The leaders of the European Union can give themselves a pat on the back. They have, on the face of it, delivered on a promise made following Vladimir Putin's invasion of Ukraine to end the export of European goods, machinery and parts critical to Russia's war effort. Yet things are not quite as straightforward as they seem.
Exports from the bloc to Russia in June plummeted to a mere €2.4 billion (£2 billion) - a third of the €7.5 billion (£6.3 billion) shipped during the last peacetime June of 2021 before the war, according to data from the EU's statistical body Eurostat. The figure for June this year is the lowest since January 2003 and just a notch higher than the absolute minimum of January 2002 when Russia's ascent to wealth had only just started. Two and half years into the war, the EU can boast that the total volume of exports to Putin's Russia has not only almost declined to levels last seen during Putin's first term as president over 20 years ago, but has also fallen to almost zero for some vital products, such as aeroplane parts, microchips and navigation equipment.
Yet somehow Russia continues to use Western-made materials in its arms production. Despite being under sanctions for over two years now, Moscow is still managing to produce cruise missiles and maintain industrial production. Astonishingly, it remains heavily dependent on imported, often Western-produced, components and parts.
Take European machinery and transport equipment exports to Russia. In June, Russia spent €365 million (£307 million) on European goods in this category that are desperately needed by a variety of its industries. It's just a tenth of the €3.5 billion (£2.95 billion) bill for the same type of imports brought into the country in June 2021. Before the invasion, Russia imported tens of millions of euros' worth of integrated circuits from the EU every month. In June this year, Russia paid Europe just €2,553 (£2,152) for microchips desperately needed by the military - less than 0.01 per cent of what it imported during the same month in 2021.
In theory, this success in limiting Russia's access to vital products is a testament to the EU's strategic prowess. In practice, every time a cruise missile hits my home city of Kharkiv in Eastern Ukraine, newly produced Western microchips are found among its debris.
A deeper look at the EU's trade statistics reveals what might be going on. As EU exports to Russia fell in the aftermath of Putin's invasion, after a half-year lull they began to increase sharply to several Russia-friendly or Russia-ambivalent nations. This suggests that in all likelihood the same sanctioned goods blocked from being sent directly to Russia are being re-exported there via third-party countries. Sanctions watchdogs on both sides of the Atlantic share this view.
The primary suspect for who might be supplying Russia with western-made products is China. Observers in Russia say that there are whole sectors, from heavy industry to microelectronics, which rely on the Western parts shipped from China. Chris Miller, the author of the international bestseller Chip War, unequivocally points to China as the major reseller of Western microchips to Russia.
'Most chips used in Russia [before the war] were imported directly from Western firms or from distributors. This trade continues, largely via distributors in China that ignore Western sanctions,' he wrote in a paper for the American Enterprise Institute think tank earlier this year. However, due to the gargantuan volume of European exports to China, it's near impossible to detect a suspicious uptick in specific exports over the past two years.
This task is easier with smaller economies. Countries such as Georgia, Kazakhstan, Turkey, the United Arab Emirates, and the former Soviet states of Kyrgyzstan, Uzbekistan and Armenia have all seen a sharp increase in EU imports. Figures for machinery, spare parts, optics, and microchips in particular have grown in the past two years.
Before the war, microchip exports from the EU to Turkey hovered around €14 million per month, according to Eurostat. They are now consistently over €20 million (£16 million), even exceeding €30 million (£25 million) in some months. Industrial machinery exports, including power generators and parts, to Turkey increased by three-quarters to €4.2 billion (£3.6 billion) in June from the same month in 2021. The same exports to Kazakhstan for the same period more than doubled to €578 million (£487 million). Kyrgyzstan, a seven million-strong nation in Central Asia, increased its purchase of European machinery by 30 times in the past three years to €150 million (£126 million).
Even the export of boat propellers and parts, which are on the sanctions list and whose direct export to Russia has been stopped, has seen a healthy rise in these countries. This includes the land-locked mountain republics of Armenia and Kyrgyzstan, hardly known for their maritime might. By using a plethora of intermediaries in other countries, Russia is benefiting from the very thing the Kremlin has pledged to destroy: rules-based open trade globalisation.
The EU, US, and other Western countries are aware of the problem and are trying to crack down on the flourishing re-export of goods. In June, the EU introduced a new package of sanctions against Russia. Among other things, it instructed producers and exporters to maintain end-user verification to establish customers' rights to order. This essentially makes producers responsible for establishing whether a buyer plans to resell the product to the Russians and puts pressure on them to refuse the sale if in doubt. They have introduced punishments for ignoring correct procedure or failing to do it properly, ranging from fines and seizure of the goods to the revocation of export licenses and criminal prosecution of the culprits.
The success of this tactic depends on how politicians measure it. It's unwise to promise or even hint at the possibility of producing a whole, watertight sanctions regime as it is simply unachievable.
Tighter checks and higher fines will force the Russians to create many layers of intermediaries to circumvent the bans - but a complete ban is impossible to impose or maintain. Tragically then for Ukrainians, the cruise missiles will to some degree always continue to fly equipped with Western microchips.
Even during the Cold War, when the world was more fragmented, and the list of forbidden technologies and equipment much shorter, the Soviets managed to procure much of what they needed by hook or by crook. (An obscure young KGB officer stationed in the East German city of Dresden in the 1980s was tasked with coordinating a small part of this sanctions busting. His name was Vladimir Putin.)
The efforts needed to tighten sanctions would, however, be worthwhile. With every tightened restriction, higher fine and judicious inspection, the Russians would be forced to pay more for their imports, battle constant disruption and cannibalise their existing equipment while trying to produce what is needed at home. It would cause delays and bottlenecks in production and dent the safety and productivity of non-military sectors. It would also drive higher inflation, the curse of the otherwise still-growing Russian economy.
The West can't win the technological sanctions battle against Russia with a knockout, but it can give Moscow a good run for its money. The only alternative is to give up and let Russia import what it desires, like in the peaceful old days.