Most Favoured Nation: Guns And Ships … Are Running Out Of Microchips

Russia sanctions, the hidden cost of tariffs and STAG STAG STAG

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There is an ongoing discussion about whether Western sanctions on Russia are working. People like the IIF’s Robin Brooks are quick to draw attention to the fact that the Russian current account surplus has skyrocketed.

I’m in the camp this is not convinced Russia’s current account is particularly relevant. Of course Russia is going to run a surplus if countries continue to buy its oil and gas AND it import less due to sanctions and companies voluntary withdrawing from the Russian market.

The question for me is whether the sanctions are actually stopping Russia getting what it needs from the West to sustain its military offensive. And here there is increasing evidence that Russia is struggling, with its imports collapsing in the first quarter of 2022.

Source: Author’s calculations, relevant national statistics bodies (2022)

But what is it Russia actually **needs**? As in, what Western components are vital to the production of the high-tech weapons and equipment it is using in Ukraine?

To find this out, researchers from RUSI went to Ukraine and, well, disassembled Russian gear to find out. The results are hugely informative.

Of the Western components found in missiles such as the 9M720 Iskander-M quasi ballistic missile, ground launched cruise missiles, tactical combat platforms and radio and satellite communications systems, the majority originated in the US.

Much of these have been illicitly procured over the years by Russian spies and affiliates via “false end-user certificates, front companies and transhipments”.

Now, with export sanctions tightened, the question is whether Russia’s illicit procurement network will still be able to provide the inputs needed by its war machine. And whether other countries will risk the wrath of the US, and possible secondary sanctions, to fill the gap, where able. And if not … Russia is going to run out of stuff, and soon.