Western Technology Firms Must Stop Supplying Russia's War Machine

Anastassia Fedyk | Yuriy Gorodnichenko | James Hodson | Western governments have been far too slow to impose restrictions on technology exports to Russia, enabling the country to produce advanced weapons using imported software and microchips.

By Anastassia Fedyk, Yuriy Gorodnichenko, and James Hodson*

While media attention has largely shifted to the violence in the Middle East, the fighting in Ukraine continues unabated. In fact, Russia’s recent deployment of advanced hypersonic missiles, coupled with its increasingly effective use of drones, has enabled it to carry out some of the most devastating and deadliest attacks since the start of the war.

Since its forced withdrawal from northern Ukraine in September 2022, Russia has increasingly relied on sophisticated weaponry to boost the effectiveness of its military strikes. Ironically, the advanced technologies currently powering the Russian war machine – and costing Ukraine and its allies billions of dollars in additional defense spending – were sourced from Western firms.

How can we ensure that Western-made software and critical systems do not fall into Russian hands? In two recent papers, published by the Yermak-McFaul International Working Group on Russian Sanctions and based on our earlier report, we argue that much more can and should be done to prevent Russia from gaining access to imported technological components and capabilities, either directly or by closing sanctions loopholes.

Russia currently benefits from Western technologies in two main ways. The first is by directly integrating components, software, and technical know-how into military and defense-related equipment. Second, the use of imported components and software supports critical Russian industries, thereby enabling the Kremlin to channel additional resources to the war effort in Ukraine.

There is little doubt that without access to these high-tech components, the Russian military would be far less efficient, requiring more money, time, and manpower to achieve its tactical goals. Russia would be forced to make hard choices about how to allocate its limited resources, thereby constraining its ability to win on the battlefield. At the same time, according to Economists for Ukraine, every dollar Russia spends on attacking Ukrainian forces and cities translates into $10-100 in defense and reconstruction costs. Consequently, steering Russian resources away from the war could significantly increase Ukraine’s chances of winning.

There are several steps that Western governments can take to achieve this. Currently, semiconductors produced by Intel, Analog Devices, Texas Instruments, STMicroelectronics, Microchip Technology, and NXP Semiconductors, as well as NVIDIA GPUs – central for artificial-intelligence model training – remain readily available to Russian military forces, government agencies, businesses, and civilians. But none of these tech companies has been held accountable.

By contrast, Western financial institutions are subject to stringent “know-your-customer” (KYC) regulations, which require them to conduct thorough background checks to combat money laundering and other criminal activity. Moreover, they must refrain from doing business with entities not adhering to the same rules and face significant penalties breaching them.

Large tech companies must be held to the same standards. Like banks, they should be required to do business only with known entities that perform comprehensive background checks throughout the supply chain. Although firms might claim that the costs would be prohibitive, the financial sector shows that it is possible to enforce these rules without driving any major companies into bankruptcy.

The examples of Apple and Google highlight the loopholes within the current sanctions regime. Shortly after Russia’s invasion of Ukraine, both companies withdrew completely from the Russian market. But iOS and Android devices remain freely available in Russia, and their advanced chips and sensors are frequently repurposed for military use.

The ongoing availability of Apple and Google products is facilitated by a network of intermediaries in countries like Kazakhstan and Turkey, where demand for Western products skyrocketed after companies exited the Russian market en masse in 2022. Instead of scrutinizing the legitimacy of unusually high order volumes and identifying the goods’ final destination, tech firms happily sold to brokers with little to no commercial history. These intermediaries then rerouted the products to Russia.

When companies fail to address clear evidence of illicit activities, governments must intervene. We propose imposing strict export restrictions on countries that help Russia circumvent Western sanctions, based on pre-2022 figures. This zero-sum approach will ensure that redirecting products from these countries to Russia will come at the expense of their own populations.

In 2022, the Kremlin unveiled an ambitious import-substitution program to reduce Russian companies’ dependence on Western software systems, enabling many critical sectors to shift to Russian alternatives. But the oil and gas sector and the financial industry continue to rely heavily on Western technology.

The Russian oil and gas industry currently depends on reservoir-modeling algorithms and software from US-based companies like SLB, Halliburton, AspenTech, and Emerson Electric to manage the extraction process, improve efficiency, and boost profit margins. Similarly, the Russian financial sector relies on Oracle databases that have not been updated for more than a year. Russia lacks any domestic alternatives to these critical technologies.

Consequently, Western tech firms have the power to disrupt key Russian industries and severely undermine Russia’s ability to wage its war of aggression in Ukraine. We recommend imposing restrictions on Russian access to software updates and requiring firms to block all data, remote-access, cloud-based, and online features associated with these software packages.

Western governments have been far too slow to restrict technology flows to Russia, but immediate action can still make a difference. By forcing the Kremlin to shift resources from Ukraine toward costly software upgrades and migration, they could cripple Russia’s war machine and ensure its defeat.


*Anastassia Fedyk is Assistant Professor of Finance at the University of California, Berkeley.

Yuriy Gorodnichenko is Professor of Economics at the University of California, Berkeley.

James Hodson is CEO of the AI for Good Foundation.

Copyright: Project Syndicate, 2024.