Russia Export Controls Should Focus on Machine Tool, Raw Material Suppliers, Analysts Say

Western nations imposing export controls against Russia should shift their focus away from microchips and instead prioritize the key raw materials and machine tools that Moscow needs for its artillery, according to a report this month from the U.K-based Royal United Services Institute and Open Source Centre. The report calls for more enforcement against Chinese machine tool suppliers and new, “strict sanctions” against companies shipping materials like chrome ore that Russia uses for its weapons.

The U.S., the EU, and other countries have centered their Russia export control efforts on stopping shipments that are included on a list of common high-priority items, which features integrated circuits, electrical parts, industrial components and more. And while those same countries have also targeted exports of machine tools sought by Russia -- and the Bureau of Industry and Security recently expanded its Russia-related controls to capture certain computer numerical control (CNC) machine tools-related software -- the report urged Western governments to make those tools, along with shipments of certain raw materials, their main focus (see 2408230006).

The report, authored by Ukrainian government analysts along with researchers from both RUSI and the Open Resource Centre, said the West’s current approach to restrict the “entire Russian defence industry” from accessing critical materials and equipment had been “admirable in its ambition,” but it has also “struggled to measurably restrict the growth of Russia’s defence industry and its ability to fuel the war.”

The strategy should focus instead on shutting down a “single supply chain” used by Russia -- the supply chain essential for providing Moscow with the raw materials, products and machinery it needs for its artillery. “These elements of the supply chain may be open to Western interventions from a variety of angles," the report said, “and their limited nature, combined with the overall importance of artillery, could empower governments to focus disruption efforts on these elements, to meaningfully degrade and disrupt Russia’s artillery supply chain.”

The report argued for “targeted sanctions and diplomatic pressure” against countries and companies supplying Moscow with quality machine tools. As of August, it said only a “minority” of Russia’s China-based machine tool manufacturers and suppliers have been sanctioned.

“This gap in the international sanctions regime allows Chinese companies to export and re-export machine tools, including with CNC, to Russia without consequences, to manufacture Western machine tools under licence and to build critical Western technology into machines that would be far less capable without them,” the report said.

Of the 36 Chinese companies that were among the top suppliers of Western machines to Russia during 2023 and the first quarter of 2024, the report said only five had been sanctioned by members of the Russia sanctions coalition as of August: one by the U.S., the EU and Switzerland (Shenzhen Biguang Trading Co. LTD), three just by the U.S. (Silver Technology LTD, Most Development LTD, Agu Information Technology Co. LTD), and one just by the EU.

The report also called on Western governments to sanction suppliers of chrome ore to Russia, a key material the country needs to make weapons barrels and which is also used for its oil and gas industry. Much of Russia’s chrome ore is imported from countries “that are Western partners or receptive to their concerns,” the report said.

It's more challenging to “secretly transfer thousands of tonnes of chromium ore into a country than to smuggle in a few thousand microchips,” the report said, so it “appears likely that enforced sanctions in this field would have a better chance of successfully disrupting the chromium supply to Russia than sanctions on microchips have had of disrupting that supply chain.” Though Russia would eventually find another chromium source, the report said, that would take time.

The sanctions-imposing countries should also use “diplomatic pressure” to urge other nations to stop their companies from doing business with supply chain partners connected to Russia. It specifically called out Taiwan, saying the West should ask it to “examine companies exporting CNC machines to Russia and China.”

The report suggested the U.S., European nations and others will likely need to more frequently turn to sanctions and diplomacy to disrupt supply chains essential not only for Russia, but also for China and Iran. The three countries “frequently work together to evade sanctions,” it said. “The current focus is Russia, but the need to disrupt supply chains will emerge again as these autocratic regimes continue to attack the West. Western governments must develop the ability to understand and disrupt an opponent’s most critical supply chains sooner rather than later.”