The Economic War Escalates

Sanctions are toughened, Russian assets are going to Ukraine

Hello All,

Moving away from the kinetic war in this post to talk a little about the economic war—as developments in that over the last few days are definitely worthy of note. Its interesting in some ways that its taken this long to reach this state. Certainly one of the many things I assumed (wrongly) during this war was that the sanctions regime would have been tougher and enforced more effectively than it has been to this point. What we have seen are surprisingly porous sanctions so far—with militarily useful goods from both the West and China making their way to Russia in larger quantities than should have been allowed.

As I mentioned in the piece on war and deterrence in the Indo-Pacific—war is not usually won by what you bring at the start. They are mostly won by what you can build or acquire while they are fought. This is certainly going to be the case with the Russian Invasion of Ukraine. Both sides have already chewed through most of the equipment that they had on February 24, 2022—and both are desperately building what they can, while they are also scouring the world to acquire all the weapons of war possible.

The Russians have been successful at this, particularly in continuing their trade with countries outside by circumventing existing sanctions. For instance, much of Western trade to Russia has simply been re-routed to Russia through other states—often in Central Asia. Here are just some examples (and I’m not doing this to dump on Germany—other Western states are doing exactly the same thing).

In January 2022, German trade with Kyrgyzstan was relatively small—by the summer of 2023 it had surged by an extraordinary 1400%.

Source: https://daryo.uz/en/2023/09/21/german-exports-to-kazakhstan-face-1400-surge-in-auto-sector

The same happened with a number of other countries—though with differences.