Luxury Imports to Russia Take a Detour Around Sanctions — Through Dubai

Luxury Imports to Russia Take a Detour Around Sanctions — Through Dubai

On a dusty roadside on the outskirts of Dubai, Sohrab Fani is benefiting from the Western reaction to the war in Ukraine: his workshop installs heated seats in cars that are re-exported to Russia.

Twelve thousand heating pads lay dormant in his warehouse for years until the Russian invasion and the resulting Western sanctions drove American, European and Japanese automakers out of the Russian market. Now the Russians are importing these cars via Dubai in the United Arab Emirates – and since cars shipped to the Middle East are typically made for warm climates, aftermarket stores like Mr. Fani’s are doing a brisk business outfitting these cars for the winter weather.

“When the Russians came, I was sold out,” said Mr. Fani, ordering several thousand more heated seat pads. “In Russia there are sanctions. Here are no. There are shops here.”

More than a year after President Vladimir V Putin’s invasion, Western sanctions have hurt, but not crippled, Russia’s economy. The web of world trade has adjusted, allowing the Russian leader to largely deliver on an important promise: that the war would not drastically disrupt the consumer lifestyle of Russia’s elites.

Russia still imports coveted western goods, facilitated by a global network of middlemen.

In Moscow, the latest iPhones are available for same-day delivery at a price below retail in Europe. Department stores still stock Gucci, Prada and Burberry. New Land Rovers, Audis and BMWs are listed on car sales sites.

Almost all of the West’s leading electronics, automotive and luxury brands announced last year that they were withdrawing from Russia. Not all of their goods are technically in violation of the sanctions, but trade with Russia has become very difficult amid public outrage, pressure from employees, and restrictions on semiconductor exports and financial transactions.

Nonetheless, Russian demand for luxury items remains strong and retailers in Dubai and elsewhere are meeting that demand.

“Wealthy people always stay rich,” said Ecaterina Condratiuc, communications director for a luxury car dealership in Dubai, which recently shipped a $300,000 Porsche Cayenne Turbo GT to a Russian dealership. The war “didn’t affect her,” she added.

In Dubai, shoppers roam the showrooms of a sprawling car market, haggling over Western cars – the Dodge Ram has been a recent favorite – to buy for cash and ship to Russia. Some are wealthy Russians looking to buy vehicles, or small business owners looking to resell cars for a quick buck.

In other cases, Russian car dealerships, having lost their official ties to Western brands, organize their own imports, sometimes of hundreds of cars at a time.

Russian analytics firm Autostat reported that such indirect imports accounted for 12 percent of the 626,300 new passenger cars sold in Russia in 2022.

The electronics industry also reached the Russian market via detours. Electronics wholesalers in Dubai’s old business district of Deira have made efforts to recruit Russian-speaking staff.

“It’s an open secret,” said the owner of Bright Zone International General Trading LLC, a few storefronts from a hair extension wholesaler. “The competition for Russia is very tough at the moment.”

The owner, who demanded that he be identified by his surname Tura only, said he shipped hundreds of smartphones and laptops to Russia last year before the Christmas season. A potential buyer wanted a deal for 15,000 iPhones, Mr Tura said, but apparently found a better deal elsewhere.

At another nearby electronics store, an Afghan salesman, Abdullah Ahmadzai, said he arrived in Dubai less than a year ago and has since learned enough Russian to deal with his Russian-speaking customers. Across the street, a man from Tajikistan, a former Soviet republic, said he and his colleague quickly found employment at a shop that sells phones, laptops and drones.

“All the shops here are looking for people who speak Russian,” he said. “We were lucky.”

After many Western companies pulled out of Russia, Mr Putin’s government encouraged the illicit import of their goods from other countries. The Russian Trade Ministry published a list of dozens of companies whose products could be imported without their manufacturers’ consent, including Apple, Audi, Volvo and Yamaha.

“Anyone who wants to import any luxury goods will succeed,” Putin promised last May.

A Russian report estimated that such “parallel imports” of laptops, tablets and smartphones totaled $1.5 billion last year. At the same time, Chinese cars and electronics are pouring into the Russian market.

“You can bring whatever you want as long as you have money,” said Pyotr Bakanov, a Moscow-based auto journalist. “Anyone who isn’t lazy brings cars over.”

Most of the new trade routes pass through countries that have friendly relations with Moscow. Western analysts and officials have pointed out that Turkey, China and former Soviet republics like Armenia and Kazakhstan are diverting Western goods to Russia. They say the Kremlin is exploiting these imports not only to placate a population used to foreign phones and cars, but also to procure microchips for weapons used against Ukraine.

Mr. Bakanov, like other Russian autobloggers and journalists, has gotten into the business himself: he posts ads on the messaging app Telegram, offering to import cars “to order from any part of the world”. He said foreign car parts are also imported via parallel imports – some are now available in Russia at lower prices than before the war, when these parts were sold by authorized dealers who charged high premiums.

The workarounds are so widespread that Russian auto publications regularly publish reviews of cars made for foreign markets. The multimedia console in the China-made Toyota Camry only works in Chinese, a popular auto website warned in February; The reviewer suggested holding a smartphone translation app up to the display.

On a March evening, Sergei Kashkarov sat in the passenger seat of a parked gray Toyota at the Dubai Auto Market, negotiating his latest deal: He shipped six Mitsubishi cars by ferry and truck via Iran and Kazakhstan to a dealership in the Siberian city of Novosibirsk. Mr Kashkarov had moved to Dubai from Siberia in 2021 and after the invasion established himself as a broker connecting Russian car dealers with suppliers in Dubai.

“I have a lot of work,” he said. “I’m really not complaining.”

The new trading patterns are emerging in international statistics; Car exports from the European Union to Russia, for example, fell from €5 billion in 2021 to around €1 billion in 2022.

But EU exports to Kazakhstan almost quadrupled to over 700 million euros, and exports to the Emirates increased by around 40 percent to 2.4 billion euros. Armenia reports that its auto imports more than quintupled last year to $712 million.

Western automakers generally deny that they are unaware that their cars are going to Russia in significant quantities or that sales are picking up in the Emirates.

“We didn’t see any of that,” said Jim Rowan, Volvo’s chief executive officer.

Paul Jacobson, Chief Financial Officer of General Motors, said: “I’m not aware of anything going to Russia.”

According to industry officials, automakers are having trouble tracking sales of vehicles through intermediaries. And US officials responsible for enforcing the restrictions have focused more on goods that can be used for military purposes.

The UAE has been identified as a “focus country” by US officials due to its role as a hub for products shipped to Russia in violation of sanctions. Electronic devices are of particular concern, officials say, because their chips could be reused for military purposes.

“The UAE has introduced strict measures regulating import and export licenses for dual-use materials to prevent their use for military purposes,” an Emirati official said in a statement.

As a group of three men browsed the Dubai car market, she said they split their time between Russia and Armenia. They refused to say what they did for a living, but said importing and reselling cars was a lucrative sideline; One said he bought around 100 cars in the last year.

“Dubai is a three-in-one,” quipped a man who gave his name as Aik. “You go on vacation, you buy a car and you buy some to resell.”

Anton Troianovski reported from Dubai and Jack Ewing from New York. Reporting was provided by Vivian Nereim from Riyadh, Saudi Arabia, Ahmed Al Omran from Jeddah, Saudi Arabia and Oleg Matsnev from Berlin.