After the one-year mark of Russia’s full-scale invasion of Ukraine, skeptics shout that Western sanctions have failed to stop the Kremlin’s war machine. That’s true. But they have exposed and exacerbated Russian weakness.
More than 1,000 Western multinationals have withdrawn from Russia, according to Professor Jeffrey Sonnenfeld’s study that I helped research at the Yale School of Management. For a country that is reliant on imports and technology transfer, Western sanctions have buried dreams for any economic development for years, if not decades.
Russia has never been a technological superpower. The downsizing of the scientific budgets in the 1990s killed much of what was left of Soviet tech potential centered around closed scientific towns. Subsequent attempts to spur government-induced innovation, in particular under former President Dimitri Medvedev — a young Western-looking technocrat who’s now the chief Russian hawk — failed. Top-down tech ventures such as Rusnano and Skolkovo Center ended up as Potemkin villages, incapable of producing a fraction of the R&D output of American, European, or Chinese scientific clusters.
Admittedly, Russia has achieved limited success in parallel imports via Turkey and Georgia. According to Eurostat data, Polish exports of machines and electronics to Turkey grew by a whopping 51% in November 2022 compared to last year. German exports transiting through Turkey also rose by 39.8%.
But these diversions mask a broader collapse of Russian imports. Even though Russia’s total imports from Turkey grew by 93%, they remain only a 7.2% sliver of total Russian imports, a number nowhere near high enough to replace lost EU trade. New sanction packages could limit the scale of the Turkish route.
China cannot make up the difference, either. Russia’s technological pivot to the East has proved to be a sham. Chinese-made electric machinery and parts (including semiconductors) and telecommunications equipment exports declined by 19% and 30% compared to pre-war levels. Russian hopes that Chinese companies would step in to supplant their Western peers failed to materialize in 2014, or in 2022. For much of the past few years, China’s zero Covid policy meant that Russian truckers saw quarantine and weeks-long queues at the border after an arduous journey through the Siberian wilderness.
Where Western technological sanctions have so far been successful — and interestingly, most visible — is against Russia’s energy sector. Even though Western energy companies held significant stakes in Russian oil and gas prior to the war, they largely subscribed to sanctions that were implemented following the Russian annexation of Crimea in 2014.
These stunted long-term oil and gas development. Most of Russia’s new production capacity was set to come from the Arctic and hard-to-recover fields. After Western oil majors such as Shell and BP departed, many high-tech, capital-intensive energy ventures stalled. Russia has found no substitute for the software needed for the hydrodynamic modeling of oil and gas fields. Some Russian fields may need soon to be closed. Russian oil production could drop by as much as two million barrels per day in the long term and natural gas exports by more than four million barrels per day, predicts the International Energy Agency.
Dependence on Western technology and supply chains extends well beyond energy. From mundane spindles and ball bearings to metal cutting tools and numerical control systems, Russian industry has depended on the West. In 2020, China provided only 13.3% of electrical control boards, 14.1% of combustion engines, and 9.81% of metalworking machine parts flowing to Russia. Major software CAD providers used in manufacturing have left Russia, including Dassault Systèmes, PTC, and Autodesk, with no clear Chinese substitutes. According to RBK, a Russian business news provider, Russian IT companies depended on Western engineering data management solutions for 80% of their needs.
Russian attempts at import substitution schemes to replace Western components with Russian-made ones would take hundreds of billions of dollars, know-how, and time. In light of the Chinese international lending receding in 2022, the suspension of investments by Chinese giants such as Sinopec, and the sanction stranglehold on Russia’s access to Western capital markets, it is difficult to see a technological way out.
Expect a semiconductor shortage. Whatever semiconductors Russia is able to manufacture on its own are far from the needs of its military for precision weaponry and communication devices. Zelenograd-based Mikron can produce at best 90nm chips, which is an antiquated technology from the early 2000s. Angstrem, another semiconductor manufacturer, has gone bankrupt.
Russia tried – and failed to build a domestic chip manufacturing industry. As was the case with many other countries, Russian-designed chips were manufactured mostly in Taiwan. As TSMC broke off any ties with Russia as a part of the business exodus, the Russian military began using household amenities chips for their military gear. Intel, AMD, and Nvidia all have departed, locking Russia out of personal computers and laptops. Sberbank’s partnership with Nvidia to build a supercomputer lies in tatters, as do Yandex’s drone and AI development.
Russia’s full-scale invasion of Ukraine became a catalyst for the exodus of more than 500,000 Russians, many of which are IT professionals. Russia’s neighbors could benefit. The Tashkent IT park has grown by close to 300% in the first six months of the war. Over time Russia’s ability to substitute Western technology domestically will fade, crippling its hard power as a provider of IT services on the Russian-speaking Internet.
Sanctions are not watertight. We need increased transparency, know-your-customer disclosures, and potentially secondary sanctions against companies breaking the rules. Russians seem willing to put up with pain and suffering.
But the big picture is clear: sanctions and corporate withdrawals are crippling Russian positions in energy, manufacturing, and IT. A technological stranglehold is being tightened on the Russian economy. Hopefully, the pressure will contribute to ending Putin’s aggression.
Michał Wyrębkowski is a Research Fellow at the Yale School of Management.
Bandwidth is CEPA’s online journal dedicated to advancing transatlantic cooperation on tech policy. All opinions are those of the author and do not necessarily represent the position or views of the institutions they represent or the Center for European Policy Analysis.