Putin's raw material gamble: Western reliance under threat
In response to Western sanctions, Vladimir Putin is threatening to limit Russia's supply of key raw materials. The West may face a problem.
Vladimir Putin said in mid-September, "Many goods shipments to us will be limited, and perhaps we should also consider some restrictions, such as regarding uranium, titanium, and nickel." Putin instructed the Russian government to explore export restrictions.
Back in 2022, the Kremlin attempted to pressure Europe by halting gas supplies, aiming to weaken Western support for Ukraine, which is defending itself against Russian aggression. The new threats are not entirely unfounded, as both the USA and the EU import these raw materials in large quantities from Russia.
The significance of Russian uranium
Putin mentioned uranium first for a reason. The state enterprise Rosatom holds over 40% of the global market for enriched uranium for nuclear power plants. No one else offers such high-quality, low-enriched uranium for new-generation reactors. The American company Centrus Energy only began enriching uranium independently at the end of last year, but its production level will remain relatively small for a long time. Centrus Energy's main business is supplying enriched uranium obtained from Rosatom.
Overall, Rosatom's market share in the U.S. is over 20%, and about 30% in the EU. As the largest buyer of enriched uranium from Russia, the USA provides Rosatom with half of its foreign sales revenue, which amounts to about £1.5 billion annually. Uranium deliveries from Rosatom to the EU reach about £380 million. In addition, Rosatom supplies ready fuel to nuclear power plants of Soviet and Russian design and offers services. According to its own data, in 2023, the company generated over £3 billion in Western countries from a total global revenue of £12.5 billion.
How are sanctions circumvented?
Cancelling the contract would be painful for both sides. Until recently, Rosatom was one of the few Russian companies not subject to Western sanctions. However, the West recognises that dependence on Russia in the nuclear energy sector needs to be reduced. Only the Hungarian Prime Minister Viktor Orban holds a different opinion.
In addition to Rosatom, two European companies, Urenco and Orano, enrich large quantities of uranium. Both are expanding their production capacities to increase supplies to the crucial American market. If victorious, the USA could do without Russian supplies for about five years and the EU a little later, says Dmitry Gorczakov, a nuclear energy expert at the international environmental organisation Bellona.
Recently, American companies have increasingly imported enriched uranium from China. It is probably uranium resold from Russia, as Russian deliveries to their main trade partner, China, have significantly increased since 2022. This shows that Russian raw materials can reach the U.S. market through China or other countries despite sanctions.
The importance of titanium
The production of titanium in Russia is almost exclusively in the hands of VSMPO-Avisma, a company based in Verkhnaya Salda in the Urals. It is a leader in this field and accounts for about 15% of the world's production of titanium sponges, the raw material from which titanium ingots are made. However, more than half of the world's available titanium sponge is produced in China, slightly less than a quarter in Japan, and just under 10% in Kazakhstan.
Like Rosatom, VSMPO-Avisma is also affected by U.S. sanctions but not EU sanctions. Before the war in Ukraine, VSMPO-Avisma's main foreign clients were the American Boeing and the European aircraft manufacturer Airbus. The Russian company covered about a third of Boeing's titanium needs and more than half of Airbus's. Boeing announced the end of its partnership with VSMPO-Avisma following the start of the war in the spring of 2022, and Airbus did the same in December of that year.
Previously, Airbus CEO Guillaume Faury opposed sanctions, arguing they would be tantamount to imposing them on themselves. Considering the complex production processes in the aerospace industry and existing dependencies, a smooth transition to other suppliers is nearly impossible.
Under certain conditions, American companies may still cooperate with VSMPO-Avisma. Canadian sanctions against the Russian enterprise also provide exceptions, for example, for aircraft manufacturers Bombardier and Airbus. Many suppliers to Boeing, including the French component manufacturer Safran and the British engine manufacturer Rolls-Royce, continue to source titanium from Russia. Airbus did so at least until November 2023; newer trade data from the ImportGenius database are unavailable.
VSMPO-Avisma's exports to Europe reached £262 million in 2023 compared to £281 million the previous year.
Unlike the EU, the United States can more easily reduce its dependency on Russia, as it has companies that process imported titanium sponge, explains Andy Home, a metals expert and Reuters columnist. Therefore, the EU is increasingly dependent on the USA for titanium, which contradicts the EU's new critical raw materials law, which was passed this year. However, for now, the EU has no other choice.
Who relies on Russian nickel?
One of the world's largest nickel producers, the Russian company Norilsk Nickel, avoided sanctions for a long time. Only a month ago did the USA and the UK impose restrictions, which the EU has yet to do.
However, the company's exports have significantly changed since the start of the war. In 2021, Europe accounted for over 50% of Norilsk Nickel's revenues, and North and South America for another 16%. The Asian share was only 27%. However, by 2023, Europe's share fell to 24%, and North and South America's to 10%. Asia's share increased to 54%.
The shift from west to east is not the only challenge facing the Russian enterprise. Nickel demand has significantly increased in recent years because this raw material is needed to produce lithium-ion batteries for electric vehicles. As a result, concerns about sanctions on Russian exports have caused price fluctuations. Currently, the price of nickel is lower than before Russia attacked Ukraine. The reason is that Indonesia, which has much larger nickel reserves than Russia, unexpectedly entered the market. According to Reuters columnist Andy Home, the outlook for the Russian enterprise in the nickel industry is unclear. Putin urged his government to avoid acting against their interests when considering possible export restrictions for Russian raw materials. At least in the case of nickel, Russia will not be able to use this raw material as a geopolitical weapon.
