How Russia could be impacted by technology sanctions

• Many today's products are powered by semiconductors, which are located beneath the hood of an increasing number of objects and are widely considered to be their brains.
• Avtovaz CEO stated on Tuesday that the company is already seeking out alternative sources for chips.
• Czech President Milos Zeman stated on Thursday that Russia should be disconnected from the global payments system in relation to SWIFT.

In response to Russia's unprecedented invasion of Ukraine, world leaders are considering imposing sanctions to stop President Putin.

Cutting off Russia's access to key technologies such as semiconductors and payments service SWIFT, which powers most of the world's international money transfers, could be a possible solution.

The consequences of all of this could be devastating for Russia's economy.

Semiconductors, the brains of modern electronics, power everything from mobile phones and computers to cars and missile systems, making chips the lifeblood of the modern world.

Access to certain chips is crucial for Russian carmakers and defense companies.

Ursula von der Leyen, the EU President, announced on Thursday that the union intends to propose a set of "significant and precise sanctions" for leaders' approval.

The EU will limit Russia's capacity to modernize by strategically targeting specific sectors of the Russian economy through technology and market access restrictions.

After the invasion began, U.S. President Joe Biden pledged to implement additional measures targeting Russia's economy.

The Atlantic Council suggests that one possible economic sanction against Russia could be a Russia-focused Foreign Direct Product Rule (FDPR), which the U.S. used to restrict Chinese tech giant Huawei in 2019. This rule would limit Russia's access to technology originating in the U.S.

Abishur Prakash, co-founder of the Center for Innovating the Future, an advisory firm, stated via email to CNBC on Thursday that the U.S. possesses a comprehensive range of technology sanction choices.

The U.S. could take various measures, such as compelling technology companies with Russian funding or board members to alter their structure or delisting Russian firms from U.S. stock markets. However, there are more extreme actions the U.S. could undertake, like prohibiting the export of specific software (e.g. Android) to Russia. Nevertheless, the commercial repercussions on U.S. companies may discourage Washington from taking such drastic steps.

Russia's foreign ministry announced on Thursday that it will retaliate against U.S. sanctions with a tit-for-tat response, as it is a significant supplier of oil, gas, and materials like titanium, according to RIA news agency.

Prakash stated that there is a "high" chance that the West will attempt to hinder Russia's access to semiconductors.

The US chip industry is dominated by companies such as Intel, AMD, NVIDIA, and Qualcomm, while European chipmakers include companies like ARM and STMicroelectronics. In addition, Taiwan has companies like TSMC and Samsung in South Korea has Samsung Semiconductor. If Russia cannot use products made by these companies, it may have to rely on Chinese chipmakers like Huawei, whose semiconductors are not as advanced as those made by other countries.

Avtovaz CEO stated on Tuesday that the company is already seeking out alternative sources for chips.

Russia can harm Western semiconductor companies that depend on Russian materials to produce their products.

The export of semiconductor materials and components from Russia to the West may be restricted, putting Western technology firms in a difficult position. This will force companies to quickly adjust their supply chains, resulting in a vertical world as nations become divided based on their technology orientation.

Global payments

Milos Zeman, the Czech President, stated on Thursday that Russia should be disconnected from the SWIFT international payments network due to its attack on Ukraine, which he considered a violation of peace. SWIFT is a secure messaging system used by financial institutions to transmit information and instructions.

According to Reuters, sources close to the matter revealed that the EU is currently unlikely to take any measures to disconnect Russia from SWIFT.

The CEO of Macro-Advisory in Moscow, Chris Weafer, stated that cutting Russia off from the SWIFT system would have a severe and long-lasting impact on the domestic economy, while also negatively affecting Europe. He speculated that the Kremlin may be using this as a deterrent to Western powers.

Weafer stated on CNBC on Thursday that Russia's material and energy exports, which primarily go to Europe but also to the U.S. and other countries, must be paid for and are settled using the SWIFT system.

Russia has stated that it will not cut off energy supplies for political reasons, but if payments are not made, energy disruptions may occur, resulting in severe consequences for both Russia and Europe, as well as the global economy if exports are cut.

If Russia's invasion and intentions become increasingly sinister, SWIFT could be held back as a "last chance saloon" sanction, as Weafer stated.

– Additional reporting by CNBC’s Elliot Smith.