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Politico: Smugglers’ secrets: How Russia can beat EU sanctions

Europe has deployed an unprecedented arsenal of economic sanctions against Moscow in an attempt to weaken Russia’s economy and force Vladimir Putin to abandon his war in Ukraine.

But as the export bans bite over the coming months, Russia will start to crave banned goods that are essential for its military and domestic economy. The Kremlin will also want to replenish its war chest with revenue from sales of sanctioned products — from coal and oil to caviar — to willing buyers overseas.

“In my country, we believe that everything should be waterproof so that there won’t be any possibility to smuggle in anything," a senior EU diplomat said. "But ... we are realists and we know that if there are the sanctions, then there are always people around who want to circumvent them … It’s not possible to fix up absolutely everything."

Since Russia annexed Crimea in 2014, prompting a first wave of sanctions, Moscow has worked to boost its self-sufficiency, but it hasn’t been possible in all areas. It is easier to make your own cheese than to self-produce microchips, for example.

That means Russia will need Western-made tech and machinery as sanctions hit supplies. These items are vital for both military and civilian use, as well as to maintain exports of oil and gas to countries like India where they are not banned.

“Russia desperately needs chips, semiconductor components and several key critical raw materials like lithium, to continue manufacturing weapons systems and electric accumulators needed for military use,” a former Ukrainian trade official said. “Without these sophisticated supplies, the Russian military industry will be effectively crippled.”

Moscow is likely to try to import restricted goods through new trade routes, using torturous methods to avoid or evade Western scrutiny. The list of countries seen as potential weak spots for sanctions enforcement and compliance is varied and Putin will find willing partners deep inside Europe and beyond.

“Historically, there are a couple of jurisdictions that have proven themselves to be on the front lines” of sanctions evasion, a former senior sanctions official at the U.S. Treasury said. “Turkey and the UAE are pretty key in that regard.”

Turkey, which benefits from privileged access to the EU market via the customs union, is not aligned with EU sanctions in the way Switzerland and Norway are.

Then there are Russia's neighbors in the Eurasian Economic Union — which comprises Russia, Belarus, Kazakhstan, Armenia and Kyrgyzstan. Former Western intelligence officials told POLITICO that there could be increased regular trade in the area, which Kazakhstan is publicly encouraging. But a surge in normal trade could also come with flows of illicit sanctioned goods.

“Here in Kyrgyzstan, Russians working in the IT sector have arrived in large numbers. But [I learned after] hanging out in the bars of Bishkek that not all of them are here for political reasons. Some have 'fled' with their employer's blessing to circumvent sanctions,” Associate Professor Kevin Limonier at the French Institute for Geopolitics tweeted.

Moscow could also look for the easiest export controls around the EU. That’s because within the bloc, each country has its own national customs and sanctions enforcement, so some jurisdictions are softer than others.

As an example, Maria Shagina, who’s a Research Fellow at the International Institute for Strategic Studies, cited Italy, where there were “a lot of cases” of prohibited goods almost shipped to Russia after the 2014 sanctions. Ships “with links to Germany, Italy, Greece, and Bulgaria” also docked at sanctioned Crimean ports, she said.

As well as cutting off supplies of much-needed foreign kit, sanctions are intended to shrink the European market for Russian exports.

Moscow will need to continue exporting commodities like oil, coal, minerals and grains to feed into its war economy and fund its invasion of Ukraine.

Experts warn that Putin could find wily ways to keep selling petrol, or other sanctioned commodities like coal, to the bloc.

One common trick is to use ship-to-ship transfers, where, for example, a Russian vessel in international waters offloads oil to a second tanker, which then docks in an EU port and labels the oil as coming from a country that isn’t under sanctions. Another ruse involves vessels turning off their location trackers to hide their activities. There has been a sharp increase in this practice, which is legal, by Russian tankers since the invasion of Ukraine.

The bloc has also set out plans to make breaking sanctions against Russia a crime, to make it easier for EU governments to seize the assets of companies and individuals dodging the rules.

A novel initiative is also under way to coordinate customs regimes across the bloc, dubbed “Operation Oscar.” The aim is to join up the work of Europol, Frontex and Eurojust but, ultimately, its success will depend on the efforts of individual countries’ law enforcement authorities.

Experts point to Hungary, Bulgaria and the non-EU Balkans — including Russia-friendly Serbia — as potential weak links when it comes to enforcement.

Despite renewed efforts to clamp down on evasion, the chances are that complicit or complacent governments and businesses will continue to provide Putin with what he wants.

CNN: China and Russia show Japan their warships

At least eight Russian and Chinese warships have been spotted in the seas near Japan this week, another sign of the apparent pressure the two partners have been putting on Tokyo as relations deteriorate over Ukraine and Taiwan respectively.

Japan's Defense Ministry on Tuesday said its forces had observed five Russian warships led by an anti-submarine destroyer steaming through the Tsushima Strait, which separates Japan and South Korea.

The five-ship Russian flotilla has been near Japanese islands for a week, from Hokkaido in the north to Okinawa in the south, the ministry said in a news release.

The Russian Navy destroyer Admiral Panteleyev
Photo: Japan's Defense Ministry

Meanwhile, at least two Chinese warships and a supply ship were spotted Tuesday in the Izu Islands, about 500 kilometers south of the capital Tokyo. One of those ships appeared to be the Lhasa, a Type 55 guided-missile destroyer and one of China's most powerful surface ships.

The ministry said that group has been operating in waters near Japan since June 12.

"This is an obvious show of force from both Russia and China," said James Brown, associate professor of political science at Temple University in Tokyo.

"These activities are a major worry for Japan. Not least, tracking the movements of both Russian and Chinese military forces are a strain on the resources of the Japan Self Defense Forces."

There was no claim from Tokyo that the Russian and Chinese naval groups were coordinating their actions, like they did last October when a total of 10 Russian and Chinese warships jointly participated in exercises in which they circumnavigated much of the Japanese archipelago.

More recently, as Japanese Prime Minister Fumio Kishida hosted a summit of the leaders of the United States, Australia and India in Tokyo, the Chinese and Russian air forces conducted joint strategic air patrols over the Sea of Japan, the East China Sea and the western Pacific Ocean, in what the Chinese Defense Ministry called part of an annual military cooperation plan.

Brown said Kishida's hosting of that summit was just one reason Beijing would want to show its displeasure with Tokyo.

"Beijing has been angered by Japanese statements regarding the security of Taiwan, which the Chinese Communist Party considers a domestic matter," Brown said.

In fact, it was at the Tokyo summit that President Joe Biden said the United States would intervene militarily if China attempts to take Taiwan by force.

The White House later walked back that comment, but the US does maintain a powerful military presence in Japan -- troops that could come into play in any conflict over Taiwan.

Meanwhile, Moscow has been angered by Tokyo's support for Ukraine after Russian forces invaded their European neighbor nearly four months ago, Brown said. That support has included imposing sanctions on Moscow and expelling Russian diplomats.

"Russia therefore wishes to use its military power to intimidate Japan in the hope that this will deter Tokyo from imposing further such measures," Brown said.

Brown described the fact that this week's naval actions by Russia and China did not seem to be coordinated as a "silver lining" for Tokyo.

"Japan's strategic nightmare is a genuine alliance between Russia and China," he said.

BBC: Inflation in the U.K. is rising by leaps and bounds

UK inflation, the rate at which prices rise, edged up to 9.1% in the 12 months to May, from 9% in April, the Office for National Statistics (ONS) said. This is the fastest rate of growth in the last 40 years.

Food price rises, particular for bread, cereal and meat, were a big factor in the latest rise, the ONS said.

Cost of living pressures have led to unions and workers calling for pay rises.

But the government has warned against employers handing out big increases in salaries over fears of a 1970s style "inflationary spiral", where prices continued to rise as wages went up.

Currently, inflation is at the highest level since March 1982, when it also stood at 9.1% and the Bank of England has warned it will reach 11% this year.

In a BBC-commissioned survey of more than 4,000 people, 82% said they thought their wages should increase to match the rising price of goods and services.

Households were hit by an unprecedented £700-a-year increase in energy costs in April (815 euro), and fuel price rises in June mean it costs more than £100 (116 euro) to fill an average family car with petrol.

The country's railways were severely disrupted on Tuesday as rail workers begun a series of strikes in a dispute over pay, jobs and conditions.

About 40,000 members of the Rail, Maritime and Transport (RMT) union working for Network Rail and 13 train operators walked out, with union bosses calling for a pay rise of 7%, while employers have offered a maximum of 3%.

Jon Richards, assistant general secretary Unison, accused ministers of "living on another planet" over "talks of public sector pay restraint".

"Under-pressure health, care, school and council services desperately need staff to be given a pay boost that matches runaway prices," he said.

But Dominic Raab told the BBC's Today programme: "We have got to stop making the problem worse by fuelling pay demands that will only see inflation stay higher for longer and that only hurts the poorest the worst."

Market reach firm Kantar has forecast that the average annual grocery bill in the UK is set to rise by £380 (442 euro) this year.

In a bid to stem the pace of soaring prices, the Bank of England recently increased UK interest rates from 1% to 1.25%.

The move was the fifth consecutive rise, pushing rates to the highest level in 13 years.

Laura Suter, head of personal finance at AJ Bell, said hopes of inflation "ebbing away later this year are dead", adding:

"Unfortunately, more gloom lies ahead."

CNBC: NATO is ready to defend Lithuania

A new front in tensions between Russia and NATO has opened up after one of the Western military alliance’s members, Lithuania, banned the transit of some goods coming from Russia to its exclave Kaliningrad on the Baltic Sea.

Russia has vowed to retaliate over what it described as the “hostile actions” of Lithuania, warning of “serious” consequences, while NATO members have reiterated their support for the country.

Lithuania said last week that it would ban the transit of some EU-sanctioned goods coming from Russia across its territory to the Russian exclave of Kaliningrad.

The government said the blockade would apply to all EU-sanctioned goods coming from the mainland via rail, effectively blocking the transit of metals, coal, construction materials and high-technology products to the Russian sea port.

Lithuania said that its decision was taken after consultation with the European Commission, the EU’s executive arm, and that it’s enforcing sanctions on Russia that were imposed following the unprovoked invasion of Ukraine on Feb. 24.

Russia responded to Lithuania, a former Soviet republic, by calling the move an “unprecedented” and “hostile” act, with its foreign ministry issuing a statement Tuesday in which it said “if in the near future cargo transit between the Kaliningrad region and the rest of the territory of the Russian Federation through Lithuania is not restored in full, then Russia reserves the right to take actions to protect its national interests.”

Lithuania’s Foreign Ministry issued a statement Monday saying “the transit of passengers and non-sanctioned goods to and from the Kaliningrad region through Lithuania continues uninterrupted.”

It added that Lithuania “has not imposed any unilateral, individual, or additional restrictions on the transit” and that it is consistently implementing EU sanctions.

Josep Borrell, the EU’s foreign policy chief, also backed Lithuania on Monday, saying he was worried about what form the retaliation might take while he defended Vilnius’ position. “Certainly I am always worried about the Russian retaliations” he said, but he insisted there was no “blockade.”

Josep Borrell
Photo: Philipp von Ditfurth/dpa/Global Look Press

“Lithuania has not taken any unilateral national restrictions and only applies the European Union sanctions” he said, saying any reports in Russia that Lithuania was implementing its own sanctions was “pure propaganda.”

“A land attack to drive a corridor through Lithuania would be a direct attack on Lithuania triggering NATO Article 5 defence. Putin knows this - that’s war with NATO. Can Putin afford that when he is struggling to deliver on even his now much-reduced strategic objectives in Ukraine? He would also have to launch an assault through Belarus, stretching his supply lines, and splitting his forces,” noted Timothy Ash, senior sovereign strategist at BlueBay Asset Management.

Tensions between Russia and NATO are already heightened as a result of the war in Ukraine and the move by Lithuania has ratcheted those up further, potentially putting a NATO country (and the entire alliance) in line for a direct confrontation with Russia.

A key pillar of the NATO alliance is the concept of collective defense: Known as Article 5, it means that if one member is attacked, it is considered an attack on the entire group with all members committed to protecting each other.

Russia will have to calibrate its response to Lithuania carefully, knowing that any direct attack will be seen as an attack on all NATO members by the organization.

For their part, Lithuania’s NATO allies have said they will stand by the country following the Kremlin’s threats.

“Lithuania is a member of the NATO alliance and we stand by the commitments that we have made to the NATO alliance and that includes of course, a commitment to Article Five that is the bedrock of the NATO alliance,” U.S. State Department spokesman Ned Price said during a daily press briefing.

“Lithuania has been a stalwart partner, we stand by NATO, we stand by our NATO allies and we stand by Lithuania,” Price added.

Picked and squeezed for you: Irina Iakovleva