Kazakhstan Helps Russia Bypass Western Sanctions

Kazakhstan Helps Russia Bypass Western Sanctions

What Happened: In 2022, Kazakhstan’s exports increased by $24.4 billion year-on-year. Roughly $14 billion worth of that can be attributed to the increasing price of oil, a major Kazakh export. But that leaves $10 billion unaccounted for. Meanwhile, Kazakhstan’s imports also surged by $10 billion in 2022, a leap unprecedented in the country’s history. “The most reasonable explanation for what the data shows is a phenomenon called ‘parallel imports,’” write Rahimbek Abdrahmanov and Kamshat Zhumagulova, both analysts at the Kazakhstan School of Applied Politics (KSAP). “The $10 billion increase in both imports and exports indicates that Kazakhstan imported goods and services worth $10 billion and then rapidly ‘exported’ them somewhere else” – specifically, to Russia, which is desperate to find ways around Western sanctions.

Kazakhstan’s government has been adamant that it is in full compliance with Western sanctions, but it’s questionable whether Astana could fully police re-export of sanctioned goods on to Russia, even if it tried. With both countries part of the Eurasian Economic Union, there are almost no customs inspections on their shared border, and Russians can easily establish businesses in Kazakhstan to source sanctioned goods. Meanwhile, corruption is rampant, making it easy to move trade off the books with a well-placed bribe. Abdrahmanov and Zhumagulova also note that Russia’s easy access to the Kazakh tenge – which can then be freely converted into U.S. dollars – has helped prop up Russia’s financial system at a crucial time.

What Comes Next: “It can be concluded that the parallel import system continues to develop on a large scale in Kazakhstan. The country’s control over this phenomenon is limited due to the customs union with Russia, free ruble conversion, significant levels of smuggling, and high corruption risks,” Abdrahmanov and Zhumagulova conclude. The steps Astana could take to combat the issue – exiting the Eurasian Economic Union (EAEU) and discontinuing the free conversion of the ruble, for instance – would risk serious retaliation from Russia. Thus Kazakhstan will continue to be Russia’s back door to Western technology and currency for the foreseeable future.