Russia – Israel Trade and Investment 2022

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By Constantin Duhamel 


Russia and Israel are important geopolitical partners – often acting as brokers for each other’s foreign policy initiatives, as exemplified by the heights reached in the working relationship of President Vladimir Putin of Russia and former Israeli Prime Minister Benjamin Netanyahu. This is indicative of a certain degree mutual trust, a key metric for business that the important Russian-speaking diaspora in Israel and Jewish diaspora in Russia compound.

The rapprochement seen in 2021 between Israel and Russia set the stage for signing a Eurasian Economic Union (EAEU) – Israel Free Trade Agreement (FTA). According to the EAEU, the FTA is still “under consultation and study”. This will likely change only when the situation in Ukraine crystallizes – and outcomes become clear.

The Eurasian Economic Union (EAEU) is a Customs Union with simplified migratory rules that aims to emulate the European Union and develop to become a common market. Member countries include Russia, Belarus, Armenia, Kazakhstan, and Kyrgyzstan, while Tajikistan and (until recently) Moldova retain certain forms of cooperation. The state of economic relations between Russia and Israel increasingly needs to be analyzed through the spectrum of the EAEU for a more relevant comparison with its peers.

As can be seen in the data above, the EAEU is linked to 1% of Israel’s trade to date. That said – and as will be explored later – Russia and Israel are inextricably linked in the diamond trade, a sector worth US$90 billion worldwide. Russia is the world’s largest producer of diamonds, while Israel a major buyer for grading and onward selling, in particular to India, where most of the worlds high value gemstones are cut.

Israeli military solutions are also a favorite across the former Soviet Union, including EAEU members Kazakhstan, and CIS member Azerbaijan. Drones and naval systems have been in use for some time and likely explain a non-negligeable part of non-Russia EAEU trade with Israel.

2022 Investment Summary

Ukraine conflict-related capital flights have benefited Israel. War-related distortions in the markets has added US$300 million to Israel’s balance sheet, as Russian investors seek to relocate to Israel as both Russia and Europe become too complicated jurisdictions to operate in. Despite initial Know-Your-Customer (KYC) concerns in the Israeli banking sector, this is proving a boon for Russians seeking alternatives to Dubai.

The technology sector is particularly relevant here, with Israel becoming a base for Russian tech in both the private and public side. While some Russian VCs have moved to Israel, the Israeli Ministry of Finance, Interior and Innovation & Science is working to “transfer hundreds of [Russian giant] Yandex employees…to Israel”.

This could only have a positive effect, unexpectedly boosting Israel’s Foreign Direct Investment as it seeks to match record 2021 numbers.

Meanwhile, FDI and portfolio investment into Russia is currently stagnant. Equity capital markets are closed for foreign investors and capital controls important, preventing foreign capital exits and repatriation of profits (and new investments, were there to be any). Israeli investors are no exception to the rule.

Trade in Goods

As can be anticipated, there has been lower turnover year-on-year (YOY). The overall volume of trade between Israel and Russia has dropped by 30%, YOY. This is most likely the result of a poorer trade climate linked to events in Ukraine affecting Israeli imports and exports, as supply chains are rerouted through other countries and new non-sanctioned banking relationships established. A stronger dollar throughout H1 2022 could also have had an impact reducing the overall book trade value, even if physical volumes were to have been similar.

Less overall trade has therefore skewed the commercial relationship towards a smaller surplus in favor of Israel. If more favorable to Russia from an accounting perspective, these numbers indicate trouble sourcing technology and industrial solutions in Israel, while raw materials imports from Russia stay at a bare minimum.

If we assume the same intra-year trends will be valid this year – Covid appears to have been overcome – Russian-Israeli trade is still forecast to hit over US$ 1 billion in trade. That said, several factors are likely to impact the respective countries’ current account balance, on balance favoring Israel.

Ruble volatility

Volatility is problematic.  An unpredictable foreign policy potentially means stabilizing the economy through fiscal, monetary or exchange rate mechanisms. In this case, the Ruble lost over half of its value in March, which has to a certain extent tarnished the Ruble’s reputation in the market, although it has since recovered. The Central Bank of Russia is keen to see a stable trading band for the currency, and it now appears this is being achieved. However, price formation in national currencies will continue to be an issue, despite government efforts to that end.

A slowly depreciating Ruble, as is expected to occur, will benefit Israel. The Ruble has now stabilized at 60 to the US Dollar versus 80 in January and February. A weak Ruble props up exports from Russia – as one dollar can buy more Ruble-denominated goods or services – while a stronger Ruble supports Russia’s importers. Although slightly advantageous to Russian importers, the rate is too strong for the Russian government who expect it to drop to its natural equilibrium of 76 Rubles to the dollar by the 2022-year end.

Israeli importers should therefore be net winners, increasing pressure on the current account balance in favor of Israel.

Parallel Imports

Booking trade in third countries should play into Russia’s hand – but only superficially. To avoid sanctions and more importantly the reputational risk of the Russian market, Russia-Israel trade could also pass-through partner EAEU countries or Turkiye before reaching its end-user in Russia. There are signs that traders are stocking up – we hear reports of warehousing in Kazakhstan and Turkiye now being at a premium to service onward shipments to Russia. The regional Eurasian warehousing business is booming at present as suppliers and facilitators move to get their ducks in a row to support Russian consumerism.

Russia’s current account will therefore benefit as exports to Israel are booked, but corresponding imports from Israel will not be listed in the bilateral accounts. In practice, however, overall trade statistics will reflect true movements in a country’s balance.

Sectoral Issues

Banking is problematic. Opportunities to clear transactions with Russia for banks exposed to USD or Euro are likely to remain limited, at least until an alternative EAEU bank, or bitcoin style trading can be chosen. Main Russian banks’ disconnection from the SWIFT financial messaging service will only hamper attempts to bridge the two markets in the future until alternatives can be arranged. That is happening – Russia has proposed the EAEU, BRICS and Shanghai Cooperation Organisation (SCO) countries begin to use its SPFS system, but there are limitations, and these will take time to resolve.

Raw Diamonds

Raw diamonds from Russia are systemically important to the world market and the core of Russo-Israeli ties. Earlier this year, mining monopoly Alrosa was put under US and UK – but not EU– sanctions very quickly after the start of the Ukraine conflict. Alrosa controls 30% of all global raw diamond resources while five out of twelve official global diamond dealers (“sightholders”) are headquartered in Israel. Diamonds have industrial as well as jewellery uses.

Exceptions have been made in the sanctions regime to allow trade of diamonds sourced in Russia if they are traded in Israel – narrowly escaping what would have been a crushing blow to Israeli firms who need the dollar for day-to-day operations.

Diamond Trade Exceptionalism

There has been less diamond imports YOY, but these remain marginally important on a relative basis. Imports of Russian diamonds are down 27% YOY in dollar terms, and now represent 36% of all Israel’s imports versus 34% last year – a marginal 2% YOY increase that confirms the trade has weathered the sanctions storm for the time being.

Clearly, the trade and investment position between Russia and Israel has been impacted by the imposition of Western sanctions. However, with one suspects deft political maneuvering between Tel Aviv and Washington, as well as Russia’s friendliness with regional neighbors such as Turkiye and the UAE, use of the Abraham Accords is both helping to cement the Russia-Israeli trade and investment ties during a period of uncertainty but also lay the foundations for increases in future years.


Constantin Duhamel is an analyst covering Eurasia. Please get in touch with any enquiries at 

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