Working Around Sanctions. What Cost to Russia?

While exports from sanctioning countries to Russia declined significantly after February 2022, a third of sanctioned products and two thirds of strategic products have been fully compensated by non-sanctioning countries. However, this trade diversion comes at a cost: Between the first and second quarter of 2022, the price index of Russian imports jumped by 15.7%, breaking a long period of moderate growth. The overall increase in Russia’s import prices is not related to Russian imports switching to more expensive exporters. On the contrary, after 2022, Russia began importing from new origins that are cheaper, suggesting that these new suppliers were offering lower-quality products. The surge in Russian import prices is primarily attributed to suppliers who had been exporting to Russia prior to 2022. This increase is more pronounced for non-sanctioning origins (+22%) compared to other sources and is especially notable for strategic products (+122%). Part of this increase is explained by a rise in transport and insurance costs for Russian imports (3%). Companies supplying the Russian market have also increased their prices, net of freight costs (FOB – free on board) by an average of 9%. Finally, the circumvention of sanctions does not explain the observed overall increase in Russian import prices. This suggests that the rise in Russian import prices is mainly the result of exporters increasing their margins when exporting to Russia.