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  4. Russia-Ukraine war: Six months into war, Russian goods still flowing to US

Russia-Ukraine war: Six months into war, Russian goods still flowing to US

Experts say the global economy is so intertwined that sanctions must be limited in scope to avoid driving up prices in an already unstable market.

AP Reported By: AP Baltimore Published on: August 25, 2022 14:47 IST
Russia Ukraine war, Russian goods, United states goods
Image Source : AP In this handout photo taken from video released by the Russian Defense Ministry Press Service on Thursday, Aug. 25, 2022, Russian Malka artillery systems fire from an undisclosed location in Ukraine.

Russia-Ukraine war: On a hot, humid East Coast day this summer, a massive container ship pulled into the Port of Baltimore loaded with sheets of plywood, aluminum rods and radioactive material – all sourced from the fields, forests and factories of Russia. President Joe Biden promised to “inflict pain” and deal “a crushing blow” on Vladimir Putin through trade restrictions on commodities like vodka, diamonds and gasoline in the wake of Russia's invasion of Ukraine six months ago. But hundreds of other types of unsanctioned goods worth billions of dollars, including those found on the ship bound for Baltimore from St.Petersburg, Russia, continue to flow into US ports.

The Associated Press found more than 3,600 shipments of wood, metals, rubber and other goods have arrived at US ports from Russia since it began launching missiles and airstrikes into its neighbor in February. That's a significant drop from the same period in 2021 when about 6,000 shipments arrived, but it still adds up to more than $1 billion worth of commerce a month.

In reality, no one involved actually expected trade to drag to a halt after the invasion. Banning imports of certain items would likely do more harm to those sectors in the U.S. than in Russia. “When we impose sanctions, it could disrupt global trade. So our job is to think about which sanctions deliver the most impact while also allowing global trade to work,” Ambassador Jim O'Brien, who heads the State Department's Office of Sanctions Coordination, told the AP.

Experts say the global economy is so intertwined that sanctions must be limited in scope to avoid driving up prices in an already unstable market. 

Also, U.S. sanctions don't exist in a vacuum; layers of European Union and U.K bans result in convoluted trade rules that can be confusing to buyers, sellers and policymakers. For example, the Biden administration and the EU released separate lists of Russian companies that cannot receive exports, but at least one of those companies — which supplies the Russian military with metal to make fighter jets currently dropping bombs in Ukraine –- is still selling millions of dollars of metal to American and European firms, AP found.

While some U. S. importers are sourcing alternative materials elsewhere, others say they have no choice. In the case of wood imports, Russia's dense birch forests create such hard, strong timber that most American wooden classroom furniture, and much home flooring, is made from it. Shipping containers of Russian items — groats, weightlifting shoes, crypto mining gear, even pillows — arrive at U.S. ports almost every day.

A breakdown of imported goods from Russia shows some items are clearly legal and even encouraged by the Biden administration, like the more than 100 shipments of fertilizer that have arrived since the invasion. Now-banned products like Russian oil and gas continued to arrive in U.S.
ports long after the announcement of sanctions due to “wind down” periods, allowing companies to complete existing contracts. In some cases, the origin of products shipped out of Russian ports can be difficult to discern. U.S. energy companies are continuing to import oil from Kazakhstan through Russian ports, even though that oil is sometimes mixed with Russian fuel. Trade experts warn that Russian suppliers are unreliable, and opaque corporate structures of most major Russian companies make it difficult to determine whether they have ties to the government.

“It is a general rule: when you have sanctions, you'll have all kinds of murky schemes and illicit trade,” said Russian economist Konstantin Sonin, who teaches at the University of Chicago. “Still, sanctions make sense because even though you cannot kill 100% of revenues, you can reduce them.”
Many American companies are choosing to cut off Russian trade. Coors beer, for example, returned a shipment of hops to a state-owned Russian company in May as part of a commitment to suspend all business in the country, said Molson Coors Beverage Co. spokeswoman Jennifer Martinez.

Russia and the U.S. were never major trading partners, and so sanctioning imports is only a very small slice of the retaliatory strategy.
Restrictions on exports from the U.S. –- of technology in particular –- cause more damage to the Russian economy, and sanctioning the Russian Central Bank has frozen Russia's access to roughly $600 billion in currency reserves held across the U.S. and Europe. Nonetheless, sanctions carry a symbolic weight beyond the financial harm they might inflict, particularly for American consumers horrified by the war. 

Here's a look at some of the goods that have flowed between the two countries:

Metals

Russia is a key exporter of metals like aluminum, steel and titanium; cutting off that trade could dramatically drive up prices for Americans already grappling with inflation, said Morgan Stanley economist Jacob Nell.  “The basic idea with sanctions is that you're trying to act in a way that causes more pain to the other side and less pain to yourself,” he said. Most American companies dealing in metals have longstanding relationships with Russian suppliers. Such trade, particularly of aluminum, has continued virtually uninterrupted since the beginning of the war.

AP found more than 900 shipments totaling more than 264 million tons of metals since February. Russia is one of the largest producers of unwrought aluminum outside of China and a significant global exporter. But the war has affected that global market as well. “Like all manufacturers,” said Aluminum Association spokesperson Matt Meenan, “we have seen supply chain impacts in terms of increased energy costs and other inflationary pressures which the invasion exacerbated.” Russian aluminum ends up in American car parts and airplanes, soda cans and cables, ladders and solar racks. The largest U.S. buyer at the start of 2022 was a subsidiary of Russian-owned global aluminum giant Rusal. In April, Rusal America's senior executives bought the U.S.-based part of the company and rebranded it as PerenniAL.

In July alone, PerenniAL imported more than 35,000 tons from Russia. The company did not respond to requests for comment. Also, among the private companies choosing to source materials from Russia are U.S. government contractors supported by federal tax dollars.
Boeing, the world's largest aerospace company signed a federal contract for up to $23.8 billion in 2021; it imported 20 tons of aluminum in June from Kamensk-Uralsky Metallurgical Works.

In March, the U.S. banned exports to Kamensk-Uralsky because it supplies metals to the Russian military, but placed no restrictions on imports.
A Boeing representative said the company made the decision to end trade with Russia in March, and explained that the shipment that arrived in June had been purchased four months before.

Another metal importer, Tirus US, is owned by Russian company VSMPO-AVISMA, the world's largest titanium producer. VSMPO also provides metal to the Russian military to build fighter jets. The company's broad global footprint and specific product — titanium — underscores the challenges of isolating Russia from global trade. Tirus US sells titanium to more than 300 companies in 48 countries, including a range of U.S. buyers, from jewelry makers to aerospace companies. VSMPO did not respond to requests for comment.

Wood

Russia's vast forests are some of the largest in the world. After Canada, Russia is the second largest exporter of wood, and has some of the only mills that can make strong, solid Baltic birch plywood, flooring used throughout the U.S. This year, the Biden administration began imposing tariffs on Russian wood exports, a move which infuriated Ronald Liberatori, a Nevada-based wood dealer who sells Russian grown Baltic birch to all the major furniture makers, construction companies and flooring manufacturers in the U.S. “The problem here is Russia is the only country in the world that makes this product,” he said.“There's no alternative source.”

He said that on top of the tariff, he had to put up an $800,000 bond to ensure he'd pay the tax, further driving up prices. “Who's paying for this? Who? You and every other individual in the United States,” he said. “We're so damned upset with what Biden has done. This is a government versus government issue.” Liberatori said decision-makers need to consider who is going to be more hurt by tariffs before imposing them. Another wood and paper importer told AP that while it stopped any new orders in February, it had vast amounts of lumber in Russia that already had been paid for; the final shipment arrived in the U.S. in July.

Fuel

On March 8, Biden announced the United States is banning all imports of Russian oil, gas and energy, “targeting the main artery of Russia's economy.”
“That means Russian oil will no longer be acceptable at U.S. ports, and the American people will deal another powerful blow to Putin's war machine,” he said. Within hours, there were reports that a ship carrying 1 million barrels of Russian oil to the U.S. changed course to France. But plenty of others pushed on.

That week, about a million barrels of Russian crude oil had arrived off the port of Philadelphia, bound for Delta Airlines' oil refinery Monroe Energy.
Meanwhile, a tanker with about 75,000 barrels of Russian tar oil pulled into the port of Texas City, Texas, bound for Valero's refineries after a long north Atlantic crossing, according to trade records.

The shipments continued to Valero, ExxonMobil and others. ExxonMobil media manager Julie King told AP a July oil delivery was of Kazakh origin and not subject to sanctions. She said Exxon “supports the internationally coordinated efforts to bring Russia's unprovoked attack to an end, and are complying with all sanctions.” Monroe spokesman Adam Gattuso said the company has not received any more Russian fuel and doesn't “anticipate doing so for the foreseeable future.” Valero did not respond to requests for comment.

Andrea Schlaepfer, a spokesperson for Dutch fuel exporter Vitol, said that all of its oil and gas shipments since April 22 have been from Kazakhstan, where pipelines and rail networks run from the landlocked country's oil fields and refineries to neighboring Russian ports. For the use of its port infrastructure, moorings and fees, Russia makes about $10 million each year. Schlaepfer said U.S. Customs and Border Protection agents review and verify that its shipments entering the U.S. don't contain Russian products. But CBP did not answer repeated questions about how it handles sanctions and bans on Russian goods. A CBP fact sheet says it plays a “critical role” in enforcing prohibitions on imports, however a spokesman repeatedly referred The AP to the State and Treasury departments. 

Other

So far this year, almost 4,000 tons of Russian bullets have also arrived in the U.S., where they were distributed to gun shops and ammo dealers.
Some were sold to U.S. buyers by Russian state-owned companies, while others came from at least one sanctioned oligarch. Those shipments slowed significantly after April. 

AP also tracked millions of dollars worth of shipments of radioactive uranium hexafluoride from Russian state-owned Tenex JSC, the world's largest exporter of initial nuclear fuel cycle products, to Westinghouse Electric Co.in South Carolina. Nuclear material is not sanctioned. Westinghouse spokeswoman Cathy Mann said that as part of the nuclear fuel manufacturing process, their fuel fabrication facilities receive enriched uranium product and convert it into fuel pellets. She said Westinghouse doesn't own the uranium used to make fuel. That material belongs to customers who operate nuclear power plants throughout the world.

“As a result, our customers have the accountability to determine where and from whom the materials are procured – some of which is sourced from Russia or enriched by a Russian company,” she said. “Westinghouse condemns Russia's invasion and the resulting hostility and loss of life. ”
In addition, some of the products sent to the U.S. from Russian ports continue on to Mexico and Canada. Toyota vehicle components, for example, arrived last month in New Orleans bound for a Mexican plant run by Toyota Tshusho, the car company's trading arm. Radioactive material sent from Russia to the U.S. is hauled north of the border to sterilize packaged medical supplies used throughout North America.

Although imports of some food items, such as seafood and vodka, have been restricted, the Treasury Department last month published a fact sheet reiterating that agricultural trade between the U.S. and Russia is still very much allowed. The Red October chocolate factory sits just across from the Kremlin in Moscow. Today it's a tourist attraction with apartments, stores and restaurants. But the company, Krasny Oktyabr, still makes and sells candy and other traditional treats from a production plant on the outskirts of Russia.

Also Read | Russian missile strikes Ukraine on its Independence Day, 22 killed

In Brooklyn, New York, Grigoriy Katsura, at the U.S. offices of Krasnyi Oktyabr Inc, said they continue to import delectables, a taste of childhood for Russian immigrants. “Of course they're used to it,” he said. And so every few weeks, the shipments arrive at their warehouse from Russia: buckwheat, dried fruit and their world-renowned chocolate.

Also Read | Russia Ukraine war: Six months on, survivors describe painful aftermath

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