Russia: a poor power
In terms of sanctions against it, Russia is particularly vulnerable when it comes to technology. Its dependency goes back a long time, to the Soviet era in fact because – despite the USSR exporting more machines and machine tools than it imported numerically-speaking – the value of these imports exceeded 7 and sometimes even 10 times the value of its machine exports. This pattern continues today with the country being unable to manufacture sophisticated machines, in part due to it having left to crumble what remained of its industrial capacity inherited from the communist era.
The rise in oil prices – during Putin’s first two terms at least – has come to hurt Russia, with the country having greatly prioritised investment in energy production, and not without making use of its gains to make enormous purchases of foreign technology. Russian companies in the sector import more than half of their equipment to this end, and also even 90% of their technological requirements for offshore and fracking operations. And the Russian defence industry itself still imports nearly 30% of its high-grade electronics. While national industry produces, for example, more than 80% of its needs with regards to construction, cement, and cranes, it has to in turn import 100% of its laser and ultrasound machines. In short, the policy that has been put in place to gradually replace imports with national production built from investment has now turned out to be a failure. Everyone remembers President Putin’s 2018 visit to a machine tool factory to illustrate the success of these industrial and technological growth programmes…until experts noticed that Putin was actually posing (probably unbeknownst to him) next to a “Made in Italy” machine that had been repainted and sold at double the price, as if it had been made in Russia.
The European Union is in fact Russia’s biggest supplier of sophisticated equipment, and China is not a close second, despite its own equipment selling at 1,000 dollars as opposed to 100,000 for their German or Swiss equivalents. China is likewise sorely lacking this technology that also Russia needs, like for example jet plane parts that China imports 40% of from Europe and the US. Processors, chips and other high-grade tools that are essential, for example, to Russia’s satellite system – GLONASS – that allows it to operate both its GPS and its defence missiles cannot simply be bought in China because it doesn’t produce them, therefore forcing Russia to put the brakes on its own programmes. On the financial side of things too – which is vital for Russia – China isn’t taking any big risks either because no bank in the country has joined SWIFT, the alternative payment system created by Russia that has massively reduced its own dollar reserves, whereas China has been preserving its own same reserves denominated in the American currency. In reality, China has significantly withdrawn from Russia financially over the last few years, giving 75% less funding to its energy sector that is nevertheless fundamental for Russia.
This great weakness of the Russian economy is structural because activity there is controlled by a few conglomerates concentrated in just a few areas and which are the property of the state, or of a tiny minority of people that are all linked to each other and dependent upon each other. With such a disastrous backdrop, and not at all productive, when even before Covid food prices had shot up by more than 30% due to sanctions and a deficient agricultural sector, how is Russia to survive with fresh sanctions on the horizon?