The dangerous loophole in Western sanctions on Russia, 7 September 2023

Through a rare, hydra-headed blend of government sanctions and the historic stampede of 1,100 multinational firms out of the country, the economic blockade of Russia has proved highly effective. Russian President Vladimir Putin’s war campaign struggles onward, however...It is...because the advanced Russian weaponry and Iranian drones he uses are dependent on a stream of U.S. advanced electronic components trickling across the border. The good news is that the U.S. government and U.S. chipmakers can curtail the flow of these gadgets that enable Russia’s instruments of slaughter and destruction...

The Kremlin’s aspirations to...alone technologically aren’t just optimistic; they’re borderline delusional, not least because Russia has been cut off from the global financial system. Even Chinese financiers are rolling up their welcome mats, while industry titans such as Taiwanese TSMC and Dutch ASML have slammed their gates. Nonetheless, Russia has found enablers both in the East and West...An increasing number of Western-made components are finding their way into Russian military equipment.

After a drop in 2022, Russian imports of critical components, from simple transistors—the building blocks of electronics—to microchips and more specialized microprocessors, have reverted to levels commensurate with what we saw before the war. Moreover, a staggering 98 percent of these components are routed through third countries, compared to 54 percent the year prior, often manifesting in military equipment ranging from Kalibr missiles to T-72 tanks.

Companies like Intel suspended direct shipments to Russia early into the war in a wave of business departures, but they did little to prevent their products from being reexported to Russia through third countries. Texas Instruments shipped 36 shipments directly to Russia, with six additional shipments by one of its authorized distributors, in late February and early March of last year. But Reuters found out about almost 1,300 more shipments made by intermediaries. It is notionally legal — though morally abhorrent — for the intermediaries to reexport components outside of sanctions purview.

According to estimates from the Yermak-McFaul Working Group, Intel alone saw its exports of critical components to Russia rise to $700 million in 2022, up from $500 million the previous year. Not all of these components fall under the purview of sanctions; according to the Royal United Services Institute, the Russian military uses more than 450 different types of foreign-made components, and only 80 of them are subject to U.S. sanction controls. One legal loophole allows Russia to acquire these goods under the veneer of dual-use—referring to items with both civilian and military applications—whereby foreign-made components are deployed in the supposedly “peaceful” project of space exploration at Roscosmos. This is only one of the many methods Russians are using to import advanced electronics...

On the ground, the scheme depends on Iran’s involvement. It is more than just a drone supplier to Russia; it’s a technology partner. Iran is actively assisting Russia in setting up manufacturing lines for drones at the Alabuga Special Economic Zone in Tatarstan...Notably, these drones feature at least 13 components from Analog Devices. Even though said components are not exclusively used in military drones and are not listed as sensitive technologies, they would fall under a near-blanket ban on electronics exports recently imposed by the United States...

Three patterns can be discerned across the entire parallel import supply chain — a term that the Kremlin’s official communication team uses to describe what are in effect decriminalized smuggling schemes used to bypass Western sanctions. First, using intermediaries that haven’t been put under sanctions; second, restructuring existing companies to conceal entities; and third, purchasing components and moving final assembly to Russia instead of buying finished sanctioned goods. On top of that, Russia disguises customs data, sets up illegal networks and one-day shell companies, and orchestrates fake transit operations.

In spite of this labyrinthine system, there still exists a real shortage of high-end chips in Russia that need to be replaced with their lower-quality equivalents, according to experts at the Center for Strategic and International Studies. For instance, an S-300 missile, originally designed for a surface-to-air role, fares much worse when repurposed for a surface-to-surface role since it often explodes hundreds of yards from an initial target. To build enough precision-guided missiles, Russia would need many more chips than it is able to supply for its military.