Will the sanctions on Russia cripple its technology industry?
- The US said it will implement sanctions designed to cut Russia off from semiconductors and other advanced tech crucial to military, biotechnology, and aerospace industries
- Other key chipmakers like Japan, Taiwan and South Korea have either followed suit, or indicated that they will soon
- Even the European Commission President emphasized that they will hit Russia’s access to important technologies, “such as semiconductors or cutting-edge technologies.”
When a nation isn’t considered an ally, the most powerful diplomatic security tool another country would use is to impose sanctions. With Russia attacking Ukraine, President Joe Biden and several other US allies, including the European Union (EU), the UK and Japan, have vowed to impose restrictions on Moscow as punishment for the invasion.
Last week, President Biden announced that in response to Russia’s attacks, the US was “building a coalition of partners representing more than half of the global economy” that would limit Russia’s ability to do business in dollars as well as euros, pounds, and yen. That would keep a total of approximately US$1 trillion worth of Russian banking assets from flowing through the markets of the US and its partners’ financial systems.
A wave of sanctions had been announced the day before, after Russian President Vladimir Putin ordered troops into the separatist-held regions of Donetsk and Luhansk in eastern Ukraine. However, those measures were widely dismissed by several analysts as being far too mild to have any significant impact on Russia.
So suggestions that the toughest sanctions should come in the event of a full-scale invasion starting pouring in. As suggested, when the scale of Putin’s war became apparent on Thursday, Western allies immediately announced several new sanctions, variously described as “massive” and “devastating.”
Interestingly, the sanctions include limiting tech exports to Russia and squeezing the country’s tech industry. “This is going to impose severe costs on the Russian economy, both immediately and over time,” Biden said. “We have purposely designed these sanctions to maximize a long-term impact on Russia, and to minimize impact on the United States and our allies.”
Sanctions for Russia to impede its tech industry
Referring to the World Semiconductor Trade Statistics (WSTS) organization, the Semiconductor Industry Association (SIA) president and CEO John Neuffer indicated that “Russia is not a significant direct consumer of semiconductors, accounting for less than 0.1% of global chip purchases.”
Neuffer added, “The broader Russian ICT market totaled only about US$50.3 billion out of the US$4.47 trillion global market, according to 2021 IDC data.” He concluded that the semiconductor industry has a diverse set of suppliers of key materials and gasses. “So we do not believe there are immediate supply disruption risks related to Russia and Ukraine.”
But for the US and its allies, something could eventually inflict pain to Russia. Then, heavier sanctions were announced on Thursday, which included export controls designed to cut Russia off from semiconductors and other advanced technology crucial to the military, biotechnology, and aerospace industries. Other chipmaking countries that were also allies to the US such as Japan, Taiwan and South Korea, have either followed suit or indicated that they will.
“We’re going to impair their ability to compete in a high-tech 21st-century economy,” Biden declared last week as part of what the White House called “Remarks by President Biden on Russia’s Unprovoked and Unjustified Attack on Ukraine”. He emphasized that “between our actions and those of our Allies and partners, we estimate that we’ll cut off more than half of Russia’s high-tech imports.”
The US Commerce Department, through its Bureau of Industry and Security (BIS), announced “it will severely restrict Russia’s access to technologies and other items that it needs to sustain its aggressive military capabilities.” More specifically, BIS said the Russia-specific export control measures “impose a policy of denial on sensitive items Moscow relies on for its defense, aerospace, and maritime industries.
“These items, many of which were not previously subject to controls when destined for Russia, include semiconductors, computers, telecommunications, information security equipment, lasers, and sensors,” BIS noted. Then on Friday morning, the European Union reinforced its support to Ukraine, unveiling sweeping restrictions on technology exports to Russia.
Basically, after adopting the first set of sanctions, EU leaders met at a special summit on February 24 and agreed on a second round of sanctions aimed at affecting the Russian economy over the invasion of Ukraine.
“We will hit Russia’s access to important technologies it needs to build a prosperous future – such as semiconductors or cutting-edge technologies,” declared European Commission’s President Ursula von der Leyen at a joint press conference with Charles Michel, President of the European Council, and French President Emmanuel Macron.
According to Bloomberg, the threat of US sanctions has already impacted Russia’s access to chips, with the head of Russian carmaker Avtovaz saying earlier last week that the company is looking for alternative sources. Separately, based on a new RBC report, Intel and AMD have apparently “verbally informed Russian manufacturers” that both companies are complying with a ban on the supply of processors to Russia in response to its invasion of Ukraine.
That ban on technology and exports is set to take effect on March 3, 2022, although RBC suggests Intel and AMD have already halted supplies. An Intel spokesperson in Russia told RBC that “the company is closely monitoring the situation and ensuring compliance with applicable sanctions and export control regulations, including new sanctions imposed by OFAC and rules issued by the BIS.”
There are also reports indicating that the Taiwanese chipmaking giant TSMC has suspended all sales to Russia and to product supplier third parties. As for US-based GlobalFoundries, the company was said to have a system to review and block any prohibited sales to Russia.
The only downside from all the said tech sanctions would probably be the fact that there could be increased cooperation between China and Russia. As it is, Russia already purchased about 70% of its chips from China, so experts reckon that number is only likely to increase if the sanctions are implemented.
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