Do sanctions really work? Robbery of foreign companies in Russia continues

Information about the ongoing losses of the Russian Federation as a result of sanctions

1. The largest Russian commodity companies have liquidity problems due to payment difficulties.

Russian exporters are having increasing problems paying current costs due to difficulties in making bank payments, which has affected business in all of Russia's so-called "friendly" countries, including China, Turkey and the United Arab Emirates.

With transactions delayed or rejected by banks or delayed by up to a month or more, it becomes increasingly difficult for companies to plan their daily expenses.

Russian exporters have to call international banks literally every day, proving that their payments do not violate sanctions. But even in this "manual mode", transactions wait for weeks and can be rejected at any time.

Russian metallurgists in particular faced problems.

HMC "Nornikl", the largest Russian mining and metallurgical holding, according to the results of the first half of the year, reported an increase in receivables in the balance sheet by 300 million dollars. The customer's debt to the company has increased by that much due to difficulties in payment.

According to reports, Rusal, the largest aluminum producer in the Russian Federation, did not receive the same amount.

In general, the amount of foreign income withheld can be estimated at tens of billions of dollars.

Thus, the Central Bank of the Russian Federation recorded an increase of "foreign assets" by 44 billion dollars of international settlements only in the period January-July 2024.

2. Robbery of foreign companies in Russia continues.

The government of the Russian Federation has decided to double the exit tax for foreign companies. The authorities of the Russian Federation agreed on another increase in the contribution to the budget from the sale of assets of foreign companies leaving the Russian Federation, as well as an increase in the minimum discount for transactions.

The amount of mandatory deductions to the budget will increase from the current 15 percent to 35 percent of the market value of the property - 25 percent of the contract value must be paid into the budget within the first month from the date of conclusion of the contract, five percent within a year, another five percent in within two years.

The size of the mandatory discount on the market value of the property will increase to 60 percent from 50 percent.

Generally, foreign sellers will be able to receive only five percent of the market price of the sold companies.

The authorities also plan to introduce a new rule - deals worth more than 50 billion rubles will have to get permission from Russian President Vladimir Putin.

3. Steel production in Russia has been declining for the ninth month in a row.

Russian metallurgists produced 5.4 million tons of steel in September 2024 - 13.5 percent less than in the same period in 2023.

Production of rolled products decreased by 18 percent to 4.5 million tons, cast iron by 8.5 percent to 4.1 million tons, pipes by two percent to 1.1 million tons.

Industry shows negative production dynamics for the ninth month in a row.

Production is also falling in the construction industry due to weak demand, which is under pressure from high interest rates.

4. Spare parts for American and European cars in Russia have risen in price by more than 100 percent since the beginning of the war.

From the beginning of 2022 to September 2024, the prices of spare parts for American brands have increased by 122 percent, and for European brands they have almost doubled.

In the same period, spare parts for Korean cars went up by 55 percent, and for Chinese cars by 60 percent. The record holder for repair costs was Škoda - the prices of this brand's components rose by 264 percent.

In general, the increase in the cost of spare parts for cars of the VAG concern (Volkswagen, Audi, SEAT, Škoda, Bentley, Bugatti, Lamborghini, Porsche brands) amounted to 260 percent from 2022 to 2024.

In two and a half years, the price of spare parts for Volkswagen increased by 114.5 percent, for Audi - by 102 percent, for BMW - by 86.5 percent, and for Mercedes-Benz - by 84 percent. At the same time, spare parts for Kia (37 percent), Lada (38.5 percent), Hyundai (42 percent), Haval (45 percent) and Renault (46 percent) were the least expensive.

Due to the imposed sanctions, the channels and schemes for the delivery of spare parts to Russia are constantly changing, the costs of suppliers and sellers are increasing, which affects the final prices for consumers.

5Sanctions against Russian tankers do not stop ships carrying Moscow oil.

At least 21 of the 72 tankers sanctioned last year by the US Treasury Department's Office of Foreign Assets Control, the UK Treasury or the European Union have loaded a total of 24 cargoes of Russian oil since they were sanctioned.

According to vessel tracking data, the pace at which tankers are returning to work is increasing. At least seven tankers were loaded with Russian oil in the first 10 days of October.

Initially, blacklisted tankers were inactive. None of the sanctioned ships carried a single cargo of Russian or any other oil until April, six months after the first vessels were sanctioned. But since the first cargoes were successfully delivered, the use of sanctioned tankers has increased dramatically.

The United States of America, the European Union and Great Britain have sanctioned a total of 72 tankers for transporting Russian oil.

The measures introduced by Great Britain appear to be the least effective. Almost two-thirds of the total cargo was transported by ships under London sanctions.

All tankers launched in September and October were subject to British sanctions, and only one was a target of Brussels. This means that two-thirds of all vessels sanctioned by the UK are now back in service.

On the contrary, US actions have proven to be more effective. Only six cargoes were transported by four of the 39 tankers blacklisted by Washington.

Most of the tankers targeted by OFAC have remained inactive since being placed on the sanctions list.

Separately, 50 vessels were renamed after being sanctioned, many of them changing flags at the same time. Thirteen sanctioned vessels currently fly the flag of Barbados, whose ship register is held at the country's High Commission in London.

Most crude oil shipments go to Chinese ports, but about one-third end up in India, a sign that the country's previous reluctance to deal with sanctioned entities is now a thing of the past.

Even if the sanctioned ships rest again, the blacklisted tankers are only a small part of the "shadow fleet" that Russia has assembled to transport its crude oil and petroleum products beyond the reach of Western sanctions. This reduced the effectiveness of these measures, as many other vessels were available to hold oil and Kremlin revenues.

6. Tools from Germany are being shipped to Russia for defense companies, despite sanctions.

More than 300 software-controlled machines from German manufacturers were shipped to Russia in 2023, despite sanctions, according to an investigation by German broadcaster SWR.

According to investigators, in Russia, about 80 percent of such machines are used in the production of aircraft, military equipment and ammunition.

According to customs documents, deliveries were made until the end of last year. SWR was able to identify more than 30 German manufacturers whose cars were imported into Russia.

The supply mainly went through Turkey. Local intermediate suppliers have direct contacts with Russia, and in some cases they were established directly by Russian companies.

7. In nine months of the current year, Hungary bought more Russian gas than in the whole of last year.

"This year, the amount of gas from Russia that arrived in Hungary has already exceeded 5.7 billion cubic meters," said the head of the Ministry of Foreign Affairs, Peter Sijarto.

He noted that for Budapest, the transit of blue fuel through Ukraine is not a priority, because the delivery of methane through the Turkish Stream has been successfully ensured.

Despite this, Hungary continues to import a significant part of gas from Russia. In 2022, the Hungarian company MVM received 4.8 billion cubic meters of gas through Turkey, and in 2023 that volume would increase to 5.6 billion cubic meters.

The head of the Hungarian Ministry of Foreign Affairs also said that this year 3.4 million tons of oil were imported through the "Družba" pipeline, and five million tons are expected by the end of the year.

8. How Russia's "shadow fleet" gets to its ships - Financial Times investigation.

Since the first Western restrictions on Russian oil exports were imposed in December 2022, Moscow has amassed a fleet of more than 400, mostly old, ships that transport about four million barrels of oil a day outside the sanctions zone and bring in billions of dollars a year in additional revenue for the war in Ukraine.

And although Western countries conduct increasingly targeted hunting, introduce sanctions on individual vessels, oil companies protect them with so many "cushions" that it is very difficult to prove the connection of these old tankers with Russia.

A Financial Times investigation revealed a scheme in which Lukoil added 25 old tankers to its "shadow fleet". Each of them was bought by a separate offshore company that belonged to another or even several other companies.

The ships were operated by the Dubai-based companies of a Pakistani shipping entrepreneur who is being prosecuted by British courts for defrauding investors. All purchases were financed by Dubai-based Eiger Shipping DMCC, owned by Litasco Middle East DMCC, the Middle East subsidiary of Litasco, the oil trading division of Lukoil.

Eiger secured the money in advance, pre-leasing the preparations for the purchase of the court.

In total, more than $700 million was spent on the 25 discovered tankers FT Since the purchase, the ships have been engaged almost exclusively in the transport of Russian oil (97 percent of all deliveries, including 82 percent of Lukoil waste), transporting about 119 million barrels. At $60 a barrel, that's almost $7.2 billion.

9. The World Bank has approved the creation of a new fund for Ukraine.

The Executive Board of the World Bank approved the creation of an intermediary fund to support Ukraine. Its donors will be three countries - the USA, Canada and Japan.

The new fund, which will be managed by the World Bank, will help fulfill the promise of the G7 countries to provide Ukraine with up to $50 billion in additional financing by the end of the year.

The exact amounts of the US, Japanese and Canadian contributions are still being discussed, but they will be secured by interest from frozen Russian assets, one of the sources said.