Asia’s Commercial Heft Helps Keep Russia’s War Economy Going

After two years of Russia’s invasion of Ukraine, many countries slapped economic sanctions on Russia. However, the reorganization of trade observed an eastward shift in the world’s economic center of gravity. 

Sanctions on Russia

• Aim: More than three dozen countries, led by the West, slapped economic sanctions on Russia to raise the cost to Russia of continuing the war.
• Scope of Coverage: They were unprecedented in their scope for a target of its size, covering energy and other commodities, finance, technology, travel, shipping and more. 
• Ban on Oil Export: America and Europe have tried to use their control of maritime insurance and vessels to cap the price of Russian oil while ensuring it still flows, thereby avoiding a global supply crunch that would hurt their own consumers. 

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Role Played by Asian Countries

• Contribution: Asia accounts for two-fifths of the world’s GDP. 
• High Trade: Asia’s ever-increasing commercial pull is diverting much trade that Russia previously conducted with the West, undermining sanctions. 
  • It is despite the fact that two of the six Asian countries (Japan, and South Korea) which have joined the sanctions are among the region’s five biggest economies. 
• China-Russia Ties: Trade between Russia and China jumped by 29% in 2022 and probably by more last year. China has also swiftly become the top supplier to Russia of cars and smartphones.
  • China and Hong Kong are now Russia’s chief suppliers of microchips, frustrating Western efforts to starve Russia of the integrated circuits essential to the war effort. 
• Trade with Taiwan: Russian military enterprises are getting hold of sophisticated machine tools from Taiwan. 
• Trade with Central Asia: Kazakhstan and Kyrgyzstan are key conduits for shady “parallel imports” into Russia- their trade with neighbouring Russia has boomed.
• Trade for Oil: Russia’s sales to Asia also highlight that even if the West had wanted to stop Russia’s oil exports, it could not have done so. Today Russia earns more from oil exports than before the invasion.
  • India is the biggest buyer of Russia’s oil. 
  • Singapore condemned Russia’s aggression and was the only member of ASEAN to sanction Russia. Oil, though, is not covered. 
  • Singapore is a refining and oil-trading giant, as well as the world’s busiest bunkering port. In the year to May 2023 its imports of Russian oil nearly doubled and demand for storage has also risen.

Arising Concern

If America receives trouble getting Asians to support sanctions against Russia, then they would face much more trouble in case with China.

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Conclusion

Asia is too important, economically and geopolitically, for the West to issue such threats. Even if the West successfully uses secondary sanctions to coerce Asian countries, the long-term risk is that economic warfare undermines both the primacy of the dollar-based financial system and America’s influence in Asia. 

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