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Business Last Updated: Feb 2, 2024 - 2:11:51 PM


Sanctions Scuttle the Russian Economy
By Strategy Page, December 22, 2023
Dec 22, 2023 - 3:01:15 PM

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Russia insists that its industrial and defense production is unaffected by Western economic sanctions. That is untrue because most Western suppliers are well known firms that are often the only manufacturers of key components. Their official policy is that the sanctions are observed. There is some diversion of components to Russia, via legitimate customers who sell items to firms that will take the opportunity to resell items to smugglers who supply these items to any customer who is willing to pay higher prices that justify the risk of getting caught and prosecuted for such illegal transactions. Some of these illegal suppliers are far down the supply chain. It takes some effort to track them down, but it can be done once there is clear evidence that items are getting to sanctioned users. Those illegal suppliers are often obscure organizations in small countries, where bribes will prevent undue attention to these transactions.

Officially, Russia insists that it is obtaining all it needs legally and refuses to provide proof. Russia is indeed obtaining needed Western items, often for weapons used by the Russian military in Ukraine. The problem is that Russian weapons manufacturers have become dependent on Western components and industrial machinery to insure that their products are competitive, and exportable, in terms of price and capabilities. Many of those export items are no longer available from Russia because the sanctions have reduced or eliminated supplies of key components. While Russia can substitute different foreign components, or lesser quality versions of the same foreign components, that affects the reliability and cost of the finished items.

Since the collapse of the Soviet Union in 1991, the new Russia had prospered because of legal access to Western goods. The Russian invasion of Ukraine in 2022 triggered economic sanctions that Russia tried to dismiss as unimportant. The sanctions were important and anyone who knew where Western industrial exports were going understood that post-1991 Russia had become a major customer. The sanctions meant lost business for Western suppliers, and Russian customers resorting to other sources. This was often difficult and sometimes impossible to do.

Since the 1990s Russia didn’t have to get by with inferior Soviet Russian manufacturing equipment, and could obtain major industrial items from Americans and European suppliers, most of them NATO members and supporters of Ukraine and in some cases suppliers of industrial equipment to Ukraine. South Korea is another supplier, but a country that complies with Western sanctions. South Korea is a major supplier of industrial items to European countries.

Over the last 30 years Russia had purchased more and more industrial manufacturing items from Western firms like Siemens, Fanuc, Mycronic, and Delta Electronics. The suppliers observed the sanctions and Russia has had to seek other sources for this equipment that was essential to keep Russian manufacturers operating. This included machine tools and similar items all manufacturers used. These industrial items were still not manufactured in Russia. Before 1991 even the Soviets tried to import or smuggle in Western industrial equipment. Russia has never been able to create a modern heavy machine-building industry, which was needed for arms manufacturing. That was one reason why Russian weapons, including tanks, aircraft and warships were never able to reach Western levels of quality and effectiveness.

There is a similar situation with Chinese industrial equipment. China was late to the industrial revolution and didn’t go through it until the 1980s. Chinese quality is improving but not yet competitive with Western products. China is not about to ignore the Western sanctions because they value their relationships with Western suppliers and customers. Russia is on its own and that’s not enough to keep the industrial production going to produce weapons for Russians fighting in Ukraine.

It’s worse than that because the sanctions have also crippled production of weapons as well as commercial items. Some efforts have been made to copy Western industrial equipment and create Russian versions. In addition to violating patents, this rarely results in an effective copy, much less a competitive one. This includes key components of aircraft and warships as well as similar high-tech items for the ground forces. Railroad equipment and commercial aircraft manufacturers are also dependent on these resources.

Manufacturers also have to replace worn out industrial equipment as well as upgrade to more effective models. As long as the sanctions last, Russian manufacturing capabilities will decline in terms of quantity and quality. Russia has achieved new levels of quality and quantity in terms of producing industrial equipment for manufacturers. The longer the sanctions last, the more time it will take to catch up. Russia insists that these problems are being overcome but they are not. Production of new tanks and combat aircraft have declined since 2022, when the sanctions began.


Source:Ocnus.net 2023

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