Semiconductors and the propulsion system... the West's technical tools to stop the Russian-Ukrainian war

As Moscow wages war on Ukraine, world leaders are pondering what sanctions they could impose to stop Russian President Vladimir Putin off course.

These sanctions could include, according to a CNBC report, blocking Russia's access to key technologies such as semiconductors and even the SWIFT payments service that powers most international money transfers.

All this could have dire consequences for the Russian economy, as chips are the lifeblood of the modern world.

Semiconductors are used in everything from cell phones and computers to cars and missile systems, and are the brains that power electronics today.

Their importance cannot be underestimated. Without access to certain chips, Russian automakers and defense companies would be paralyzed.

European Union President Ursula von der Leyen said Thursday that the bloc plans to present a package of "collective and targeted sanctions" to European leaders for approval.

"We will target strategic sectors of the Russian economy by blocking their access to technologies and markets that are essential to Russia," she added, noting that the European Union would "limit Russia's ability to modernize."

Meanwhile, US President Joe Biden promised more measures to hit the Russian economy after the start of the war.

Taiwan's TSMC and South Korea's Samsung are semiconductor manufacturers (Reuters)

According to the US think tank The Atlantic Council, one potential economic sanctions could be the Russia-focused Foreign Direct Product Rule (FDPR).

It's the same rule Washington used to stifle Chinese tech giant Huawei in 2019, and it will limit Russia's ability to acquire or use technology emerging in the United States.

“The US has a whole host of options when it comes to technology sanctions,” Abishor Prakash, co-founder of the Center for Future Innovation, a consultancy, told CNBC via email Thursday.

For example, the United States might push Russian-funded technology companies, or Russian board members, to change their structure.

However, Washington may suggest delisting Russian companies from US stock markets.

Of course, there are more drastic steps the United States could take, such as banning the export of certain software (such as Android) to Russia, but the trade backlash against American companies could deter Washington.

Prakash said there was a "high" possibility that the West would try to block Moscow's access to the chips. "Since the first round of sanctions targeted Russia's financial sectors, the next round is likely to target the Russian military and economy, putting semiconductors in the crossfire," Prakash said.

Heavyweight US chips include Nvidia, Intel, AMD and Global Foundries, while European chip manufacturers include Infineon and STMicro.

There is also TSMC and Samsung in Taiwan and South Korea, respectively.

And if Russia is unable to use products made by these companies, it may have to turn to Chinese chip makers such as SMIC, whose semiconductors lag behind the world's most advanced chips.

Moscow could also harm semiconductor companies in the West that rely on materials from Russia to make their products.

"The materials and semiconductor components that Russia exports to the West may become restricted, putting Western technology companies in a difficult position," Prakash said. "This will force companies to rapidly redirect their supply chains, threatening to divide the world technically into two camps."

Swift is a messaging network used by financial institutions to securely transmit information and instructions (Reuters)

Global Payments

On international payments, Czech President Milos Zeman said today that the SWIFT international payments network should be cut off from Russia, adding that its attack on Ukraine was a "crime against peace".

SWIFT is a messaging network used by financial institutions to securely transmit information and instructions.

However, it is unlikely at this point that the European Union will take steps to isolate Russia from the SWIFT system, Reuters reported today, citing informed sources.

Chris Weaver, chief executive of Moscow-based Macro-Advisory, says a move to isolate Russia from the Swift system would have a "very severe and long-term" impact on the domestic economy, but also negative consequences for Europe.

He suggested that the Kremlin might hope this would act as a deterrent to Western powers.