Capital vs. Sanctions

Sweeping sanctions were supposed to cripple Russia’s war machine. But the logic of capital has proved stronger than the will of states, weaving invisible networks that bypass restrictions. In doing so, the Western coalition has inadvertently designed a near-perfect operating system for its enemies.

When a Russian Kalibr cruise missile strikes a Ukrainian city, investigators sifting through the wreckage often find guidance chips manufactured in Austin, Texas, or Munich, Germany. These high-tech components were meant for industrial controllers and consumer electronics and were never supposed to end up inside Russian weapons. Yet there they are.

Those chips have traveled a long road — from American assembly lines to the charred remains of missiles that fell on Mykolaiv, Kyiv, or Kharkiv. Their journey tells a larger story: how the “most comprehensive” sanctions regime in modern history has failed to halt Russia’s war machine. Instead, it has forced adaptation, regrouping, and a turn toward globalization’s gray zones. It is a story about how state geopolitics collides with the core rule of the very system it created. In the logic of capital, there is no homeland, and profit is the only imperative.

Since February 2022, the Western coalition has sought to cut Russia off from global financial architecture. The idea, born in think tanks in Washington and Brussels, was both simple and elegant. By controlling the “nerve centers” of globalization — international payment systems, insurance markets, and high-tech supply chains — the West could trigger a rapid economic collapse in Russia and end the war.

It was a pragmatic choice: striking the aggressor’s economy remained the only powerful alternative to direct military intervention. Yet the strategy rested on a technocratic faith that a world built on free trade could be paused with the push of a button. The belief that governments still conduct the flows of global business as a conductor leads an orchestra was, at heart, a neoliberal illusion. 

The strategy has faltered because of the very system the West itself spent half a century constructing — one optimized to evade national regulations, minimize taxation, and conceal ultimate beneficiaries. Over the decades, the accumulation of capital has become inseparable from a systematic shedding of national identity. A transnational corporation headquartered in Silicon Valley pays taxes in Ireland, manufactures its products in China from Taiwanese components, and sells them worldwide. Its allegiance lies not with a flag, but with its shareholders; its sole mission is profit.

Sanctions are not an on/off switch that halts the flow of commerce. They are more like a dam: water accumulates, searching for new channels through which it can surge — in this case, toward extraordinary profits. There will always be an economic actor — a company in a third country, a transnational trader, or a financial intermediary — for whom the risk premium is worth it. This is not necessarily about malice or ideological alignment. From a business standpoint, it is simply about exploiting a market opportunity. The sanctions regime, unintentionally, has spawned its own mirror image — a shadow economy specializing in outsmarting it.

Instead of speaking of “loopholes,” it is more productive to view this phenomenon as a web of arbitrage opportunities — profits extracted from differences in prices, access, and conditions artificially created by sanctions. This adaptation unfolds along three primary lines: shifting jurisdictions, building alternative logistics, and manipulating the legal status of goods.

The Geography of Profit

At the heart of most sanctions-evasion schemes lies jurisdictional arbitrage, a practice especially prevalent in countries like Kazakhstan, Armenia, and Kyrgyzstan, which now appear to the West as Russia’s “accomplices.” Their behavior reflects a complex mix of economic necessity, fear of Moscow, anxiety about Western secondary sanctions, and a desire to capitalize on a historic moment for self-enrichment.

For many entrepreneurs in these regions, operating in the “gray zone” has long been standard practice; sanctions have merely created a new and lucrative market for those familiar skills. The clearest example is the re-export of electronics. According to a report by the European Bank for Reconstruction and Development, exports from the EU and the US to Armenia and Kyrgyzstan rose by 80–100 percent in 2022–2023. This surge almost perfectly mirrors the rise in exports of the same product categories from those countries to Russia.

When Kazakhstan, a country with no domestic appliance industry, suddenly begins shipping hundreds of thousands of washing machines to Russia, as documented by Bloomberg, it is obvious that this is not about a newfound national obsession with cleanliness. What is really happening is a kind of “component cannibalism” — the mass extraction of Western microchips from consumer goods for reuse in military applications.

The same logic applies to status symbols coveted by Russia’s elite. After Mercedes-Benz, BMW, and Audi formally exited the Russian market, Moscow’s luxury showrooms did not stand empty. Direct supply routes were swiftly replaced with convoluted channels running through Bishkek, Yerevan, and Dubai. According to Germany’s Federal Statistical Office, car exports from Germany to Kyrgyzstan jumped nearly 5,500 percent in 2022 compared to the previous year. For end consumers in Moscow, only two things changed: prices rose by 50 to 100 percent, and official warranties disappeared. But for the wealthy clientele determined to preserve their prewar lifestyles, that was an acceptable price to pay. The market system cannot ignore such solvent demand; intermediaries inevitably appear, paving alternative, if more expensive, routes.

Trade requires both money and legal entities. The answer to Russia’s financial isolation was a mass migration of businesses into jurisdictions offering a rare combination: developed financial infrastructure and political neutrality. The main beneficiary has been the United Arab Emirates (UAE). Bilateral trade between Russia and the UAE soared 68 percent in 2022, reaching a record $9 billion.

Typically, a Dubai-based intermediary company registered in one of the emirate’s free economic zones acts as both a financial and a legal “cleanser.” It receives payments from Russia (often in rubles or yuan), converts them into dirhams and then into euros, and settles invoices with European suppliers under its own name. For the Western financial system, which sees only a transaction originating from a legitimate Emirati counterpart, everything appears perfectly lawful.

The Ghost Fleet

When politics closes traditional routes, capital does not just find detours; it builds its own shadow infrastructure. The clearest example of this emerged in response to the G7’s “price cap” on Russian oil. The mechanism was designed to cut off Moscow from the world’s dominant maritime insurance market, largely controlled by firms in London and the European Union. The assumption was simple: without insurance, no reputable port would accept a tanker, and Russian oil would be stranded.

Instead, a “shadow fleet” was born. This is not a handful of rogue vessels but an entire ecosystem. Beginning in 2022, the global market for used ships went into overdrive. Dozens, then hundreds, of aging oil tankers — vessels usually destined for scrap — were snapped up by newly formed, often anonymous companies registered in Dubai or Hong Kong. According to Atlantic Council estimates, this fleet now numbers more than six hundred ships.

These tankers operate under their own rules, far from regulatory oversight. They routinely disable their Automatic Identification Systems for weeks at a time to obscure their routes and conduct ship-to-ship oil transfers in international waters, turning certain areas of the world’s oceans into vast floating depots. During these transfers, Russian crude is mixed with other grades of oil, effectively laundering its origins. The result is an anonymous product, “Latvian blend” or “Mediterranean mix,” that can be sold freely in ports across the globe.

Just as the shadow fleet emerged, so did a shadow financial system. Disconnecting major Russian banks from SWIFT was meant to trigger a financial collapse. But SWIFT is merely a messaging platform, not a payments system itself. Financial flows quickly carved out new channels. The Chinese yuan soon became Russia’s main instrument for foreign trade settlements, surpassing the dollar in trading volume on the Moscow Exchange within a year of the invasion.

For transactions with the West, Russia relies on a sprawling network of intermediary banks in friendly jurisdictions. A Russian importer sends rubles to a bank in, say, Kyrgyzstan. That bank, still connected to SWIFT, converts the funds and transfers euros to a German supplier. Every participant in this chain takes a commission; the cost rises, but the payment goes through.

The Double Life of Things

The most elusive kind of sanctions evasion is commodity arbitration. It exploits not geographic or legal boundaries, but the very nature of modern goods in a globalized economy. It manipulates the answer to a deceptively simple question: “What exactly are we selling?”

This is how Western microelectronics continues to power Russia’s defense industry. Analysts at the Royal United Services Institute examined 27 Russian weapons systems captured in Ukraine. Their report documented more than 450 unique foreign-made components found in Kalibr cruise missiles, Orlan-10 drones, and electronic warfare systems — most of them produced by American companies such as Texas Instruments, Analog Devices, and Altera.

That does not mean these companies are knowingly violating sanctions. Rather, it exposes a fundamental vulnerability in the global trading system itself — a system optimized for efficiency, not transparency. This structure allows legal and reputational risks to pass from one link in the chain to another until they dissipate entirely in a web of anonymous intermediaries.

A manufacturer in Texas legally sells millions of general-purpose chips to a global distributor like Mouser Electronics. That distributor, in turn, sells them, also legally, to hundreds of regional middlemen, including in Asia. One such regional distributor sells a batch of chips to a small, recently established company in Hong Kong, which lists them in customs paperwork as “components for consumer electronics.” Only at the final stage does the civilian chip cross into Russia and end up integrated into military hardware. The arbitrage lies in exploiting the dual nature of the product itself: the same component can run both a washing machine and a missile guidance system.

A similar mechanism operates in civil aviation, another domain critical to national security and economic connectivity in a country as vast as Russia. When Boeing and Airbus halted official aircraft servicing in 2022, the expectation was that Russia’s fleet would soon be grounded. It was not. An investigation by Reuters, based on customs data, found that between May 2022 and June 2023, Russian airlines imported at least $1.2 billion worth of spare parts for their Western-built planes. The shipments moved through shell companies in Tajikistan, the UAE, Turkey, China, and Kyrgyzstan.

The global aircraft parts market is vast and fragmented, and the shortages created by sanctions have fueled a willingness to pay almost any price. That, in turn, has drawn in a swarm of intermediaries worldwide for whom the political risks are more than offset by extraordinary profit margins.

The Real Price

Although sanctions evasion showcases capital’s remarkable adaptability, it would be wrong to conclude that the measures have had no real effect on the Russian economy. Sanctions do work — but their impact is not the immediate collapse of Russia’s economy; rather, it appears as a gradual squeeze on revenues, systemic cost inflation, and an accelerating technological decline.

Between 2023 and 2024, sanctions, including the G7 price cap, roughly halved Russia’s oil revenues, forcing the Kremlin toward a “war economy” with mounting risks of inflation and stagflation. At peak moments, oil revenue shortfalls reached as much as 30 percent, undermining the budget’s capacity to finance the conflict.

Every intermediary in an illicit supply chain adds an extra markup. The “risk premium” and commissions charged by firms in Turkey, the UAE, and Kazakhstan impose a heavy burden on the Russian economy, siphoning resources that otherwise could have been allocated to other priorities.

Another consequence is technological degradation. Access to cutting-edge technologies has become constrained. The practice of harvesting chips from washing machines is not a triumph so much as evidence of forced downgrading. Producing Ladas in 2022 without airbags or anti-lock braking systems was just one of many manifestations of this process. New dependencies are also emerging. In disentangling itself from the West, Russia has fallen into fresh, hardly less rigid ties with intermediary states. Turkey, China, and India can now dictate terms and prices, knowing how crucial they have become to the survival of the Russian economy. In short, the system has not collapsed — but its operation has become costlier and less efficient.

Countermeasures

By the autumn of 2025, these workarounds’ sheer effectiveness — and the realization that they enabled Russia to continue financing its war — pushed Western strategists to seek more radical instruments of pressure. Sanctions architects have shifted from squeezing Russia, the producer, to targeting the global network of intermediaries and end users that facilitate evasion. That evolution was vocalized by longtime Kremlin critic Bill Browder, who had argued that it was time to issue an ultimatum to major refiners in countries such as India and Turkey: stop processing Russian crude or face full exclusion from Western financial, insurance, and shipping services.

This is no longer a call for harsher sanctions, per se; it is an attempt to make participation in laundering Russian war revenues economically impossible. That logic has already begun to inform policy: the new EU restrictions introduced in 2025 aim to bar imports of petroleum products refined from Russian crude, regardless of where blending takes place.

The goal of this phase of economic warfare is to drive Russia into a corner — to push it off the discounted “friendly” market and onto a true black market with discounts of $20–30 per barrel. In essence, it is the next chapter in the tussle between state power and capital: a direct effort to raise the risk premium so high that the arbitrage opportunities that have propped up the Russian economy become unprofitable.

Even so, these measures will not entirely stop Russian oil from reaching EU markets. If refined products are imported from countries that are major oil producers themselves, such as Saudi Arabia, Iraq, the UAE, Kazakhstan, among others, they will typically be treated as locally sourced, not as Russian. That creates potential loopholes through which Russian hydrocarbons can still penetrate EU markets. Thus, while sanctions tighten controls and demand more rigorous documentation of origin, some circumvention via producer countries may persist.

Yet state sanctions represent only one front. A quieter, less formal campaign is unfolding: a war for transparency. This fight is not led by governments but by a decentralized network of investigative journalists, anti-corruption activists, and forensic finance specialists. They do not write laws, but they alter the system’s key variable — reputational and legal risk. By publishing the names of intermediary firms, tracing the shadow fleet routes, and exposing the ultimate beneficial owners, they can turn a lucrative deal into a reputational catastrophe. Their work does not directly stop capital flows; rather, it sharply increases the risk premium, rendering many arbitrage schemes toxic and economically unviable.

A Fractured World

The global sanctions regime has, paradoxically, become a powerful market catalyst, spawning new, high-margin niches for capital. The phenomenon of sanctions evasion has revealed a deeper truth: the system of global capitalism, built on transnational integration, is structurally incapable of isolating one of its own major nodes. The attempt to politically amputate an economy the size of Russia’s has not led to its decay but to the emergence of parallel “vascular networks.”

The infrastructure built to circumnavigate sanctions — the “shadow fleet,” financial corridors through the yuan and dirham, and webs of shell trading companies — is not a temporary workaround. What is taking shape before our eyes is not a new world order in the classic sense, but rather a durable alternative system, one whose economic and technological core is increasingly centered in China, and which may, over time, shift the global power balance.

Sanctions were a tool conceived in an era when economies were more nationally bound. In the current crisis, Western states have tried to pull the levers of a system they once considered their own, only to discover that it has long since developed its own logic, one largely indifferent to the political purposes for which its mechanisms are deployed.

It is precisely this structural vulnerability that the Russian state has exploited. It operates not as a classical empire but as a hybrid actor whose ruling elite thinks less in terms of national interest than in terms of profit margins and regime survival. It has mastered the language of global capital — arbitrage, offshore anonymity, and shadow logistics — and has become one of its most cynical and efficient practitioners, sustaining its war machine, however costly, through the very system designed to contain it.

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