The  trade in used cars from Armenia to Russia has experienced a significant surge since Russia invaded Ukraine, as Western car brands have become scarce due to sanctions, the Financial Times reported.

Rows of damaged vehicles line the outskirts of Gyumri, Armenia's second-largest city, as young Russian traders capitalise on the booming trade route, reported the FT. This influx of exports, not only in cars but also in various goods, has contributed to Armenia's remarkable economic growth but has frustrated Western capitals seeking to enforce export controls. Despite concerns, the trade route through Armenia flourished. 

Armenia has re-exported massive amounts of cars to Russia since the invasion of Ukraine. The exports increased from $800,000 in January 2022 to over $180mn in the same month in 2023.

While cars are the most prominent example, exports of other goods from Armenia to Russia have also surged, leading to nearly double the trade volume between the two countries in 2022.

Due to Western sanctions and the departure of multinational corporations, Russian consumers have turned to third countries to find what they are missing, making countries like Armenia, Turkey, and Kazakhstan central to a bustling new trade route for consumer goods.

This has contributed to a significant economic boom for Armenia, with its gross domestic product recording a record growth of 13% in 2022, more than double the previous year's rate.

However, this situation has also caused frustration among Western capitals. In March, US officials listed Armenia among the countries used to "smuggle prohibited goods" into Russia. The EU's latest sanctions package targeting third-country circumvention includes entities in Armenia as offenders.

During the past few months, two companies registered in Armenia have been sanctioned. Medisar LLC, which is an importer of chemicals and laboratory equipment, was sanctioned in May by the US Department of Commerce, and the Treasury Department's Office of Foreign Assets Control sanctioned TAKO in April, which is in the wholesale of electronic and telecommunications equipment and parts.

The Armenian government vehemently denies these accusations. In March, Prime Minister Nikol Pashinyan stated that reports of sanctions circumvention are mere rumours and "the reality is just the opposite".

According to the Armenian foreign ministry, the country's leadership has publicly committed to restricting trade in all risky items. They are closely cooperating with the US and the EU and have implemented strict controls over a list of items the Russian military could use.

Russians have sought foreign cars since the US banned all light vehicle exports to Russia, whether new or used. The EU has also imposed bans on exporting vehicles valued above €50,000 and recently expanded the restriction to include larger cars with engine sizes of around two litres or more.

Many foreign car companies have sold off their production plants and closed dealerships in Russia.

The FT reports that according to brokers and buyers, most cars arrive in the region primarily from the US through the Black Sea port of Poti in Georgia. Many of these vehicles are transported to Armenia for customs clearance, as the country shares a customs-free trade bloc with Russia.

Gyumri is a central hub from which these vehicles travel north to Russia by road, passing through Georgia once again.

In January 2022, before Russia invaded Ukraine, Armenia imported cars worth $2.8mn from the US. However, a year later, that number skyrocketed to $29.5mn. Since then, the import rate has continued to climb. Armenia imported US cars worth $34mn in April of this year.