EBRD analyses trade flows between Russia, Caucasus and Central Asia

• EBRD economists analyse trade flows between Western countries, Russia and its neighbours  
• Dramatic drop in direct exports to Russia from the West, indirect exports intermediated via Caucasus and Central Asia
• Some intermediated trade may be used to circumvent sanctions, though its scale is limited

Intermediated trade through a number of countries neighbouring Russia may be used to circumvent economic sanctions but on a limited scale according to a newly published EBRD working paper The Eurasian roundabout: Trade flows into Russia through the Caucasus and Central Asia.

The paper documents the dramatic reduction of exports from the EU, UK and US to Russia following the introduction of economic sanctions in March 2022 in the aftermath of Russia’s invasion of Ukraine.

At the same time, it notes the increase of exports to Armenia, Kazakhstan and the Kyrgyz Republic (CCA3 – all members of the Eurasian Economic Union). The study also documents the increase of trade flows between the CCA3 states and Russia.

The EBRD analysis is based on bilateral monthly data on exports covering the period from January 2017 to August 2022 and provided through UN Comtrade, the world’s most comprehensive global trade data platform. It uses product-level data classified according to six-digit codes of the Harmonized Commodity Description and Coding Systems – an international nomenclature for the classification of products. It compares bilateral trade patterns with the CCA3 countries as well as the rest of the world, considering explicitly sanctioned goods as well as at goods that are similar to the sanctioned products and looking at the trade before and after the introduction of sanctions.

“The war has caused significant changes in the regional trade patterns. Direct exports from Western democracies to Russia have dropped dramatically. We saw the emergence of intermediated trade – an increase in Western exports to Central Asian and the Caucasus countries accompanied by an increase in exports from these countries to Russia.”

“This intermediated trade, however, is only a fraction of what was previously exported to Russia directly. This situation created an opening for other suppliers, such as Türkiye and China, both of which have substantially increased their sales to Russia,” explained Beata Javorcik, the EBRD’s Chief Economist, and one of the new paper’s authors.

The paper argues that trade flows consistent with rerouting of trade to Russia were more pronounced for product groups where goods are at least partially subject to sanctions and for goods that are similar to sanctioned ones.

At the same time it notes that the increase in exports of sanctioned goods to CCA3 countries represents a small fraction of the reduction in direct exports of sanctioned goods to Russia (around 5 per cent) but can be large for specific product groups.

The patterns of trade summarised in the EBRD paper rely on the official export data but do not include any illicit activities such as smuggling of sanctioned or non-sanctioned goods.

/// EBRD press release