Despite the efforts of the Indonesian President Joko “Jokowi” Widodo, the war in Ukraine continues. Whether Southeast Asian governments are willing to admit it or not, war mattersbecause it threatens the liberal international order, sets a dangerous precedent for other aggressor states, and harms the fragile post-pandemic economic recovery by causing inflationary pressures in energy and food.
Southeast Asian states, with the exception of Singapore, have avoided sanctions and continue to trade with Russia. But as the war drags on, this will have consequences in terms of secondary sanctions and other penalties imposed by the West.
Russian supply chains run through Southeast Asia, and the United States and other Western governments have made targeting Russian sanctions-busting operations a top priority.
The export of semiconductors is an area where Southeast Asian players could be tempted to circumvent sanctions – or where, conversely, they could help put pressure on Russia on the economic plan.
A protracted war
Initially, Ukrainian forces managed to repel the Russian invasion near the capital Kyiv and other northern cities. Now the Russians advanced to the east and south, where the flat ground favored the attack and offered little security to the defense.
Tens of thousands of soldiers and more than 4,500 civilians have been killed in 120 days of fighting. The United States estimates that the Ukrainians are losing 100 to 200 men a day. Towns, like Mariupol, were leveled by artillery fire and depopulated. Mass graves are discovered and evidence of Russian war crimes accumulates.
As Ukrainians maintain the will to fight, the costs mount.
Trying to weather the economic storm
The initial shock of the sanctions on the Russian economy has been contained. The ruble has not only recovered from its initial fall but, backed by $150 million a day of oil and gas exports, it is stronger than before the war began. Indeed, according to a recent report published in The New York Times, in the first 100 days after the invasion, Russia brought in 98 billion dollars. Nevertheless, on June 26, Russia defaulted on $100 million in sovereign debt.
While the economy was shaken by the immediate or planned departure of around 1,000 Western companies, more than half of the 300 Asian companies stayed and continue to do business.
Where Russia will start to feel the economic pinch is in its manufacturing sector, as it relies heavily on imported inputs such as European machine tools and Asian machinery. semiconductors. Although Russia has five foundries, they produce very poor quality products and Moscow is highly dependent on imports. In 2020, Russia imported nearly $1.5 billion worth of semiconductors.
The largest producers of high-end circuits, Japan, South Korea, Singapore and above all Taiwan, remain firmly committed to the sanctions regime. But companies in China and Southeast Asia can try to fill these critical supply chains for Moscow.
In 2020, China accounted for a third of Russian semiconductor imports. Since the Russian invasion, China has complied with international sanctions, fearing secondary sanctions and loss of market access.
But diplomatically, China remains firmly The Russian side, and continues to espouse the Russian justification and narrative of the war. President Xi Jinping said there were “no limits” to the bilateral relationship and no “prohibited” areas of cooperation, suggesting frustration with Western sanctions.
On June 29, the US Treasury Department added five Chinese electronics manufacturers to an export blacklist, which will deny them the ability to sell into the US market, for their sales to Russian military industries. This should have a chilling effect on other Chinese suppliers.
The Role of Southeast Asia in Moscow’s Supply Chain
In 2020, Malaysia exported some $280 million worth of semiconductors to Russia, making it the second largest source after China, according to the FinancialTimes.
The Philippines and Thailand each exported more than $60 million; Singapore exported about $10 million. In total, Southeast Asia accounted for almost a third of Russian semiconductors.
Malaysia has already been challenged for announcing its intention to sell semiconductors to Russia as part of its policy of “strategic neutrality”. On April 23, the South China Morning Post reported that the Malaysian Ambassador in Moscow told state media that Malaysia “consider any request” and continue their exports to Russia.
Malaysian manufacturers have been warned they could face secondary sanctions and loss of market access, threatening future investment in a nearly $9 billion export market. Similar warnings have been issued to manufacturers in the Philippines and Thailand.
Although Vietnam remains close to Russia, its semiconductor manufacturing is directly controlled by foreign investors. Intel, which is among the most prestigious foreign investors in the country, made an additional investment of $475 million in 2021; bringing their total investment to $1.5 billion. As companies continue to decouple from China, Vietnam is keen to increase high-tech manufacturing and is aware of the costs of trying to evade sanctions on Russia.
But Russia is desperate to revive its manufacturing, and as the war drags on, it will try to get countries to evade sanctions and/or use straw buyers.
Countries like Indonesia, hit hard by soaring energy prices, have already turned to Russia for below-market energy supplies. Jokowi’s trip to Moscow and his provocative desire to include President Putin at the G-20 summit in Indonesia in November, are clearly intended to curry favor with Moscow for limited economic gain.
Indonesiamanagement seems unable to grasp the fact that skyrocketing food and the energy prices that hit the public so hard were caused by Russiathe war of unlawful aggression.
And sadly, they are not alone in Southeast Asia, where governments continue to view the war in Ukraine as a distant European crisis that does not affect them or have other geostrategic implications for the region.
Southeast Asian countries may profess neutrality, but actively encourage RussiaMoscow’s war machine will have consequences, as the United States and the European Union seek to intensify economic pressure on Moscow.
In March 2022, the US Treasury Department imposed a new round of sanctions targeting the Russian tech sector, including its biggest chipmaker, Mikron, as well as two companies that are major importers of dual-use technologySerniya Engineering and Sertal.
Among the companies sanctioned was Alexsong Pte Ltd, a Singapore-based front company to facilitate Serniya’s transactions. Another Russian front company in Singapore, MGI PTE LTDwas added to the Office of Foreign Asset Control’s SDN list in April.
Previously, the Treasury Department targeted a Kremlin Insider operations in Thailand. The US government has made efforts to target Russia to evade sanctions a top priority.
Endemic corruption and policies that promote economic growth above all else across Southeast Asia will facilitate Russian attempts to evade sanctions. And if the United States entered a recession, manufacturers in Southeast Asia would have a much greater financial incentive to increase their sales to a level Russia, with lots of cash.
Zachary Abuza is a professor at the National War College in Washington and an adjunct at Georgetown University. The opinions expressed here are his own and do not reflect the position of the United States Department of Defense, the National War College, Georgetown University or Radio Free Asia.