It’s not just oil, airplanes, or dual-use (civilian and military) products. successive sanctions packages Approved by the EU, the United States and the United Kingdom against Russia, it also included and includes significant restrictions on the sale of luxury Western products; This is very much to the taste of the Russian elite: luxury cars, watches and jewelry. Products that should not have entered the Eurasian giant since the beginning of the Ukrainian occupation. This is the theory; But the truth is moving in different ways: almost three years later, the richest still lack nothing.

Hermès and LVMH Shortly after the start of the war and before mass consumption, shops in Moscow were among the first to close their doors. Shortly after, Maybach and Rolls-Royce dealers followed suit, leaving them in the minority: 55 percent of Russian workers earn less than $600 per month and nine out of 10 are under $1,000 — there’s no way to access their whims. For a short while.

The flow of high-end products from neighboring countries under the table has been constant ever since. The latest international customs data points in this direction, where a strong (practically vertical) growth is perceived in imports from countries such as Georgia or Kazakhstan: increases that cannot be explained by the consumption dynamics of these countries and an important indicator of their participation in a triangulation. This ensures that these premium products reach their true final destination: Russia.

“There is strong circumstantial evidence that Western goods reached Russia via the Caucasus and Central Asia. This is also reflected in the mirror trade data of the EU and other countries,” says Benjamin Hilgenstock, an expert at the German Council on Foreign Relations. “Manufacturers of these goods do not adequately monitor their distribution networks and do not have sufficient incentives to do so,” he replied by email. “Western governments,” wrote Brookings Institution researcher Robin Brooks, “know what it is: cracking down on (re-exports) is just a matter of political will.”

For nearly two years, the EU has banned exports of jewelry and cars worth more than 50,000 euros to Russia. But alternatives that would get them to their goals emerged almost immediately. The first of these was Turkey, which was also a transit country. A route that soon gave way to Belarus, where the government was openly loyal to Moscow. Last summer, the EU tried to close this gap with a new package of sanctions to prevent Minsk from escaping openly. Time will tell how successful this will be.

But today the biggest hole is in the south: in Georgia, Azerbaijan and Kazakhstan. A recent journalistic investigation by the Georgian portal iFact did not hesitate to describe the Russian border as a “paradise for vehicular traffic” with Porsches and Lamborghinis. It proliferates in the majestic mountains of the Caucasus, which is the natural border between the two countries.

It’s a well-oiled machine. The Russian buyer trusts a transporter who plays a key role in the process, registering the vehicle in his name outside Georgia and insuring it. It is handed over to its Russian counterpart after passing through the Lars Pass, the only crossing from Georgia and the focus of the iFact investigation. Then we return to Georgia and take the first step.

This car has a distance of 1,800 kilometers (1,118 miles) from Moscow or 2,500 (1,553 miles) from St. Petersburg to Moscow, cities where almost all of Russia’s rich live. He will have to go to St. Petersburg. Along the way, rubles, laris (the official currency of Georgia), euros and dollars flow for intermediaries, carriers and other actors involved in a highly lucrative transfer. In short, a gray market with many winners and obvious losers: Ukraine.

More than 100,000 Russians settled in Georgia. evade mobilizationThis is not necessarily due to opposition to Vladimir Putin’s government, but simply the fear of being sent to the front in Ukraine. “The Russians have opened more businesses in Georgia in the last two years than in the entire previous 30 years,” complains a member of the Georgian opposition. Some of these companies are key to this trade, according to iFact research.

There is no official vehicle trade between Georgia and Russia. Although the Tbilisi government has not imposed bilateral sanctions against Moscow, last year it explicitly banned the re-export of vehicles to the neighboring country: “We do not want Georgia to be used to circumvent sanctions against Russia,” Nikoloz Samkharadze, the parliament’s foreign affairs committee, told EL PAÍS . Samkharadze’s party, which has been in power since 2012, is increasingly accused of leaning towards Moscow. The politician responded to the question about vehicle traffic in Lars Pass as follows:

– These cars are Armenian.

– But everyone knows that these are not actually Armenian vehicles.

– Okay, the car comes to customs and it has official Armenian documents. We cannot stop anyone going from Armenia to Russia.

Therefore, this trade is not recorded in official statistics. However, data obtained from the National Statistics Office show that there is a significant increase in vehicle exports of Georgia, a country that does not produce automobiles. The Caucasian country, which exported an average of 50,000 cars a year between 2012 and 2021, exported approximately 80,000 cars in 2022 and 108,000 cars last year. As for profits, they have grown rapidly: although this re-export market previously brought Georgia around €400 million (US$432.7 million) per year, it has now exceeded €2 billion (US$2.16 billion); This shows that the price per unit of vehicle has also increased significantly.

Almost all of these exports go to Armenia, Azerbaijan, Kazakhstan or Kyrgyzstan, which trade banned Western goods with Russia. The Georgian government knows this. “These cars are now exported from Georgia to Central Asian countries. These countries then export them to Russia,” Samkharadze says with a shrug. “So it’s not our fault.”

Smuggling of premium products

According to a study by Otkrytiye bank, smuggling accounts for only 8% of imported vehicles. Avtomarketolog channel, however, is dominated by the premium range. Just look at the prices on sales portals to see that a low or middle class car is not worth that money. The most popular models are European luxury cars and high-end Chinese models such as Lixiang and Zeekr.

There are basically two options for buying a smuggled car. The easiest thing to do is to go to dealers who have the financial strength to import vehicles in large quantities. On the other hand, if you want a specific model, the most effective option is to turn to brokers with connections in Europe.

“The plan is simple: Someone helps buy the car and transport it to the border, someone registers it at customs, someone drives it, and someone participates in the registration,” explains Avto.ru, a website for buying and selling imported cars. But as of the middle of this year, direct imports from Europe via Belarus have become even more complicated, according to another broker, Avtorevizorro. Why? Polish and Lithuanian authorities now demand much more documentation and “sometimes detain vehicles for days.”

Phones and sweaters

A group of Russian tourists from other regions take photos next to the central fountain in the historical Chios shopping mall, located next to the iconic building. Red Square in Moscow. Above them, on the second floor, is the Lacoste store, with labels showing the extra cost of evading sanctions: A $170 cotton sweater sells for 20,000 rubles in Russia, $32 to $43 more. Official stores of Western brands such as Karl Lagerfeld, Hugo Boss, Dolce & Gabbana and Dior continue to operate in Gum.

Parallel imports have increased rapidly recently. This means, for example, that mobile phones are much more expensive than in the rest of the world. Samsung is selling the 256 gigabyte Galaxy Z on Gum for 189,990 rubles, or $1,940. This is $755 more than in Spain, for example. “The official service will repair your phone at our nearly 300 centers here in Russia and abroad. And if you bring another phone, we will give you a discount when buying a new one,” insists one of the sellers.

Products of brands that have completely left Russia are still around. Apple’s new iPhone 16 Although the American tech giant has closed its business in the country, it went on sale here days before its official launch. “We provide a repair warranty at our own centers, but the phone does not have an official Apple warranty. You know, parallel imports,” says sparingly a salesman for Re:Store, a Russian chain that occupies the space where the Californian firm once stood.

Re:Store is less reserved on its official website: “Many companies will resort to parallel imports of foreign products in the near future,” the Russian firm predicts. Although the Constitutional Court banned smuggling in 2018, the Kremlin legalized it at the beginning of the war to circumvent sanctions.

“Parallel import in no way legalizes counterfeit products, we are only talking about the delivery of the original product. “If retailers try to smuggle counterfeit products into the country, this will be considered a serious violation of the law,” Re:Store writes, along with an outline justifying a hack that follows a very simple plan: the factory sells the phone to a third country and reships it to Russia exports.

Doubts about the effectiveness of sanctions

Luxury goods are only part of the list on which Russia bypasses G-7 sanctions. Far from the economic apocalypse that many expected in the early stages of the occupation, Russia’s GDP has weathered the situation better than expected: after falling 1.2% in 2022, it rebounded to 3.6% last year and is on track to post similar growth this year is progressing. According to the latest estimates of the International Monetary Fund (IMF). Of course, fed by illegal military expendituresdwarfs damage to other vital constants. “Increased demand from the military industry kept the economy afloat,” Maxim Mironov, professor at IE Business School and author of several studies on sanctions, told EL PAÍS by phone. “But GDP no longer represents the economic reality of the country: the consumption capacity of families has fallen, a lot.”

Mironov continues: “Sanctions had an economic impact, but they were not enough to stop the war. There are much fewer Western products in Russia, and their prices have risen sharply, so the biggest losers are the people and families. Poverty has increased, but Putin’s capacity to spend on war has remained the same.” ” His conclusion is clear: “Restrictions are not enough and, above all, they need to be better designed.” The EU is in the process of reviewing its economic retaliation against Russia to close the gaps that still exist, especially those that allowed Russia to come in. Critical supplies for the Kremlin via China. Another can of worms to break.

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