The visit to Bishkek on 26 February by EU sanctions envoy David O’Sullivan reflects the European Union’s tougher stance on the circumvention of sanctions targeting Russia in the region. Kyrgyzstan could thus become the first country targeted by heavy counter-sanctions from Brussels.

Since the start of Russia’s invasion of Ukraine in 2022, Central Asia has become a strategic link in parallel trade flows allowing Russia to keep its economy afloat. Faced with this situation, the European Union is sharply toughening its tone, placing Kyrgyzstan on the front line of its new pressure strategy.

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Bishkek’s role as a re-export platform is now documented. Analyses show a surge in Kyrgyz imports from China, notably trucks, components and industrial parts, which are then re-exported to the Russian market.

According to internal European Commission documents cited by Kazakh media outlet Kursiv, imports of so-called “priority” goods, often dual-use civilian and military products, from the European Union to Kyrgyzstan have increased by around 800% since 2022. Over the same period, Kyrgyz exports to Russia have jumped by around 1,200%, fuelling suspicions of re-export to the Russian market.

This circuit allows Moscow to bypass Western restrictions, while undermining international rules on trade transparency.

Activation of the “anti-circumvention” tool

For the first time, Brussels is considering deploying its most coercive instrument: the sanctions anti-circumvention tool. This mechanism, which would be part of a twentieth sanctions package – delayed by Hungary’s veto – would make it possible to ban the export of certain products to a third country without having to provide irrefutable proof of their re-export, as reported by Reuters.

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The targeted measures could include export bans on industrial machine tools, including CNC machines, and radio equipment, as well as action against the financial sector. A Kyrgyz cryptocurrency company is reportedly under scrutiny for allegedly supporting financial interests linked to Russia.

Discussions are focused instead on targeted measures, Radio Free Europe explains, such as listing Kyrgyz companies or financial institutions if they facilitate the circumvention of restrictions against Moscow.

A major diplomatic crisis

This Western pressure is considerably straining relations between the EU and Bishkek, at a time when the country is also trying to move closer to the United States. David O’Sullivan, the EU’s special envoy for sanctions, personally urged the local authorities to change their policy.

“We are not asking Kyrgyzstan not to have trade relations with Russia. We are only asking that this trade relationship not involve the deliberate circumvention of our sanctions,” he stressed during his visit to Bishkek on 26 February.

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Kyrgyzstan’s response has so far been direct, according to sources quoted by the British daily Financial Times: the country reportedly threatened to take the European Union to international courts if such sanctions were imposed. These allegations were immediately denied by the Kyrgyz government, local media outlet 24.kg reported in early March.

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Since the beginning of the Russian invasion of Ukraine, the U.S., the EU, and other countries have imposed massive sanctions against Russia. They range from financial and economic (such as removing Russia from the international SWIFT-System and banning the import of oil and gas) to personal sanctions against Russian oligarchs. However, some find a way around the direct import bans – and Central Asian countries have become integral components of such evasion schemes. The consequences are yet to be faced.

Sanctions against the Kyrgyz companies

The US Department of Commerce has blacklisted 69 Russian companies, including one from Kyrgyzstan and one from Armenia. 

“We will continue to impose costs on the Kremlin for continuing this war both by further restricting their access to additional items, as well as through aggressive enforcement,” reports Reuter.

According to information disclosed in the Federal Register of the United States, the Kyrgyz company is identified as Tro. Ya, with its headquarters located in Tokmok, Kyrgyzstan. Listed as a Legal Consulting Company on the official website of the Kyrgyzstan Ministry of Justice, Tro.Ya is noteworthy due to its director, Hilo Naser, also being the owner of Nas.Tech is a company registered at the same address. Records indicate that Tro.Ya is associated with Nas.Tech, further highlighting their interconnectedness.

There are no official statements from the Kyrgyz authorities regarding the Western sanctions. The fallout for the Kyrgyz company remains uncertain. Still, the U.S. resolute move is a stark reminder that associating with Russia’s military endeavors invites severe consequences, including international sanctions and restricted resource access. 

Russian companies circumvent sanctions and increase trade relationship with Kazakhstan

Kazakhstan’s import-export value significantly increased to Russia. 

Despite Western sanctions, Russia continues to import cutting-edge technology from friendly countries, including drones, microchips, and microelectronics. “Important Stories”, OCCRP and Der Spiegel published an investigative article on how Russia dodges the sanctions.

Russian companies specializing in military equipment are unable to officially import goods – but with the help of side companies registered abroad, the ban seems to be easily evaded.

For example, Kazakhstani company Aspan Arba became the official distributor of DJI in Kazakhstan in November 2022. “Aspan Arba” obtained a license to import 18,000 DJI drones worth $45 million, and 500 drones were sent to “Nebesnaya Mekhanika” in Russia. The exporter is DJI Europe B.V., the Dutch subsidiary of a Chinese company. 

Kazakhstan’s “Aspan Arba” was founded in April 2022 by the same person who founded  “Nebesnaya Mekhanika” – Ilya Gorberg, – and the current director of “Aspan Arba,”, Mikhail Sapozhnikov, was a co-owner of “Nebesnaya Mekhanika” with Gorberg. 

Another company, “Elix-st”, registered under the names of Evgeny and Elena Cherneta in Europe, owns the company “Elix-M” in Russia. The company specializes in the development of materials for absorbing electromagnetic waves, which are used, among other things, for radar camouflage (including military equipment), and primarily serves Russian defense enterprises.

In March 2022, a company “Da Group 22” was registered in Astana, Kazakhstan, listing Alexander Cherneta (presumably the son of Evgeny Cherneta) as owner and manager. It is worth noting that between 2018 and 2021, before the war, “Elix-st” did not import any goods into Kazakhstan (while exporting to Russia, conversely). 

“Nebesnaya Mekhanika” and “Elix-st” are not the only examples. There are numerous other companies listed in the OCCRP investigation with similar narratives, importing military equipment from Western countries and channeling them through Kazakhstan. The scheme itself is quite intricate and convoluted.

Trade volume is growing

OCCRP mentions that, according to the Office for National Statistics, the import of microelectronics into Kazakhstan more than doubled since the Russian invasion. In 2021, integrated circuits worth $35 million were imported, similar to previous years. Yet, the import value surged to over $75 million in 2022. On the other hand, microchip exports from Kazakhstan to Russia were negligible, totaling $245,000 in 2021 but increasing to $18 million in 2022. Drones were not mentioned in Kazakhstan’s 2021 import-export report, but the OCCRP investigation states that in 2022, Kazakhstan imported drones worth $5 million and exported drones valued at $1.23 million to Russia.

During a press conference in February, former Minister of Foreign Affairs of Kazakhstan, Mukhtar Tleuberdi, expressed that Kazakhstan is striving to prevent any potential sanctions evasion by Russia. However, he acknowledged the challenges posed by the fact that both Kazakhstan and Russia are members of the Eurasian Economic Union, which exempts trade between them from customs control.

Read more on Novastan: Effects of Sanctions on Russia strongly felt in Dushanbe

The trade data from Kazakhstan strongly indicates that the country is being utilized as an intermediary destination for the import of drones into Russia. This highlights the complex dynamics at play in the region’s trade relationships.

Kazakh authorities provide contradictory statements concerning their trade partnership with Russia

Despite assurances from the Kazakhstani authorities regarding compliance with Western sanctions, President Kassym-Jomart Tokayev emphasized in an interview with a Russian television channel that Kazakhstan is by no means abandoning its alliance obligations.

“Emphasizing our continued collaboration with the Russian government, I would say that we are working at an accelerated pace and achieving necessary agreements without violating the sanctions. There are complex issues that require time to understand how to resolve specific situations, but once again, we find solutions to these matters. The situation is unique. No one could have expected us to live in this particular reality. However, it exists, and therefore, we must address these issues that arise from this reality,” concluded the Head of State. 

Read more on Novastan: Kazakhstan’s gradual divorce from Russia

In April, following the visit of high-ranking Western officials responsible for sanctions to Astana, information emerged that Kazakhstan intends to monitor the movement of goods from border to border in real time and establish a system to track violations of sanctions. Moreover, on 20th of June, deputy foreign minister Almas Aidarov stated at the briefing at the central communications service that Kazakhstan prohibited the supply of military goods to Russia.

“<…>Regarding sanctioned goods and the latest package of sanctions, where Kyrgyzstan was also included, as of last year, we have completely banned the supply of military-purpose goods to Russia. For dual-use goods, a special certification has been introduced, meaning a special license is required, along with obtaining permission for export.”, – stated Aidarov.

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The effects of sanctions against Russia are being strongly felt in Tajikistan. The Central Asian post-Soviet republic’s economy has been stagnant for years and many had left to find work in Russia. The instability in reaction to Russia’s activities in Ukraine is affecting almost every aspect of daily life. In Dushanbe, Tajikistan’s capital city, life is getting expensive. As American media Eurasianet remarks, Tajikistan is highly dependent on Russia economically, and many families count on remittances from relatives working there. According to World Bank data, remittances consisted of 26.7 % of Tajikistan’s gross domestic product (GDP) in 2020, which makes it the third most dependent country in the world. With the increasing sanctions being placed on Russia following the on-going conflict in Ukraine, and the subsequent boast to the dollar, almost everything has become more expensive in the past weeks. Feruza, a teacher working at a private university, spoke to Novastan of the impact the changing dollar price has had on her family. “I had to pay the fees for my son’s school a few days ago. Now the somoni is so weak against the dollar; it’s like I’m paying an extra 100 dollars in the previous rate”, she explains.

The fees for international schools can generally be paid in dollars or somoni, but the price is, like most expenses, set by the dollar. “I wanted to pay in dollars but when I went to the bank, they told me that they are not allowed to pay out dollars. I explained it was to pay for my son’s school fees but they said, ‘No, we can only give you dollars with permission from the bank manager, and only if your account is in dollars.’ There were others there with a similar problem”, describes Feruza.

Sending money home becomes more expensive

Generally, people often opt to exchange money on the black market, rather than go to the bank. “You can find a better rate if you shop around, but it’s very dangerous,” Nagina, an office worker from Gorno-Badakhshan, in eastern Tajikistan, explained to Novastan. “My children are living in Moscow and we don’t usually need them to send money home. But if it’s needed, right now it is better to find someone travelling from Russia to Tajikistan, rather than using the bank”, she says. When payments are sent from Russia, they are paid in ruble and received in somoni. Due to the ruble’s depreciation following the sanctions, people working in Russia need to pay extra to reflect the changing price and secure the needed amount of somoni. It is therefore easier and more cost-effective to send dollars in cash with someone making the journey. This current instability is nothing new, as Nagina highlights. “We are experienced. During the financial crisis, it was the same so we know how to prepare. We buy food to store, things like oil or flour which last for a long time. We don’t know when the prices will change again, so we have to be prepared”, she describes. Food insecurity is already a major issue in Tajikistan with up to 27 % of the population living on 1.90 dollars (£1.44) or less per day, according to USAID. While many families received a one-time payment of 500 somoni (£29.16) during the Covid-19 pandemic, it is yet to be announced how the Tajik government will respond to current price hikes.

Prices heavily rely on the dollar

“For me, it has affected my day-to-day costs of course, and my business a little,” import-middleman Alisher explained to Novastan. “People are shopping less. For example, see this iPhone case. Before it was maybe 10 somoni (£0.58), now it’s 16 (£0.93)”, he says. Around the capital, businesses have increased their prices to reflect the new cost of living. A small portion of oshi pilau, Tajikistan’s national dish, typically cost 16 somoni (£0.93) but has risen to as high as 20 somoni (£1.16). Most significantly, the price of petrol from the Russian supplier Gazprom has risen from 10.30 somoni (£0.60 per litre) to 12 somoni (£0.70). “Everything here is connected to the price of the dollar,” Alisher concluded. “The dollar is everything in Tajikistan.”

Fiona Katherine Smith Editor and writer for Novastan in Dushanbe

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