Risky Business: Southeast Asia’s Continued Trade with Russia

As Western states redouble efforts to stifle Russia’s invasion of Ukraine through trade restrictions and economic sanctions, they seem keen to more closely examine Southeast Asia and the Indo-Pacific as potential conduits for Russia’s defence trade and transhipment hubs.

A Different Pivot to Asia

Ukraine’s Western allies are widening the scope of their efforts to support the country against its invader, with East and Southeast Asia coming into focus as a potential avenue for Russian sanctions circumvention. Open source reporting has revealed how Russia’s defence industry extensively uses transhipment hubs such as Hong Kong to import large volumes of microelectronics to support the country’s war machine.

The EU’s 11th sanctions package signalled Europe’s increasing willingness to expand restrictions to entities assisting circumvention that were previously beyond the purview of EU trade restrictions. The package ultimately included Russian-owned entities in Southeast Asia that were shipping Western components to Russian defence companies for the production of weapons and military equipment.

Additionally, world leaders at the G7 Hiroshima Summit in May voiced their governments’ intentions to engage more proactively with the Indo-Pacific to counter Russia’s malign behaviour in Ukraine and further afield. The G7 Leaders’ Statement on Ukraine states that G7 partners intend to reinforce the understanding of G7 measures with ‘third-countries through which restricted G7 goods, services, or technology may be provided to Russia’ and to ‘continue to take actions against third-country actors who materially support Russia’s war’.

Trade data seen by RUSI indicates the rising prevalence of Southeast Asia as a hub for sanctions circumvention via transhipment, suggesting that efforts by the West to clamp down on sanctions circumvention will inherently draw focus to the region.

Trade Flows: Illustrative Cases

Southeast Asia has long been a favoured region for multinational semiconductor manufacturers to set up assembly plants and testing facilities. As such, the region is also an important source for microelectronics items flowing into Russia. For instance, the top 10 exporters of semiconductors and related items to Russia between 2017 and 2021 included Malaysia, Thailand and the Philippines. Top recipients of these shipments included West-ost LLC and Spetsvoltazh, which were sanctioned in May 2023 by the US Treasury for being part of Russia’s defence industrial supply chain.

Notably, Southeast Asia has also been a key destination for Russian defence-related exports for decades. SIPRI’s factsheet on Trends in International Arms Transfers from 2018–2022 shows that while overall arms exports decreased by 31% compared to 2013–2017, customers in Asia (excluding the Middle East) and Oceania still accounted for 65% of Russian defence exports.

Shipment-level trade data for 2022 supplied by a third-party data provider reveals interesting trends in exports from some of Russia’s top defence companies. For example, Russia’s primary vehicle for defence exports, Rosoboronexport JSC, exported over $1 billion worth of items to entities in at least 20 countries, including Malaysia, Vietnam, Laos, Cambodia and Myanmar.

Myanmar, where a spiralling conflict has seen the military junta kill thousands of civilians, remains by far the largest recipient of Russian defence-related items in Southeast Asia. In 2022, Russian exports to Myanmar totalled $243 million, of which at least $211 million was shipped by five Russian defence companies to the Myanmar Army’s Directorate of Procurement. A closer examination of the individual shipments reveals that they included repaired turbojet engines for the Yak-130 series of training aircraft, used by the Myanmar Air Force as a ground attack aircraft against insurgents and civilians.

Vietnam has long been a major recipient of Russian defence exports, with about 81.6% of its military imports between 1995 and 2021 coming from Russia. However, Russian exports to General Import and Export Van Xuan Corporation, the trading company of Vietnam’s Ministry of Defence, amounted to just under $40 million in 2022 – notably lower than the $143 million in 2021 and $187 million in 2020.

Other Southeast Asian countries received far fewer imports from Russian defence companies, particularly compared to previous years. This appears to be the case with Malaysia, Laos, Indonesia and Cambodia; while comparatively much smaller customers for Russian defence exports, they still received relatively fewer imports from Russia in 2022. The exception to this trend is the Philippines, which received $226,000 worth of ‘hunting rifles’ from JSC Kalashnikov Concern. In 2021, the Philippines imported $40,000 of small arms from the same company, indicating a significant increase year-on-year.

A Double-Edged Sword

As the war in Ukraine rages on, trade between Southeast Asian countries and Russia poses an increasingly complex problem with wide-ranging implications for countries in the region and for Western allies.

From a regional perspective, close associations with Russia’s defence industry expose Southeast Asian countries to the risk of Western sanctions related to Russia’s invasion of Ukraine. The US, UK and EU have already expressed interest in widening their Russia sanctions regimes to include third countries and third-country actors; it is not beyond the realm of possibility for Ukraine’s allies to begin targeting more distant – if legitimate – financing pathways for the Russian military, which might include trade partners.

The purchase of Russian weapons systems and platforms at scale now also poses several long-term risks for Russia’s international customers. The first of these is to the platforms themselves and their future maintenance.

Meanwhile, the long-term feasibility of dependency on Russian defence materiel should also concern governments. As the war drags on and Russia’s military industry is increasingly targeted, it will become more difficult for countries to replace components of Russian-made systems as they become scarcer. After-life care for these goods will equally become more difficult as Russia is forced to prioritise maintenance of its own systems over that of external ones.

Admittedly, the West’s continuous appraisal and counterbalancing of the perceived threat from China means that Western states will be reluctant to push Southeast Asian states away, but the EU’s consideration of designating Chinese companies in its forthcoming sanctions package is illustrative of its willingness to risk temporarily alienating regional allies for the sake of supporting Ukraine. Continued trade with Russia will make it increasingly difficult for Southeast Asian states to maintain economic ties with Western governments.

Conversely, Western allies can learn several lessons from Russia’s continued trade with Southeast Asian states, specifically regarding defence industrial exports.

Primarily, this trade is indicative of Russia’s capacity to conduct military exports overseas during a conflict, which could illustrate Russia’s confidence in its domestic stockpiles, even as they appear to dwindle. Alternatively, the trade flows could hint at Russia’s desperation to maintain its market share in the region – even at the expense of critical weapons and military equipment stockpiles for use in Ukraine – in order to protect its regional economic relations and resulting soft power.

A secondary concern Western allies should consider is the extended flow of Western components used to build Russian weapons systems. If Russia is using these components to construct its military equipment, it is therefore effectively selling Western components to Southeast Asian countries as part of that equipment. In some cases, the equipment is then used in attacks on civilians and by governments with conflicting interests to those of the West. This appears to be particularly the case with Russia’s largest customer in Southeast Asia, Myanmar, whose civil war has resulted in hundreds of civilian deaths and many more individuals displaced.

Even though Russian defence exports to Southeast Asia are generally decreasing, it is clear that countries in the region are still willing to engage in such trade where possible. This sustains Russia’s regional economic leverage and, as Ukraine’s allies expand efforts to suffocate Russia’s war machine, it may lead Western governments to include more Southeast Asian entities and individuals in their sanctions and designation efforts.

The views expressed in this Commentary are the authors’, and do not represent those of RUSI or any other institution.

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