European sanctions against Russia: what consequences for the Russian digital sector?

While the EU discusses a tenth package of sanctions against Russia, debates on their effectiveness and impact continue. Indeed, different dimensions collide, such as immediate versus long-term impact and economic pressure versus geopolitical consequences.

Has the invasion of Ukraine changed anything in this respect? Sanctions aim to reduce Russia’s ability to continue waging war. Do these sanctions fulfil their primary goal? More broadly, how do they affect Russian technological and industrial development?

The effectiveness of existing sanctions

Sanctions against Russia are not new. Yet, their effectiveness has never been significant. Let’s recall previous episodes.

Following Russia’s annexation of Crimea in 2014 and the outbreak of military conflict in eastern Ukraine, several states and the EU imposed unilateral economic sanctions. These sanctions included restrictions on the exportation and re-exportation of technology for the Russian energy and defence sectors. In the digital industry, the export of dual-use technologies to Russia has been subject to a general ban since 2014.

The effectiveness of these sanctions has been mixed. For example, EU sanctions aimed to ban the supply of specific equipment, technologies and services to the Russian energy sector but protected Russian gas companies (Gazprom and Novatek).

Insufficient export controls and lukewarm political will to suspend profitable contracts with the Russian military added to the ambiguous wording. And this is to enforce these sanctions on Russia’s non-transparent supply networks. These factors explain why Western technologies could continue to be exported. These have directly supported the Russian defence sector. This situation was highlighted by the invasion of Ukraine in February 2022. Detailed work by RUSI and Reuters, revealing the widespread use of foreign components in Russian military equipment, identified « 450 unique components mainly from Western manufacturers, of which at least 317 were from US-based companies ».

After the Russian invasion began on 24 February 2022, strict sanctions, including on technology, were quickly implemented against Russia. For example, the nine packages of EU sanctions cover dual-use technologies, which can be used for civilian and military purposes. Export controls have been imposed on semiconductors, aircraft components and military equipment. The eighth package also imposed a total ban on crypto wallets and sanctions on providing information technology and related consultancy. Since December 2022, exports of drones, drone engines, laptops and generators have been banned to prevent their use by the Russian military.

Sanctions weigh on the Russian tech sector

According to a research article available since July 2022, the Russian economy is « an

internally corrupt, Western technology-dependent resource behemoth”. This technological dependence is exploited by the sanctions imposed since the invasion of Ukraine. They aim to reduce Russia’s ability to continue fighting the war. The strict enforcement of export controls over the past year is bearing fruit, with the measure even being cited as a neutralising lever.

The technology sanctions imposed are expected to devastate Russia’s military capability and ability to develop technological solutions for non-military use, notably by restricting the country’s access to semiconductors.

Semiconductors are essential for many industries. For example, Russia’s domestic production of cars has fallen by 97 per cent due to the shortage. The cars produced resemble Soviet-era models (lack of airbags and high-performance brake systems). The shortage of semiconductors has also led to a 70 per cent drop in local arms production and a complete halt in the production of hypersonic ballistic missiles.

Other observable effects include malfunctioning smartphones, slow cellular networks, and decreased coverage and quality of communications. In August 2022, the Yandex information platform (Russia’s « Google ») was sold to the state, « a clear sign that Putin is strengthening his control over the Internet », according to the European Parliament’s research think tank.

It also looked at the talent side, noting that one of the effects of sanctions has been a brain drain: « During the first six months of the war, an estimated 250 000-500 000 qualified workers left Russia to continue their careers elsewhere. […] According to the Russian deputy minister of the interior, the country was already experiencing a shortage of 170 000 IT specialists in June 2022. […] War mobilisation has reduced the Russian tech workforce even further.”

The Governor of the National Bank of Russia herself admits that « the restrictions imposed affect a considerable part of exports and imports. Also, decisions by foreign companies to suspend their activities in the Russian market can have a significant negative impact on the situation.”

However, the country is not so bled out that it seeks a quick exit from the war. Even if the Russian digital economy is disrupted, the current sanctions are insufficient to deplete the country’s reserves and suggest that the conflict will end soon.