Russia overpays twice for “shadow” chips from US companies for its missiles

Russia manages to bypass sanctions by purchasing electronic components from Western companies for its missiles, overpaying twice for them. Source: Bloomberg  Details: Most of the missiles are manufactured using chips from American and European companies, according to a Bloomberg investigation based on data from Ukrainian intelligence and the Kyiv School of Economics (KSE).

Deliveries are made mostly through Chinese and Hong Kong-based one-day firms.

The most commonly used components are those of the US-based Analog Devices (21% of the 3,871 components found in the wreckage of Russian munitions) and Texas Instruments (14%). According to customs data, Russia received US£326 million worth of chips from Analog alone last year. Export control measures are forcing Russia to pay more than twice as much for Analog products as it would have until 2022, says Olena Belousova, a strategic project consultant at the KSE.

Intermediaries know that Russia has few alternative sources of procurement and make a markup. About two-thirds of the Analog components purchased by Russia are integrated circuits, which are among the 50 parts classified by the US Department of Commerce as a priority because of their use in weapons systems. However, there are also dual-use components, such as the RS-232 standard interface controllers found in the Iskander missile.

In August 2024, about 86,000 RS-232 pieces were available through authorised distributors and more than 4 million through unauthorised sellers, says Matthew Gaber, CEO of New York-based Cofactr, which helps automate electronics procurement and tracks inventory data from hundreds of distributors on a daily basis.

Background: The Russian Iskander-K cruise missile that struck the centre of Chernihiv on 19 August 2023 and killed seven people, including a 6-year-old girl, contained US chips in its navigation system.

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