Report of Monday Morning Meeting on “Sanctions on the Russian Defence Industry”

Dr. S. Samuel C. Rajiv, Associate Fellow, MP-IDSA spoke on ‘Sanctions on the Russian Defence Industry’ at the Monday Morning meeting, which was held on 23 May 2022 at 10 AM in the auditorium. The session was moderated by Col. Manish Rana, SM, Research Fellow, and Centre Coordinator, Defence Economics and Industry Centre. Director General, MP-IDSA, Ambassador Sujan R. Chinoy and the scholars were in attendance.

Executive Summary

The Russian Federation’s defence industry, apart from different sectors of its economy, has been under various sanctions, primarily by the United States and the European Union, since 2014, in the aftermath of Moscow’s military interventions in Crimea. In the wake of its February 2022 military action in Ukraine, these sanctions have been further strengthened. The sanctions have targeted key Russian arms producing firms, their design bureaus, export organisations and their leadership, as well as the export and import of dual-use products. Given that India is one of the largest importers of Russian arms, it has been impacted by such sanctions. The presentation discussed the different US and EU sanctions, and the implications they have had for countries like Turkey and Indonesia. The discussion also pertained to the impact on India’s current arms procurement programmes from Russia. 

Detailed Report 

Dr. Rajiv began his presentation by noting that the Russian Federation is one of the major global arms exporters. Its share of global arms trade, however, has gradually decreased, from 26 per cent in 2011-15, to 19 per cent in 2017-21 (as per SIPRI data). India has been the largest importer of Russian arms, accounting for nearly 34 per cent of Russia’s exports, during 2011-21, followed by China, at about 13 per cent. As a result of Russia’s military actions in Ukraine since 2014, with the latest being the offensive that began in February 2022, Russia has been subject to sanctions measures by the United States, European Union and other countries.

As part of European Union (EU) sanctions, more than a thousand individuals and 80 entities are subject to travel bans and asset freezes. Sanctions have targeted 70 per cent of Russia’s banking system (as per the EU’s contention) and have closed EU airspace and ports to Russian aircraft and vessels. Stricter export controls on dual-use goods have been imposed, restricting Russia’s access to dual-use technology. They have also banned exports of luxury goods and semi-conductors and imports of key Russian products like steel (with effect from August 2022), coal, cement, among other items. Sanction measures have also targeted Russian ‘dis-information’ actors.

As regards defence and dual-use sectors, business transactions with key companies in the aviation, military and dual use, shipbuilding and machine building sectors are threatened to be sanctioned. It remains to be seen how effectively these sanctions will be implemented. Prior to the latest round of sanctions, the EU arms export and import ban has been in place since July 2014. However, more than EUR 900 million of defence trade took place between EU states and Russia, during 2010-20, with a significant portion of it contributed by countries like France, Germany and Italy. The 2014 ban does not prohibit servicing of spares etc. for contracts entered into prior to August 2014. There has been a reduction, though, in arms export licenses from EU states to Russia, decreasing from 940 in 2013 to 86 in 2020. EU states insist, therefore, that they have been strictly following the sanctions measures.

As for US sanctions, it was pointed out that the Ukraine Freedom Support Act 2014 threatened sanctions against persons facilitating financial transactions with Russian producers, transferors and producers of defence articles. CAATSA, passed in August 2017 as a punitive measure against Russia (and Iran as well as North Korea), threatened sanctions for engaging in ‘significant’ transactions with the defence and intelligence sectors of Russia. Nearly 90 individuals and entities are part of the Sec 231(e), list of Specified Persons, transactions with whom will invite US sanctions. These include major Russian entities like Almaz-Antey Corp., Kalashnikov, NPO Mashinostroyeniya, Admiralty Shipyards, Russian Aircraft Corporation MiG, Aviation Corporation Sukhoi, among others.

CAATSA sanctions have been imposed against China (in August 2018) and Turkey (in December 2020). Turkey has also been removed from the F-35 programme in June 2019, for its S-400 deal, which was announced in December 2017. Apart from Turkey, countries like Indonesia and Morocco, have also backed out of deals/negotiations to buy Russian defence equipment, like Su-35 fighter jets and the S-400. 

India ordered five units of the S-400 in October 2018, one unit of which has been deployed in December 2021 and deliveries of the second unit began in April 2022. Media reports have cited the possibility of sanctions waiver – allowed as per the legislation, and also the possibility of such legislations like the CRUCIAL Act – introduced by Republican Senators last year, which allows for non-imposition of sanctions for a ten-year period, if the President certifies to the Congress that India is continuing to play a critical role on security matters in the Indo-Pacific, as part of the Quad.

The presentation closed by noting that under the shadow of sanctions, US-Russia bilateral trade has continued to be significant, amounting to nearly $37 billion in 2021, with nearly half of it due to US imports of Russian mineral fuels. US exports of Advanced Technology Products (ATP) to Russia, though, have reduced by nearly two-thirds in 2021, from 2014 levels.

Ambassador Sujan R. Chinoy complimented the speaker for the presentation and pointed out that we have to navigate the evolving situation with extreme caution in the near-to-mid-term, minimising the negative implications flowing out of the punitive measures that the speaker highlighted. Discussion centered on the possibility of escrow accounts, delayed payments, rupee-rouble trade mechanisms, amongst others.

Questions also related to long-term implications on the Russian defence industrial base, the nature of the Russian military effort in the ongoing Ukraine conflict, the need to further study individual country perspectives and responses and nature of Russian transfer of technology of defence items. The Chair, Col. Manish Rana, closed the session by noting that India will have to further strengthen elements of Atmanirbhar Bharat in defence, to overcome the challenges.

This report has been prepared by Mr. Mukesh Kumar, Intern, Defence Economics and Industry Centre, MP-IDSA.