The Role of Technology Sanctions in Crippling Russia’s War Machine

The brutal war waged by Russia against Ukraine is taking place on many fronts, including the economic one. Since the full-scale invasion began on February 24, 2022, economic sanctions imposed on Russia have been significantly tightened in an effort to stall the war. Technology sanctions—which can be defined as prohibitions on the supply of dual-use goods and restrictions on technology, components, and software targeting certain sectors—have played a part in those efforts. It is against this background that this article reflects on these technology sanctions, their role, and their effectiveness.

Technology Sanctions: Half-hearted in 2014 and wholehearted in 2022

After Russia illegally annexed the Crimean Peninsula in 2014 and started a military conflict in eastern Ukraine, several states imposed unilateral economic sanctions (for example, the United States, the European Union (EU), and Canada). These sanctions included restrictions on the export and re-export of technology for the Russian energy and defence sectors, even though they were intentionally vaguely formulated. For example, EU sanctions that prohibited the provision of some equipment, technology, and services to the Russian energy sector completely shielded Russian gas companies—PJSC Gazprom and PJSC Novatek—and had other serious loopholes.

Ambiguous formulations and half-hearted efforts to enforce sanctions, along with Russia’s sophisticated procurement networks, ought to be blamed for the continuing supplies of Western technologies to sustain Russia’s defence sector. This was spectacularly spotlighted as the invasion of Ukraine unfolded. In August, the Royal United Services Institute revealed the widespread use of foreign components in Russian military equipment, saying it had “identified 450 unique components primarily sourced from Western manufacturers, of which at least 317 came from U.S.-based companies.”

After the invasion, sweeping technology sanctions were swiftly implemented against Russia. The U.S. Commerce Department’s Bureau of Industry and Security described the pertinent U.S. sanctions as “the most comprehensive application of Commerce’s export authorities on U.S. items, including technology, as well as on foreign items produced using U.S. equipment, software, and blueprints, targeting a single nation.” A distinctive feature of these export restrictions is the application of the Foreign-Direct Product rule. According to this rule, a foreign-produced item located outside the United States is subject to U.S. export control rules prescribed by the U.S. Export Administration Regulations (EAR) if it is a “direct product” of specified “technology” or “software,” or is produced by a plant or “major component” of a plant that itself is a “direct product” of specified “technology” or “software.” The application of the Foreign-Direct Product rule to Russian exports has been already dubbed the “Huawei rule on steroids,” implying that similar restrictions on Huawei pale compared with the country-wide ban on a range of products destined for Russia.

Among the items subject to the stringent export controls initially were semiconductors, computers, telecommunications, information security equipment, lasers, and sensors. Subsequently, these restrictions were expanded by targeting Russia’s oil refining sector and tightening control over the export and re-export of sensitive dual-use technology, software, or commodities that could be used to support Russia’s war effort. Furthermore, the major Russian airlines—Aeroflot, Aviastar, Azur Air, Nordwind Airlines, Pobeda, Rossiya, S7 Airlines, and Utair—became a subject of the temporary denial orders, which in essence cut them off from U.S. exports, U.S.-origin items, and items manufactured abroad that are subject to the EAR. The latter action is an enforcement of the previously imposed export restrictions, which prohibited these airlines from flying international routes to and from Russia using aircraft subject to the EAR without obtaining a licence.

The Russian economy has suffered from the dire consequences of the decisions of private companies to exit the Russian market.

The United States was not alone: a coalition of the willing comprising 38 allies implemented similar export controls. This coalition consists of Australia, Canada, the 27 EU member states, Iceland, Japan, Liechtenstein, New Zealand, Norway, South Korea, Switzerland, the United Kingdom, and the United States.

In addition to the state-initiated sanctions, the Russian economy has suffered from the dire consequences of the decisions of private companies such as software firms IBM and Microsoft, productivity software platforms Adobe and Slack, and engineering software giants including France’s Dassault Systèmes, Boston-based PTC, and Bay Area-based Autodesk to exit the Russian market. This impact might be drastic: a June study found that information technology companies constitute 17% of 800 companies discontinuing their operations in Russia.

Effects and Effectiveness of Technology Sanctions

A recent report by a group of distinguished scholars characterizes the Russian economy as “an internally corrupt, western technology-dependent resource behemoth” that suffers from a natural resource curse. One can assume that it is this technology dependence that states implementing technology sanctions want to exploit. Whether they are successful or not remains the subject of a heated debate. Indeed, even a recent issue of the Economist contains two divergent opinions on the matter. While one piece says it will take years for technology sanctions to bite, another report argues the opposite, declaring that “[t]he most potent sanctions are, in fact, the least discussed: export controls.”

Technology sanctions do bite the Russian economy today, as they will in the future.

Technology sanctions do bite the Russian economy today, as they will in the future. The imposed technology-specific sanctions are expected to have devastating effects not only on Russia’s military capacity, but also on its ability to develop technological solutions for non-military use, in particular by restricting the country’s access to semiconductors. For example, Taiwanese company TSMC, one of the biggest semiconductor manufacturers, has announced that it will comply with the economic sanctions against Russia. What is more, the current market situation—the global shortage of semiconductors—further reinforces sweeping export controls. Semiconductors are crucial for many industries: for example, Russian domestic production of automobiles has plummeted because of the shortage. Another observable effect of the technology sanctions is the scarcity of spare parts and maintenance services essential for the aviation industry, which has sparked growing concern about the safety of flights.

It is worthwhile to cite a freshly released report by the U.S. Commerce Department's Bureau of Industry and Security that says new sanctions against Russia resulted in a 97% decrease (by value) in exports of items subject to new controls from February 24 to August 12, compared to the same period in 2021.

Thus, technology sanctions can play a double role: deprive Russia of both the components and technologies used in military equipment and the necessary technologies for non-military uses.

Strategies to Circumvent the Effects of Technology Sanctions

Unrealistic Self-Sufficiency

The first way to circumvent the negative effects of technology sanctions is to promote self-sufficiency. At least starting from 2014, Russia has devised strategies to deal with such sanctions. In particular, Moscow has been actively promoting the development and implementation of policies of technological and digital sovereignty. While policies aimed at digital sovereignty sought to silence the opposition and critics and to censor the content available to a domestic audience, technological sovereignty policies pushed for self-sufficiency and independence in the technology domain. To this end, the Strategy for the development of the information society in 2017–2030 was adopted, specifying that locally sourced alternatives should replace foreign hardware, software, and components and that technological and production independence, as well as information security, should be ensured.

Despite such ambitious aspirations, analysts say Russia will not be able to achieve complete self-sufficiency in the development and production of the core elements of the modern technological infrastructure, e.g., production of hardware such as central processing units and the 5G equipment, in the foreseeable future. Since February 24, 2022, these ambitions have faced a tougher challenge—export controls introduced by the most technologically advanced economies.

Problematic Pivot to Asia

The next strategy to mitigate the negative repercussions of technology sanctions is to replace Western suppliers with Chinese ones. Both Russian officials and the population have pinned their hopes on China and Chinese firms. Yet their hopes might be dashed. China’s potential to soften the negative effects of technology sanctions is questionable due to historical, political, and technological considerations. As economists observe, historically, Russia has relied heavily on Western technology and know-how from the early days of its oil and gas exports. Politically, even before the war, Russia was hesitant to depend entirely on Chinese technologies, as illustrated by its desire to diversify suppliers of 5G equipment. From a technological standpoint, China is not in a position to supply some of the technologies required by Russia. In this regard, it should be noted that “as a net oil and gas importer, Chinese energy companies lack many of the needed upstream technologies to service and maintain the Russian oil and gas sector from a technological standpoint.”

Shadowy Parallel Imports

The third approach to mitigate the negative repercussions of technology sanctions is to allow parallel imports, which Russia has already done. Sociologist Grigory Yudin says that among the objectives pursued by this move is the preservation of the sense of normality “to encourage the escapism that many Russians have embraced since the beginning of the war.” Analysts have been skeptical of the effectiveness of this step for the defence and automobile industries though: it would not be easy to satisfy these industries’ demands for components and technology supply through such a scheme.

Concluding Remarks

A strong desire to bring the Kremlin’s war machine to a halt inspired the coalition of the willing to enact severe technology sanctions, mostly channelled through existing export control regulations. These sanctions have brought the Russian economy to the cusp of major transformational changes, as noted by Bank of Russia Governor Elvira Nabiullina, who acknowledged that “the restrictions imposed affect a considerable part of exports and imports. In addition to the official sanctions, foreign companies’ decisions to suspend their operation in the Russian market may also have a significant adverse impact on the situation.”

Sanctions have brought the Russian economy to the cusp of major transformational changes.

Unfortunately for Ukraine, the effects of these sanctions, despite being obvious, are not devastating enough to halt the Russian war machine in the short term. With time and strict enforcement, however, their effectiveness might significantly improve—especially if countries curb Russia’s efforts to evade them by imposing secondary sanctions.

Iryna Bogdanova is a post-doctoral research fellow at the World Trade Institute, University of Bern. Her recently published book explores the legality of unilateral economic sanctions under international law. The author sincerely thanks Zaker Ahmad for his valuable comments on an earlier draft of this article.