Russia Innovates for War, Not Prosperity

Russia excels at making things that destroy – at the expense of its own future.

Since Vladimir Putin launched his full-scale invasion of Ukraine, Russia has concentrated its technological expertise, dwindling human capital, and oil-and-gas revenues on war, rather than on its people’s well-being.

It has sharply increased production of missiles, glide bombs, and attack drones. Russian forces have improved their electronic warfare capabilities, learned to modify Iranian-designed Shahed drones, and incorporated Chinese jet engines into Banderol quasi-cruise missiles. Cheap first-person-view drones saturate the battlefield, and Russian engineers have devised increasingly sophisticated decoys to overwhelm Ukrainian air defenses.

Russia’s war machine is inflicting ever-greater death and devastation on Ukraine.

Four and a half years of war have created a war economy in which the Kremlin can concentrate money, engineers, imported components, and industrial capacity on its military priorities. That concentration of resources has imposed mounting costs that are becoming harder to conceal.

In September, the Bank of Russia kept its benchmark interest rate at 14 percent and forecast inflation of 6 to 7 percent for 2026. Russia is no longer experiencing the apparent wartime boom that followed the invasion. High interest rates make investment and modernization expensive, while military factories compete with civilian companies for engineers, machinists, capital and materials.

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In an article entitled “The Coming Crisis in Russia’s Political Economy,” published in May, Nigel Gould-Davies of the International Institute for Strategic Studies argues that Russia is approaching the limits of its productive capacity. Labor is an even tighter constraint. Oil-and-gas revenue can finance government spending but it cannot manufacture skilled workers or create factories, industrial equipment, and technological knowledge. As more resources are pushed into the military economy, each additional increment produces less.

Nowhere is Russia’s predicament clearer than in semiconductors. Mikron, part of the Rostec- and Sberbank-controlled Element Group, is a leading Russian chip manufacturer. It advertises production technologies ranging down to 90 nanometers; such mature semiconductors remain essential for automobiles, industrial equipment and many military systems.

By contrast, Taiwan Semiconductor Manufacturing Company (TSMC) began volume production of its 2-nanometer technology late last year. Russia lacks the advanced chip-design capabilities, fabrication capacity, high-bandwidth memory, packaging, interconnects, cooling systems, and sophisticated software needed to manufacture processors competitive with those produced by TSMC and other leading semiconductor companies.

This matters because technological backwardness is not measured against where competitors stood five or ten years ago but where they are today. A Russian company that replaces an unavailable Western component may keep a factory operating but it has not narrowed the technological gap – it has merely reconstructed yesterday’s technology at considerable expense.

The pace outside Russia is accelerating further. On Sept. 30, 2026, OpenAI and Synopsys announced GPT-Synopsys, an artificial intelligence (AI) system being developed specifically to help design semiconductors. AI is increasingly being applied to the process of designing the next generation of technology itself.

Russian engineers, meanwhile, have a very different assignment – finding substitutes for unavailable software, maintaining aging equipment, and solving compatibility problems caused by sanctions. Russia calls this “technological sovereignty.”

One of its own most prominent businessmen has inadvertently exposed the weakness of that claim. In May, Sberbank CEO German Gref said Russia’s largest bank hoped eventually to operate its GigaChat AI system using Chinese processors. One of Russia’s showcase AI projects may depend on sophisticated chips Russia cannot competitively manufacture itself.

According to Bloomberg, citing people familiar with official assessments, more than 90 percent of Russia’s imports of sanctioned technology were coming through China by 2026. Before the war, Russian companies could participate, however imperfectly, in a diversified international technology economy. Putin has replaced much of that relationship with dependence on a single, more powerful neighbor whose interests do not necessarily align.

The deeper damage from this process is cumulative because industrial equipment and information systems require replacement parts, software updates, firmware, calibration, technical documentation and continuing support. A machine does not stop operating the morning its foreign manufacturer leaves Russia. It becomes progressively more difficult to maintain.

The results of Russia’s import-substitution campaign point in that direction. In a May 2026 study based on official documents, statistical data, and company surveys, Heli Simola of the Bank of Finland Institute for Emerging Economies (BOFIT) found that heavy investment in priority industries had produced only limited import substitution. In many sectors, output has declined and dependence on foreign inputs has increased.

The same problem appears in information technology. Russian technology company K2Tech reported this year that 70 percent of companies it examined remained dependent on Western backup systems. Russian replacements exist, but companies have been reluctant to abandon established foreign systems for critical operations.

Industrial deterioration is rarely instantaneous, but Ukraine has found a way to accelerate that process. Its deep drone strikes against Russian refineries and industrial facilities amount to what Ukrainians have aptly called “long-range sanctions.” Destroying a piece of equipment matters more when replacing it is difficult.

The Aug. 11, 2026 strike against the Orsk refinery illustrates the point. The refinery was forced to shut after a Ukrainian drone attack, and according to Orenburg Oblast Governor Yevgeny Solntsev, repairs are expected to take as long as six months because sanctions complicated the replacement of imported equipment.

Damage to one industrial facility consequently spreads outward – to fuel availability, transportation, military logistics, export revenues, and, ultimately, prices paid by Russian consumers.

None of the above makes Russia less dangerous. Russia has repeatedly demonstrated its ability to improvise, cannibalize commercial technologies, and solve particular military problems. This, however, is precisely the distinction that matters. A country can become exceptionally good at concentrating declining resources on weapons without becoming technologically stronger as a whole.

Putin inherited a country with considerable scientific talent, engineering traditions and industrial capacity. He has squandered that inheritance. Engineers are diverted toward weapons, civilian investment is crowded out, and Russian companies spend money reproducing technologies already available elsewhere. Dependence on Western technology has increasingly become dependence on Chinese technology. With every additional year of war, Russia risks becoming less capable of designing, building, and maintaining the technologies on which its future will depend.

Steven Fisher served as CEO of Citibank Ukraine from 2010 to 2018. He and Georgetown University’s Harley Balzer coedited Failure: Russia Under Putin (Brookings Institution Press, 2025). This op-ed was prompted in part by Balzer’s unpublished manuscript, “Technocide: How Putin’s Regime Stole Russia’s Future.”