Sanctions busters are in danger of winning

A worker turns a control wheel at the Novokuibyshevsk oil storage plant, operated by Rosneft PJSC, in Russia. Moscow is still earning $700 million a day from its crude oil exports.

Ahoy! Every schoolboy knows a smattering of pirate argot even if it’s just “shiver me timbers!” Now sanctions busters have developed their own vocabulary as they try to outwit western attempts at financial warfare. “Black knights” are murky players like China who secretly take on commodities from sanctioned states, bought at a discount. Latvian blend? That’s how sanctioned Russian oil is being disguised.

As the supposedly five-day Russian invasion of Ukraine reaches the six-month mark so Vladimir Putin has expanded his club of heavily sanctioned regimes — among them, Iran, North Korea, Syria and Venezuela — into a self-helping association of law-breakers. The aim is both to keep wounded economies chugging along and to demonstrate that their will cannot be broken by what they see as the weaponisation of US financial markets in the world economy. For Ukraine, the current war is existential. For Putin, the war is being played for equally high stakes: not just to crush Ukrainian nationhood but also to demonstrate the limits of American power.

The high seas are thus becoming critical to the conflict. Ships are dodging global scrutiny by switching off their transponders. Russian commercial fleet operators failed to provide destination details on a third of its vessels in April. When entering foreign ports Russian vessels frequently hoist flags of convenience, from Sierra Leone and Panama for example, lest their cargos are seized. Goods are often transferred at night, typically from a sanctioned Iranian vessel to a non-sanctioned Chinese.

Oil pumping jacks, also known as "nodding donkeys", operate in an oilfield near Almetyevsk, Tatarstan, Russia.

Moscow is earning $700 million a day from its crude oil exports. A crunch point approaches in December when European Union and British insurance companies will be prohibited from covering ships transporting Russian oil. The point: to achieve the aim of barring almost all imports of Russian oil by the end of the year. Evasion tactics are thus being tried out already by Putin’s sanctions busters. And their main substitute market is the global south. Groupings like Brics (Brazil, Russia, India, China and South Africa) and the Shanghai Cooperation Organisation are becoming more and more like bazaars. Discounted oil from Russia is attractive to countries facing domestic unrest about fuel prices. Western spooks are concerned in particular about Russian lobbying of South Africa.

The US and European sanctions range, of course, well beyond the hydrocarbon industries. Crucially, the US has been trying to squeeze Moscow out of the dollar-based global financial system. The Kremlin has responded by trying to persuade its trading partners to use Russia’s Mir as an alternative to Swift, the western-based bank messaging system. But the fact remains that Russia and its cronies prefer old-fashioned barter. Since annexing Crimea in 2014, Moscow swaps its looted grain for Syrian olive oil and vegetables. Now it looks as if Iran will exchange car parts and gas turbines for Russian steel and minerals. Putin was already trying a variant of this before the 2022 invasion. He agreed to grant Bashar al-Assad hefty loans as long as Assad used the cash to pay for commodities from a list of Russian companies based in Syria. That is how the sanctioned of the world scratch each other’s back.

A worker walks towards the roof of a storage silo containing base oil at the Royal Dutch Shell Plc lubricants blending plant in Torzhok, Russia,.

There are two other considerations in the sanctions war. The first is that Russia still imagines, despite its clear involvement in multiple war crimes, it will come out of the conflict smelling of roses, a great power and not a criminal entity. While North Korean hackers have been stealing hundreds of millions of dollars in cryptocurrency and Iran and Venezuela have been laundering money through cryptocurrency, US investigators haven’t spotted any major Russian push to wriggle out of sanctions in this way. That’s partly down to the sheer scale of Russia’s pent-up problem, but also that Russians don’t like being lumped together with desperate rogue states. It’s ignoble. The Rotters’ Club may share a sense of resentment against Washington but Russia still feels it is a class apart. And Putin, though not seriously troubled by the wrath of voters, understands this.

Second, there is an important argument to be made and won at home. Policies that defy the full lumbering weight of western sanctions can be used to retain the loyalty of the urban Russian middle classes. These, at the higher end, have grown accustomed to their imported SUVs and weekend shopping trips to Berlin; those lower down the ladder used to save up to send their kids to English language summer schools. Putin offers them scant consolation but he does at least conjure up a sense of resistance to the West and of shared victimhood, a hint perhaps of better times to come. The SUVs are still there even if they are immobilised until a spare part arrives courtesy of the black market. When western politicians declare that the ultimate war aim is to weaken Russia, this has the effect of bringing Russians closer to Putin. Who wants to be weaker?

Sanctions are long-term weapons, designed to exhaust a populace and force a change of behaviour. But they can backfire especially when used against an autocratic regime. Cuba, which still faces some 600 sanctions, has managed to keep intact, among more generalised social decay, a strong, innovative national health service, the pride and joy of Latin America. Putin may be calculating that he can emerge as some kind of Slav national hero against a hostile West, winning his vicious war by simply being the last man standing. His gamble: in the face of Russian resilience, the western consensus on sanctions could just fall apart. That would be a devastating outcome, and not just for the Ukrainians.

The Times