Sanctions against Russian defence industry

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Third of Five Articles

Highlights from the “Sanctions policies against Russian defense industry enterprises”, prepared by Oleksandr Khara, Fellow, CDS and Andrii Klymenko, Editor-in-Chief, BlackSeaNews

Russia’s distorted perception of the security issues pushes it to wage an outright war in Syria, a covert war in Ukraine, and a so-called hybrid war (by non-military means) against the West as a whole. Russia believes that U.S. global leadership is threatening primarily Russia and that any action of the United States in support of its allies and partners is seen as the realization of aggressive intentions. As such, the Putin regime is gearing up for a global conflict.

The Putin regime wants to force America to recognize Russia’s role as a great power. The illegal annexation of Crimea and the covert war in Eastern Ukraine serve this purpose. The Russian military-industrial complex (MIC) serves as the enabler for Russia’s aggressive policy as well as one of the essential components of its economy. That is why it is necessary to see sanctions against the Russian MIC as a tool of constraining the Kremlin’s aggressive policies.

Sanctions and their impact on Russia

Russia is not just in a state of war. It is preparing for a global conflict because, in the minds of Russia’s military and political elite, Russia can force the West to recognize its “legitimate” interests that go far beyond its borders. Thus, diplomatic maneuvers, enforcing political isolation and implementing sanctions remain the most acceptable forms of containing Russia.

The first sanctions against Russia were linked to the growing authoritarian nature of the Putin regime, its violations of rights and freedoms and problems with the rule of law. Hence, 2012 saw the adoption of the Magnitsky Act. These sanctions were meant to give the Kremlin an opportunity to consider the repercussions and to realize that the already-imposed sanctions were not the final ones. They were not meant to cause much damage to the strategic interests of the countries that introduced them, which ironically meant avoiding any damage to the Russian economy. The sanctions were intended to influence the Kremlin’s course rather than resort to punishment.

Now, it can be argued that sanctions affect Russia tremendously, setting it back by decades and significantly slowing down its progress:

  • Russia saw a fall in the real income of the population by more than 10 per cent between 2014 and 2020;
  • Russia lost a third of its accumulated foreign direct investments; it now ranks 50-60th globally in terms of domestic credit availability and liquidity;
  • Sanctions caused delays in the Russian defense industry, such as in weapons and equipment commissioning, creating production facilities, purchasing equipment, staff training, etc.
  • Sanctions have forced the State Research and Production Enterprise “Region” to resort to import substitution, whose quality has prevented the timely delivery of an anti-torpedo combat module (Paket-E/NK).
  • Sanctions also jeopardize Russia’s Arctic ambitions.
  • Thus, both the defense industry and other strategic fields involved in ambitious projects and capacity building remain vulnerable to sanctions.

“Crimean” sanctions: a tool for countering Russia’s actions

The international community did not recognize the illegal annexation of Crimea and made this non-recognition a part of their policy towards Russia. As such, a barrage of sanctions hit the Putin regime in response to its aggressive seizure of Crimea and the beginning of a covert war in Donbas.

Western countries held a firm consensus, taking unanimous decisions to continue the previously-imposed restrictive measures. However, current proposals to step up pressure do not command the necessary support. Moreover, representatives of some European countries whose interests have been affected by sanctions, are calling for at least a certain easing of restrictive measures as an “encouragement” to Russia. They also argue that sanctions do not work, which makes lifting them a sound idea.

There are quite legitimate grounds to expand the Crimean sanctions lists based on Russian illegal actions. Therefore, Western countries need to pay special attention to Russia’s defense enterprises that produce dual-use products that increase Russia’s aggressive potential. The likelihood of reaching a consensus on such sanctions is also increasing because Western countries may see this as an opportunity for the soft containment of Russia, since Russia poses threats to their security. Countries that take lessons from Ukraine’s recent history may use power as a substitute for the mechanisms of international law (such as sanctions), however this will further increase the chaos in international relations. The importance of resolving the Crimean issue is not limited to European security – sanctions are the most optimal instrument to resolve this issue.

Sanctions must affect companies and organizations in the defense industry, in shipbuilding and aircraft construction, in the aerospace industry, and in the electronics industry. Sanctions must damage, prevent, or slow down the development and production of military or dual-use equipment. They must also slow down Arctic exploration and militarization projects. Sanctions must also significantly impede access to finance and financial services, insurance, high technology, new materials, high-precision machines, equipment, and facilities for both the defense industry and Russian industry as a whole.

Conclusions and recommendations

Russia will continue to be a source of threats and challenges to neighboring countries, primarily Ukraine and Georgia, and also to the West as a whole. That is why the sanctions policy should aim at slowing down the build-up of Russia’s power projection capacity, exploiting its vulnerabilities caused by its relative economic and technological backwardness.

Having formulated international legal, political and diplomatic arguments, Ukraine should promote the idea of imposing sanctions and restrictive measures against Russia. Based on the above, the practical recommendations of the paper are as follows:

  • The President of Ukraine should establish a working group at the National Security and Defence Council of Ukraine to develop the necessary proposals for the introduction of Ukrainian sanctions, sanctions and restrictive measures from our partners, and their usage in lawsuits against Russia.
  • The working group should maintain a database on the information required for the implementation of sanctions and other measures, as well as data on the Russian defence industry enterprises and other relevant industries that should be subject to sanctions, according to certain criteria.
  • Ukraine’s Ministry of Foreign Affairs should promote the idea of stepping up the sanctions of European partners against the Russian defence industry and Russian agencies that are involved with Arctic projects.
  • The Government of Ukraine should establish a mechanism to bring lawsuits in international courts and arbitrary tribunals against Russia, its legal entities and natural persons in connection with the illegal seizure of Ukrainian defence enterprises in Crimea, as well as the infringement of intellectual property and other rights.
  • The Office of the Prosecutor-General of Ukraine, the Security Service of Ukraine and Ministry of Internal Affairs of Ukraine should take measures to prosecute individuals and legal entities that are owners or managers of illegally seized enterprises of the Ukrainian defence industry in Crimea. They should also seek to prosecute representatives of state authorities and owners/managers of Russian companies who “own” or “manage” plants of the Ukrainian defence industry that were illegally seized in Crimea.
  • The Ministry of Foreign Affairs of Ukraine should address the question of imposing sanctions of partners and restrictive measures of the EU against the legal entities described in these recommendations.

Thus, sanctions and restrictive measures will punish Russia for the attempted illegal annexation of Crimea and force it to return the temporarily occupied territories to Ukraine. They will also reduce the resource base of the aggressor, slowing down Russia’s militarization, and will contain its aggressive actions in the Arctic and the Far East. Further limitation of Russia’s access to financial resources and high-tech equipment not produced in Russia will play a role similar to the practices the West enacted during the Cold War arms race.

This article is written under the Local Journalism Initiative agreement

Kateryna Bandura for New Pathway – Ukrainian News

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