Tightening Sanctions Will Further Compromise Russia’s War-Torn Economy

Executive Summary:

•  The Kremlin is preparing to mobilize the Russian economy and population not only for the “long war” against Ukraine but also for a potential large-scale conflict with the West.
•  Beyond providing Kyiv with the necessary arms and economic support, a more concerted effort to impede Moscow’s import of critical parts for military production is needed to weaken the Russian war machine.
• Enhanced control over the implementation and enforcement of the sanctions regime could limit or stop Russia’s weapons production altogether, reducing Moscow’s offensive potential.

Russia’s so-called “special military operation” against Ukraine has become more protracted, with Moscow seeking to mobilize the economy and population for the “long war” (see EDM, July 12, 2022; April 1 [1], [2]). The Kremlin hopes for the cessation of military aid from Ukraine’s Western partners to put pressure on Kyiv to negotiate and surrender. Under such circumstances, compromising the economic components of Russia’s war against Ukraine has become critical. Western sanctions have already served to cripple parts of the Russian economy (see EDM, February 12). Gaps remain, however, in the sanctions regime, as Moscow is still able to import and export sanctioned strategic goods (see EDM, January 23). In empowering the Ukrainian side in the face of a looming Russian offensive, a two-pronged approach is necessary—strengthening Ukraine’s military capabilities in a timely manner while simultaneously weakening Russia’s ability to circumvent sanctions and increase its arms production and imports.

The $60 billion package of US aid for Kyiv has stalled in the House of Representatives. On March 19, US Secretary of Defense Lloyd Austin announced another security assistance package worth only $300 million, sourced from previous drawdowns (Secretary of Defense, March 19). The lull in US aid is forcing European countries to become more active in sourcing munitions and equipment for Ukraine. For example, Czechia is leading a joint initiative to gather funding for the purchase of over 800,000 critically needed artillery shells (Euromaidan Press, March 8). As of March, 18 European countries had pledged funding. The Czech government has also found 500,000 155-millimeter (mm) shells and 300,000 122-mm shells outside the European Union that will be delivered to Ukraine in the coming weeks (Kyiv Independent, March 2). Another option for sending additional military and economic assistance to Kyiv is to use the revenue from frozen Russian assets to fund defense procurement and production. According to EU High Representative for Foreign Affairs and Security Policy Josep Borrell, 90 percent could be allocated via the European Peace Facility and 10 percent via the EU budget (Josep Borrell X, March 20).

The consistent, timely supply of money and military aid to Kyiv, on its own, will not be enough to defeat Russia. Moscow is still able to develop and produce critical weapon systems, including reconnaissance and strike drones, as well as long-range missiles. The massive waves of Russian air strikes on Ukraine’s critical and civilian infrastructure demonstrate that the Kremlin is still able to produce these munitions at home while supplementing with supplies from its partners, most notably Iran and North Korea. From March 18 to 24, Ukrainian President Volodymyr Zelenskyy announced that the Russian army had used almost 190 missiles, about 140 “Shahed” drones, and nearly 700 guided aerial bombs (Zelenskyy official site, March 24). Zelenskyy also highlighted that almost every Russian missile contains components manufactured by companies from other countries, including the West. According to him, 53 such components can be found in the design of Russia’s X-101 missiles. The “Kinzhal” cruise missile contains at least 49 components that Russia does not produce domestically. A significant portion of these parts are smuggled to Russia through various “gray” markets (Zelenskyy Telegram, March 21).

The Kremlin has feigned success in import substitution for critical parts over the past year. The Russian defense industry, however, remains heavily dependent on foreign tools and components (see EDM, December 4, 2023, January 22, 29, February 5, March 14). For example, Ukrainian hackers recently gained access to internal documents of the Russian Special Technology Center, producer of the Orlan-10 reconnaissance drone. According to the documents, a network of companies continues to import equipment and parts produced by European, American, and Asian companies into Russia (InformNapalm, January 12, February 28). Earlier open-source investigations identified some heavy equipment from Japan and South Korea at Russian Zala Aero Group’s factory, which produces the Lancet kamikaze drone. A Russian journalist even bragged that “bringing all this stuff in despite sanctions is not a big problem” (LB, August 22, 2023).

British expert Damien Spleeters, deputy director of the UK-based Conflict Armament Research (CAR), stated that his organization has researched hundreds of weapons samples used by the Russian army against Ukraine. CAR experts identified more than 250 different electronic elements and more than 10,000 semiconductors made in Western countries. James Byrne, a British Royal United Services Institute (RUSI) representative, has shared similar findings. He pointed out that, to maintain high levels of weapons production, Russia is expanding its covert networks to circumvent sanctions (Ukrinform, February 29).

All this means that Western sanctions can be tightened to strengthen compliance and enforcement. In a recent interview, Polish Prime Minister Donald Tusk lamented the lack of compliance from several European countries. He noted that the sanctions regime must be tougher and “should stop being fictitious. … Half of Europe continues to trade with Russia and Belarus” (TVN24, March 24). In March, Carl Bildt, former Swedish prime minister and now co-chair of the European Council on Foreign Relations, argued that the world should pay far more attention to the enforcement of sanctions against Russia (Carl Bildt X, March 24). Earlier, Tom Keatinge, founding director of the Centre for Financial Crime and Security Studies at RUSI, emphasized that the countries who have imposed sanctions against Russia should do more to bring the violators to justice. He expressed hope that a directive criminalizing sanctions evasion would soon come into force (Ukrinform, March 11).

These proposed measures can build on several successful cases in which European countries became more serious about sanctions enforcement, carrying out strict actions that undermined Russian defense production. For example, documents intercepted from Russian drone producer Izhevsk Unmanned Systems Research and Production showed that the supply of Granat-4 drones to the Russian Armed Forces has been disrupted by European sanctions, with the Russian company unable to source parts in the European Union (InformNapalm, December 4, 2023). In addition, the lack of access to Western-made spare parts for locomotives has caused significant delays for Russian Railways (RZD), which plays a central role in Russia’s military logistics. Throughout 2023, RZD had to suspend or delay almost 50,000 trains (Railfreight, March 19).

Some European countries have undertaken more stringent domestic measures to improve sanctions compliance. For example, in early March, the District Court of Eastern Finland sentenced Gabriel Temin, executive director of two Finnish companies, Luminor and Siberica, to a nine-month suspended sentence for violating sanctions by exporting defense products to Russia (YLE, March 7). In Germany, the Federal Prosecutor’s Office charged two people with supplying Russia with drone components in violation of EU sanctions (Ukrinform, March 5).

Compromising the Russian war machine is crucial in saving Ukraine. It is also a much simpler and cheaper way to prevent future Kremlin aggression against Europe. A recent assessment of the Russian offensive campaign underlined that Russian President Vladimir Putin’s attempts to stabilize the economy are “most likely part of Russian financial and domestic preparations for a potential future large-scale conflict with NATO and not just for a protracted war in Ukraine” (Euromaidan Press, March 20). For the West, it would be better to score victories on the economic front today than to fight on the battlefield tomorrow.