| Commentary
Tags: Global Economy, Global Logistics
By Ram Ben Tzion, CEO & Co-Founder of Ultra Global
As the U.S. Treasury Department refocuses its efforts to stifle Russia’s war in Ukraine, the latest (and certainly not the last) round of ‘blocking’ sanctions has refreshed the focus on Russian energy and startups in the petroleum market who have, despite all the red tape, managed to maintain a steady stream of income for the Kremlin.
Suffice to say, it’s no secret sanctions have yet to curtail Russia with any compelling effect.
Three firms and a tanker company, which emerged as some of the biggest players in Russia’s new alternative economy, now find themselves added to the U.S. sanctions list as a result. They were accused of using Western maritime services such as transportation, insurance, and financing while carrying Russian crude oil above the $60-per-barrel price cap, imposed on December 2022 on seaborne exports of Russian crude. The mechanism bans Western companies from providing services for oil sold above the cap.
It’s already shown some promising, but will it really prove sufficient? This is not Russia’s first rodeo with targeted sanctions and ever since the conflict began, it has cleverly maneuvered itself by quickly rerouting supply lines towards willing countries including India, China, UAE, and Turkey.
In recent months, the Kremlin has even traded above the pre-war average. It’s also been incredibly successful at funneling oil exports through companies with a valid but blurred presence in Western financial systems, and even blurrier ownership structures. The U.S. Treasury estimates half of Russia’s oil is exported through these opaque entities, and this is where the strategy seems to be faltering.
So how do we begin curtailing those illicit supply lines that perforate the Western ecosystem and not just oil exports? Aside from cutting off ties to the U.S. economy and prohibiting American business from large parts of the wider world, legislating one new sanction occasionally closes the loopholes which Russia exploits, but it’s not enough.
How to Make Sanctions More Effective
The only way for governments and financial institutions to curb the trade of sanctioned goods and choke off Russia’s oil money is to enable real-time visibility into every part of a shipment’s supply chain by smart technology that identifies trade patterns, tactics, and anomalies that can illuminate this dubious trade and assess where sanctions are truly being enforced and where they continue to be vulnerable to Russian maneuvering.
Despite the cascade of sanctions, the private sector carries a large part of the onus to ensure any form of integrity can be reached and governments need to work hand-in-hand with them for greater effectiveness.
Smart solutions are doing their utmost, from traceability to logistics technology, to help companies ensure their supplies are not abetting Russia’s war effort. However, expecting the private sector to leverage these smart solutions in order to remain compliant rather than also having a government body that assists in enforcing it has created an uneven playing field. This is shown with some private companies achieving a higher level of compliance success compared to others.
Decentralized and varied enforcement methods ultimately embed inconsistency in standards, with different entities utilizing certain technologies for assessing different areas of their own integrity. Some might be effective and produce clear visibility into operations at certain tier levels, but the challenge becomes how far into the supply chain they are able to have visibility into and identify the point of ill-compliance.
From that point on, these companies can start countering Russia’s exploitation of the Western financial system with much more vigor, because sanctions rely on it to fulfill their purpose. Ultimately, with the ecommerce revolution and online marketplaces like Temu emerging, it’s almost impossible to cut off trade between the United States and Russia completely, but too much is still penetrating through the sanctions’ perimeter.
Today’s approach must lean on dynamic data that harnesses the entire global digital ocean for real-time insight using advanced AI solutions. Technology that pushes for greater visibility and is instituted at the state level can give sanctions the desired traction, allowing high visibility into complex supply chains.
It’s not enough to leave all entities to verify their integrity unilaterally. When businesses standardize smart processes at the border with greater real-time visibility into every part of a shipment’s supply chain, they provide the visibility to assess where sanctions are truly being enforced and where they continue to be vulnerable to Russian maneuvering.
