Despite their ‘no limits’ friendship, Russia is paying a nearly 90% markup on sanctioned goods from China — compared to 9% from other countries

A Bank of Finland Institute report finds Russia paid a median 87% higher prices for Chinese exports of sanctioned goods between 2021 and 2024 versus a 9% rise for other suppliers, with Chinese ball-bearing export value to Russia up 76% while volume fell 13% (implying unit prices doubled) and tapered roller-bearing unit prices nearly quadrupling; overall sanctioned-product prices averaged 40% above non‑sanctioned equivalents. Capital Economics reports Russia‑China bilateral trade fell 9% year-on-year in the first nine months of 2025 after rapid growth through 2024, and China now accounts for 30% of Russia's goods exports and 50% of its imports (Russia is only 3%/5% of China's exports/imports), underscoring an asymmetric relationship, constrained FDI and limited supply-chain relocation. The findings support the view that Western sanctions have materially constrained Russia's access to critical industrial inputs relevant to the defense sector and are contributing to production bottlenecks and broader strains on the wartime Russian economy.

Analysis

Market structure: China’s price-taking position lets it extract 40%+ premia on sanctioned industrial inputs (median +87% vs peers). Winners are non-Western suppliers and Chinese exporters able to charge scarcity rents; losers are Russian downstream manufacturers and any foreign firms with Russia exposure. Expect market-share consolidation toward large Chinese suppliers for sanctioned gear and toward Western substitutes (SKF/NTN/NSK) where sanctions create compliance-driven switching.

Risk assessment: Tail risks include an accelerated secondary‑sanctions regime on Chinese firms (high impact, low prob) or a diplomatic settlement that rapidly relaxes sanctions (medium prob). Immediate (days) risk is episodic volatility around negotiating leaks; short-term (weeks–months) risk is supply squeezes and price spikes in bearings/precision components; long-term (quarters–years) is persistent technological decoupling increasing costs ~20–40% for Russian defense/industrial procurement. Hidden dependency: Chinese willingness to supply is binary and sensitive to Western reputational/financial pressure.

Trade implications: Position into defense primes (LMT, RTX, BA) and specialty bearing manufacturers (NSK 6389.T, NTN 5192.T, SKF-B.ST) that gain pricing/power if Western firms supply alternatives. Short Russia‑beta via RSX (VanEck Russia ETF) or Russian sovereign curve; hedge with call options on defense names and put protection on RSX. FX: bias long USD/RUB via forwards if RUB weakens >10% from current levels.

Contrarian angles: Consensus underestimates how fast China will reduce quantities while raising prices — this favors quality/automated substitute producers rather than low-cost Chinese OEMs. The market may be over-discounting a fast Russian industrial collapse; watch production indices and import volumes for 2–3 consecutive months before fully exiting Russia exposure. A negotiated sanctions rollback would rapidly compress premia and hurt recent beneficiaries within 3–6 months.

Key Decisions for Investors

• Establish a 2–3% portfolio long in US defense primes: buy LMT and RTX equally (1–1.5% each) over 2–6 weeks; add 6–12 month call spreads (buy 1x ATM, sell 1x 20% OTM) to limit cash outlay and capture expected budget tailwinds and substitution demand if Russian domestic production falters.
• Initiate a 2% short position in RSX (VanEck Russia ETF) via borrow or buy 3–6 month puts struck 15–25% below spot; set a stop‑loss if RSX drops >30% from entry or buy‑to‑cover if diplomatic talks produce verified sanction relief within 60 days.
• Rotate 1–2% into specialty bearing/industrial names: buy NSK (6389.T) or NTN (5192.T) and SKF-B.ST; target 12–18 month holding period expecting margin expansion of 5–15% if Western firms win replacement business; scale in on any 10% pullback.
• Take an FX directional trade: enter a 3–6 month long USD/RUB forward or OTC option (if RUB trades weaker than −10% vs current) with a target exit on RUB >10% depreciation or if RUB-supporting FX inflows resume; cap position to 1–2% notional exposure.
• Use volatility/insurance: buy 1–2% notional of VIX ETP exposure or put protection on portfolios with EM Russia exposure for 3 months to hedge geopolitical flareups; consider selling premium via 30–60 day covered calls on defense longs to fund hedges.