Remember when the bulk of modern economies joined together to create massive, punishing Russian sanctions? Yeah, we do too. Has Russia surrendered yet?
No? But they’ve at least been unable to build advanced weapons, right?
Also no? So what’s going on?
Well, sanctions are having an effect, but Russians have been able to slow the bleeding with transnational shipments, buying at inflated prices from “non-sanctioning” countries, and dumpster diving. And a new report from the Silverado Policy Accelerator has the receipts.
How to make friends and influence people…with money…to help you evade sanctions
First things first, sanctions on Russia ARE having an effect. Russia had a recession year in 2022, and 2023 is looking stagnant.
The U.S. cut Russia off from the bulk of the dollar-denominated economy, which is most of the world economy, by promising to punish any bank that does business with them. The European Union slashed Russia’s largest revenue stream by agreeing to painful cuts in their energy purchases (helped, a lot, by a mild winter). And countries around the world reduced Russia’s access to modern silicon chips needed for advanced weapons.
But Russia dug deep to keep fighting despite these problems. They worked with partners to get deals done through bartering or small banks that could survive being cut off from the dollar system, as opposed to state banks that could not. Russia sold its oil at heavy discounts, now more than $30 below Brent crude prices, 10 times the pre-war difference. And they convinced allies like China and Vietnam to sell them their chips and re-sell them chips imported from elsewhere.
All of this has been quite expensive for Russia. But thanks to heavy state spending, it can still get most vital goods, with the exception of vehicle parts. (More on that later.)
Russia predicted sanctions and had big stockpiles
So them paying dearly for continued imports is part of the puzzle, but they also knew that sanctions would come after an invasion, and they built up a stockpile before the war.
Russia has a strong chip manufacturing industry, except that it can only build less-advanced chips. To make sure that they would have plenty of advanced chips, they ordered massive amounts of them in the months before their invasion. Exports to Russia averaged a little over $100 million a month pre-war. But in December 2021, they spent 57% more than normal on their imports.
January and February 2022 were also high, until the February 24 invasion resulted in the Russian sanctions.
Analysts at Janes, not associated with the Silverado report, have separately proposed that Russia’s continued missile bombardments rely on stockpiled chips.
Now, Russian imports increasingly come from Hong Kong and the rest of China, but total exports to Russia are only around $50 million a month. That’s down about half from pre-war, even with Russia paying a premium. So, by volume, it’s probably even worse.
Meanwhile, Russia is suddenly buying a ton of phones from Armenia. But Armenian imports from the rest of the world also surged. Basically, Russia is paying such a high premium for phones that Armenians are making a pretty penny by buying them for immediate re-sale.
Dumpster diving past Russian sanctions
Finally, another route for enterprising Russians is to find chips or other sanctioned goods in the trash. Russia is a net food and energy exporter. So most of the things its needs to import for the war are non-perishable, like computer chips or smartphones.
That means that devices thrown away last year are suddenly worth dumpster diving for. As is pulling parts from appliances to use in weapons or purchasing E-waste in bulk. Russia is rumored to be pursuing all three of these strategies.
But the Silverado report doesn’t have hard numbers on these. It does have hard numbers for how Chinese and Turkish exports of washing machines to Russia have soared, from about $50 million per month right before the war to over $200 million per month, now. But it’s not clear how many of those washing machines are being used for clothes and how many are re-purposed as chip donors for missiles.
Though, to be fair, western companies are reportedly using similar tactics to find computer chips for their own customers.
Still, vehicle parts are hard to come by
These tactics, buying at a premium from non-sanctioning countries or resellers, using up stockpiles, dumpster diving, they’ve all bought Russia time. They’re expensive, they might run out, but they work. But Russia is still struggling to get sufficient vehicle parts for military and civilian use.
Monthly value of car part exports to Russia fell from about $1.1 billion monthly to roughly $500 million now.
Russian regulators had to cut back on safety and environmental requirements, and manufacturers had to cut advanced features to get production moving again. Even then, production is low.
But this is mainly affecting the civilian market. Which, you know, better than nothing, but an impact on tank production would be preferred.
If you want to learn more without reading a 26-page report, you can listen to Silverado’s podcast discussing the report. If you want to read the full report, feel free to click here.