Russia Purchases 70% Chips From China, But Biden’s Embargo Will Seriously Hit Putin

Earlier yesterday, the Russian troops began attacking Ukraine. Immediately after the bombing, various European countries and the U.S. “launched” the set of sanctions against Russia. In the second batch of sanctions against Russia’s business interests, Joe Biden included a complete embargo on selling semiconductors to Russia.

“We’re going to impair their ability to compete in the 21st century economy,” Biden said on Thursday. He also listed sanctions that will cut Russia off from the computer chips that power cars, smartphones, and even missiles.

In simple words, Biden’s embargo means that any chip developed using any American technology can’t be sold to Russia. This sanction has many similarities with the one announced against a number of Chinese companies, including Huawei. But the latter had a goal not to allow China to outrun the US in terms of technology.

Anyway, as U.S. Assistant Secretary of Commerce for Industry and Security Thea Rozman Kendler said, “even most products made overseas using sensitive U.S. technology will be restricted for export to Russia.”

“Russia’s access to cutting-edge U.S. and partner country technology will halt. Its defense industrial base and military and intelligence services will not be able to acquire most Western-made products,” Kendler said.

Russia Is Not a Major Player

In fact, the U.S. doesn’t have a large base of semiconductor manufacturing. But those few companies lead the industry. In other words, even if the chips are manufactured not in the U.S., most of them rely on U.S. intellectual property.

However, for Russia, this shouldn’t be surprising as the White House was talking about this a few weeks before Russia attacked Ukraine.

“Some of the most powerful impacts of our actions will come over time as we squeeze Russia’s access to finance and technology for strategic sectors of its economy and degrade its industrial capacity for years to come,” Biden said.

On the other hand, the semiconductor manufacturers won’t suffer a lot from losing a partner like Russia, as it’s not a big player in the field. According to CEO of the U.S. Semiconductor Industry Association (SIA), John Neuffer, Russia only accounts for 0.1% of global chip purchases. According to data coming our way from IDC, the Russian chip market is worth $50 billion in trade out of a $4.5 trillion global industry.

Also, Russia buys around 70% of the chips it needs from China, Biden’s embargo shouldn’t touch Chinese products. But what’s more important, almost all chips produced in China are low-end chips. Thus, Russia won’t be able to create flagship products.

Putin Can Launch Its Own Sanctions

In their turn, Russia and Ukraine are major suppliers of neon gas and palladium. Both are essential in manufacturing chips. So there is every reason to think that Putin will launch similar sanctions.

Although we should point out that many chip manufacturers have already tried to diversify neon sourcing after Russia invaded Ukraine last time, in 2014. At that time, the neon prices rose by 600%.

“Unless Ukraine becomes long drawn-out war, lasting over a month, there should be little impact on neon supplies,” says Morningstar analyst Phelix Lee.