Transshipments from Germany to Russia

Our Global Economy and Markets blog has recently focused on ways to improve enforcement of Russia sanctions. This is critical, and not just because it is important to make it harder for the Russian war economy to function. Sanctions on Russia are also supposed to be a deterrent for other bad actors out there. The tougher the enforcement, the more effective this deterrence effect, which in turn should result in reduced geopolitical risk. A more stable global environment should be in the interest of all countries around the world, including the Global South. Elevated geopolitical risk is holding back private capital flows to emerging and frontier markets, while the rise in military spending has the potential to weigh on official aid flows. Successful implementation of sanctions—if this helps speed an end to war in Ukraine—is therefore a genuine positive for advanced and developing countries.

We have proposed two avenues for improved enforcement. First, together with Ben Harris, we have documented mounting strain on the Sovcomflot fleet of oil tankers, as the EU embargo on seaborne oil forces Sovcomflot ships to make longer trips. Sanctioning more Sovcomflot oil tankers will therefore materially impact Russia’s export capacity and force it to revert to using Western ships, improving compliance with the G7 cap. Second, transshipments of Western goods from European Union countries to Russia via Central Asia and the Caucasus are large, as we documented in our most recent blog. This week, we elaborate on that blog by digging more deeply into German export data. Transshipments are mostly cars and parts and are large enough to substantially offset the drop in Germany’s direct exports to Russia. Greater EU focus on these transshipments is needed.

The German surge in transshipments to Russia

Our most recent blog documented large transshipments from across EU countries to Russia via third countries in Central Asia and the Caucasus. We used IMF direction of trade statistics to show that exports to out-of-the-way places like Kyrgyzstan or Kazakhstan rose very sharply immediately after Russia’s invasion of Ukraine, making it likely that Russia is the ultimate destination for many of these goods. Our blog prompted many questions from readers, which basically fall into two categories: (i) what goods are being transshipped; and (ii) how material are these transshipments in aggregate when weighed against a substantial drop in direct exports from the EU to Russia. IMF direction of trade data do not provide a breakdown on what kind of goods are being shipped, so we use German data—which have much more granularity—to address both questions in this follow-up blog.

Figure 1. Germany’s monthly exports of goods to Georgia, in millions of euros