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Armenia: Russia’s backdoor to circumvent sanctions

Russia’s economy continues to suffer following new western sanctions imposed after its invasion of Ukraine last year. Despite this, some regional states like Armenia are now acting as middlemen in attempts to bypass these new restrictions.

May 26, 2023 - Aleksandar Srbinovski - Articles and Commentary

A shop with products from Armenia in the Voronezh Central Market. Photo: VPales / Shutterstock

After Russia’s invasion of Ukraine, the major western countries levied a comprehensive package of sanctions on Russia, thereby challenging its financial and military capabilities to continue its war in Ukraine. What makes this time different from the reactions to Russia’s wars of aggression against Georgia in 2008 and Ukraine in 2014 have so far been the broader scope of sanctions and more importantly, the firm commitment of western countries to keep the sanctions regime even if it also hurts their own economies. Not surprisingly, in a short period of time, Russia replaced Iran and North Korea as the most sanctioned country in the world. To break out of this isolation, the Kremlin invented a “parallel imports” strategy that envisions using the territory of close allies in the neighbourhood to gain access to goods and services that otherwise have been banned from export to Russia. Armenia, a small post-Soviet country with traditionally close economic links to Moscow, emerged as an optimal destination, providing Russia with breathing space given heightened international pressure.

Comparing the level of economic exchanges between Armenia and Russia with previous years, it is easily discernable that Yerevan is using the current momentum to extract economic benefits from the deepening Russia-West confrontation. In his meeting with his Russian counterpart in June 2022, Armenian President Khachaturyan expressed his certainty that the Russian economy would survive the sanctions and that Armenian-Russian economic relations would only grow. Recently, Russian Prime Minister Mikhail Mishustin thanked Armenia for making operational decisions with regard to bolstering bilateral trade against the background of an “illegal” sanctions regime imposed by the West.

In 2022, Armenia’s total trade turnover grew 69 per cent year on year and reached 14 billion US dollars. Trade exchanges between the two countries increased by 92 per cent, amounting to more than five billion dollars. Armenia’s exports to Russia skyrocketed and increased by 2.4 times compared to their previous level. What is striking is that this all has happened against expectations that the economic crisis in Russia caused by western sanctions would also hit those countries in Moscow’s economic orbit, including Armenia. This economic miscalculation naturally raised the issue of Armenia’s involvement in helping the aggressor state to circumvent sanctions.

Armenia has neither the industrial capacity nor the resources to boost exports to Russia within a year. Instead, last year saw a significant increase in Armenia’s imports from major economies that seem to have used Armenia as a backdoor to reach the Russian market. Among others, Vietnam’s exports to Armenia rose 380 per cent, while those from Mexico grew 324 per cent and Japan 252 per cent. Citing a document from the US Bureau of Industry and Security, the New York Times recently reported that in 2022 Armenia “imported 515 percent more chips and processors from the United States and 212 percent more from the European Union than in 2021. Armenia then exported 97 percent of those same products to Russia.”

Considering Russia’s adeptness at using semiconductors from kitchen appliances in military equipment, Armenia’s “re-export” of these products to Russia makes it an accomplice in the Kremlin’s atrocities in Ukraine. The New York Times report says that US and EU officials have taken note of the flow of eight particularly sensitive categories of chips and other electronic devices that they have deemed as critical to the development of weapons, through Armenia territory. Thus, Moscow appreciates Yerevan’s strategic importance in this context despite Armenia’s anti-Russia tirades in recent months.

It should come as no surprise that Armenia’s assistance to Russia to bypass sanctions has ruffled feathers in the West, as the United States and the EU are gradually coming up with policy plans to punish those actors who breach the sanctions regime. The EU sanctions envoy David O’Sullivan said that they are aware of the sharp increase in exports to countries in Russia’s neighbourhood and that Brussels is going a long way to prevent partner countries and companies from evading sanctions. Latvia’s Prime Minister Krišjānis Kariņš also recently touched upon Armenia’s growing role in the export of sanctioned western equipment and technologies to Russia. Yerevan’s moves in the game, however, have not been limited to technology transfers. In only one year, money transfers to Armenia reached record highs. Compared to 2021, there was a 2.5 times increase and money transfers from Russia to Armenia specifically grew fourfold, amounting to 3.6 billion dollars. This unprecedented growth in money transfers was mostly caused by different countries’ continuing interest in trade exchanges with Russia, in which Armenia came in handy in bypassing the sanctions barrier.

This situation has caught the attention of other international media outlets such as Bloomberg, Financial Times, ABC News and New Eastern Europe many times. The Ukrainian press is also very critical of Armenia’s cooperation with Russia in evading western-imposed sanctions and re-exporting sanctioned goods. While Gazeta.ua has raised many questions about this relationship, 5.ua now refers to Armenia as “the economic rear of Russia’s aggression against Ukraine”.

Moreover, since February 2022, Armenia has also become a preferred destination for Russians who want to relocate their businesses, especially in the information technology sector. The Pashinyan government is simplifying all registration, bureaucratic and housing issues related to the relocation of Russian enterprises to Armenia. The authorities in Yerevan are working hard to actively lure wealthy Russians to Armenia. They have even published a guide for Russian businesses, covering everything from physical relocation to cryptocurrency transfers, apartment rentals, and the transportation of pets.  

So far, few Armenian entities have been included in the West’s sanctions list. In September 2022, the US Treasury designated “TACO LLC” as a third-country supplier for “Radioavtomatika”, a major Russian defence procurement firm that specialises in procuring foreign items for Russia’s defence industry. The department subsequently added it to the sanctions list for aiding Russia’s war effort in Ukraine. Similarly, “Areximbank-Gazprombank”, Gazprom’s Armenia branch, faced sanctions due to it carrying out money transfers related to the purchase of Russian gas in roubles. Yet, the inclusion of some Armenian entities in the sanctions list does in no way mean that the punishment Yerevan faces is proportionate to what it has been doing overall to benefit from the situation.

The Armenian leadership has taken advantage of the fact that Yerevan is the only Eastern Partnership country that is both a member of the Russia-led Eurasian Economic Union and a signatory of a Comprehensive and Enhanced Partnership Agreement (CEPA) with the EU. Having one foot in each camp affords Armenia many opportunities to conduct the transfer of goods and services from the EU to Russia or vice versa. However, this is not the first time Yerevan has served as a backdoor for a sanctioned aggressor state, as its banking sector has helped Iran to gain access to the international financial system for a long time. Armenia was also involved in the transportation of Iranian drones to Russia, which gave Moscow the ability to destroy Ukrainian military and civilian infrastructure at a lower cost. Western countries should take note of this strengthening Russia-Armenia-Iran axis at the heart of wider Eurasia. If it is not carefully dealt with, it will only further undermine regional peace and stability in the long term.

Aleksandar Srbinovski is a journalist with over fifteen years of experience working in print and online media. He has worked for Nova Makedonija, Newsweek, Europa, Blic, Politika, ABC News, Vecher, TV Sitel and Skok. He holds a BA in journalism from the Saints Cyril and Methodius University of Skopje and has pursued continued training with the University of Oklahoma.

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