Serbia is often nonchalantly mentioned as a possible hub for circumventing the sanctions imposed on Russia

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According to general data on the number of imposed sanctions, Russia is currently the country under the most restrictive measures. It goes without saying that data of this type can be misleading, because the decisive factor is not the number of introduced measures, but their content and scope. Certainly, North Korea and Iran bear a greater burden of sanctions than Russia, at least until the delayed embargo on oil imports from the Russian Federation by the European Union comes into effect at the end of this year and until the G7 countries and the EU agree on a ceiling price for Russian oil imports. However, the main theme here is the circumvention of sanctions. Under what conditions is this achievable, whose experience can Russia rely on in this matter and which countries can it turn to in order to achieve its goal?

First of all, let’s keep in mind that the first and main factor in circumventing sanctions and of vital importance for Russia is import. By monitoring the growth of imports of goods to Russia, we can conclude how sanctions are being circumvented and which international actors or private companies are helping Russia to circumvent sanctions. The growth of the Russian economy is doubly affected by the sanctions: restricted imports reduce consumption and prevent technological development essential for the manufacturing sector, while restrictions on the export of raw materials limit the budget income of the Russian Federation. Accordingly, the secondary factor in circumventing sanctions for Russia is exports. Since Russian exports are non-diversified (mostly oil, gas, coal and precious metals) and also easy to monitor, as they are not consumer goods, Russian export bypasses can also be monitored.

Serbia and the circumvention of sanctions

Serbia is often nonchalantly mentioned as a possible hub for circumventing the sanctions imposed on Russia, it is even sometimes used as an argument to put pressure on the Serbian leadership to join the EU sanctions as soon as possible. In reality, Serbia is not one of the countries with which Russia significantly improved its cooperation during the past eight months of war. Our country actually represents a very small market, so an increased export or import of goods from Serbia to Russia and vice versa would be noticed immediately. Serbia, for example, has increased its imports of Russian oil this year, but this is because Russia has been selling oil at a discount of around US$30 per barrel, which is a serious price reduction compared to its competitors (and some EU and NATO members are also imported Russian oil).

Nevertheless, it is a small profit for the Russian Federation, not only because the oil is sold at a lower price than the market price, but also because, as already mentioned, Serbia is a small market. It certainly means for Russia that India continues to buy its oil, even if at a lower price, but India is a developing economy with great potential. As for exports, on any macroeconomic data aggregator, even those available to professionals in the field of economics, Serbia does not appear as an important hub for the resale of goods from Western corporations that have suspended cooperation with Russia (which countries do this and how important are they Russia will be discussed later in the text).

Serbia is one of the destinations for the relocation of the Russian IT sector, but it is a clear loss for Russia, and a gain for Serbia (the only thing is that its citizens are affected by the rise in real estate prices due to the influx of better-paid Russian professionals). In addition to Serbia, Russian experts and members of the middle class (especially after the announcement of mobilization at the end of September) are emigrating en masse to the countries of Central Asia and the countries of the South Caucasus. Recently, the central bank of Armenia announced an official GDP growth figure of 13 percent, which is many times higher than the previous estimate of 1.6 percent GDP growth. The reason for this jump is the arrival of a large number of Russian professionals who now provide their services and pay taxes in Armenia, not in Russia. Therefore, Serbia, by opening its borders for Russian emigrants, as well as the visa-free regime it has with Russia, it actually hurts Russia’s budget and reduces its GDP growth. The fact that Serbia is attracting part of the Russian IT sector is not good for Russia and its economy, because it is a drain of brains and capital.

Serbia only has a disproportionately larger air traffic with the Russian Federation because Air Serbia (in which our country has a share of 83 percent of the shares) has kept direct flights to Russia. Air traffic enables Air Serbia to make extra profit compared to its European competitors, and it brings a small profit to Russia (various fees for the use of air infrastructure). The aforementioned direct airlines between Serbia and Russia also allow Russian citizens to avoid mobilization, so this again hurts Russia (besides the brain drain and profits mentioned earlier). The conclusion is that the cooperation between Serbia and Russia is more beneficial to Serbia than to Russia, in the given geopolitical situation, and that its termination would cause minimal damage to Russia, unless we are talking about loss of prestige, and greater to Serbia.

How does Russia circumvent the sanctions?

In the import part, through the purchase of consumer goods through intermediaries in third countries. Crucial products such as microchips, manufacturing technology, technology needed for energy infrastructure, as well as multi-purpose goods, which can be used for military purposes, are closely monitored. Consumer goods such as clothing, food products or small technology are more difficult to monitor. In that way, Iranian Coca-Cola recently appeared in Moscow, made for the local market with inscriptions in the Persian language. Iran also shares with Russian economists the experience of circumventing sanctions. Russia legalized the parallel import of goods shortly after the start of the war and the introduction of sanctions, and the main hubs for illegal import of goods into Russia are Turkey and Kazakhstan.

The export of goods from Turkey to Russia is currently at the level of 160 percent compared to January this year, with a tendency for further growth. Exports of goods from Kazakhstan to Russia are currently at a rate of 138 percent compared to January this year, with a tendency for further growth. Even China is in the red when compared to the pre-war period (so China exports less goods to Russia than before the war), but there is also a tendency to grow. In a few months, China’s exports to Russia will reach pre-war levels. All other economically important countries are in the red, without a positive trend (among them is India, which stopped at the level of 79 percent of the pre-war export of goods to Russia, with no further growth trend). The G7 countries and the EU (the largest economies among them) are at a level of about 50 percent since the pre-war period.

Of course, there are big problems with the smuggling of goods for the Russian side, one of them is the increased price due to complicated transportation and dependence on certain distributors, the other is a large percentage of fake and fake goods that are imported through this illegal route. For example, the Russian newspaper Kommersant writes that domestic electronics manufacturers, who are increasingly dependent on the import of parts from China in order to be able to continue production, in 40 percent of cases face fake parts delivered from China, and that before the war the share of fake parts from China amounted to only 2 percent. Put simply, Russia’s manufacturing and consumer sectors are largely at the mercy of dubious distributors from Turkey, Kazakhstan and China.

What about exports?

With exports, things are more difficult, but even there it is not impossible to cheat the countries that imposed sanctions on Russia. Western journalists have already investigated the schemes of mixing Russian crude oil with crude oil from other sources in such a way that the share of Russian oil is below 50 percent of the total amount of that raw material transported by tankers. There are also investigated schemes where an Egyptian port capable of receiving oil tankers, in the figurative sense of the word, repackaged Russian oil and it was further sold under a different designation. EU companies have also profited from this murky trade, especially Greek and Cypriot shipping magnates. The EU monitored these loopholes and tried to plug them in each new package of sanctions.

In conclusion, it can be stated that Russia managed to mitigate the effects of the sanctions to some extent, by partially improving imports, which fell drastically at the beginning of the war. Of course, this model is unsustainable in the long run, it guarantees a decrease in the standard of living and a reduced volume of the economy, however, the Russian leadership hopes to be able to get out of the war during this winter, using the instruments of pressure on the Western countries to reduce aid to Ukraine and agree to it. to agree to negotiations at Vladimir Putin’s request. No plan has to be implemented, but it is obvious that the Kremlin is not thinking of staying in this situation in the long term, so they are making such moves. It is also obvious that the leadership of Serbia is buying time in order to make sure that the West will not follow the path of compromise with Putin, and only then will it be ready to make a decision on sanctions, Bloomberg Adria writes.