Russian business hit by tech sanctions

This is an audio transcript of the FT News Briefing podcast episode: Russian business hit by tech sanctions

Marc Filippino
Good morning from the Financial Times. Today is Thursday, June 2nd, and this is your FT News Briefing.

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We’re gonna look at how Western sanctions on technology are hitting Russian businesses. It’s pretty painful. Plus, we’ll dig into the US administration’s plans for Ukraine and why the White House is being so vague about its end goals. I’m Marc Filippino and here’s the news you need to start your day.

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Western sanctions on technology sales to Russia are taking a big toll on Russian businesses. There are bottlenecks in supplies of semiconductors, electrical equipment and hardware. The FT’s Max Seddon says the impact isn’t obvious right now.

Max Seddon
It’s not that everything is collapsing. It’s more that they’ve already been forced to drastically scale back their plans for all sorts of things in the technological sector. We’ve seen the Russian government has basically have to admit that it’s not going to ban YouTube because you need an enormous amount of bandwidth for your censorship infrastructure to do that. And, you know, this is all running on imported components because Russia doesn’t make this stuff to any replaceable degree. 5G is probably not going to come to Russia now because all the equipment is supplied by Nokia and Ericsson, which are Scandinavian companies. So they’re obviously not gonna want to be involved in that. And even China’s Huawei, which is under various sanctions, they were looking like being the real saviours of 5G in Russia. And so they’ve had to drastically scale back their own presence in Russia because they don’t want any further blowback from sanctions themselves. And that’s been the case for a lot of Chinese companies.

Marc Filippino
Max says the sanctions on technology could end up being the most devastating of all the sanctions.

Max Seddon
Because in about a year, there will be no new capacity for Russia to import crucial technology like microchips and semiconductors, to power everything from computers to industrial equipment to its own military. What these sanctions do is they cut Russia, which is been part of the globalised world for 30 years, importing all this computer technology and doesn’t know how to produce the vast majority of it. And so this leaves Russia at the well, the risk, according to some, you know, people in tech industry that I talked to, that they will just run out of servers and they will have to downgrade their tech from being one of the world’s most tech-savvy countries to one of the world’s most technologically backward countries.

Marc Filippino
And sanctions could also stifle competition in the Russian economy because they’ll make it harder to build new businesses.

Max Seddon
So what it means, according to one Russian expert I spoke to, is you’re going to see something that’s going to be a lot more like the Soviet economy, where it was almost like this planned economy where, you know, there was one savings bank, there was one oil and gas company.

Marc Filippino
Max Seddon is our Moscow bureau chief. He’s currently in Kiev.

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This week, the US said it will provide Ukraine with longer-range rocket systems. It’s part of Washington’s $40bn aid package for Ukraine. But behind the billions in assistance and supportive statements, plus the hard-hitting sanctions against Russia, like the ones we just talked about, Washington has been less than clear about its end goals. I’m joined now by our US foreign affairs correspondent, Felicia Schwartz. Hey, Felicia.

Felicia Schwartz
Hi.

Marc Filippino
So what has the Biden administration said so far, Felicia?

Felicia Schwartz
While maybe they have not been super specific about territorial outcomes or anything like that, they’ve made it clear that while, one, it’s up to the Ukrainians to decide how this ends. But what they want to see is that this fight is a strategic failure for Russia, that the world understands that the big can attack the small, to paraphrase General Mark Milley. The US wants to make sure that Ukraine is an independent, sovereign, vibrant country. They want to make sure that Nato, as an alliance, stays intact. I don’t know that anyone is naive and thinks that the world is going back to the way it was before February 24th. But as close as you can get with a stronger Nato is where I think the US hopes this ends up.

Marc Filippino
So, Felicia, the US declares these broad objectives and principles, but in terms of how it specifically sees the conflict ending, it’s been kind of vague. Why is that?

Felicia Schwartz
It’s a mixture of they’re trying to figure out what they want to say. I think it’s pretty clear to policymakers that Russia will be weakened regardless of how the war proceeds at this point, because Russia is under crippling sanctions and export controls. So I think some of it is just trying to tow the line of wanting to influence the outcome, but not too much, and wanting to stay out of the war and not wanting to escalate. And then I also think that some of it is, this is kind of early days in a sense. So I think it’s a mixture of not totally knowing how this is gonna shake out and wanting to leave their options open by not ascribing some sort of end state that might preclude other options, should the fighting go one way or another.

Marc Filippino
Yeah. You know, to borrow a phrase from our other Financial Times coverage, they’re hedging, right? So I have to ask why President Biden is refusing Ukraine’s request for rockets that have longer range than the ones that the US is already sending.

Felicia Schwartz
This all has to do with escalation and I think that the calculations have changed. Heavy artillery, for example, was seen as maybe a bridge too far once the war started. And basically the Russian military has done a lot worse than a lot of intelligence predicted and the Ukrainian military has done a lot better. So that’s forced American officials and not just Americans, other European countries, other allies to constantly recalculate how much they can provide without triggering Russia to expand the conflict or see this as a conflict that US and particularly Nato is involved in. There is a sense that giving the Ukrainians rockets that are too long of a range could be potentially escalatory.

Marc Filippino
Felicia Schwartz is the FT’s US foreign affairs correspondent. Thanks, Felicia.

Felicia Schwartz
Thanks.

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Marc Filippino
British pubs have been eager to bring customers back after the long drought during the pandemic. But pub goers are in for some pain. The price of a pint is up in some places to more than £8. That’s like ten bucks, so it better be a good beer. Anyway, you can’t really blame the pub owners. They’ve got higher wages to pay and higher costs for everything from electric bills to barley. And if you don’t want to pay £8 or ten bucks, you’ll have to go to Lancashire. One industry tracker says that’s where you’ll find the UK’s cheapest pint £1.79.

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Just a reminder, we wann hear from you about how you’re handling the changing economy. How are you coping with inflation personally? Are you cutting back on certain expenses? Are you changing the way you invest? We’d love to hear from you. And you can send us a voice memo telling us how inflation and the rough markets are affecting your daily lives. And send it to me marc.filipino@FT.com. We may include your thoughts in an upcoming episode. That’s marc.filippino@FT.com. You can also find my email in the shownotes.

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You can read more on all of these stories at FT.com. This has been your daily FT News Briefing. Make sure you check back tomorrow for the latest business news.

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