Why Iran and Russia can dodge Western sanctions

DW-April27th2024

Thomas Kohlmann

Iran knows it, China knows it and apparently, so does the US government: despite existing sanctions against the oil industry of the Islamic Republic, oil from Iran is being shipped to China in record volumes.

Javier Blas, an opinion columnist who covers energy and commodities for Bloomberg, recently described how Iranian oil ends up in China.

“If you believe the Chinese government, the country doesn’t import any oil from Iran. Zero. Not a barrel. Instead, it imports lots of Malaysian crude. So much that, according to official Chinese customs data, it somehow buys more than twice as much Malaysian oil as Malaysia actually produces.”

By rebranding Iranian oil, Malaysia became China’s fourth-largest foreign oil supplier last year, behind Saudi Arabia, Russia and Iraq.

For many years, Iran has used the United Arab Emirates (UAE) as a hub for circumventing sanctions. Dubai, one of the seven emirates of the UAE, is the gateway of banned goods other than oil that enter Iran. Tehran has long modified its supply chains so that virtually everything embargoed by the United States or the European Union can be obtained through trading and financial hubs like Dubai.

Central Asia: Russia’s new trading hub

Following Western sanctions over its war in Ukraine, Russia has had to establish similar trade routes to ensure a steady supply of vital goods for its economy.

The former Soviet republics in Central Asia have been proving ideal for circumventing the embargoes, because countries like Kazakhstan or Kyrgyzstan are part of a customs union with Moscow. Moreover, the vast distances — Kazakhstan alone shares a border with Russia of more than 7,500 kilometers (4,660 miles) — make sanctions control virtually impossible.

Due to Russia’s sanctions-busting strategy, Armenia, for example, saw imports of German cars and components rise by almost 1000% last year.

Russia is the most embargoed country globally, according to the latest data provided by Castellum.AI, a global sanctions-tracking database.

However, the Russian economy is far from collapsing. It posted strong growth of 3.6% last year, and the Kremlin is expecting the 2024 growth rate to be “at the same level,” according to Finance Minister Anton Siluanov.

The International Monetary Fund shares the Russians’ growth expectations, setting the rate of GDP expansion at 3.2%, and noting that high state spending and investments related to the war against Ukraine would be driving growth. Strong revenue from oil exports would continue to support Moscow’s finances, it said.

Sanctions galore, to little effect

Russia is subject to more than 5,000 different targeted sanctions — more than have been imposed on Iran, Venezuela, Myanmar and Cuba combined. They are targeted at politicians and officials in Putin’s government, as well as at Russian oligarchs, large companies, financial institutions and the military-industrial complex.

Financial sanctions have restricted Russian banks’ access to international financial markets, excluding them from the crucially important SWIFT banking system, which powers most international money and security transfers.

Additionally, the Russian central bank is denied access to its vast reserves located in G7 countries.

The catch is that only sanctions imposed by the UN Security Council are legally binding for all countries of the world. And there are indeed several countries like India, Brazil and China that have not adhered to these sanctions.