Russian Imports Up As East Asia Replaces EU Supplies

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EU exports to Russia were also up 18% in June 

The importation of goods to Russia from abroad is gradually recovering, including in the auto industry where delivered imports in July increased by 2.5 times compared to June. However, other industries are also recovering after the most severe sanctions. This rebound is primarily due to supplies from Asia, and interestingly includes imports from countries that have joined the sanctions.

Russian analysts have explained the recovery of imports due to the debugging of supply chains and a strong ruble, but note that consumer imports are growing, while investment imports are still in a difficult position with unclear prospects for a revival.

The spring collapse in Russian imports was unprecedentedly severe. Data from the European Central Bank in May showed that was the month that exports to Russia fell to their lowest, with deliveries from the eurozone collapsing by 45%. Nearly two-thirds of this fall was in machinery and equipment.

Falls in the exports to Russia of other goods were relatively small: for example, food accounted for a small 2% drop, and for various industrial goods, as well as transport and automotive equipment the drop was about 5%.

By the following month, June, the situation began to change, while in July there was a real breakthrough in recovery.  However, Russia’s Federal Customs Service has not published statistics on foreign trade relations since February this year, so one has to rely on the statistics of foreign countries.

Russian Imports From Asia Gradually Replacing Western Imports

July’s exports to Russia were driven by East Asia. In July, deliveries of goods and services from China to Russia amounted to US$6.7 billion, one and a half times more than in June, but also 22% more than in 2021. For comparison, June imports on the China-Russia route were 17% lower than a year ago. In general, the bilateral trade turnover between the countries for the first seven months of 2022 have amounted to US$97 billion, a 29% increase over same period of 2021. This growth was largely due to a sharp increase in Russian exports to China.

Other Asian exports to Russia in July were also noticeable. Goods and services worth US$542 million were imported from South Korea against US$330 million in June. Imports from Malaysia doubled in July, while those from Thailand, Vietnam and Taiwan grew by 20-30%. There is a slight positive trend even with Japan, where the toughest sanctions amongst Asian countries were adopted.

Shipments from India rose about 25% in July compared to June. However, as is the case with almost all Asian countries (with the exception of China), imports still lag behind the same months of 2021, ranging from 40 to 80%.

Turkish exports to Russia reached US$681 million in July, one and a half times more than in June or the same period in July 2021. This is probably due to Turkiye transitioning into a transit hub for the supply of products from other countries. The United States has already demanded that Turkiye comply with sanctions restrictions – it is possible that this was a reaction to the growth in trade with Russia. How well US pressure succeeds, only future statistics will tell.

EU Exports To Russia Up 18% In June

Although Asia remains the main driver for the recovery of Russian imports, European Union countries are also gradually increasing supplies to Russia. According to the June results, industrial equipment exports from the EU countries exceeded €1.1 billion, whereas in May these were about €900 million. In general, deliveries to Russia from the European Union increased by 18%, to €4.5 billion.

Against this background, a special position is occupied by the United States, which is almost the only trade partner of Russia, which continues to reduce its already small supplies. However, the volume and value of American exports to Russia has always been moderate compared to Germany, China, and other key counterparties. No-one in Russia noticed when the United States banned vodka sales to Russia.

Overall Import Losses Still Not Yet Replaced

So far, however, the growth in supplies from Russia’s allies does not yet compensate for the losses, according to Olga Belenkaya, head of the macroeconomic analysis department of FG Finam.  She says the most important thing is not quantitative, but qualitative indicators.

It is easier to restore consumer imports and much more difficult – intermediate (raw materials, materials, components) and investment (equipment). This is due to the severity of Western sanctions on the supply of technological products to Russia and the pressure of the West (primarily the United States) on other countries with the threat of secondary sanctions for helping to circumvent restrictions, Belenkaya stated.

Dmitry Alexandrov, Managing Director of Ivolga Capital Investment said that “Investment imports do not show positive dynamics. Foreign business is not yet ready to invest in the economy, this is facilitated by the volatility of the national currency, and the general investment climate, and difficulties with logistics. In the consumer sector, there is a positive trend in the segment of passenger cars (it was they who offered the highest income for sellers) and consumer electronics. It was on these positions that parallel imports began to work in the first place.”

TeleTrade Chief Analyst Mark Goykhman also notes the high turnover in the field of consumer goods, saying “The situation is more complicated with technological imports – equipment, machinery, electronics, and so on. In this area, tougher sanctions, a greater share in supplies were occupied by products from developed countries that do not have the necessary development in the Asian region.”

As for the immediate reasons for the restoration of supplies, several factors converge here at once, analysts suggest.

Imports are positively affected by mobile business with a rapid reorientation in trade and logistics – positive fruits of a market economy, according to Galina Balandina, senior researcher at the Center for Regional Policy at the Institute for Applied Economic Research (IPEI) of the Académie Russe de L’économie Nationale (RANEPA). In addition, significant factors are the strengthened ruble, zero rates of import customs duties on a wide range of goods, the gradual adjustment of financial settlements for cross-border supplies, the permission of parallel imports and the involvement of EAEU member countries in trade intermediation, as well as the increase in supplies from Turkiye and other countries.

According to Alexandrov, a strong national currency is a key factor in the recovery of imports. “This creates the maximum economic incentives to import goods into the country, since they are cheap relative to local production. The low spring base has significantly reduced stocks of goods, there is a strong shortage for a number of items, and this allows you to set additional margins on imported goods, which also supports imports. Finally, clarifications began to appear regarding sanctions for banks and companies, and those businesses that did not want to completely leave Russia began to find ways to resume supplies”

When Will Imports Recover?

How long will the import recovery trend last? According to Belenkaya, 2022 will definitely not see a return to the import values seen at the beginning of the year. In the coming years, options are possible – for example, the forecast of the Ministry of Economic Development assumes that imports of goods will exceed the level of 2021 already in 2023, while the baseline scenario of the Central Bank of the Russian Federation does not predict a full recovery of imports of goods and services in 2025.

As Aleksandrov notes, all the factors positively influencing the growth of deliveries still remain, saying that “In my opinion, we will not see a full recovery: the population has experienced a significant reduction in income, so consumption should decrease, and the emphasis will be shifted towards cheaper goods. In addition, for a number of important positions, for example, for cars, long-term restrictions remain.”   

This article has been translated and adapted from the Izvestia newspaper. To see the original please click here

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