(Bloomberg) -- The US is closing monitoring Russia’s efforts to evade sanctions via Central Asia, Secretary of State Antony Blinken said on Tuesday in Kazakhstan, highlighting concerns that Russia is receiving microchips and other technology through imports from its neighbors.
The Biden administration will provide an additional $25 million to help Central Asian states diversify trade relationships and export routes, Blinken said in the capital Astana, the first stop on a trip this week through Central Asia and India. Blinken spoke after meeting with the foreign ministers that are part of the so-called C5 grouping of Central Asian states, which have long relied on Russian and Chinese trade.
“We are watching compliance with sanctions very closely, and we’re having an ongoing discussion with a number of countries,” Blinken said. He said that the US has provided licenses that can help regional companies “wind down those activities and cut their ties with Russia.”
“We’re supporting the C5 countries to diversify their own trading relationships,” he added. “It’s not like flipping a light switch.”
Blinken is playing a central role in US efforts to bring other nations onboard with a bid to slow President Vladimir Putin’s war machine through sanctions. Yet a rise in trade flows with Russia’s neighbors may be a sign that Moscow has been able to blunt the impact of some of those measures.
Blinken’s trip through the region was designed to demonstrate that the US is a reliable partner that can help support the region’s countries — formerly part of the Soviet Union — as they grapple with high food and energy prices as a result of the war in Ukraine.
“We’re very conscious of the spillover consequences of Russia’s aggression,” Blinken said. “We’re doing everything we can to minimize them, to mitigate them and create lots of different opportunities for partners here in Central Asia.”
Kazakhstan doesn’t want its territory to be used for sanctions evasion, Kazakh Foreign Minister Mukhtar Tileuberdi said, speaking alongside Blinken at a briefing following meetings.
Governments in the region are taking the issue seriously, but the problem is hard to monitor given the customs union with Russia and because much of the activity is by small traders as opposed to major companies, said one senior Central Asian official who asked not to be identified discussing private deliberations.
Much of the sharp jumps in trade figures reflect Central Asian states receiving appliances and electronics directly from western countries rather than via Russian companies and distributors, this person said.
Refrigerators, Washing Machines
In particular, a spike in European exports of washing machines, refrigerators and breast pumps to Russia’s Central Asian neighbors has fueled concern that Russia could be getting a boost despite the sanctions.
European officials have said they fear these appliances are being broken up and stripped of components such as semiconductors that may find their way into Russian military gear.
While German exports to Russia fell to 38% from May to July last year from the average of the same period between 2017 and 2019, those exports doubled to Armenia and more than tripled to Kyrgyzstan — a trend mirrored in trade flows to the Caucasus and central Asia, the European Bank for Reconstruction and Development said in mid-February.
Armenia, Kyrgyzstan and Kazakhstan are in a customs union with Russia and Belarus as members of the Eurasian Economic Union, a Moscow-led rival to the European Union. There are no barriers preventing these goods from being moved on to Russia by traders.
US officials have been monitoring sanctions evasion and say they are optimistic that a region that has long been integrated economically with Russia is showing some signs of decoupling.
The US has seen some progress with granting a license to the Caspian Pipeline Consortium to transfer Kazakh oil to world markets, and with some local Russian subsidiary banks transforming into Kazakh banks, Donald Lu, assistant secretary of state for South and Central Asia, said in a pre-trip call with reporters.
©2023 Bloomberg L.P.
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