US Broadens Russia Sanctions to Hit LNG Projects, Semiconductor Industry

US Expands Sanctions on Russia to Curtail Technology and Goods Flow

The Biden administration is intensifying its use of secondary sanctions to disrupt Russia's procurement of semiconductor chips and other crucial goods, targeting third-party sellers, particularly in China. This broadening of sanctions is a strategic move to hamper Vladimir Putin's war operations in Ukraine.

Sanctions Overview

The new measures encompass all Russian companies, individuals, and entities previously sanctioned, including major banks like Sberbank and VTB. This escalation increases the risk for financial institutions and companies worldwide that engage with Russia’s economy. The measures also impose sanctions on new Russian natural gas projects and the Moscow Exchange (MOEX), as well as the National Clearing Center and the main settlement depository.

Treasury Secretary Janet Yellen emphasized, "We are increasing risk for financial institutions dealing with Russia’s war economy, closing evasion paths, and diminishing Russia’s access to foreign technology, equipment, software, and IT services." She noted that Russia continues to compromise its future to sustain its "unjust war" against Ukraine.

Energy Sector Sanctions

The sanctions target Russia's planned liquefied natural gas (LNG) projects, including Obsky LNG, Arctic LNG 1, Arctic LNG 3, and Murmansk LNG. They also affect seven LNG tankers under construction at Russia’s Zvezda shipyard, which includes vessels for the Arctic LNG 2 project previously hindered by sanctions. Moreover, RusGazDobycha, Gazprom's partner at the Ust-Luga LNG project, and insurer Sogaz are also targeted.

However, general licenses allowing trade in agriculture, medicine, and certain energy forms, such as oil, remain active.

Focus on Semiconductor Chips

Despite efforts to limit Moscow's access to battlefield-critical technologies, Russia continues to source chips through third-party countries. To counter this, the US is expanding export controls to cover US-branded goods made overseas, aiming to restrict these from reaching Russian military entities even if manufactured abroad.

National Security Advisor Jake Sullivan stated, "These actions increase risk for financial institutions involved with Russia’s war economy, block evasion routes, and reduce Russia’s ability to gain from foreign technology, equipment, software, and IT services." He highlighted this move ahead of President Biden's participation in the Group of Seven summit in Italy, where aiding Ukraine and restraining Russia are key focuses. Biden will also meet Ukrainian President Volodymyr Zelenskiy during the summit.

Third-Party Sellers and Licensing

The sanctions impose stricter enforcement on export licenses for manufacturers or third-party sellers supplying chips and other goods to Russia. US regulators will now target the sale of foreign-made US-branded chips or those produced with US-linked equipment, holding third-party sellers accountable. Many of these resellers are based in China.

For the first time, the US plans to publish sanctioned addresses without disclosing company names, listing eight addresses in Hong Kong linked to chip reshipments to Russia. Resellers can apply for licenses for legitimate, non-military purposes, but violators may face criminal penalties or restrictions on their imports.

The administration is also issuing temporary denial orders against firms accused of bypassing these restrictions, especially those supplying goods to Russia's aviation sector. Further, the US is expanding restrictions on enterprise software used in Russia, aiming to stop software updates.

Technology Access

Expanding enforcement to cover chips made abroad is part of ongoing US and European Union efforts to limit Russia's technological capabilities. Despite multiple trade restrictions, Russia has navigated around these by importing through third countries and intermediary networks. Last year, Russia imported over $1 billion in advanced chips, many from US and European firms.

The European Union is discussing additional proposals to hold companies accountable for the actions of their controlled entities. However, some member states are concerned about enforcement difficulties and the burden on businesses. The EU is also considering sanctions on banks in third-party countries that facilitate these transactions using Russian alternatives to the SWIFT payment system.

Future Actions

The Biden administration remains committed to restricting Russia's technological and financial avenues supporting its military aggression. Increased sanctions and broader export controls signal the US's ongoing strategic efforts to impede Russia's war capabilities.