South Korea Expands Sanctions on Russian Car Imports and Market Impacts

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South Korea joined others in broadening sanctions against Russia. On December 26, the Ministry of Trade, Industry and Energy of the Republic of Korea announced a new sanctions package that also targets the automotive sector.

In addition to the existing ban on supplying cars valued above $50,000, the rules now restrict exports of vehicles with engine displacements over two liters to Russia and Belarus. The total number of such vehicles controlled is 1,159. Export of these goods to both countries will require prior approval from the South Korean government.

The measures are slated to take effect at the start of 2024 after completing the required official procedures. Preliminary information suggests the change may be enacted on January 15.

What is prohibited?

The Kia Sorento, currently offered with a 2.2 liter diesel engine or a 2.5 liter gasoline engine, falls under the engine displacement restrictions. The latest Hyundai Santa Fe featuring a 2.5 turbo engine with an eight-speed automatic transmission is also prohibited, along with earlier generations equipped with 2.2 and 2.5 engines.

The list also bans Kia Mohave and Hyundai Palisade crossovers, Kia Carnival and Hyundai Staria minivans, most Genesis models, the earlier Hyundai Sonata with a 2.4 engine, and other brands with imported engines in the same size range destined for the Russian market.

In popular advertisements, the phrase “Car from Korea without mileage in the Russian Federation” currently shows more than 1,200 listings for vehicles with engine sizes over two liters. Among these are the BMW X3 and X6, 5 Series, Range Rover Sport, Volkswagen Touareg, and Mercedes-Benz GLS models.

There are workarounds

Entrepreneurs involved in importing cars from South Korea say the ban will not drastically disrupt shipments to Russia. Established delivery routes already route shipments through Eurasian Economic Union member states.

One industry observer noted that cars often travel to Kyrgyzstan or Kazakhstan, which were not banned for exports, and then onward to Russia. While final imports to Russia could face hurdles, there is no clear mechanism for a direct ban on all shipments, according to Elena Lisovskaya, who runs the YouTube channel The Fox Rules and tracks foreign car imports.

Another expert, Dmitry Rogov, founder of RogovMobil, noted that many models face restrictions but the Russian market has endured two years of tightening sanctions without a full halt in supply. He added that new routes had already been found and were operating, with Korean cars likely proceeding through channels similar to those used by Japanese and German premium cars.

The analyst suggested that the new restrictions from South Korea may not drastically alter the market landscape. He warned that a tougher factor could be a decision by Russian authorities to raise the recycling fee, which would weigh more on the market than actions by other countries.

Lisovskaya reinforced this view, highlighting that the bulk of Korean imports to Russia involve engines over two liters. The increase in the recycling fee has already reduced the availability of these models. She pointed out that after the fee rise, imports of Korean cars dropped, as popular picks like the 2.5-liter Hyundai Santa Fe and Palisade with the 2.2 diesel engine, and the Kia Mohave with around a 3-liter engine, faced much higher recycling costs. The new fees pushed their totals well above buyers’ interest thresholds, making them far less attractive.

The market share of cars arriving through alternative channels had already declined before the latest Korean sanctions. Autostat data for November 2023 show such imports at 8 percent, down from 11 percent in October and 9 percent a year earlier. Official distributors accounted for more than 47 percent of sales in November, while locally produced vehicles comprised about 45 percent.

In November, parallel imports affected by sanctions also took a toll on two large dealer groups, Avtodom and Avtospettsentr. The broader market outlook discussed for 2024 has been noted by observers in multiple reports.

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