Russia gets the Huawei treatment, on steroids

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Russian President Vladimir Putin speaks during a meeting with representatives of the business community at the Kremlin in Moscow, Russia February 24, 2022. Sputnik/Aleksey Nikolskyi/Kremlin via REUTERS

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WASHINGTON, Feb 24 (Reuters Breakingviews) - Russia is getting an uber taste of what it’s like to be Huawei. The U.S. government said on Thursday it will cut the country off from American microchips, telecoms gear and other items. It’s a more wide-ranging version of the trade curbs that hobbled China’s telecommunications giant and could sting the Russian economy more than financial sanctions.

Russia’s invasion of Ukraine read more has provoked sweeping penalties from Washington and its allies. The country’s biggest financial firm, Sberbank (SBER.MM), can no longer use U.S. counterparts to transfer money. Another bank, VTB (VTBR.MM), faces harsher sanctions that include freezing U.S. assets.

Extensive export controls may prove even more troubling for Russian President Vladimir Putin. American businesses that sell certain products to Russian entities are now effectively banned from doing so unless they obtain licenses, which will mostly be denied. Those items include computers, information security gear, lasers and sensors. The curbs are designed to include foreign goods produced using U.S. equipment, software and blueprints. The U.S. Commerce Department said it is the most comprehensive application of restrictions targeting a single nation.

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Huawei's experience shows the pain these limits can cause. Citing national security concerns, Washington campaigned to turn the group into an international pariah. Isolated from American suppliers, though not blocked as thoroughly elsewhere as the Ukraine-related sanctions may achieve, the company said in December it expected a nearly 30% drop in revenue in 2021 compared to the previous year.

Putin needs sophisticated semiconductors for the government-controlled internet he wants to build. And Russia's burgeoning technology sector could suffer, including New York-listed Yandex (YNDX.O), which started life as a search engine and expanded to food delivery, shopping, taxis and other services, or e-commerce group Ozon (OZON.O) which listed in New York in 2020. Russians might also find their president's war less palatable if, among other hardships, they find it’s more difficult to buy the smartphones they want.

For the West, export restrictions have the benefit of spurring less economic blowback than the harshest financial sanctions might produce for banks, investors and the energy sector. The impact for Russia could be like Huawei, but on steroids. Whether even that's enough to deter Putin is another question.

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(The authors are Reuters Breakingviews columnists. The opinions expressed are their own.)

CONTEXT NEWS

- The United States government said on Feb. 24 that it is imposing export controls on various technology items after Russia invaded Ukraine.

- U.S. companies must obtain a special license to export certain items to Russia. They include chips, computers, telecommunications gear, information security equipment, lasers, and sensors.

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Column by Gina Chon in Washington and Dasha Afanasieva in London; Editing by Richard Beales and Sharon Lam

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