As last year closed out, Moscow predicted annual economic growth of 2.8 per cent, following contraction in 2022 when the sanctions noose was tightened considerably following the invasion of Ukraine. A surge in defense spending and high oil prices have helped to buoy the economy, and Russian private companies have apparently adapted well to the new economic realities. At the same time, the country has not seen the wholesale Western business exodus that appeared in the cards at the start of the conflict.  Many companies chose to remain,  some curtailing operations and investments. Yet, they still contribute billions to Kremlin coffers.

Nonetheless, underlying conditions are not great. High interest rates and inflation, a weak rouble, and big labor shortages do not augur well, especially when much of the country’s still substantial foreign reserves have been frozen by the West and most Russian banking system assets are sanctioned. True, the Russian economy is weaker than it was prior to the invasion but, to the frustration of Western policymakers, sanctions evasion and Moscow’s pivot East have helped to keep the country afloat.  A US study showed that by the autumn of 2022, Russian imports had rebounded from a steep fall in the  aftermath of the invasion.

Soon after the tightening of Western sanctions, as Russian forces advanced deep into Ukraine, Moscow looked to circumvent the restrictions. It built up a shadow tanker fleet to get round an oil price cap and looked to grow parallel imports – goods exported to unsanctioned countries, then re-exported to Russia without manufactures’ knowledge or consent. Moscow formalized the practice in May 2022, listing goods, ranging from auto parts to consumer goods, that could be imported in this way. The West, in particular the US, has sought to put pressure on exporting countries – notably Turkey, Kazakhstan and the UAE. Yet, it is unclear how effective this has been.  Moscow doesn’t seem too troubled. It claimed in December that parallel imports amounted to over 70 billion dollars’ worth of goods over the last two year.

Moscow had already been pivoting eastwards before the Ukraine war to boost economic growth. The invasion has expedited the geostrategic shift, with President Vladmir Putin finding willing trade and investment partners, apparently undeterred by the threat of sanctions. Trade between Russia and China rose by nearly 30 per cent to exceed $200 billion in the first 11 months of last year, with the Chinese exports to Russia surging by 50 per cent.  Half of Russia’s oil and petroleum exports went to China in 2023, with 40 per cent going to India. Overall, Russian-Indian bilateral trade doubled to over $50 billion between January and October last year.

On the military front, Russia has turned to rogue states like North Korea and Iran for direct weapon supplies, and is suspected of purchasing technology with civilian and military uses (subject to export controls)  from other friends, including Turkey and China.  According to US intelligence, Beijing has not only been providing Russia with vital economic assistance, but likely also military and dual-use technology, including navigation equipment, jamming technology and fighter-jet parts. The US think tank the Atlantic Council recently pointed out that open-source trade data suggested “a surge in imports of Chinese-manufactured goods with important military uses played a key role” in keeping Russia equipped and supplied to resist Ukraine’s recent counteroffensive.

Russia’s dependence on China to mitigate the impact of sanctions is such that a fifth of its imports by the end of 2022 are reported to have been invoiced in Chinese yuan, while Beijing has markedly increased the use of the currency to pay for Russian commodities. And while the West has sought to squeeze investment in Russia, Moscow has turned to China to fill in some of the gaps. Beijing, which has called for greater cross-border connectivity, has invested in transport infrastructure projects. It has also agreed to cooperate on a major mining project, is  considering joint development of oil and gas fields, and plans to collaborate on a  trans-shipment oil complex.

Moscow’s economic ties with Beijing seem to be getting closer and closer, so much so that there’s now a debate over whether Russia is becoming a vassal state.  But for China, India, and other smaller countries  eager to step up trade with Russia, commercial opportunity, it seems, is the main driver. “Russians are short of goods, so we’ll supply them and try not break sanctions whilst we’re at it,” they might argue.

The US and the EU will continue to penalize those that do, but this may represent just a fraction of illicit transactions. Moreover, what to do with all the legitimate trade that is undeniably helping Russia to weather the West’s sanctions regime? These questions will no doubt loom large in the minds of Western policymakers as Putin prepares to secure a fifth presidential term in March.

The views expressed in this article belong to the authors alone and do not necessarily reflect those of Geopoliticalmonitor.com.

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The Caesar Syria Civilian Protection Act, or ‘Caesar Act,’ named after a Syrian defector who provided photographic evidence of the Damascus regime’s human rights abuses, doubles down on the Syrian leadership and its backers in an effort to pressure it to negotiate an end to the decade-long civil war.

Since the legislation came into force in June, there have already been three waves of Caesar sanctions, which like those against the Tehran regime include secondary measures that target anyone doing business with the Syrian authorities or with Iranian and Russian entities in the country. They apply particularly to specific sectors, such as construction and engineering, discouraging investors from engaging in reconstruction.

Given that international pressure has so far failed to persuade Syrian President Bashar al-Assad to end the conflict, the US is seemingly intent on frustrating his efforts to consolidate and benefit from his war gains. Critics argue, however, that the new US policy might have a limited impact on an already isolated regime while, potentially, further immiserating civilians. It risks, they say, compounding hardships recently worsened by COVID-19 and the banking crisis in neighbouring Lebanon, which has squeezed dollar availability.

Indeed, apparent nervousness over the economic consequences of the Caesar Act, which was signed into law by President Trump last December, is believed by some to have contributed to the local currency, the Syrian pound, tumbling in value, triggering sharp rises in prices ahead of the legislation coming into force. The World Food Programme warned in June that if shortages of cash, food and supply chain disruption continue, “famine could very well be knocking” on Syria’s door.

The US administration is acutely aware of the potential for unintended civilian suffering. That is why it has included humanitarian exemptions for all areas of Syria in the new sanctions policy, enabling, in theory at least, international aid organisations to continue assisting Syrian civilians.

Yet a number of concerns have been raised, with some calling for the waiver process to be reviewed, believing it might block certain types of aid and unwittingly deter relief groups, for which there is emerging evidence. The New York Times last month reported humanitarian workers operating in Syria noting that it was becoming harder to bring medicine into the country, and that insurance companies have been telling organisations that they will not cover certain procedures.

Basma Alloush, a Syrian humanitarian advocacy professional in the US, and Alex Simon, the director of the Syria Programme at the research organisation Synaps,  warned in the foreign policy and national security publication War on the Rocks that the current exemption system was opaque, heavily bureaucratic, and prone to up to months of delays, with the request sometimes ultimately being met with rejection. The article also drew attention to the problem of overcompliance where, the authors said, banks and other businesses choose not to engage with even legitimate transactions for fear of falling foul of sanctions.

A paper by the Arab Reform Initiative (ARI), an independent think tank, said that exemptions provided by sanctions regimes are not working effectively in practice. The piece, by Genevieve Zingg, a legal fellow at the Syria Justice and Accountability Centre, urged their modification to address issues consistently experienced by aid groups, companies, and organisations that employ them, especially in light of COVID-19 and deteriorating economic conditions. She cited complicating factors like burdensome compliance requirements and time-consuming application processes.

Regarding overcompliance, the paper suggested that sanctioning bodies like the Office of Foreign Assets Control of the US Treasury Department issue specific “comfort letters” which, it said, would address fears of risk-averse banks and financial institutions by offering tangible protection from the possibility of future prosecution for sanctions violations.

Zingg also drew attention to delays in licence applications for so-called dual-use goods and services, such as raw materials and technical parts, which have critical medical applications but can also be used for military purposes. These, she said, include items like nitrous oxide for anaesthetics in hospitals, chlorine products used for water purification and sanitation, and spare parts needed for dialysis machines.

Moreover, a commentary by the conflict-resolution think tank  International Crisis Group (ICG) suggested that foreign NGOs might be deterred from supporting urgent small-scale rehabilitation projects due to uncertainty about the US authorities’ distinction between humanitarian aid and  reconstruction work. The ICG called for Washington to not only expand the scope of humanitarian exemptions that it will allow, but also ensure this is widely understood to “reassure third-parties who may otherwise stay away for fear of real or perceived legal penalties.”

As the Caesar sanction programme proceeds, the US needs to be better informed about the impact of its measures on civilians, so as to make any necessary adjustments. Rebecca Barber, an independent consultant in humanitarian policy and international law, writing in Just Security, an online forum for analysis of US national security law and policy, said that the legislation says nothing about human rights impact assessments or monitoring, “and there is certainly no mention of remedies or redress for the impacted population.”

Alloush and Simon proposed the creation of a mechanism, fine-tuned over time, that would enable officials to gather information from relief groups on the humanitarian consequences of the Caesar sanctions, although they point out that it would entail “more honesty and self-criticism from policymakers – and far more precise input from humanitarians – than has been the norm.”

While the US insists that it has no desire to harm civilians, its new sanctions risk doing so unless closer attention is paid to the reported oversights and weaknesses in exemption provision. A reluctance or failure to address the latter could play into the hands of those sceptical of Washington’s stated aims, at a time when the effectiveness of sanctions as an instrument of diplomacy has rarely been more hotly debated. 

Yigal Chazan is the head of content at Alaco, a London-based business intelligence consultancy.

The views expressed in this article are those of the authors alone and do not necessarily reflect those of Geopoliticalmonitor.com or any institutions with which the authors are associated.

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