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Saturday, April 6, 2024

How US Sanctions Will Crimp Russia's Tech Sector

Last November, the tech giant Yandex unveiled Chervonenkis, Russia’s most powerful supercomputer and the 19th most powerful commercial computer on the planet. Chervonenkis, which Yandex uses to train artificial intelligence algorithms for applications like web search and translation, was built by linking together more than 1,500 chips from the US company Nvidia.

Earlier this week, Russia’s Ministry of Internal Affairs said that it was having trouble sourcing the homegrown chips it’s required to use and as a result was considering returning to chips made by Intel, according to CNews, a Russian outlet.

Russia’s reliance on Western technology, particularly for chips, is at the heart of the sanctions announced Thursday by US president Biden and allies in response to Russia’s invasion of Ukraine.

Biden said in an address to the nation that restrictions on Russia’s imports of key technology, including semiconductors, would squeeze its “access to finance and technology for strategic areas of its economy and degrade its industrial capacity for years to come.” He said the sanctions would hurt Russia’s ability to modernize its military, its aerospace industry, and its space program and would be a “major hit to Putin's long-term strategic ambitions.”

Also Thursday, the Commerce Department barred US companies from trading with 49 Russian entities with ties to that nation’s military and said allies would follow suit. The new rules cover microelectronics, telecommunications devices, sensors, avionics, navigation, and marine equipment, the department said.

“Russian industry, in general, has benefited from relatively open trade flow of microelectronics, semiconductors, and other high-tech components,” says Samuel Bendett, an expert on Russian technology with CNA, a military think tank. “This could actually have a very significant effect.”

For almost a decade, the Kremlin has introduced measures designed to free Russian companies and infrastructure from foriegn technology, including cutting-edge chips. So far, the effort has had limited success.

The US strategy echoes recent efforts to constrain China and its tech companies. In 2020, the White House imposed restrictions on chip exports to Chinese companies, including Huawei, which it accused of espionage, and several big AI firms that it said have aided government surveillance of Muslim minorities. The chip sanctions have certainly hurt Huawei, which has seen its smartphone business damaged. They’ve also triggered an ambitious but challenging effort by China’s government to build a semiconductor industry that can produce cutting-edge components on its own.

Chip sanctions may cause less immediate harm to Russia. But a ban may also be less damaging to US, European, and Japanese chipmakers. According to the World Semiconductor Trade Statistics (WSTS) organization, Russia accounts for less than 0.1 percent of global chip purchases.

“While the impact of the new rules to Russia could be significant, Russia is not a significant direct consumer of semiconductors,” says John Neuffer, CEO of the Semiconductor Industry Association, a body representing US chip firms.

Zeroing in on critical technologies, like semiconductors, could still damage Russia’s progress and its military and cyber capabilities. And with the US and allies including the EU and Japan on board, it will prove more difficult for Russia to circumvent the sanctions.

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Earlier this week, the US, the European Union, Britain, Australia, Canada, and Japan imposed financial sanctions on Russia after it recognized separatist regimes in the Donetsk and Luhansk regions of Ukraine.

German chancellor Olaf Scholz also said his country would not certify the Nord Stream 2 gas pipeline from Russia, which would have increased Europe’s reliance on Russian energy.

Cutting off imports of Russian oil and gas would be most likely to damage Russia and deter Putin, says Margarita Balmaceda, a professor at Seton Hall University who studies Russia’s energy policy. “But this is not possible, as European elites and economies cozied up to the promise and profits of Russian energy imports,” she says.

The US and its allies have so far imposed financial sanctions on Russian oligarchs and officials close to president Vladimir Putin. But they have not targeted Putin himself, nor have they cut Russia off from the SWIFT global payments system, a powerful measure imposed on countries such as Iran in the past. Biden said during his address that the financial sanctions introduced so far would have as much impact as cutting Russia off from SWIFT.

In the long run, the technology-focused restrictions may help accelerate a balkanization of technology as Russia, like China, seeks independence from the West.

Now, Bendett says “Russian products just aren’t as good.” But he adds: “there’s no better way to jump-start an industry than being cut off.”


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