Euronews Business investigates how Russia is using Kyrgyzstan as an important middleman to keep up trade relations with various European countries.
In connection with Russia's invasion of Ukraine, over the past couple of years the EU, the United Kingdom, the USA and a number of other international market participants have imposed a series of sanctions on Moscow. However, despite the fact that the sanctions keep growing in number and becoming ever stricter, Russia has continued to find ways of maintaining trade with Europe.
Brookings Institute has used International Monetary Fund (IMF) direction of trade data to map recent years' exports towards the countries of Central Asia; these are suspected of being places where goods are transhipped to or from Russia. In carrying out this analysis, the Brookings Institute looked at the situation in Armenia, Kazakhstan, Kyrgyzstan and Georgia.
Kyrgyzstan stood out in particular: since March 2022, when the war in Ukraine had already begun, a substantial rise in exports from around the world, and from Europe especially, has been observed towards the country.
How is Russia using Kyrgyzstan to maintain trade relations with Europe?
Kyrgyzstan, a not particularly large, mountainous, landlocked Central Asian country, has lately gained worldwide fame, as its extensive trade partnerships with Russia have attracted a great deal of attention.
The chief executive and founder of Freight Right Global Logistics, Robert Khachatryan, told Euronews: "Kyrgyzstan has become an important intermediary for Russia in maintaining trade with Europe, despite the sanctions currently in place.
"Kyrgyzstan's exports to Russia rose sharply from 393 million US dollars (352.8 million euros) in 2021 to more than 1.07 billion US dollars (960 million euros) in 2022. That points to a considerable increase in trade activity, which in turn makes it easier to circumvent sanctions.
The country has recorded a staggering 953% increase in exports of European Union goods, benefiting from its strategic position as a transit hub.
The president of the security strategy consultancy Scarab Rising, Irina Tsukerman, told Euronews: "One of the most effective ways in which Russia uses Kyrgyzstan to get around sanctions and export-import controls is the re-export of goods.
The European Union and the USA have imposed sanctions on Russia which have brought about changes in trade patterns.
"These sanctions have made it harder for Russia to access high-tech goods and have raised the cost of doing business with Russia. Kyrgyzstan is heavily dependent on Russia. It has few alternatives for trade. Kyrgyzstan, Kazakhstan and Armenia have become hubs for the re-export of goods to Russia, because trade within the Eurasian Customs Union (EACU) is not subject to mandatory customs declarations and checks. This eases the flow of Russian goods to Europe. Kyrgyzstan's re-export of cars to Russia has helped Russian consumers gain access to the latest car models, has reduced the economic hardship caused by sanctions and has weakened the likelihood of resistance directed against Putin.
Kyrgyzstan's geographical position makes it a transit hub for the flow of goods between Russia and Europe. This includes the use of the rail and road networks that connect these regions.
"Russia is investing in Kyrgyz infrastructure projects, for example in energy and transport. Trade opportunities are being improved and a more efficient route is being created for Russian goods to reach Europe."
Vuk Vuksanović of LSE IDEAS, the foreign policy think tank at the London School of Economics, told Euronews: "Kyrgyzstan is becoming one of the main hubs and transport nodes for Western goods reaching Russia. Central Asia is a fairly logical route, given the region's strategic geographical position, which places it at the crossroads of Russian, Chinese and European interests.
"Kyrgyzstan is one of Russia's most important partners in the region. It is a member state of the Russian-led Eurasian Economic Union (EAEU) and of the Collective Security Treaty Organization (CSTO). Kyrgyzstan has only land borders and is heavily dependent on flows of Russian money, which were reduced because of the war in Ukraine. It is only logical that the country looked for other options," Vuksanović stressed.
"If sanctions are imposed on Kyrgyzstan, another — or yet another new — route for circumventing sanctions will be found. It is likewise difficult to impose sanctions on everyone who wants to do business with Russia, since most of the world's countries have never joined the Western sanctions against Russia."
"The biggest problem is that in many Western countries, especially in the European Union, there are still companies that still want to trade with Russia and exploit legal and logistical loopholes in order to do so successfully," said Vuksanović.
"The cooperation goes both ways. Europeans not only buy Russian goods and resources, but also sell technology and dual-use goods. Although Europeans talk a great deal about European values and unity, to many the Russian market seemed, and still seems, attractive."
The vice-president of the Lithuanian Business Confederation, economist Marius Dubnikovas, said: "Since Russia's invasion of Ukraine in 2022, Kyrgyzstan's exports to Russia have tripled compared with the average level before the war. Trade is brisk. It may well be linked to the sanctions and to attempts to get around them. The most significant trade is in machinery, consumer goods, electronics and electrical equipment. There is a risk that dual-use products are also being exported or re-exported from Europe."
Which other countries are involved in this trade?
Brookings Institute named Germany, Poland, Lithuania, Italy, the Czech Republic and Serbia among the countries whose exports to Kyrgyzstan have risen sharply since the start of the war between Russia and Ukraine. These countries may well be continuing to trade with Russia via Kyrgyzstan.
On this point, the consultant Irina Tsukerman noted: "Germany is one of the biggest trading partners of Russia and Kyrgyzstan in the EU. German companies import goods from Russia, including energy products, machinery and raw materials (timber among them)."
"Russia knows the logistics of the trade flows between Germany and Kyrgyzstan well and uses these supply chains to its own advantage in order to move its products to Germany. French companies have been actively involved in investing in Kyrgyzstan's energy and manufacturing sectors, thereby entering into three-way cooperation with Russia," she stressed.
"Italy trades openly with Russia. It has interests in Kyrgyzstan, particularly in agriculture and textiles. Luxury goods from Italy reach Russia via Central Asian countries such as Kyrgyzstan, while some Russian agricultural products, such as grain, as well as timber and textiles, are supplied to Italy along with Kyrgyz products.
How can the European Union stop this trade?
Europe has been sharply criticised for not doing enough to implement and enforce the sanctions against Russia, including failing to prevent it from setting up numerous shell companies in various countries or using third countries to go on evading trade sanctions.
Michael A. Witt, professor of international business and strategy at King's Business School: "I think the mechanisms are quite simple. The standard process would be to set up some local company in a third country that is not covered by the sanctions, and then to do business through that company (with additional intermediaries if necessary)."
"This could be stopped by imposing the same sanctions on third countries, or by threatening to do so. The problem is that geopolitically you can shoot yourself in the foot for several reasons. One is that you would push that third country even more firmly into the opponents' camp. The other reason – is that you are effectively handing part of the world market over to the sphere of influence of other countries, China in particular."
"So in the end Russia would for the most part still get what it needs, only from a different supplier. Europe would lose economic leverage relative to China, which is its geopolitical rival."
"Obviously, genuinely sensitive items have to be subject to strict export restrictions – either not exported at all (F22) or very tightly controlled (ASML). When it comes to household appliances whose microchips can be used for military purposes, the options are very limited. Of course, individual companies that import goods into third countries can be blacklisted. But as soon as you do that, Russia will set up new companies to do exactly the same thing."
Irina Tsukerman: "The first logical step is to work with the EACU to close the loopholes in tariff rules and excise trade agreements that favour the circumvention of sanctions. The Central Asian countries want to diversify their economies and trade partnerships; the creation of efficient oil transit points, the avoidance of tariffs and efforts to secure greater European investment and trade agreements should be made subordinate to the implementation of sanctions policy, and internal free trade should not be used as a mechanism for facilitating Russia-linked transactions and financial operations."
"Secondly, European companies involved in circumventing sanctions should be punished and should lose their business in Europe. In addition, transparency mechanisms should be strengthened in order to avoid government agencies indirectly, or even openly, encouraging such relationships."
"Serious resources should be devoted to enforcing the sanctions and seizing Russian goods entering the European Union, or vehicles moving through Kyrgyzstan. At the same time, priority should be given to tighter scrutiny of Kyrgyz officials, the country's oligarchs and corporate insiders, so as to make it harder for Kyrgyzstan to profit from facilitating illicit relationships and transactions."
The vice-president of the Lithuanian Business Confederation, Marius Dubnikovas, stressed: "There are more than 10 different sanctions lists, and the main task is to monitor how effective they are. It is not enough to monitor only the movement of goods; more attention must be paid to money transfers and to the recipients."