TOPIC OF THE WEEK: A softer hand in pressuring Central Asia to limit exports to Russia may be delivering some (modest) payoffs

CAUCASUS / CENTRAL ASIA - Report 08 Dec 2023 by Ivan Tchakarov

David O'Sullivan, who was appointed last December as the international special envoy for the implementation of EU sanctions, visited Astana and Tashkent last week. This was his third trip to Central Asia this year following his visits in March to Kyrgyzstan and in April to Kazakhstan. The visits of European (and US) officials mean that there may be problems with compliance with sanctions at the enterprise level in Central Asian countries. We take a cue from this event to revisit trade flows between the CCA economies and Russia and study the evolution of trade interactions over the course of 2023.

This analysis lends itself to several interesting conclusions. First, the Eurasian Economic Union countries of Kazakhstan, Kyrgyzstan and Armenia saw the largest increase in exports to RUS in the last couple of years, as we had documented earlier. Second, given the larger geopolitical importance of the region for China, Russia, the EU and the US, the Western approach to pressuring Central Asia to comply by implementing existing sanctions has been very soft and cautious, aiming to strike the right balance between achieving sanctions objectives and not alienating local elites. Third, this calculated way of addressing sanctions compliance may be gradually paying off as data reveals some decline in exports from Kazakhstan and Kyrgyzstan to Russia, albeit to levels that still exceed pre-2022 flows. Fourth, Central Asian economies seem to have been using a smart approach of their own as an attempt to balance the need to maintain a good relationship with Russia while at the same time heeding (to a certain extent) sanctions' warnings.

These conclusions underlie our view that we are unlikely to see any significant secondary sanctions on the region going forward, as a targeted approach to punishing individual transgressing companies will continue to be the preferred option used by the West. This appears to be exactly the approach taken by the US and the EU. If this view is correct, then these limited sanctions will not be powerful enough to disrupt macroeconomic stability or growth in the region.

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