% over 2021 prices.
The United States Department of Justice does not seem ready to let sanctions violations coming from Russia pass. Indeed, the body recently assigned 25 additional prosecutors to identify loopholes allowing Russia to circumvent sanctions and export controls. Counterintelligence and export control officers will now closely monitor organizations that help Russia evade sanctions. If necessary, the prosecutors will be able to initiate criminal proceedings against the offending companies.
It remains to be seen whether these companies will be the original Russian suppliers, Central Asian intermediaries or European buyers, as well as the political consequences that this decision by the United States could have outside of its geographical sphere.
However, it is evident that timber exports to Europe, which the United States and Canada are seeking to develop, could make supplying European buyers very difficult due to high selling prices in North America, pushing the latter to look for less expensive alternatives.
