SNA (Glasgow) — Economic sanctions and corporate boycotts have not caused the rapid collapse of the Russian economy, as some Western commentators had hoped. Sanctions are, however, pressuring economic lifelines for the Russian people and forcing Moscow to embrace Eurasian ties.

Since Russia’s annexation of Crimea in 2014, international bodies spearheaded by the United States and the European Union have applied economic sanctions on Moscow. These sanctions chiefly targeted key figures linked to the Kremlin and the Russian oil industry. The severity of economic sanctions increased precipitously following Russia’s full-scale invasion of Ukraine in February last year. Many Western companies, from household names like Coca-Cola to luxury brands like Mercedes, have since terminated their operations in Russia.

According to Moscow-based newspaper Vechernyaya Moskva, 70% of Russians reported they have been forced to adjust their lifestyles in response to such sanctions. Tayga Info, a news agency aimed at residents of Siberia, sparked the ire of Russian government regulators in September when it published a story proclaiming that “for a month now, no sausage, no milk, no fruit.” It accompanied this text with images of empty shelves in the local town of Khatanga.

The head of the regional department for consumer markets in the city of Tomsk, also in Siberia, reported this month that there has been a roughly 20% drop in food imports to the region since the “special military operation” against Ukraine began almost a year ago.

Ultimately, however, news of this character is mirrored elsewhere in Europe. Over two million people in the United Kingdom will need to sacrifice meals and refrain from purchasing new clothes in order to keep up with rapidly rising costs of living, according to the London-based New Economics Foundation.

Farmers across Europe have warned that surging energy prices (widely viewed as a consequence of the war) will hamper their ability to heat greenhouses over the winter, thus threatening food supplies.

At this juncture, while it is clear that Russians have been significantly impacted by the sanctions, it is not apparent that the hardship has been much greater than that inflicted on Europe as a whole.

According to some Western commentators, this might be about to change. They argue that it’s in the longer-term impact that things will really begin to bite.

For example, Polina Ivanova and Max Seddon of the Financial Times argued that there will be a “slow degradation” of Russia’s economy as a result of the sanctions. Naturally, Russia’s global imports fell about 25% last year. This, they contend, has caused a serious components shortage across the country, with routine maintenance and repairs no longer possible.

Kremlin documents list the aviation, pharmaceutical, and information technology industries as being under a “super critical” threat from sanctioned supply chains. Indeed, it has been reported that Russia’s domestic car production was down 80% in the final three months of last year.

Domestic alternatives have been found for many common consumer items such as Western food brands, although they are often of poorer quality. More sophisticated goods like microchips, essential to Russia’s banking and high-tech sectors, must still be sourced from abroad.

To help combat the degradation of supply chains, Moscow has begun to allow the import of goods without the trademark holder’s authorization–a practice known as “parallel importing.” This means that goods can be shipped to a friendly country and then transported to Russia, evading the boycott imposed by scores of Western nations and their allies.

According to the Federal Customs Service of Russia, parallel imports of cars, machine tools, and light industrial goods were valued at over US$20 billion last year.

Russia Prime Minister Mikhail Mishustin has even declared that such an import policy can “guarantee the shipment of goods to our country, in spite of the unfriendly actions of foreign politicians.”

Turkey, a NATO member which is still on good terms with Moscow, has not followed its Western allies in imposing sanctions on Russia. Instead, it has become its largest partner for parallel imports. Manolis Kefalogiannis, a Greek member of the European Parliament, contends that goods carried by more than 250 ships each month are unloaded onto thousands of trucks at the Turkish port of Mersin, bound for Russian markets.

But parallel imports may be only a short-term fix, unable to match the demands of Russia’s population of 146 million. Western luxury items are, even now, said to be primarily supplied by the black market. This includes items such as phones and iPads. According to the Federal Customs Service of Russia, over seven million units of foreign “counterfeit goods”–transported by criminal enterprises–were seized at Russian borders over the course of the last year.

Western nations are also adjusting their sanctions policies. The United States is drawing down the sale of microchips to Armenia and Kazakhstan, neighbors of Russia, due to suspicions that many of these items are in fact making their way into Russia. For its part, the European Union has appointed a special envoy to investigate Turkey’s role in helping Russia evade sanctions.

To seek more effective and lasting solutions, Russia is exploring deeper ties with its Eurasian neighbors.

Beijing is the most obvious partner and has in fact increased trade with Moscow by over 23% in 2022. Chinese electronics, microchips, and cars have flowed into Russia to replace Western goods.

One aspect of this trade is to increasingly embrace the Chinese Yuan as an alternative to the Dollar as a reserve currency. Sberbank, Russia’s largest lender, is offering loans to Russian businesses utilizing the Chinese currency. This follows the banning of several major Russian banks from the Society for Worldwide Interbank Financial Telecommunication (SWIFT) system by which most international electronic transactions are conducted.

Moscow-based VTB Bank became the first to adopt China’s alternative to SWIFT–the Cross-Border Interbank Payment System (CIPS)–which is backed by the Yuan.

The Russian government has also been fiercely promoting its own System for Transfer of Financial Messages (SPFS), which is similar to both SWIFT and CIPS, but based on the Ruble.

Reportedly, both India and Saudi Arabia have been investigating the possibility of joining SPFS to manage their financial dealings with Russia.

Central Asia has been another focus for Moscow, hoping to make effective use of the Eurasian Economic Union and the Organization of Turkic States (OTS). Alexander Razuvaev, a staunchly pro-Putin economist, claims that “all Central Asian economies depend upon us.” He expects the Kremlin to promote the Ruble proactively. It is already the most commonly traded currency within Central Asian nations, and he believes that the SPFS can be established as the backbone for trade in the region.

OTS member Turkey, aside from its role in helping Russian sidestep sanctions, is also promising candidate as a trade partner. Kefalogiannis notes that in fact the number of Russian businesses in Turkey quadrupled over the course of last year, and that Russian exports to the country skyrocketed by 125%.

Razuvaev also sees major potential in the field of Islamic finance. This avenue could boost economic relations within the 14-million-strong Muslim regions of Russia itself as well as with foreign countries such as Turkey, already the top global player in this arena.

Moscow’s Eurasian strategy does appear to paying some dividends. Large quantities of Chinese, Turkish, and Uzbek goods are now found on shop shelves in the capital and other major cities. Many Russian businesses which were forced to suspend operations in the immediate wake of the invasion of Ukraine after the imposition of Western sanctions have since been able to adjust and to reopen their doors for business.

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