Death metal

However, since Vladimir Putin threatened earlier this month to limit the supply of numerous strategic goods to world markets — by which he almost certainly meant those countries the Kremlin deems “unfriendly”: the EU, North America and other Ukrainian allies — Novaya Gazeta Europe has been looking into the Russian goods that the West continues to buy, the profits from which go on to fund the Russian war machine.

Putin may not have said who would be affected, but he did specify that nickel, titanium and uranium would be among the elements that would face export restrictions. This is significant as, according to Novaya Europe estimates, the EU and US collectively paid Russia some €4.2 billion for these three substances alone in 2023: approximately €2.2 billion went on Russian nuclear fuel, €1.75 billion on nickel and about €260 million on titanium. Putin also suggested the government place restrictions on some of its other valuable exports too, as long as it wouldn’t cause harm to the country’s economy.

Russian nickel, uranium and titanium are strategically important for the EU and the US, and Russian producers have a global market share of between 10–30% for all three. As any restriction on supply tends to result in rising prices on the global market, Putin’s statement appears to be a form of blackmail, given that it came hot on the heels of a rumoured decision by the US and UK governments to grant Ukraine permission to use Western-donated long-range missiles against military targets deep inside Russia.

As the Kremlin still requires significant amounts of foreign exchange to bankroll its war in Ukraine, it can hardly afford another significant drop in export revenue, even if it comes at the expense of so-called “unfriendly” countries. In 2023, Russia earned export revenues worth about €20 billion on metals, fertilisers, food, and nuclear fuel from nations it deems “unfriendly”, and even though this accounted for 1.1% of Russia’s GDP, it was half as much as the country earned on the same exports from the same partners in 2021.

You can’t build a plane without Russia

Prior to the war, metals were Russia’s most valuable export after oil and gas. Once sanctions were imposed, however, Russia’s total metals sales in 2023 were down by a third compared to 2021. Moreover, “unfriendly countries” reduced imports more than threefold. But the Russian share of the EU’s metals market remains significant: Russia provides 16% of the nickel, 9% of the copper, 8% of the aluminium and 7% of the cast iron and steel imported by the EU.

The reason for such a sharp decline is the total ban on the import of Russian gold and most ferrous metals by the EU, US, Japan, UK and other Ukrainian allies in 2022. Prior to the war, these commodities had accounted for 70% of the earnings of Russian metal companies on those markets.

But Russia’s supply of some raw materials — chiefly aluminium, without which there would be no new cars or planes — to “unfriendly” markets has remained unchanged. Russian metals giant Rusal has a 5.5% share of the global aluminium market, and provides 8% of all EU imports.

When the US Department of the Treasury sanctioned Rusal, its subsidiaries and its main shareholder, Oleg Deripaska, in 2018, it sent unprecedented shock waves through the global aluminium market and led to a 35% price increase within two weeks. The price of aluminium began to fall again only after the US authorities offered to lift sanctions on Deripaska in exchange for him decreasing his stake in Rusal.

Rusal, which still owns a smelter and a refinery in Europe, earned even more from aluminium exports to “unfriendly” countries in 2023 (€3.2 billion) than it did in 2021 (€2.5 billion), before the war. European aluminium producers proposed that the European Commission impose a ban on aluminium imports from Russia, though they were categorically opposed to sanctioning Rusal itself, as chaos on the market and price spikes would benefit nobody and push up the inflation that European politicians were struggling to contain.

The US and UK chose not to include either Rusal or Norilsk Nickel, which still operates a plant in Finland, when they banned imports of Russian aluminium, nickel and copper in early 2024 in order to avoid a global rise in metal prices.

Not a single Ukrainian ally has banned the import of Russian titanium, which is essential for the manufacture of aircraft, the supply of which Putin also now wants to limit. While Russia earned just €266 million in revenue from titanium exports in 2023, according to the Washington Post, some €220 million of that came from the EU, while the rest was from the US.

A representative of one Russian metals company who spoke to Novaya Europe anonymously for this article said it would be difficult for global aircraft manufacturers to find alternatives to these supplies quickly. When Canada slapped sanctions on Russian corporation VSMPO-AVISMA, which meets 6% of the global demand for titanium, in February, French President Emmanuel Macron was forced to intervene personally to help avoid a shortfall, convincing Canadian Prime Minister Justin Trudeau to allow Airbus to continue buying from Russia.

Loophole mode

The EU operated according to an ethos of no imports except when necessary when it comes to Russian ferrous metals too. The EU effectively banned the import of rolled steel from Russia in the summer of 2022, but made an exception for certain types of semi-finished steel products until 2028.

These metals are either too expensive to produce in Europe or too difficult to substitute with supplies from other parts of the world. Czech Industry and Trade Minister Jozef Síkela complained late last year that without Russian steel the construction of bridges in Czechia would come to a standstill.

The main beneficiary of Europe’s dependence on Russian steel is the Novolipetsk Metallurgical Plant, majority-owned by billionaire Vladimir Lisin, the only major Russian ferrous metals producer to remain unsanctioned, and which also still owns plants in Italy, France, Belgium, Denmark and the US. Lisin has not come under personal sanctions either.

Revenues earned by Russian companies from the sale of metals continue to fall, according to industry insiders who spoke to Novaya Europe, especially after the US and UK banned the import of aluminium, nickel and copper from Russia in April. But the sanctions don’t cover trade in these commodities on other markets, meaning the proceeds from the sale of non-ferrous metals to “unfriendly” countries are likely to remain in double-digit billions of euros. The drop in Russian exports, will, say analysts, also partially be offset by a global increase in metal prices.

Nor has the partial or complete closure of Western markets to Russian precious and non-ferrous metals caused production to nosedive in Russia, going some way to illustrate that sanctions are not as effective as the authorities in Europe and the US would like. Aluminium, gold and nickel production was higher in 2023 than in 2021, while copper smelting fell within the margin of error. In many cases, Russian producers have managed to find new markets in Asia.

China is now the largest customer for Russian nickel, copper and aluminium, accounting for more than half of Rusal and Norilsk Nickel exports. That may reach 90% following US and UK sanctions, says Sergey Davydov, a senior consultant at Russian investment brokers Finam.

When the UK banned imports of Russian gold in 2022, Hong Kong and the UAE increased their own imports from Russia tenfold, quickly replacing London as the world’s main distribution hubs for precious metals, a source at a Russian metallurgical company told Novaya Europe.

India and China, both of which continued buying Russian gold after the outbreak of the war through trading hubs other than London, were responsible for about 40% of global gold purchases in 2023, according to the World Gold Council and the China Gold Association. While some of that may well end up in Europe or the US, according to a gold sourcing expert at the Organisation for Economic Cooperation and Development who spoke to Reuters, once it is melted down and recast in Asia, it will no longer be possible to trace its origins.

Neutral ground

Since the war began, Russian fertiliser producers have been able to maintain their earnings from “unfriendly” countries, with exports to the US and EU in 2023 bringing in about €3 billion annually, approximately the same level as they did in 2021. Judging by the first half of 2024, exports are expected to remain at the same level this year, too.

Russia provides a fifth of EU fertiliser imports, a share that increased more than one and a half times in the second quarter of 2024 compared to the same period in 2022.

As a fertiliser producer itself, the US is less dependent on imports than Europe, but it still buys Russian phosphates, Professor Tim Benton, an expert on food security at the London-based independent policy institute Chatham House told Novaya Europe.

The reason that Russian fertilisers and their producers have managed to evade sanctions is very simple. The fertiliser market is very small and the number of suppliers is extremely limited. Any embargo would lead to an increase in food prices, two experts told Novaya Europe separately.

Putting sanctions on fertilisers would be like imposing an embargo on produce itself, resulting in inflated food prices, Benton said, adding that households in low-income countries were likely to suffer more from such price increases than those in better-off countries. “Politicians are thus very wary of anything that could be seen as detrimental to humanitarian needs in low and middle income countries,” Benton added.

Farmers of the world, unite!

The sale of agricultural products to Western countries remains a small but fairly stable source of export revenue for Russia, comparable in scale to the sale of fertilisers. In the third year of the war, it has decreased by about a quarter, mainly due to an American embargo on Russian fish and seafood. Russian companies earned about €3 billion in 2023 from sales of food and agricultural products to the US, Europe and “unfriendly” Asian countries such as Japan, South Korea and Singapore.

The main agricultural products imported by “unfriendly” countries are fish and seafood. Japan imported almost €900 million and the EU imported €800 million of the produce last year. Russian producers supplied animal feed worth €500 million to Europe, while the remaining amount was made up of exports of grain and other plant-based products. The West does not impose direct sanctions on Russian food producers, other than for fish and seafood, although in May the EU approved prohibitively high tariffs on Russian agricultural products.

Western officials try not to touch Russian food suppliers for the same reason they don’t touch fertiliser exporters: the political risks that come with increases in food prices are too high, Benton told Novaya Europe. So those exports will continue: Russia will supply the EU and Japan with fish and other niche goods that are not yet covered by European import duties, says Andrey Sizov, the managing director of SovEcon, a firm focused on Black Sea agricultural market research.

Russia also has no shortage of customers beyond the West, which has never been the principal destination for Russian agricultural products. Approximately 90% of Russia’s food exports currently go to China, Turkey, Kazakhstan, Belarus and “friendly” countries in Asia and Africa.

Atomic enrichment

Another stream of export revenue from Western countries that is unlikely to dry up any time soon is the sale of nuclear fuel, and the profits from state atomic energy corporation Rosatom’s overseas contracts.

Revenue from the sale of Russian nuclear fuel to the EU and the US in 2023 has almost tripled since 2021, largely because uranium prices have increased 3.5 times in the past five years and demand for fuel cells for nuclear power plants has grown due to attempts by many countries to reduce their dependence on hydrocarbons. Moreover, it would be hard to “cancel” Rosatom without causing a shock on the market: it is currently the world leader in terms of uranium enrichment (35–36%), second in terms of uranium mining (14–15%) and third in fuel production (17%).

Prices have actually risen since the war began, partly due to the fear of an embargo on Russian nuclear fuel. The US was the only country to introduce such a ban when it did so in May, and even then it made room for workarounds, allowing companies to flout the ban if they could prove that no alternative source of enriched uranium was available. Russia therefore still supplies a quarter of the enriched uranium imported by the US annually.

As Europe is even more dependent on Russian nuclear fuel than the US, the EU must content itself with proposals for now, however. Economic think tank Bruegel estimates that Rosatom currently enjoys a 30% share of the European enriched uranium market, given that 20 European nuclear power plants rely on fuel supplies from Russia. Europe has no alternative when it comes to fuel cells for Soviet-designed EU reactors, Vladimir Slivyak, co-chairman of the Russian environmental organisation Ecodefense, told Novaya Europe.

“Despite the fact that Rosatom is directly involved in the war — it controls the occupied Zaporizhzhia Nuclear Power Plant with the help of the army and supplies the military industrial complex with various materials for producing weapons — the West has still not imposed sanctions. Nobody is in a position to end their dependence on Russia’s nuclear services just like that, and how long it will take is unclear. Steps have been taken and there has been investment, but we are still awaiting the results,” Slivyak says.

But even if current or future sanctions did lead to a significant reduction in the revenue Moscow earns from nuclear fuel sales, Russia will likely retain one source of EU money thanks to the construction of two new reactors at the Paks II Nuclear Power Plant in Hungary. No sanctions currently stand in its way. The European Commission approved the construction of the units in 2023, long after the outbreak of the war, and Rosatom is due to complete its work by 2034. The cost of Paks II is estimated to be €12.5 billion, of which €10 billion has been lent to Hungary by the Russian state.

A drop in the ocean

The €20 billion Ukraine’s allies spent on Russian goods in 2023 may not seem like much when compared to Russia’s total exports of €403 billion last year. “Unfriendly” exports accounted for less than 5% of Russia’s total.

But the significance of these imports to European countries paints a different picture altogether. Any further cut to supplies could lead to market shortages, insiders and industry experts say.

With unprecedented sanctions now in their third year, it’s clear that Ukraine’s allies remain unable to fully substitute Russian goods without causing global economic turmoil, which will cause angry voters to demand to know why prices are rising. Even where Russian goods are banned, there is nearly always a loophole through which they can reach the West via “friendly” countries when necessary, as is probably already the case with gold.