Remember Scrat, the pre-historic squirrel from the film Ice Age, who tried to plug water leaks that squirted out from a wall of ice? Scrat used his four extremities, then his nose. And then a sixth leak erupted with explosive force.
The US and the EU are now trying to perform similar acrobatics with their leaky Russian sanctions. These over-hyped sanctions were the work of foreign policy people with an imperfect understanding of global supply chains. The sanctions are not working because it is impossible to control networks as complex as that of the entire physical global economy.
We noted a story that the US had warned European countries about the methods used by Russia to circumvent sanctions through dual-use goods. The countries in question are Germany, Italy, Switzerland and Austria, the core of Russia’s old commercial buddies in the EU. The Russians are mostly after electronic equipment. The problem is not only classic dual-use goods. An example of those are digital oscilloscopes, instruments to read voltages, plotted against time. They can also convert other signals, like sound waves, into voltage. They are used by electricians for repairs, and by the military to test the function of military planes, amongst many other uses.
Another new category are hidden dual-use goods, where expensive electronic components are hidden in cheap casing: think of refrigerators that hide a defence component inside.
We now have a thing called sanctions diplomacy. The EU has a sanctions envoy. David O’Sullivan, a former EU ambassador to Washington, has recently travelled to the UAE, Turkey and Kyrgyzstan.
We have no doubt that the west will start to plug some of those gaps. What this overlooks is that new gaps will open as you plug old ones, as the unfortunate squirrel found out the hard way. There are no practical ways to trace the whereabouts of electronic components, unless you fit them with expensive tracking devices. And if we try, we will end up with an industry that specialises in disabling those devices. We might want to recall how VW cheated its diesel buyers with hidden software.
The bottom line is that if there is money at one end of a chain of transactions, and goods at the other, there are more ways for them to come together than foreign policy officials with a rudimentary understanding of industrial economics will ever know.