Wednesday, 22 May 2024

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

On a dusty roadside on the outskirts of Dubai, Sohrab Fani is profiting from the West’s response to the war in Ukraine: his shop installs seat heaters into cars being re-exported to Russia.

Twelve thousand heating pads languished in his warehouse for years, he said, until Russia’s invasion and the resulting Western sanctions drove American, European and Japanese automakers out of the Russian market. Now, Russians import those cars via Dubai, in the United Arab Emirates — and because cars shipped to the Middle East tend to be made for warm climates, accessories shops like Mr. Fani’s are doing a brisk business outfitting them for winter weather.

“When the Russians came, I sold out,” Mr. Fani said, so he ordered several thousand more seat-heating pads. “In Russia, they have sanctions. Here, there is not. Here, there is business.”

More than a year into President Vladimir V. Putin’s invasion, Western sanctions have damaged Russia’s economy but not crippled it. The web of global trade has adjusted, allowing the Russian leader to largely deliver on a key promise: that the war would not drastically disrupt the lifestyle of consumption for Russian elites.

Russia is still importing coveted Western goods, enabled by a global network of middlemen.

In Moscow, the latest iPhones are available for same-day delivery for less than the retail price in Europe. Department stores still stock Gucci, Prada and Burberry. Car-sales sites list new Land Rovers, Audis and BMWs.

Just about all of the West’s leading electronics, automobile and luxury brands announced last year that they were pulling out of Russia. Not all of their goods technically violate sanctions, but commerce with Russia became very difficult in the face of public outrage, pressure from employees, and restrictions on semiconductor exports and financial transactions.

Still, Russian demand for luxury items remains strong, and traders in Dubai and elsewhere are meeting it.

“The wealthy people always stay wealthy,” said Ecaterina Condratiuc, the director of communications at a Dubai luxury car showroom who recently shipped a $300,000 Porsche Cayenne Turbo GT to a Russian dealership. The war, she added, “did not affect them.”

In Dubai, buyers roam the showrooms of a sprawling auto market, haggling for Western cars — the Dodge Ram is a recent favorite — to purchase in cash and ship to Russia. Some are wealthy Russians buying vehicles for themselves, or small-time entrepreneurs looking to resell cars for a quick buck.

In other cases, Russian car dealerships, having lost their official affiliations with Western brands, are organizing their own imports, sometimes of hundreds of cars at a time.

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

Electronics also take circuitous routes to the Russian market. In Dubai’s old commercial neighborhood, Deira, electronics wholesalers have scrambled to recruit Russian-speaking staff.

“It’s an open secret thing,” said the owner of Bright Zone International General Trading L.L.C., a few storefronts down from a wholesaler of hair extensions. “Competition is very tough right now for Russia.”

The owner, who requested that he only be identified by his last name, Tura, said he shipped hundreds of smartphones and laptops into Russia last year ahead of the holiday season. One potential buyer wanted a quote for 15,000 iPhones, Mr. Tura said, but apparently found a better deal elsewhere.

In another electronics shop nearby, an Afghan salesman, Abdullah Ahmadzai, said he had arrived in Dubai less than a year earlier, and had since learned enough Russian to negotiate with his Russian-speaking customers. Across the street, a man from Tajikistan, a former Soviet republic, said he and his colleague quickly found employment in a shop selling phones, laptops and drones.

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

After many Western companies pulled out of Russia, Mr. Putin’s government encouraged unauthorized imports of their goods from other countries. The Russian trade ministry published a list of dozens of companies whose products could be imported without their makers’ consent, including Apple, Audi, Volvo and Yamaha.

“Whoever wants to bring in whatever luxury goods will be able to do it,” Mr. Putin pledged last May.

One 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 have flooded onto the Russian market.

“You can bring over whatever you want, as long as you have money,” said Pyotr Bakanov, an auto journalist based in Moscow. “Everyone who isn’t lazy is bringing cars over.”

The new trade routes largely pass through countries that have friendly relations with Moscow. Western analysts and officials have pointed to Turkey, China and former Soviet republics like Armenia and Kazakhstan as countries redirecting Western goods to Russia. They say that the Kremlin is taking advantage of those imports not just to mollify a populace used to foreign phones and cars, but also to source microchips for weapons used against Ukraine.

Mr. Bakanov, like other Russian car bloggers and journalists, has gotten into the business himself: he posts advertisements on the messaging app Telegram, offering to import cars “to order from any part of the world.” He said that foreign car parts are also coming in via parallel import — some are now available in Russia for lower prices than before the war, when those parts were sold by authorized dealers charging high premiums.

The workarounds have become so widespread that Russian car publications run regular reviews of cars made for foreign markets. The multimedia console in the Toyota Camry made for China only operates in Chinese, a popular auto website warned in February; the reviewer suggested holding a smartphone translating app up to the display.

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

“I’ve got plenty of work,” he said. “I’m really not complaining.”

The new trade patterns show up in international statistics; car exports from the European Union to Russia, for instance, dropped to about 1 billion euros in 2022, from 5 billion euros in 2021.

But E.U. exports to Kazakhstan rose nearly fourfold, to more than 700 million euros, and exports to the Emirates rose some 40 percent, to 2.4 billion euros. Armenia reports that its car imports more than quintupled to $712 million last year.

Western car companies generally deny knowledge of their cars going to Russia in any significant quantities, or of a spike in sales in the Emirates.

“We haven’t seen any of that,” said Jim Rowan, the chief executive of Volvo.

Paul Jacobson, the chief financial officer of General Motors, said, “I’m not aware of anything going to Russia.”

Carmakers would have trouble tracking sales of vehicles through intermediaries, industry officials say. And U.S. officials responsible for enforcing restrictions have focused more on goods that can be used for military purposes.

The United Arab Emirates has been identified as a “country of focus” by U.S. officials for its role as a hub for products shipped to Russia in violation of sanctions. Electronics are of particular concern, officials say, because their chips can be repurposed for military use.

“The U.A.E. has strict measures in place governing import and export permits for dual-use materials to prevent their exploitation for military purposes,” an Emirati official said in a statement.

Browsing in Dubai’s auto market, a group of three men said they split their time between Russia and Armenia. They refused to say what they did for a living but they described the import and resale of cars as a lucrative side business; one said he had bought around 100 cars in the last year.

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

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

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