24 February 2022
Latest sanctions to have minimal impact on Russian defence industry
by Guy Anderson
Sanctions imposed against Russian entities as a result of Moscow's ordering of troops into the breakaway regions of Donetsk and Luhansk in eastern Ukraine are unlikely to have an impact on Russia's defence industrial base – a sector that has adapted to measures imposed by Western governments since the occupation of Crimea in 2014.
Measures have been progressively applied against the crown jewels of Russia's defence industrial base for much of the last decade. The EU and the US have acted to cut Moscow's military and banking organisations off from financial markets to reduce access to credit, investment, and instruments necessary for international trade.
Embargoes have also been used to stop the supply of military and dual-use equipment to Russia, in addition to measures to stop technical assistance and the transfer of technology.
The EU's measures against Russia were framed primarily through Council Decision 2014/512/CFSP and Council Regulation (EU) No 833/2014. These have been extended periodically since 2014, most recently at the start of this year for six months to the end of July 2022.
While EU measures have specifically targeted major Russian state-controlled defence assets such as aerospace group United Aircraft Corporation and land systems developer UralVagonZavod, US measures went further and targeted virtually the whole Russian defence industrial base.
US sanctions applicable to Russia (plus Iran and North Korea) were codified in 2017 into a new instrument –the Countering America's Adversaries Through Sanctions Act (CAATSA).
EU sanctions in response to Russia's annexation of Crimea guillotined a series of collaborations and defence trade agreements between Moscow and Western countries.
These included a 2013 partnership between what was Renault Trucks Defense and Russia's UralVagonZavod to develop a new infantry fighting vehicle, and a Russo-Italian submarine development programme. Both were terminated in 2014 along with France's sale to Russia of Mistral-class amphibious assault ships.
Russia was also forced to look beyond the West for products ranging from industrial machine tools to semiconductors, to support its defence industrial activity.
Moscow embarked on an import substitution drive to fill gaps caused both by sanctions and the collapse of relations with Ukraine, which had previously operated as a de facto part of Russia's industrial base. Ukraine had been a significant producer of military subsystems for Russia, ranging from Motor Sich aircraft engines to Zorya-Mashproekt naval turbine assemblies.
Exclusion from Western financial markets, meanwhile, obliged Russia's military industrial complex to look to domestic sources for credit and liquidity with state funding used to support activity.
Where possible, Russia's sprawling network of defence industrial assets also restructured to shield subsidiaries from sanctions imposed against their parent companies.
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