Increased Russian-Georgian Trade: Sanctions Circumvention or Benign Change of Trade Flows?

July 2024

Since soon after Russia’s full-scale invasion of Ukraine in February 2022 and the subsequent imposition of unprecedented sanctions against Russia, reports persist that such sanctions are circumvented through Georgia. However, scrutinising trade data and other detailed information indicates that often cited increases in bilateral and transit trade from / through Georgia to Russia can be explained with harmless developments and that, if some sanctions circumvention should happen, it would be on a negligibly small level.

In the wake of Russia’s full-scale invasion of Ukraine in February 2022, Western countries imposed ever broader unprecedented sanctions against Russia, attempting to cut Russia off from vital supplies. Soon afterwards, numerous reports began to cite the increase of trade between Russia and some of its neighbouring states, including the small Caucasus republic Georgia, as signs for sanctions circumventions through these countries. Western officials at times even singled out Georgia and a handful of other countries as being of particular concern.

Neither the later backtracking of such accusations against Georgia by Western officials directly tasked to prevent sanctions circumventions nor reassurances by Georgian authorities that they conduct efficient controls did manage to stop the repetition of such claims (see e.g. here and here).

A closer look by the Swiss Institute for Global Affairs (SIGA) at trade data [1] and other detailed information suggests that such persisting accusations of sanctions circumvention are regularly caused by doubtful jumps to conclusions and that allegedly suspicious changes in trade flows can be explained by more simple and benign factors.

This sometimes begins with very basic issues. For example, while the recent increase of overall trade turnover in goods between Georgia and Russia (about 50% more in 2022 and 2023 than in 2021, the year before Russia’s full-scale invasion of Ukraine and subsequent imposition of unprecedented sanctions) has regularly be seen as a red flag, trade data immediately reveals that this increase was almost solely driven by increased Georgian imports from Russia, not Georgian exports to Russia — which already heavily qualifies the notion that Russia might have started obtaining masses of sanctioned goods from Georgia.

More specifically, according to official Georgian statistics the worth of all Georgian exports to Russia in 2022 and 2023 was only around 5.3% and 7.7% higher when compared to 2021. The significance of this increase is further relativised when one considers that Georgian exports to Russia had, between 2011 and 2019 (with one singular exception of a major decrease in 2015), seen much more marked year on year growth of between 10% and 307(!)%. In view of this, current increases since a dent in 2020, the year in which the COVID pandemic negatively impacted the whole global trade, are, if anything, rather underwhelming. That said, figures for the first quarter of 2024 even show that Georgian exports to Russia have again declined by about -9.1% when compared to the same period in 2023.

Looking at what kind of goods Georgia exports to Russia also reveals that the vast majority of it is harmless. A detailed study of changes in Georgian-Russian trade between March 2022 and February 2023 (i.e. in the 12 months following Russia’s full-scale invasion of Ukraine) laid out that the exports that significantly increased from Georgia to Russia and make up the lion’s share of all exports are almost exclusively food and beverages. As verified by SIGA through reviewing trade data up to May 2024, this has also not changed since then.[2]  

The only category of goods that Georgia has been exporting in high amounts to Russia and that could theoretically be of concern is ferroalloys. However, as the mentioned study and a review of trade data for the full year of 2023 and the first five months of 2024 shows, the export of ferroalloys from Georgia to Russia has drastically decreased since Russia’s full-scale invasion of Ukraine, contradicting the notion of a booming business of sanctions circumvention.[3]

In this context, it has to also be kept in mind that the Georgian government, while promising to make sure that Western sanctions are not circumvented through Georgia, has not imposed bilateral sanctions against Russia, arguing that this would hurt the Georgian economy more than the Russian one. As such, the export of Georgian-made goods is in any event not affected by sanctions.

This is not to say that all goods exported from Georgia to Russia are completely benign and there are indeed some so-called dual-use goods (i.e., goods that are meant for civilian purposes, but can also be employed militarily) on the list of Georgian exports to Russia, namely some mechanical and electronic components. However, as the cited study as well as later trade data shows, the worth and amount of such goods is so low that they would, even if they would end up for military and not civilian purposes, not be able to undermine sanctions in any meaningful way.

That said, there have been cases were concerns were raised that companies and individuals in Georgia might import Western goods that fall under sanctions and then re-export them to Russia, thereby circumventing sanctions. However, also in such cases, scrutinising data did not show any smoking gun.

For example, there have been allegations that increased Georgian imports of U.S. electronic circuits and microchips suggest that they are re-exported to Russia in circumvention of sanctions. However, digging deeper into trade data actually revealed that recent increases of Georgian imports of such circuits and chips are most likely explained by a lagging recovery of such Georgian imports to pre-pandemic levels.

Another example concerning the re-exports of cars further suggests that Georgia is indeed effectively making sure that Western sanctions are not circumvented. While the re-export of cars from Georgia to Russia was a major business, the expansion of EU and U.S. sanctions regarding the export of EU- and U.S.-made cars to Russia from luxury vehicles to most automobiles in summer 2023 immediately caused the re-export of cars from Georgia to Russia to almost disappear, implying that sanctions were swiftly adhered to.[4]

That observable increases in Georgian exports to Russia in themselves cannot be seen as indication for sanctions circumvention was also mentioned by major business associations in Georgia that explained that Georgian exports to various countries, not only Russia, have seen increases. «This is also partly the result of export stimulation programmes that the Georgian government launched about 5 years ago but have only recently yielded results,» Levan Vepkhvadze, the Executive Director of the Business Association of Georgia (BAG), added in this context. «As such, it is in general difficult to say to what extent recent limited increases of Georgian exports to Russia were caused by the change of the situation after Russia’s invasion of Ukraine and to what extent it was the results of the mentioned stimulation programmes,» he further elaborated.

Another factor that likely also played a role is connected to the situation in Ukraine but less sinister than sanctions circumvention. «Before [the full-scale invasion], there were substantial exports from Georgia to Ukraine, which plummeted due to the war,» a representative of another Georgian business association told SIGA. «These exporters therefore had to look for new customers for their products that do not fall under sanctions and likely found some in Russia,» he added. 

In contrast, Georgian imports from Russia have indeed made a jump in the wake of Russia’s full-scale invasion of Ukraine (+79.4% in 2022 when compared to 2021). However, they subsequently not only stagnated, but even slightly decreased (-4.9% in 2023 when compared to 2022 and -6.5% in the first quarter of 2024 when compared to the same period in 2023).

One of the main drivers of this increase of Georgian imports from Russia, that sometimes raised questions regarding sanctions circumvention, was Georgia buying much more oil and fuel products from Russia. While rare, this was at times claimed to circumvent sanctions, alleging that Georgia re-exports Russian oil and fuel products, which are embargoed by many countries, to such states. However, the already mentioned study found that Georgia was using almost all of the additionally imported Russian fuel for its own consumption, substituting significant amounts of its previous fuel imports with Russian oil and fuel that had become considerably cheaper as many countries outlawed the acquisition of Russian oil. As latest trade data shows that Georgian imports of oil and fuel products have peaked in 2022 and are again decreasing[5], there is no indication that this conclusion of the study has changed.

In this regard, it has to be again noted that the Georgian government has refrained from imposing bilateral sanctions against Russia, meaning that Georgia profiting from cheaper Russian oil might be challenged politically, but not legally.

Confronted with the notion that Georgia is profiting from cheap Russian oil and indirectly taking advantage of the sanctions against Russia, Prof. Dr. Nikoloz Samkharadze, the chairman of the Foreign Relations Committee of the Georgian Parliament, told SIGA that Georgia has decided to take the opportunity of buying cheaper Russian oil as any other option would have led to unsustainably hurtful price hikes for the Georgian population. «We have informed our Western partners about this, who replied that they understand our position, because also geographically we do not have many other suppliers,» he further assured.

In any event, Samkharadze also underscored that the increased trade with Russia is purely pragmatic and does «not move forward political relations» between the countries. Georgia and Russia do not have official diplomatic relations since a 5 days long war that was fought in August 2008 between Georgia on one side and Russia, Abkhazia, and South Ossetia, two regions that de facto broke away from Georgia, on the other and which each side claims was started by the respective other. «Our stance is clear: we cannot have normal relations with Russia until Russia respects the territorial integrity of Georgia [which, according to Georgia and the vast majority of the international community, includes Abkhazia and South Ossetia that they see as Russian occupied and that are only recognised as independent states by Russia and a handful of other countries],» Samkharadze stated.

Asked about what effect this lack of diplomatic relations has on trade, the Russian Interest Section in Georgia described it as «an artificial obstacle to the development of trade and economic relations between [Russia and Georgia], in general, and cross-border trade, in particular.» The Russian Interest Section further elaborated that «entrepreneurs in Russia and Georgia have to deal with numerous additional difficulties that could be easily solved if bilateral communication channels were available,» adding that «the biggest barrier for business remains the high level of politicisation of any Russian-Georgian business contacts, despite their obvious and indisputable benefits for the economies of our countries». (The Russian Interest Section in the Georgian capital Tbilisi is representing the Russian Federation’s interest in Georgia, as the mentioned war in August 2008 led to the closure of the Russian embassy in Georgia. Due to the lack of diplomatic relations between Russia and Georgia, the Russian Interest Section is formally hosted by the Swiss embassy in Georgia; it does, however, work separately from the Swiss embassy).

Despite these difficulties, the Russian Interest Section expressed certainty that such problems will be overcome, describing Russia and Georgia as «natural partners». The Russian Interest Section based the latter claim on the common border of the countries and the fact that they have a centuries-long history of trade ties and produce complementary ranges of products. It also in general emphasised «the importance of mutually beneficial and effective co-operation between [Russia and Georgia] in the sphere of trade and economy» which should not be affected by «political rhetoric or colouring».

Given the absence of diplomatic relations, the Russian Interest Section furthermore stated that, for the time being, the Russian-Georgian Business Council, a council that is officially part of the Russian Chamber of Commerce and Industry and was established in February 2023, could be a mediator in resolving certain pressing business problems between the two countries. The Russian Interest Section acknowledged though that this would necessitate that this council would have relevant business partners in Georgia, which was, as of the time of writing, not the case. The latter was confirmed by Georgian business associations and other knowledgeable sources in Georgia who had no information about this council.

That this will change and the Russian-Georgian Business Council will be able to start collaborating with relevant business partners in Georgia any time soon is highly unlikely. Already before the re-introduction and eventual adoption of a law on «Transparency on Foreign Influence» in April and May 2024 led to mass protests against what the Georgian opposition frames as Russian subversion in Georgia, several knowledgeable sources described the political environment in Georgia as too charged for such a council to find partners in the country. Numerous efforts of SIGA to obtain comments from the council itself remained without results.

Accordingly, current trade ties are, in the end, solely based on individual contacts and endeavours between businessmen in either country that remain comparatively low-key.

Another claim is that, even if bilateral trade between Georgia and Russia is not used to circumvent sanctions, individuals and companies from other countries send sanctioned goods via Georgia to Russia. However, also such assertions are seemingly only based on doubtful general assumptions.

While the transiting of goods from third countries to Russia via Georgia has significantly increased (by about 50% in 2022 when compared to 2021 and by almost 20% in 2023 when compared to 2022[6]), various Georgian sources confirmed to SIGA that Georgian customs are thoroughly checking all transit goods to make sure that such trade is not used to circumvent sanctions.

This was not only underscored by government officials and data, but also by statements of representatives of Georgia’s International Road Carrier Association (GIRCA) and other business associations. All these sources cited cases in which Georgian customs refused the transit of goods through Georgia and turned them away as indications of sincere controls.[7]

The notion that such instances of turned around goods might mean that there is a significant dark figure and that sanctioned goods manage to pass through controls is, based on available information, unlikely. GIRCA indicated that, in cases where its members contacted the association for help when goods were denied passage, the reasons were benign such as overload or minor flaws in documentation. This was also corroborated by Vepkhvadze from BAG who cited anecdotal examples in which harmless electronic parts were held up by Georgian customs and were only released after interventions from official representatives of the Western companies evidencing and warranting the proper and lawful usage of such spare parts. All this indicates that Georgian custom controls are indeed thorough and, if anything, overzealous.

This is not to say that the circumvention of sanctions by transit can be completely ruled out. This is especially the case, if Georgia is only one stopover in a longer chain, e.g., if goods are transited via Georgia to a third country from where they, directly or indirectly, find their way to Russia. That such things indeed happen, was confirmed by a source to SIGA who requested anonymity and described that high-end cars are still being transported via routes of multiple stops sometimes including Georgia into Russia. Other potential examples were also mentioned in a recent report published by the Georgian Investigative Journalists’ Team iFact.[8]

As even the most efficient state could not completely prevent every case of potential sanctions circumvention or smuggling of any kind, expecting this from Georgia or any state for that matter is illusionary. As such Georgian efforts to prevent sanctions circumvention appear by all accounts, including acknowledgements of Western sanctions coordinators, sincere and efficient and potentially existing smuggling is at most limited and, in the bigger picture, negligible. This is all the more the case as there are other countries that have less strict mechanisms to prevent sanctions circumvention and sanctioned goods tend to go the way of least resistance. In view of all this, the often-cited increased bilateral trade between Georgia and Russia and transit trade through Georgia to Russia is almost certainly simply caused by benign changes of trade flows.

Franz J. Marty

[1]  The figures cited in this article are based on various publicly available statistics, namely import-export data published by the National Statistics Office of Georgia (https://ex-trade.geostat.ge/en) and the Georgian Ministry of Finance (https://www.mof.ge/export_importis_informacia) as well as data on transit goods published by the Georgian Revenue Service (https://www.rs.ge/statistics). Regularly, the figures cited in the article are not directly visible from the published data, as they are based on calculations and comparisons done by this author.