Since the beginning of the Russia-Ukraine war, Central Asia has found itself in a predicament. Russia remained a dominant force in every perspective in Central Asia, from culture to military. Meanwhile, Central Asia also chose to keep its distance from Moscow and not support Russia’s war effort.
Trade is no exception in this case. Russia has been a close trading partner to Central Asian countries. The war has even accelerated this trade relationship as Russia imports much more from Central Asia. However, the potential violation of the ongoing sanctions has put Central Asia under scrutiny and may trigger secondary sanctions targeting the region.
Central Asia has been caught in a dilemma. On the one hand, these countries still maintained a collaborative relationship with Moscow out of fear and practical benefits. This sentiment is the foundation of the economic relationship between the Kremlin and Central Asia governments. However, Central Asians also do not wish to fall into the secondary sanctions and take significant financial losses as the countries also rely on international investments.
Russia and the Central Asian states share a common political, cultural, and historical root. Russia remained Central Asia’s biggest trading partner after the collapse of the Soviet Union. The Moscow government also formed the Eurasian Economic Union and removed customs control between the member states, further securing its economic dominant position in the region. From Hollywood movies to milk to cars, the depth and the amount of trade between Russia and Central Asia is massive.
However, since the war in Ukraine started, Central Asia has provided Russia access to vital technology to support its war effort. Central Asia maintained a close trading relationship with China, Europe, and Russia. It has access to goods that Russia desperately needs. The lack of customs checks under the Eurasian Economic Union meant that the goods could flow into Russia without regulations. The region became a vital hub for Moscow to avoid sanctions and import essential items to sustain the ongoing war.
This is indicated in the bilateral trade data, which has grown dramatically. Kazakhstan has seen a 22-fold increase in electronics exports to Russia. The Kazakhstan government has also recently confirmed that some Kazakh companies have exported dual-use equipment to Russia. Trade data also indicates that Chinese exports of heavy trucks to Central Asia have grown three times. Russian shell companies in Uzbekistan and Kyrgyzstan imported drones from China and shipped them to Russia through Central Asia. This new bilateral trade growth has supplied Russians with vital equipment and made some Central Asians wealthy.
Meanwhile, Russian exports to these countries are also increasing. Russia has recently expanded its energy exports towards Uzbekistan and will execute the plan soon. A similar deal is also in discussion with Kazakhstan. Under the structure of the Eurasian Economic Union, exports towards Kyrgyzstan and Kazakhstan have also increased. The region has become a new source of income for the Kremlin to fuel the military actions on the frontline.
The Western countries are dissatisfied with the trade relationship between Central Asia and Russia. The US and the European Union have already listed multiple entities from Central Asia in the sanctions list, which is expanding. The move is to cut Russian military supplies in technology for war. More recently, the EU and US special representatives have visited Kyrgyzstan and Kazakhstan to inspect the potential violation of the rules of sanction. In a press conference in Astana, the US and EU officials warned Kazakhstan and Central Asia countries that there would be secondary sanctions targeting them should they not comply with the sanctions requirements. The recent summits between Central Asian governments and the EU and the US have also discussed Central Asia’s role in Russia’s sanctions.
These governments’ responses have also indicated this divide. Kyrgyzstan official has complained that the immediate cutting of trade relations will severely damage Kyrgyzstan. The government even changed its trade tracking system to make tracking the exact items in every export harder, providing a perfect environment to cover up any potential illegal exports from Kyrgyzstan to Russia. Uzbekistan, at the same time, held talks with the Berlin government in seeking sanctions alleviation for Uzbek banks.
Yet, the potential sanctions hit is obvious for Central Asian governments, forcing them to find a solution to find a balance. There are signs that Central Asia is willing to comply with some sanctions requirements and tighten its export control. Although still reluctant, Kyrgyzstan has banned drone export to Russia. Kazakhstan has also updated its trade tracking system and closely monitors the goods listed on the sanctions list. President Tokayev also stated that Kazakhstan follows the sanctions regime against Moscow.
Central Asia’s unique geographical location has provided significant benefits. Being the intermediator of trade between Russia and the others is one of them. However, this economic relationship is also poisonous. As the risk of secondary sanctions rises, Central Asians are also facing a potential financial tsunami. Central Asia’s dilemma may still last in the near future.