Western Sanctions Evasion through Third Countries: The Case of Sanctioned Cars Re-export to Russia

Abstract

This paper investigates the role of third countries in circumventing Western sanctions on Russia amidst the geopolitical tensions following its 2022 invasion of Ukraine. We use car export/import data from January 2018 to June 2024 and apply the gravity model of international trade, adjusted with the difference-in-differences estimation technique. Our empirical results suggest that the introduction of secondary sanctions targeting third countries led to a significant decrease in the volume of cars directly re-exported from the Western-oriented third country of Georgia to Russia, but concurrently caused a significant increase in the volume of cars re-exported from Georgia to third countries such as Armenia, Kazakhstan, and Kyrgyzstan, which share a common trade bloc with Russia. These findings raise questions about the effectiveness of Western sanctions, as the sanctioned goods ultimately reach the sanctioned country through indirect and extended channels involving its trade bloc partners. This study provides valuable insights into circumvention strategies and suppression mechanisms, with implications for third countries and global sanctions enforcement. The existing trade patterns jeopardize the strategic alignment of countries like Georgia with the EU and expose them to the risks of secondary sanctions.