Russian Sanctions and the Rise of a Eurasian Backdoor War Economy

Russia has weathered some of the most extensive sanctions ever imposed on a G20 economy, sustaining its war effort and macroeconomic stability while rewiring external relationships. Firm-level data show that large companies stockpiled inputs and strengthened their balance sheets ahead of the Crimea crisis and 2022. Sanctions reduced hydrocarbon revenues and froze central bank assets, but neither triggered collapse nor halted aggression; instead, they reorganised a transnational marketplace for evasion across Eurasia, with a stake in their persistence.

Russia has built a sanctions-era ecosystem in which Central Asian, Caucasus, Turkish, and Chinese intermediaries reroute goods, energy, and payments while adapting to enforcement. Crypto platforms, regional banks, and logistics hubs in places like Kyrgyzstan and Kazakhstan now function as laboratories of sanctions evasion. On April 23, 2026, Maxim Oreshkin argued that sanctions shifted - not reduced - trade, claiming that by 2025, 54% of trade was in roubles and 31% in BRICS currencies, with crypto supporting flows. The EU’s 20th sanctions package targeted this shift, banning digital rouble and rouble-linked stablecoin transactions by end-2026.

Pre‑Ukraine: Learning to Live Under Pressure

The sanctions story began in 2014 with Crimea and Donbas, as Moscow adopted four adaptive strategies. One, conservative fiscal and monetary policies, built buffers and accepted slower growth for resilience, accumulating ~600bn in FX reserves prior to the Ukraine invasion. Two, pursued import substitution and energy and tech decoupling, creating the Mir payment system and SPFS messaging as alternatives to Visa/Mastercard and SWIFT. Third, reoriented trade from Europe to Asia, especially China, via pipelines such as Power of Siberia. Fourth, after Donbas, Russia de-risked its reserve composition. By mid-2018, it had dumped nearly all its US Treasuries (~$100 bn), shifting into other currencies and gold well before invading Ukraine.

Post‑February 2022: The War Economy

The 2022 invasion triggered a qualitative jump in sanctions. Roughly half of Russia’s reserves (~$300 bn) were frozen in Western jurisdictions; SWIFT was disconnected for major banks; technology exports restricted; oil and gas embargoed, and oil price capped. The rouble initially collapsed, equities plunged, imports crashed, and Western firms scrambled to exit.

Russia survived by raising rates, imposing capital controls, and stabilizing the rouble at the expense of private credit and investment. Europe cut pipeline gas and phased out seaborne oil, but Russian crude found Asian buyers, mainly India and China, at steep discounts, using a shadow fleet of older tankers. Using unfrozen reserves and shadow energy sales, the State maintained wartime revenues.

However, consumption and non-war investment declined, but military procurement, construction, and import-substituting industries surged. GDP dropped 2-3% in 2022 but recovered in 2023. Defence production expanded using Soviet-era capacity, reallocating labour and capital from civilian sectors. CSIS sees this as a durable shift toward a militarised, lower-productivity economy that is unlikely to reverse soon.

China, India and Turkey

China has been central to sustaining this war-economy pivot, taking the lion’s share of Russian hydrocarbons, coal, and metals, and is likely to increase gas imports, thereby building redundancies in its raw material sourcing. Chinese firms export machinery, vehicles, electronics and consumer goods, including dual‑use items, some directly, others transit via Central Asian and the Caucasian countries. Bilateral trade has de‑dollarised, settlements in yuan and roubles have grown significantly, Russian use of China’s CIPS has increased, and the yuan has become a de facto reserve asset, deepening dependence on China.

Western sanctions left little choice but to “permit” some of this redirection to China and India; otherwise, both countries would have entered the non-Russian oil market, which would have spiked prices well above $150 per barrel. Turkey presented itself as neutral, but recent cases reveal that Turkish firms are facilitating re-exports on scale.

The Sanctions‑Evading Caucasian Belt

Since 2022, Central Asia and the South Caucasus have evolved from ad hoc backdoors into a more coherent sanctions‑evasion system. Trade data and investigative work show Kyrgyzstan, Kazakhstan, Uzbekistan, Georgia and Armenia operating as a flexible network: firms hop jurisdictions, re‑flag, and re‑route shipments as enforcement tightens, rather than relying on any single state.

Kazakhstan has emerged as a particularly important node – now described as a “critical sanctions buffer”. Its imports of computers, electronics, vehicles and drones, primarily from China, have jumped sharply, with a significant share re‑exported to Russia under Eurasian Economic Union rules. Kyrgyzstan, meanwhile, has gone beyond being a simple entrepôt to a combined logistics and financial hub, involving large flows of machinery, dual-use goods, and payments to Russian defence-linked entities.

Crypto workarounds

Russia’s use of crypto is now significant. Blockchain forensics estimate that the rouble-pegged stablecoin A7A5 contributed to a 400% increase in sanctions-related crypto flows in 2025, amounting to tens of billions of dollars. Platforms such as Grinex and intermediaries in Kyrgyzstan, Tajikistan, and elsewhere processed large Russia-linked transactions, creating a shadow crypto economy parallel to the banking system. Four years later, the US and EU began naming specific banks, logistics firms, tokens (A7A5), exchanges (including Grinex), and regional banks as tools for sanctions evasion. Finally, the EU’s 20th sanctions package (April 23, 2026) explicitly identified Russian crypto use as a systemic threat.

German’s energy lines freezing up

In response to the 20th Round of EU sanctions, Russia’s Deputy Prime Minister Alexander Novak, noting that “the Germans have refused Russian oil”, announced that Kazakh crude currently supplied to Germany via the North Druzhba pipeline would be diverted to other routes, such as the CPC line to Novorossiysk or onward to China. This affects the PCK Schwedt refinery, which supplies 1/6th of Germany’s oil and fuels 90% of vehicles in Berlin and Brandenburg, as well as jet aviation.

These developments have pushed German pump prices to Euro 2.43 per litre and forced Lufthansa to cancel 20,000 flights. Kazakhstan’s acquiescence surprised Germany, as it had recently agreed to raise oil exports. By 2025, Kazakhstan was the EU’s 3rd-largest oil supplier, more important than Saudi Arabia and Iraq.

The episode illustrates how sanctions are generating second-order effects: supply chains are being rerouted not just to sustain Russia, but in ways that impose costs on European consumers while increasing Moscow’s leverage over transit states like Kazakhstan.

Sanctions diminish, but alternatives arise

Russia’s resilience is reinforced by external beneficiaries – Central Asian intermediaries, Turkish traders, Indian refiners, Chinese firms, and crypto platforms – creating an entrenched transnational ecosystem with vested interests in sanctions arbitrage. The net effect is not collapse but a more militarised, China-dependent economy and a deepening trend toward de-dollarisation.

Sanctions have degraded the technological quality of Russia’s military-industrial output without eliminating its capacity to sustain war. Defence and security spending has risen to roughly 7-8% of GDP (~30% of fiscal spending); it runs a ~700-ship shadow fleet of tankers via parallel insurance and brokerage networks; and the break-even oil price has climbed toward $90/bbl. In effect, the dual Hormuz blockade is aiding Russia’s war on Ukraine, allowing it a cost-plus oil and war economy and critical leverage over Kazakhstan and Germany.

Safi Ahsan Rizvi is a risk analyst specialising in national and climate security, an IIM Ahmedabad alumnus and former banker who has served in the IPS, IB and NDMA. 

This article first appeared on the author's Substack, Risk and Resilience and has been republished with permission.

The Wire is now on WhatsApp. Follow our channel for sharp analysis and opinions on the latest developments.