Central Asian countries are navigating a delicate balance as they try to maintain economic distance from Russia while also avoiding antagonizing their large neighbor to the north. Recent moves, such as Kyrgyzstan’s central bank banning the settlement of trade contracts unless goods are shipped directly to the country, highlight the challenges in this dynamic. Sanctions imposed on Central Asian firms by the West, targeting those accused of assisting Russia in bypassing sanctions, further complicate the situation. The region faces a dilemma of how to distance itself from Moscow while not risking a closer alliance with Russia.
Russia has been utilizing its neighbors in Central Asia to soften the impact of Western sanctions and the exodus of foreign companies from its economy. Central Asian countries provide Russians access to goods and financial services that are no longer easily available at home. Kazakhstan, in particular, has become a hotspot for Russian entrepreneurs, with many starting businesses there. However, concerns remain among Western policymakers that Russia could exploit Central Asian countries to reroute goods from the EU, complicating efforts to isolate Moscow economically.
Trade data shows a significant increase in the export of dual-use goods, items banned by Western sanctions that can be used in Russia’s military-industrial complex, from Central Asian countries to Russia. Kazakhstan is the top exporter in this category, with exports surging in recent years. Journalists have documented cases of dual-use goods ending up in Russia via Central Asian countries, raising concerns about sanctions evasion. While only a small percentage of goods transhipped from Kazakhstan to Russia are sanctioned dual-use items, the issue worries policymakers and adds to Central Asian countries’ GDP growth.
Central Asian countries have not joined the West in sanctioning Russia over its invasion of Ukraine but have committed not to assist Moscow in evading these restrictions. Implementing measures to align with Western restrictions would be challenging for Central Asian nations, given their close economic ties with Russia. While concerns persist about sanctions evasion, Central Asian governments appear to be genuinely committed to sanctions compliance. The West has targeted individual companies in Central Asia suspected of aiding Russia but has not imposed extensive sanctions on these countries.
Increasing sanctions pressure on Central Asian countries could push them closer to Russia geopolitically, as they have little to lose by deepening cooperation with Moscow. The current approach of the West towards Central Asian economies has not been fully explored. While targeted sanctions against specific entities may be likely in the future, the West has not indicated plans to impose the same extent of sanctions on Central Asian countries as on Russia or Belarus. The balance between curtailing sanctions violations and avoiding pushing Central Asian nations closer to Russia remains delicate, and diplomatic engagement could play a crucial role in shaping the future of the region.
