Reported by Jeffrey A. Sonnenfeld and Michal Wyrebkowski

(Shortened version of original report is presented below)

The economic blockade of Russia has proven effective thanks to a combination of government sanctions and the exit of over 1,100 multinational firms from the country. However, President Putin’s war campaign persists, partly because he can tap into the 70 percent of the Russian economy he controls and deploy advanced weaponry dependent on a stream of U.S. electronic components. Despite these challenges, Intel, among other chipmakers, can play a pivotal role in curtailing the flow of these crucial components that empower Russia’s military capabilities.

Modern warfare on the Ukrainian steppes is dominated by drones and Western technology, with the Ukrainian military relying heavily on Western tanks and drones equipped with advanced electronics, sensors, and communication systems. Russia, in its pursuit of technological parity on the battlefield, requires complex electronics for its T-90 tanks and relies on Shahed-136 drones, both of which rely on chips. However, Russia’s semiconductor industry lags far behind the United States and China, operating at a 65-nanometer chip technology, approximately 15 years behind the curve.

Russia’s aspirations to achieve technological self-sufficiency are hindered by its isolation from the global financial system. Even Chinese financiers are becoming less accommodating, while companies like Intel have severed ties with the sanctioned Sberbank, and Russian tech conglomerate Yandex’s AI ambitions have been stalled. Nonetheless, an increasing number of Western-made components are finding their way into Russian military equipment.

Russian imports of critical components have returned to pre-war levels, with a significant portion (98 percent) being routed through third countries. Companies like Intel have seen their exports of critical components to Russia increase, with some components falling outside the purview of sanctions. This includes a legal loophole where Russia acquires goods under the guise of dual-use items for peaceful projects like space exploration at Roscosmos.

Iran plays a crucial role in this complex supply chain, not only as a drone supplier but as a technology partner, assisting Russia in setting up drone manufacturing lines. Iran’s involvement includes specialist documentation, project know-how, and even training Central Asian workers. These drones incorporate components from Western companies like Intel.

China also plays a pivotal role, accounting for over 87 percent of Russia’s semiconductor imports in Q4 2022, often through intermediaries and shell companies rerouting components. Hong Kong serves as a transshipment port, making it challenging to detect dual-use items entering Russian hands. Modernized port facilities in countries like Georgia and intermediaries in the Baltic States further facilitate chip shipments to Russia.

Turkey adds complexity to the semiconductor supply chain by serving as a transit point for drone technology and other components destined for Russia. Efforts to tighten customs controls under EU pressure have not eliminated Turkey’s role as a critical intermediary.

Additionally, we observe chip imports surging in countries like Armenia, which are then exported to Russia. Despite a labyrinthine system of intermediaries and smuggling schemes, there remains a real shortage of high-end chips in Russia, often leading to the use of lower-quality alternatives in military equipment.

The leakage in the system can be attributed to several factors, including the misalignment of dual-use goods with international customs codes and other vulnerabilities.

Read original report: https://foreignpolicy.com/2023/09/07/western-sanctions-russia-ukraine-war/